Trading for the day started slowly. As is true most summer Fridays, there was not much news and few earnings announcements. Those who had to work on Wall Street spent the morning waiting for stress test data on European banks. The data was due at noon and there were no surprises. Seven smaller financial firms out of 91 did not make the cut. None of the firms was considered strategically important.

The S&P did move about 1,100, a sign that the movement up in the market has been steady enough to move above a psychological hurdle. But, the move was on so little volume that early Monday will be a better barometer of the market's sentiment.

The numbers:

Dow 10,424.62 +102.32 (0.99%)
S&P 500 1,102.66 +8.99 (0.82%)
Nasdaq 2,269.47 +23.58 (1.05%)

"The effect of this capital assessment will be to help replace uncertainty with transparency. ... We chose a strategy to lift the fog of uncertainty over bank balance sheets and to help ensure that the major banks, individually and collectively, had the capital to continue lending even in a worse-than-expected recession." -- Treasury Secretary Timothy Geithner, May 2009

These tests did NOT bring transparency to the banking sector. They were practically designed to prove the banks were fine, and simply ignored off-balance-sheet and other dodgy assets. It was as if they were saying, "We will do whatever it takes (even lie) to make sure the big banks do not fail since Congress won't give us more money to fix them."

The market staged an impressive rally this year, but it was predicated on some very big lies, as opposed to solid fundamentals or the beginnings of a real recovery in the U.S. economy.

The biggest lie investors were fed? That, statistically, the recession "officially" ended in Q3 when we saw 3.5% GDP growth. Sure the Bureau of Economic Analysis revised their number substantially in November, saying we only saw 2.8% growth, but this was growth nonetheless ... according to the statistics.

What is the real condition of our banks? Well depends on which glass you are looking at. Is it half full or half empty? Let's look at the good news first:

• Profits for the bans are up.
• Bank stocks are surging.
• The U.S. government gave 10 banks permission to pay back $70 billion of TARP monies.
• Since January, banks have raised $200 billion and sold $75 billion in debt.
• Stress tests showed that 19 of the biggest banks needed only $75 billion to withstand a tougher than expected recession.
• In a press conference, U.S. Treasury Geithner said, "these are early signs of repair and improvement."

The short sellers are back in force.

• Short selling in Citigroup (NYSE C) is up six fold since February 27
• Short sales for Bank of America Corp (NYSE BAC), Met Life (NYSE MET) and Amercian Express Co (NYSE AXP) are up 40%
• Short sales for 18 banks are twice as high on April 15 as they were at their peak last year in July

You are probably asking why is this happening? Overall, investors are seeing that the process of "stress tests" is not being managed well. When there is uncertainty, investors prefer the short side to protect their other long positions.

Days ahead of the release of the bank stress test results, reports have surfaced that Citigroup (NYSE: C) may attempt to raise capital from private investors rather than take more U.S. bailout funds. Such a move could strengthen the firm's equity without giving the government more control.

Although the results of the test haven't been released, it is widely known that Citigroup is considered one of the banks that will need to raise cash to continue (some reports state more than $10 billion).

We hear the name of Barney Frank quite often. He is Chairman of the House Financial Services Committee. His latest mantra is for more transparency in the recent bank "stress tests."

What is so hard to believe is how naive Barney Frank really is. Doesn't he know that we have an underground banking system that regulators do not even touch. The underground banking system is comprised of all the "off-the-books" transactions like CDSs, CDOs, CLOs and all means of convoluted deals that are losing money and do not even show up on "stress tests." For example, JP Morgan Chase & Co. (NYSE: JPM) is holding $87.7 trillion worth of CDSs somewhere off the books.

The New York Times reports that the White House will publicly disclose the results of the stress tests of the 19 biggest banks in the country.

The obvious reason for not disclosing the results of the stress test is the fear that it could lead to a self-fulfilling prophesy: Banks deemed to be poorly positioned for a prolonged economic downturn will experience withdrawals, fleeing employees and less access to credit, making them more likely to fail -- or at least threatening their ability to compete.

First of all, let me say that Federal law prohibits the disclosure of all bank "stress tests" and bank examinations, so everything said here is pure hearsay.

Nevertheless, we have some good news: Banks are holding up well under Federal examination. All 19 banks will pass their stress tests. The bad news is that they still may need additional taxpayer money.

A source speaking on the condition of anonymity said: "the largest banks are well capitalized for current conditions."

If this is true why doesn't someone tell these bankers to "knock it off" and stop scaring everyone in order to get more free money?