Marginal JP Morgan Earnings Vs. Lousy Economic Number, Who Will Win Battle?

Yesterday's marginal earnings results from Wells Fargo (down 23% but exceeded estimates!) beat out a jarringly high CPI report and record low homebuilder confidence to propel the Dow up 276 points.  Not to be outdone, JP Morgan followed Wells Fargo with its own middling earnings report of a profit decline of 53% from the prior year that the market absolutely loves enough to ignore the abysmal housing starts number.  Housing starts rose due to a technical change in the way the index is calculated, but otherwise remained at 17 year lows.  The market is higher on what is perceived to be non-catastrophic results from two of the largest money center banks, which has caused a huge relief rally in the entire financial sector.  One has to wonder if the market is getting ahead of itself for a few important reasons.  First of all, we have yet to hear from Bank of America, Merrill Lynch, Wachovia, or Citigroup.  Merrill's decision to sell its Bloomberg stake for $4.5 billion, less than what it had initially anticipated is a sign that they are desperate for cash and are willing to part with some valuable assets (as opposed to perhaps the garbage that may still lurk on the balance sheet.)  

Most importantly, when banks report earnings, they do not supply a balance sheet.  In my opinion, it is nearly impossible to gauge a bank's financial condition without looking at the balance sheet.  Specifically for commercial banks, a line item called OCI (other comprehensive income) includes profits or losses taken on the bank's available for sale portfolio that the bank may deem as "temporary."  For some reason, investors seem to overlook this item, despite the fact that in times when spreads in the credit markets are at their widest levels in years, significant losses may be hiding in OCI, perhaps enough to wipe out reported earnings.  In any event the market seems to like the news for the time being.  We'll see how long this bear market rally lasts.