I can’t speak for Yves, but clearly the derivatives market is “home on the range” for the banking industry as a whole. It is where the deer and and the antelope play. Translated, it is where inside information is hedged and traded.

They are pricing in risks well ahead of the stock market itself. Granted, they also put the similar hedges on in the SP500, but the SP500 is an imperfect hedge. The derivative hedges are more directly targeted to the risks the deer and antelope need to hedge most. Therefore it bears close watching to know specifically which concerns are the greatest for the insiders.

Truly, the inside information does not get leaked immediately. For instance, I am an outsider. I have no visibility to and no way to monitor the derivative indexes directly. Hence, I was slow to pick up on the growing risks to the bond insurers losing their AAA credit rating in December 2007. The stories were starting to be leaked in the newswires, but my own knowledge was too imperfect (short on) to understand how important the growing risks were to the broad market. I did not fully begin to appreciate the bond insurer story until the onset of January, as more and more news stories were picking up on the bond insurers.

The insiders understood the growing risks several weeks ahead of me. That is why, for me personally, my own risk management strategies have to take the info lag into consideration. It informs me not to take a step back and not stand as close to the fire as insiders do. Because they have visibility and transparency, they can adjust positions much more more immediately and frequently. This enables them to behave like a scalper in the pit would do back in the days of open outcry: making decisions based on visible order flow that they could read ahead of the public.(this is not investment advice, just personal learning experience)

The markets were rigged for success not reality. Talk about uncharted territory, how do you unwind 20 years of a rigged market? Does anyone really expect to see double digit earnings anytime soon? Without the earning what happens to PE ratios? Have the trading models (here we go again) be adjusted to the new earning realities?

The fact is the traders need volatility to make money, so any story with the word “Bull Market” in it will be pushed out by the trained chimps called market reporters.

And the counterpoint to Bloomberg’s article is to make the observation in passing that amidst declining volatility from an April 1930 high of 297 (a 50% rally off the November 1929 low), the Dow fell 86% to 40 two years later in July 1932.

Hey, the first five letters of my Word Verification were RALLY!

Regardless of what near term 4th qtr. earnings they show, the main thing to remember is that the banks still have LOTS of bad debts to write off. And their present equity cannot support immediate write-offs of all that debt.

Please listen to what Meredith Whitney says. She has been the only bank analyst to get things correct.

Bottom line: the banks are still in big trouble, and our failure to follow the Swedish example of handling their banks in the early 90’s means the problem won’t go away any time soon.

I have NO insight here. The banks will pull out all stops to report not awful earnings. Wells played some accounting tricks last year that the market saluted.

I could be very wrong, but JPM moved up its earning announcement after its stock went down 4% on Monday. Expectations are 5 cents a share. I think it is more likely that JPM will beat or meet expectations than fail them.

As for the others, NO idea at all. But if even 1/3 do better than expected, and C does not come apart and none is stunningly bad, I think we may see some improvement in sentiment (from panicked to resigned).

Remember, next week, we have Geithner and the new team talking to the media. Every time Paulson opened his mouth, the market went down. I think Geithner, at least initially, can do better than that.

That does not make for any long term change, but might alter the trajectory, or lead to a partial retracement of the downdraft under way.

Satyam?

Yes, total mess that allows all sorts of futile speculation. Can’t rely on the stock market being forward looking. If the C moves are a bear raid, they bears are about a year late. But then one suspects that the 100Bn of new capital and 300Bn backstop might not be the last of it either.

Possibly interesting Q: how does the US banks’ funding gap look now? Have they managed a meaningful amount of deleveraging this year? Some of our UK banks still don’t look at all clever in that respect (notably LoydsTSBHBOS which is a big big bank).