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CAPTIONED BY THE

NATIONAL CAPTIONING INSTITUTE

--WWW.NCICAP.ORG--

>> THE FED'S SURPRISE IN THE

MARKETS MOMENTS AGO SAYING THEY

WOULD BE RELEASING THE RESULTS

OF THE BANKS STRESS TESTS AND

JUST A FEW MOMENTS, ALMOST TWO

DAYS AHEAD OF SCHEDULE.

JOINING US IS A MANAGING

DIRECTOR OF TRADING, AND ALSO A

MANAGING DIRECTOR OF THE ARMORED

THANK YOU GENTLEMEN FOR JOINING

US ON "STREET SMART."

LET ME ASK YOU.

WHAT DO YOU MAKE OF THE FACT

THAT THE FED HAS BEEN PUSHED, IT

SEEMS IT WAS PUSHED, INTO

RELEASING THESE RESULTS EARLY?

>> I THINK THE FED REALIZED THEY

HAD THE OPPORTUNITY TO GET THE

NEWS OUT EARLIER AND QUICKER.

THEY DID NOT HAVE A LOT OF

DIFFICULT NEGOTIATIONS WITH THE

BANKS SEE OF THAT THEY HAVE BEEN

WORKING MORE, SO THIS IS BULLISH

NEWS TO THE EXTENT THAT WE HAVE

NOT GOTTEN THE NEWS YET, BUT IT

IS GOING TO BE RELEASED EARLY.

>> SO DO YOU BY THE BANKS HERE,

JOHN?

>> WE WERE SHORT THE ETF THAT

COVERS THE LARGEST BANKS, AND WE

WERE LONG THE S&P, AND WE HAVE

REDUCED THAT SHORT.

WE WANTED TO BUY BACK SOME OF

THAT SHORT BECAUSE IT DOES NOT

LOOK LIKE YOU WANT TO BE

ACCESSIBLE SHORT THE BANKS HERE,

BUT ONE OF THE REASONS TO HAVE

SOME OF THAT POSITION AND TO

HAVE SOME OF THE PUTS ON IS THAT

WE ARE POTENTIALLY IN A VOLATILE

MARKET IN THE COMING WEEKS AND

MONTHS.

>> LET ME BRING YOU IN ON THIS.

ARE WE GETTING AHEAD OF

OURSELVES WITH THE BANKS?

YOU SAW THIS RALLY AHEAD OF THE

CLOSE.

COULD THESE STOCKS JUST END UP

FALLING AND GOING DEEPER INTO

THE RED, AS THEY DID LAST YEAR

AFTER THESE RESULTS WERE OUT?

>> REMEMBER THOUGH, WHAT YOU

WANT IS PARTIPATICROM THE

BANKS, SO WHEN YOU START

TALKING ABOUTARGE BRACKET

BANKS, THIS IS A BULLISH SIGN.

I AM ING TO GUESS THAT THE

CHAIRMANAS PROBABLY FIGURED

THAT, LOOK.

THEY ARE NOT COMING OUT WITH ANY

FURTHER ACCOMMODATION.

NOTHING IS GOING TO SUPPORT THAT

ARGUMENT, SO WHY NOT BRING OUT

THIS GOOD NEWS NOW, LET'S THE

STOCK'S RALLY, AND THEN THE

BANKS MAY ACTUALLY DO SOMETHING.

WE HAVE BEEN TALKING ABOUT STOCK

BUYBACKS AND DIVIDENDS, BUT

MAYBE THEY WILL START LENDING

AGAIN.

THAT IS WHAT WE REALLY NEED.

RECLINING AND

S THATOT

NOT SO SURE ABOUT THAT.

THE FED HAS COME OUT TO SAY THAT

THE RATES E GOARG TO STAY AS

WELL AS POSSIBLE FOR THE NEXT

COUPLEF YEARS.

THAT DOES NOTHING FOR THE MARKET

NOW.

MONEY CAN ONLY GET CHEAPER FROM

HERE.

RAISING RATES AND SOME TYPE OF

TIGHTENING POLICY, WHICH WE HAVE

NOT HEARD YET.

THAT WOULD BE A GREAT TIME TO

ACTUAL GET BACK IO NT

ESTATE.

>> YOU HAVE HEARD JOHY THAT

HE WAS LONG THE S&P AND ALONG

THE BANKS ETF.

HE IS COVERING SOME OF THAT

SHORT, BUT HE IS STILL STAYING A

LITTLE BIT SHORT.

OF WHAT IS YR TROUE RIGHT NOW

WITH THE BANKS OF >> -- BANKS

NOW?

>> THERE IS STILL A POTENTIAL

BULL'S-EYE, THE TIME BOMBS OF

DEBT THAT WE HAVE TO WORRY ABOUT

IN EUROPE.

WE TALK ABOUT THE COUNTRIES.

$1.50 TRILLION OF DEBT.

BUT OUR BIGGEST BANKS HERE HOLD

$500 BILLION OF THAT DEBT, SO I

HAVE TO LOOK AT THE REGIONAL

BANK NAMES.

, I LOVE THE REGIONAL BANK NAMES

RIGHT NOW.

>> WE ARE GETTING A STATEMENT

FROM THE MORGAN STANLEY GUYS,

AND THEY HAVE RELEASED A

STATEMENT.

THEY SAY THEY HAVE RECEIVED NO

OBJECTIONS.

THEY HAD NO OBJECTIONS TO THEIR

2012 CAPITAL PLAN, AND THEY ALSO

RECEIVED NO OBJECTIONS TO THE

14%NTIAL BUYING OF AN ADDED

OF SMITH BARNEY, THE SMITH

BARNEY SHARES, SO AGAIN, MORGAN

STANLEY SAYING THE FED DOES NOT

OBJECT TO DIVIDEND PAYMENTS.

AS EXPECTED, MORGAN STANLEY HAS

PASSED THE STRESS TESTS, BUT WE

ARE NOT GETTING ANY ADDITIONAL

NEWS, JOHN, OF BUYBACKS OR

DIVIDEND PAYMENTS, AND YOU

WONDER WHY IT IS BANKS SEEM TO

BE PASSING THESE TESTS.

>> ONE OF THE THINGS THAT WE

KNOW IS THAT THESE BANKS HAVE A

LOT OF CASH ON THEIR BALANCE

SHEET.

THE QUESTION OF THE KIND OF

CAPITAL THEY HAVE, A LONGER-TERM

QUESTION AND AN EPHEMERAL

QUESTION, BUT THE QUESTION,

BANKS LIKE J.P. MORGAN HAVE

ANNOUNCED THAT THEY HAVE -- WILL

INCREASE THEIR DIVIDENDS AND DO

STOCK BUYBACKS.

NOT SURPRISINGLY, WE HAVE SEEN A

HUGE RALLY IN THESE MONDAY IT --

THESE MONDAY CENTERED BANKS.

>> I AM JUST CALLING THIS UP, SO

BEAR WITH ME AS I TRY TO GET TO

THE HEADLINES.

IT SAYS THE FED DID NOT OBJECT

TO THE PLAN FOR $3.20 BILLION IN

PREFERRED SECURITIES, AND NOR

DID THE FED OBJECT TO ANY OTHER

OF ITS CAPITAL REQUESTS.

IT LOOKS LIKE IT WILL INCREASE

ITS DIVIDEND 25% TO 20 CENTS, SO

WE NOW HAVE FOUR BAGS THAT HAVE

MADE ANNOUNCEMENTS THAT WERE NOT

EXPECTED UNTIL TOMORROW, AND IT

LOOKS LIKE TWO OF THEM WILL BE

INCREASING THEIR DIVIDENDS.

>> THERE WAS THE COMMENT THAT

PAUL MILLER WAS MAKING EARLIER

AND THAT YOU WERE TALKING ABOUT,

STEPHANIE.

WERE THESE TESTS D.O. E-ZPASS WE

HAVE ALL THE BANKS SO FAR

PASSING THEM, AND WHAT DOES THAT

MEAN?

SEE ONE OBJECTION, LET'S

SAY, DOES THAT MAKE THESE TESTS

MORE CREDIBLE?

>> LAST YEAR IN JUNE, THE

EUROPEAN REGULATORS HAD ONE PASS

WITH FLYING COLORS, AND THREE

MONTHS LATER, THEY WERE IN DEEP

WATER AND HAD TO BE BAILED OUT

AGAIN BECAUSE OF THEIR GREEK

POSITION.

NOT BEING NEW TO THE RUBBER

STAMP, BUT PAUL MILLER SAID

THESE TESTS ARE DESIGNED FOR

THESE BANKS TO PASS, SAID THAT

DOES NOT REALLY ADD UP.

>> IS THIS WHY YOU STILL HAVE

THOSE TRAITS?

>> WE ARE SHORT ONE BECAUSE WE

ARE CONCERNED ABOUT THE EVENT

RISK OR THE KIND OF DISORDERLY

TYPE OF SITUATION.

IN OTHER WORDS, IT IS A PALE

RISK EDGE.

I THINK IT'S VERY INSTRUCTIVE

LESSON IS WHAT HAPPENED IN

EUROPE BACK IN NOVEMBER AND

DECEMBER WHEN THEY DID THEIR

AND THEN THEY ADDED TO

THOSE.

WE KNOW THEY WERE NOT ADDING TO

BANK CAPITAL.

CREATEEY DID IS

LIQUIDITY AND FLEXIBILITY, AND

IT IS THAT LIQUIDITY AND

FLEXIBILITY WHICH IS NOW BEING

EXPENDED TO THE U.S. MARKET.

WE CANNOT FIGHT THAT.

>> I HAVE TO ASK YOU ANOTHER

ONE, JOHN.

WHEN YOU WERE AT PIMCO, YOU RAN

A LARGE FUND.

OVER THE PAST SIX MONTHS, THAT

HAS BEEN VERY CONSISTENTLY

TO $215.ETWEEN $185

A ARE BEGINNING TO A BY NOW?

OR ARE WE TALKING ABOUT A

BREAKDOWN BECAUSE OF BUSINESS?

>> I AM A SELLER OF THE 10-YEAR.

WE HAVE PROFITED ON THAT

POSITION NICELY.

WHAT HAPPENED IS WE HAD STRONG

EMPLOYMENT REPORT AN EXTREMELY

STRONG AUTOMOTIVE SALES.

WE HAVE THE BIGGEST STRIP'S

SEEING AN INCREASE YEAR OVER

YEAR ON TRAFFIC ON THE BIGGEST

RISK, SO THERE ARE SIGNS OF SOME

RECOVERY GOING ON.

THE FED MEANWHILE IS TAKING QE

OFF OF THE TABLE, AND THAT IS

WHAT IS PRESSURING UP THE 10-

YEAR IL.

THE CURRENT INFLATION RATE COULD

BE 50 OR 100 BASIS POINTS

HIGHER, EASILY.

>> LET ME ASK YOU THIS THEN.

OF GETTING BACK TO THE POINT

SO FAR THE BANKS THAT HAVE

ANNOUNCED, THEY HAVE ALL PASSED,

AND YOU BASICALLY WOULD NOT WANT

TO ANNOUNCE ON AS YOU DID PASS.

ARE THESE TTS, AS PAUL MILLER

WAS SAYING, DESIGNED TO HAVE

THESE BANKS PAST BUT ARE THEY

GOING TO HAVE CREDIBILITY IN THE

MARKET AS WE MOVE FORWARD?

>> I AM NOT SO SURE ABOUT THAT.

THEY ARE TALKING ABOUT A

DOOMSDAY SCENARIO, AND NUMBER

TWO, WHY WOULD THESE BANKS NOT

PASS?

CLEARLY, IT THEY HAVE AN

ENORMOUS AMOUNT OF CASH, AND

THEY HAVE THE ABILITY TO CREATE

DIVIDENDS AND INCREASE

SHAREHOLDER VALUE.

IT IS WONDERFUL FOR STOCKS.

I AM NOT SURE THESE WERE THE

EASIEST TESTS TO PASS.

NOW WE HAVE TO SEE WHAT WILL

HAPPEN DOWN THE ROAD, BUT THIS

IS NOT GOING TO IMPROVE LENDING

STANDARDS OR INCENTIVIZE THE

BANKS TO HAVE THEM GO OUT AND

START LENDING, BUT ALSO

BUSINESSES.

A LOT OF THAT REMAINS TO BE

SEEN.

A BANK RIGHT N DOES NOT EVER

WANT TO GO HAT IN HAND AGAIN AND

ASK FOR ANOTHER BAILOUT.

>> MANY INVESTORS HAD BEEN

PREPARING FOR A POTENTIAL

MOODY'S DOWNGRADE FOR MORGAN

DO YOU THINK WE DO NOT SEE A

DOWNGRADE NOW?

>> THAT IS A GREAT QUESTION.

I DO NOT BEEN SET NOW.

THE MACRO DATA, THE BANK NEWS

OUT TODAY, IT IS TOUGH TO THINK

WE WILL BE SEEING ANY KIND OF

LIABILITY OR VULNERABILITY DOWN

THE STRETCH FROM THIS POINT

FORWARD.

>> WHAT IS YOUR TRADE TOMORROW

MORNING?

>> I HAVE TO TELL YOU, I LIKE

THE BANKS RIGHT NOW.

HE WOULD BE A FOOL NOT TO BE A

LONG, AND ON THE FINAN SCIE,

YOU SHOULD BE LONG.

I STILL LIKE SOME OF THE BANKS