The Efficient Market Is Doing Its Job

Washington Mutual (WM - commentary - Cramer's Take) had a terrible quarter but said it wouldn't need to raise capital. The rating agencies put the company on the watch list, which might depress the shares, but for our purposes the key thing is no new capital needs to be raised. Wachovia (WB - commentary - Cramer's Take) said much the same. Bank of America (BAC - commentary - Cramer's Take) and SunTrust (STI - commentary - Cramer's Take), two banks that were on everyone's watch list, affirmed no additional capital needs and both said the dividend will be untouched. Jack Bouroudjian of Brewer Investment summarized things well on CNBC when he said that investors "can take bad earnings, they can't take dilution."

Mike Mayo of Deutsche Bank, a longtime bear on bank stocks, offered the opinion that capital write-offs seem to be abating. OFHEO, the Office of Federal Housing Enterprise Oversight -- Fannie's (FNM - commentary - Cramer's Take) and Freddie's (FRE - commentary - Cramer's Take) regulator -- put out its monthly house price information. According to the report, home prices across the nation fell 0.3% last month from the month before. Any decline hurts, but the Bloomberg survey was expecting a 0.8% decline. Also, as Larry Kudlow pointed out on his show, the OFHEO numbers have been stable for the last three quarters at a -5.5% year-over-year decline, -6%, and -5.8%. Down is still down, but maybe the pessimism went too far.

While American Express' (AXP - commentary - Cramer's Take) earnings were bad, UPS' (UPS - commentary - Cramer's Take) report was OK, and it projected a good outlook for the second half. Texas Instruments' (TXN - commentary - Cramer's Take) report was dismal and the stock was pummeled, but Intel (INTC - commentary - Cramer's Take) and IBM (IBM - commentary - Cramer's Take) had solid earnings last week. So it goes in an economy that is struggling. It's not all bad -- some companies can execute. The market seems to be sorting out winners and losers more efficiently the past few days.

Oil had another nice setback, and I believe that is the biggest reason for the market rally. Lower oil will translate into a stronger dollar and ease inflation expectations. If oil can continue its correction, this rally will continue. Maybe it's a rally in a bear market, but strength in financial stocks is something we haven't seen in a long time, and that might be a signal that something else is afoot.

But, really, what are we worrying about? Merrill Lynch (MER - commentary - Cramer's Take), candidate for write-off champ of 2008, has said it's going to scale back the use of private jets by the corporate finance department. This after writing off $40 billion. Timely ...

---

Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.