Monday, April 13, 2009

Roubini: Stress Test Results are Meaningless

The word on the street is that all 19 banks subject to stress testing will pass. Nouriel Roubini has a long article on the assumptions underneath the testing and why they are bogus or no longer meaningful.

The purpose of the stress testing, as I see it, is to create confidence in banks. As a result, the perception in the market place is going to be critical for the direction of the stock market. Will the stress tests create confidence or more uncertainty?

Uncertainty is not good for stocks, and would likely send us back for a retest of the lows.

Roubini has a lot of detail in this report and it is worth reading, digesting, and considering. If he is right, sooner or later it is going to be very ugly in the stock market.

The stock market has good technical resilance right now and I have been writing about this often. However, the bull run from the bottom is getting a little long in the touch and the risk/reward ratio is starting to turn negative.

Stress Testing the Stress Test Scenarios

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