Market Report for Monday, July 23, 2007

By Adam Lass

Market Report: The Brokers Blow It Again: This Time It's Bad-News Banks They Won't Sell Despite Double-Digit Losses

Before we get to the market, let’s get a little housekeeping out of the way. In case you hadn’t noticed, the entire Taipan Financial News group is undergoing some changes.

Here’s how it generally works: newsletters get their start in dark corners of individual editors’ brains. Usually it’s something that we care about, and if you fine folks are really lucky, even something that we know a little about.

For a while, said letter had about 20 subscribers -- fellow travelers with similar interests. But sooner or later, if it is at all interesting, word gets out, more folks sign on, and eventually the whole deal catches the attention of the suits in marketing. That’s where we are with the Market Report -- we've grabed their attention... so, the changes.

Let me see if I can sort it all out for you: Ann S. is moving over to American Capitalist. Sara is launching a new commodities e-letter. Bryan and I are staying put, and our fellow technical analyst, Ian Cooper, is joining us here at Market Report.

There is one more change coming: after more than five years of Bryan and I writing 3-5 times a week, we are going to cut it back to just once a week for each of us. This will enable us to spend a little less time rushing about trying to make deadline and a little more time thinking about what we are going to say (most probably a good thing for all concerned).

If you are absolutely hooked on reading my rants and screeds, keep in mind that I will be publishing weekly in both Chart of the Day and TFN E-News Alert.

Banks are of particular interest today, what with Citigroup posting an 18% jump in Q2 profits. How did it do it when the American economy is sluggish at best? By doing what any big multinational does when things stink in a particular market: it focused on squeezing enough out of its overseas divisions to provide a life raft for the sea of real estate red ink that its stateside operations are operating in.

But what does this mean for the two banks that are short in the WOW portfolio? Depends on who you ask.

Punk, Ziegel et al just downgraded Bank of America (BAC:NYSE) from “buy” to “market perform.” There are some 17 brokers covering this stock and none of them think you should sell it, despite the fact that share price has fallen some 13% over the past eight months. If they like BAC here at $48, they are going to just love it at $47, and $46, and $45 etc, etc.

Now BAC is at least somewhat international a la Citigroup. Wachovia (WB:NYSE)’s idea of diversification is having branches in Atlanta AND Houston.

Today, the brokers tried to blow a little smoke up our skirts on this one. My ticker shows this headline: “Lehman Bros upgrades WB.” “Wow,” I thought, why would anyone upgrade a stock in such a free fall (down some 16% since February)?

Turns out the guys at Lehman just had to let us know that they were bumping their per-share estimate for all of 2007 from $4.90 to $4.95. Didn’t do any good: WB’s still down about a buck today, while gains for WOW readers’ puts against these two are up some 103.35% since we began trashing them back in June.