Has anyone stepped back and thought about all the toxic assets the banks have on their books and how they seem to have mysteriously and magically gone away?
They haven't. They are still there but no one is talking about them. PPIP is suppose to take care of them but that plan is failing miserably as there are not enough takers and no banks want to participate. If they did participate, they can prove to be insolvent.
Notice the local and regional banks going under. Do you know why? Toxic assets. Defaults on loans. Defaults on credit cards. All the things that caused the big banks to crash hard after Lehman.
Yet, suddenly, the banks are massively profitable and everyone is acting like there are no problems. The reason this is, is because we have lost visibility into the banks. Will the stress tests show us that visibility? Does the stress test take into account higher defaults, lower asset values, higher foreclosures?
The gov't did a great job of hiding reality with plan after plan after plan. M2M changes, uptick rules changes, PPIP, stress tests. They averted the focus from the real problem and it is working. Everyone has forgotten about it.
So when does it rear its ugly head again? It's hard to say. Probably when home sales numbers go down, or when consumer confidence goes down or when someone actually realizes that some of the regionals have to collapse. One regional bank collapsing will probably trigger reality again. Until that happens, you can't bet against financials. That said, you have to be semi-insane to bet on financials.