Meanwhile, on Wall Street, analysts are slashing profit forecasts that still look way too high to me.

Already, high-profile investment firm Lehman Brothers (which, like some other brokers, closed its books May 31) plunged in value because the market anticipated a large loss for this quarter. It will be Lehman’s first loss in nearly 25 years – and more asset write-offs are likely. Lehman will fess-up on June 16…stay tuned.

Also, two leading banks just sacked their CEOs amid mounting sub-prime losses. Wachovia got rid of Ken Thompson, who had the misfortune of buying California lender Golden West Financial for US$25 billion…pretty much at the top of the sub-prime boom two years ago.

That acquisition turned out… badly, to say the least. Meanwhile, Washington Mutual’s Chairman will “step down” according to the bank.

These are just the latest casualties from the sub-prime credit crunch, but rest assured, more heads will roll before this financial reign-of-terror is over.

So what’s ahead for earnings this quarter?

Financial stocks are expected to fare the worst, once again this quarter (surprise, surprise). Consumer discretionary shares are next in line, with an earnings hit of -10% expected this period.

There is some good news however. Energy sector stocks should post 16% earnings gains, which is no surprise with sky-high oil and gas prices. Tech-sector profits are also expected to shine this quarter, which is a pleasant surprise to investors amid a slowing economy.

Technology stocks are enjoying a healthy export boom, due in part to the falling buck, but also from healthy demand from overseas markets. Also, tech companies just aren’t as impacted by soaring raw-material costs, like rising oil prices, which does impact so many other sectors of the economy.

The result is likely to be 15%-plus profit gains for technology shares this quarter. That’s a very nice showing amid the Wall Street gloom.

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR’S NOTE: Right now, Mike is researching several key ways to play the technology sector for a possible double or triple-digit gain in the coming months. Keep an eye on his Market Shock Trader alerts for more updates on these stellar plays.

Source: Why More Heads Will Roll Down Wall Street

It is hard to reconcile the sunny optimism of CNBC with the grinding reality of the stock market. Where will earnings and growth come from in 2008? What sector? If inflation is out of control, are shares the best refuge? The stock market looks more and more nervous as investors try to sort all these things out.

The grim news Stateside is that the board of directors of Wachovia, the fourth largest bank in America, fired its CEO Ken Thompson. Wachovia lost US$708 million in the first quarter of 2008. It didn’t help Thompson that he engineered the acquisition of mortgage lender Golden West Financial in 2006—right at the peak of the mortgage lending bubble.

Thompson joins a long list of CEOs falling on their sword for thinking a credit boom would never end. It has. It’s still ending, in fact. Ratings agency Standard and Poor’s lowered the credit ratings of three big Wall Street firms earlier today. JP Morgan, Lehman Brothers, and Merrill Lynch were all downgraded because the S&P reckons the firms will have to take further asset write downs this year.

What did you expect? It’s a bear market in credit. The story comes straight from the department of news so obvious a rock would know it. What does it mean?

Well, a bear market in credit is bad for firms with heavily leveraged balance sheets. That includes most financial stocks. Why any investor would go bottom fishing in the financials when we still have a bear market in credit is beyond our feeble Tuesday-morning reckoning capabilities (still jet lagged).

Turning to our adopted homeland, we notice that other people are starting to get really worried about inflation. “Inflation rising at record rate,” reads a headline. “Inflation is rising at its swiftest pace on record,” according to a survey by TD Securities and the Melbourne Institute. You don’t say?

The RBA reckons inflation is running about 4.5% a year. It’s probably even higher than that, especially for people that eat, drive, get sick, and wear clothes. Hunger striking nudists who commute to work on bicycles are probably doing just fine. If there were only more of them.

There are comments by the usual morons on TV that the U.S. dollar is headed for a rally against the euro and the yen. This, the morons reckon, should lead to some “easing” in commodity prices. Oil eased itself up US$1.48 in early us trading, getting back on the north side of US$128. Gold eased itself up US$7 to just shy of US$900.

What if the dollar goes up against other currencies, but down against tangible assets? Is that even possible? Well of course it is!

The greenback weakened even more against oil and gold in the last few years than it did against the euro and the yen. Beware the false prophets of a dollar resurrection. They are looking at an incomplete picture because it’s more comforting.

How will shares behave if the global inflation bush fire becomes an inferno? Well, resource shares could melt up. The weak dollar is responsible for a lot of the nominal gains in commodity prices. But it’s not responsible for all those gains. Demand is too; especially demand from the 3.2 billion new industrial consumers in India and China, and the billion more in the next wave of industrializing countries.

We’d better be careful though. If people begin to think the central bank fight against inflation is lost, they will modify their behavior accordingly. This includes demanding higher wages to keep up with spiraling prices. And it includes trading cash for things before things get more expensive.

You’d be surprised how quickly the shelves of a supermarket can be picked to the bone when people become convinced (and afraid) that prices are going inevitably higher. There is probably not that much difference between the human genome and the locust genome.

Buy extra toilet paper.

And here’s a note we’ve been waiting to see. “Deal nears on iron ore price rise of BHP, Rio,” reports Jamie Freed in the Age. It looks like the Aussie miners are going to get something like a 95% increase from last year’s contract price. The Chinese steel makers won’t be happy about that. But if they don’t agree to a deal before June 30th, both Aussie ore titans are free to sell ore in the spot market, where prices are double the current contract price.

You can find more share market news from our pals over at Money Morning, who are all over the coal-seam-methane story. Until tomorrow…

Dan Denning
The Daily Reckoning Australia

Source: It’s a Bear Market in Credit

Thompson will step down after 32 years of service after having made a series of untimely – and ultimately disastrous – decisions that have cost the company nearly half its market value over the past year.

Shareholders began clamoring for Thompson’s removal in April after the company announced its first quarterly loss in seven years and cut its dividend by 41%. Issues were compounded on May 6, when Wachovia announced a first-quarter loss of $708 million, 80% more than the bank had previously reported.

The company has marked down $5 billion in mortgage and other debt-related assets, and recently announced it would cut up to 500 jobs. Wachovia stock has plummeted about 40% year-to-date.

Thompson’s most costly decision came in 2006 – the peak of the housing boom – when he agreed to spend $25.5 billion to acquire Golden West Financial Corp. Nearly half of Golden West’s lending business was based in California and Florida, which are now among the national leaders in foreclosure rates. Thompson himself acknowledged the deal as being “ill-timed.”

“No single precipitating event caused the Board to reach this decision, but a series of previously disclosed disappointments and setbacks cumulatively have negatively impacted the company and its performance,” Wachovia Chairman Lanty L. Smith, said in a statement.

Smith will takeover as CEO until a replacement for Thompson can be found. He will assume control over all of Wachovia’s staff functions, as well as head a board committee that has been charged with finding a new CEO. Vice Chairman and General Bank President Benjamin P. Jenkins III, has been appointed interim chief operating officer.

Also in the banking boardroom pipeline, Washington Mutual Inc. (WM) will shake up its management as Chief Executive Officer Kerry Killinger steps down from his duties as company chairman.

At WaMu’s annual meeting in April, shareholders voted to bounce Killinger from his post after the company posted a first-quarter loss of $1.14 billion. Independent director Stephen Frank will officially supplant Killinger July 1.

The world’s top financial institutions have reported more than $386 billion in asset write-downs and credit losses related to the housing bust, according to Bloomberg News.

Source: Wachovia CEO Thompson Shown the Door After 32 Years of Service, WaMu’s Killinger Steps Down as Chairman