Don't believe what the banks are saying

I'm just going to make this a quick post.

Much of the good news coming from the banks over the last few days is a one-time boost from relieving mark-to-market rules and abnormal gains from trading activities. It doesn't mean that consumers are miraculously starting to pay all of their mortgage payments and credit card bills on time. As an example, chargeoffs at Bank of America swelled to over $13 billion this quarter.

Also, keep in mind that once the stress test results are released, the federal government may consider converting its preferred stock in the banks over to common stock. This relieves the banks from making interest payments on the preferred stock, but will end up diluting the common stock. This means that if you bought stock in these banks, it will soon be diluted if the bank is using TARP funds and doesn't expect to pay those funds back soon.

If you happened to buy banking stocks in late February or early March, I would recommend selling at least 50% of your holdings because those stocks have probably doubled in price, and it will be very hard for those prices to be maintained as the trading profits from the first quarter are not likely to be repeated.