Michael Shulman

2 Bank Stocks That Could Lead the Market Down

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The Street is hoping for a correction in the market, then a rebound, confirming that we are in a real bull market.

Everyone from family members to the guy in the grocery checkout line wants to know when the market is going down. Five months ago, the question was, "When will it go up?"

In March, stocks had been beaten down so much that it was inevitable that something or everything was going to go up. Now that everything has gone up, something or everything must go down. This is what psychologists call a "self-fulfilling prophecy." Traders call it a "technical movement."

Short the Money-Center Banks

This whole mess started with the banks, and it ended with the banks. And it will start with the banks again.

As a group, American money center banks -- the institutions that lend money to individuals and businesses, not investment banks like Goldman Sachs (GS) -- are insolvent if regulators value the "assets" (in reality, debts or debt securities) at fair market value.

Fake stress tests, changes in accounting rules and incredible amounts of cheap money created by the Fed are keeping the system afloat, and rightly so. No ideology here -- what needed to be done was done.

Unfortunately for the economy, Washington is currently NOT doing what needs to be done, and that is recapitalizing the banks by removing toxic assets and increasing the core equity of the banks.

The system was saved from death, but many dead and dying banks were left alive, and are now zombies.

The Street has temporarily forgiven the money-center banks and run up their stocks, calling their legal-but-fake or one-time earnings gains the first green shoots.

What could trigger another banking meltdown?