Earning Power Reduced But So Is Risk--That's Good For Now

Futures are down slightly, but that has little meaning these days. Many traders feel that yesterday's drop was due to:

1) distortions in price discovery created by the changing short sale rules;

2) the realization that many banks are still undercapitalized.

Still, long-term there are benefits to the wrenching process we are going through. More level-headed traders have noted that earnings power is reduced, but so is risk, and for the moment that is what is important.

Banks and commodity stocks are down pre-open.

Commodity stocks: Rio Tinto down 10 percent, BHP Billiton down 4 percent, most gold stocks down 3 to 5 percent.

Financials: UBS, Credit Suisse, Lloyds and Wachovia down 5 to 8 percent.

Elsewhere:

1) Oppenheimer bank analyst Meredith Whitney cutting estimates (again!) for Citi, Bank of America, JP Morgan, Wachovia, Wells Fargo. "We believe any government bailout plan has little hope of improving core fundamentals over the near and medium term." Her revised estimates are 50% below consensus for 2008 and 90% below consensus for 2009.

2) GE down a bit pre-open as Merrill Lynch analyst John Inch lowered estimates for 2009 and cut his rating to Neutral. 2009 estimates were lowered $0.20, to $2.22, 2010 estimate declines to $2.48 from $2.65 forecast. Fourth quarter 2008 estimate lowered by 2 cents to 68 cents. He believes GE Commercial Finance and GE Money will each see earnings declines of 15 percent in earnings next year, more than the 10 percent decline he had previously forecast.

• Paulson, Bernanke to Urge Congress Not to Delay Bailout

3) Railroad giant Union Pacific raised their guidance for the current quarter on lower fuel costs.

4) Home builder Lennar reported earnings roughly in line with expectations, but still not sign of a notable turnaround.

5) Circuit City trading up as the CEO has resigned and gave guidance slightly better than expected.

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