5 things to know this week

By Kevin Depew, Minyanville

1. Something you actually DON'T need to know

It may be a touch unorthodox to lead off "five things to know" with "one thing you don't need to know," but remember, I am not like the others. So the one thing you don't need to know anything about to navigate the week ahead is these so-called bank stress tests.

Even though the results of the stress tests won't be known until May 4, the market is formally obsessed with the results. That is strange, because despite releasing the parameters for examination in mid-April, what difference can it possibly make whether any banks actually pass or fail the tests, since the government isn't allowing banks to collapse in the first place?

Through that lens, waiting for the results of bank stress tests is no different than standing around trackside in pitch-black darkness at 4:30 in the morning and asking a horse trainer how fast his horse ran. There is not an answer to that question capable of revealing anything truthful or important. (More on horses in No. 5.)

2. F-O-M-C, Fed, Fed, Fed!

The next meeting of the Federal Reserve's Federal Open Market Committee will be on Wednesday and Thursday. Truth be told, this barely made it on the list of things you DO need to know.

During the little over a yearlong stretch between September 2007 and December 2008 when the FOMC slashed rates from 5.25% down to near zero, what did the market do? The S&P 500 Index ($INX) plunged 40%. Since December, it's down an additional 3%.

This is what people mean when they refer to the Fed "pushing on a string." It's easier to pull a string toward you than to push it away. In Fed terms, that means it's easier to stop an expansion than reflate your way out of a contraction.

3. The action is in the bond market

Forget stocks for a moment. The big news that will come out of the Fed meeting this week will first affect the bond market more than stocks. Speculators, knowing which way the Fed is determined to move interest rates via outright purchases of Treasurys, have a virtually zero-risk playing field in which to operate.

Ultimately, this is deflationary. Why? Because this virtually guarantees a declining interest-rate structure. This causes the liquidation value of debt to rise. Meanwhile, and perversely, businesses and consumers will find that even as they try to pay down debt, the value of their assets is declining because of the decline in interest rates and the reinforcement of deflationary pressures. Unfortunately for the Fed, this only further increases both dollar hoarding and the hoarding of Fed-supported risk-free instruments -- hence, pushing on a string.

4. Exxon Mobil earnings

Only a year ago, Exxon Mobil (XOM, news, msgs) was a company being blamed for record oil prices when crude was climbing into the stratosphere. As the largest company in the U.S. by market cap and the largest oil and gas company in the world, is it any wonder Exxon had record profits while crude oil prices where climbing?

On Thursday, the company will report its latest earnings. Why should you care? Because size really does matter. Exxon's market cap will ensure the company has an outsized impact on the S&P 500 later this week.

Current estimates call for earnings per share of 94 cents a share on revenue of $54 billion. Those are big numbers. However, last year during this reporting period, Exxon reported EPS of $2.03. What a difference a year makes.

5. Kentucky Derby week

An allegory: Almost two months ago to the day, just minutes after the running of the Fountain of Youth Stakes at Gulfstream Park, a 3-year-old prep race that, at least in my mind, unofficially kicks off the Run for the Roses, I was standing on a corner in New York City waiting for the light to change when a taxicab hit a pothole and splashed street water directly into my mouth. Not a little bit of street water either -- a lot of street water, like a Mason jar's worth. It was very salty.

Now, with the benefit of hindsight, liquor and mouthwash, I can see that it was nothing short of a grim warning: Be prepared for the bitter taste of salty street water if you stand around slack-jawed.

That is worth heeding on just about any given day, but especially this coming Saturday, May 2 -- Kentucky Derby day -- and especially considering that hundreds of thousands of people, many of whom don't know a Thoroughbred from a riding lawn mower, will bet millions of dollars as if they were the owner-breeder of the Byerley Turkhimself, then, later, find themselves standing around slack-jawed wondering what happened.

Imagine an alternate reality in which your job is to bet money on horses. You make a living doing it, some years more successfully than others. Imagine that once a year this thing called the New York Stock Exchange has a big promotion called the "Most Exciting 6 1/2 Hours in Stocks." Now, suppose you know what a stock is, but beyond that, well . . . they shoot stocks, don't they?

Still, because it's exciting, you ignore your ignorance and take a day off from your job of betting on horses to "play the stocks." How do you think you'd do? Feeling a bit slack-jawed? Prepare for the salty taste of dirty street water.

But that's beside the point. As a former professional horseplayer and handicapper, I am here to help. Below, on the left, are my Kentucky Derby Dozen rankings, the horses I believe are the top 12 contenders, along with what I believe are their fair odds of winning the race. On the right are the most recent rankings of horses from voters at BloodHorse.com and the corresponding odds, a reasonable early look at how the public is valuing the entrants.

How should one use this list? Simple. Keep it handy, and on Derby Day, just make sure the horse you bet on is going off at odds higher than the odds I've listed here. Good luck. And remember, there's no crying in gambling.