Bank of America Corporation (NYSE: BAC) continues to mount a near-parabolic recovery along with much of the banking sector. Investor sentiment has changed rapidly as the government rescued the two largest U.S. mortgage underwriters and signaled a possible end to the problems plaguing the sector - at at least a signal that the peak has passed. So, where are things headed from here?

Bank of America may not be as strong as the recent run-up in share price would have investors believe. The stock topped the list last week for stocks that rose in price but had the largest outflow of money. This means that the price increase that we’ve seen may not really be the vote of confidence that it seems. Meanwhile, Bank of America will also continue to struggle with the mortgages associated with its acquisition of Countrywide Financial.

The government’s bailout of Fannie Mae and Freddie Mac may provide would-be homeowners with more options, but it may not do all that much to stop the rising tide of foreclosures. In fact, just last week we saw a report showing that the rise in foreclosures is anything but over. Meanwhile, it will take awhile for consumers to gain enough confidence to start buying homes in order to increase property values - the other thing that could slow foreclosures.

Many analysts are also not so sure about Bank of America. Stifel Nicolaus & Co cut its full-year profit estimate on the bank, citing concerns about continued deterioration in its consumer loan portfolio. The nation’s second largest bank reported not long ago that its profit fell 41% in the second quarter on losses in its struggling mortgage operations, but still managed to top analyst estimates. However, it had to more than triple its loan loss provisions - that is, money set aside for bad loans.

Accelerating losses in its home equity, domestic credit card, residential mortgage and small business loan portfolio are creating problem for the bank. Meanwhile, cash is flowing out of the stock at a record rate. Only a rise in the stock price is causing investors to look the other way - a mistake that could cost them in the future.

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Garmin Ltd (NDAQ: GRMN) shares dropped more than 20 percent today after the company announced second quarter earnings that missed analyst expectations. The high-flying GPS maker also disappointed investors when it forecasted limited growth for the rest ofthe year and said it was delaying its entrance into the cellular phone market. Many investors are now questioning whether or not this GPS giant can be valued as a growth company in today's environment.

Garmin reported total revenues of $912 million, which is up 23% from $742 million in the second quarter of 2007. Gross margins remained solid at 45.8%, despite the economic slowdown, compared to 48.2% in the first quarter of 2008 and 50.5% in the second quarter of 2008. Operating margins were up 20 basis points sequentially to 26.2% in the first quarter, but were down compared to 32.5% in the second quarter of 2007. And finally, diluted earnings per share increased 21% in the second quarter.

"We are pleased with our financial results for the second quarter given the economic conditions facing the consumer electronics segment," said Kevin Rauckman, chief financial officer of Garmin Ltd. " We also generated $34 million of free cash flow in the second quarter of 2008, resulting in a cash and marketable securities balance of just over $1.0 billion at the end of the quarter." This number is a positive note, but not enough to convince investors...

The forecasts are where investors lost confidence. Garmin anticipates overall revenues in 2008 to hit $3.9 billion and earnings to hit $4.13 per share, including the $0.27 related to the tender of their Tele Atlas NV shares. The company also reiterated growth rates for all of its division, except for the marine segment, where it said that high fuel prices have led it to forecast flat revenues for 2008. Meanwhile, the firm also forecasted a drop in operating margins to 25% as input costs rise and selling prices lower.

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Merrill Lynch & Co., Inc. (NYSE: MER) shares fell sharply today after the troubled investment bank priced its share offering at $22.50. This pricing point suggests that they weren't able to sell shares at the current market price and raises questions about both dilution and the company's ability to maintain its share price. Shares fell sharply before recovering to $23.90 on the news today.

Merrill Lynch told investors yesterday that it would raise $8.5 billion by selling newly issued stock despite the fact that CEO John Thain repeatedly denied that the firm would need to raise more capital. In fact, back in January Thain was quoted as saying, "We're very confident that we have the capital base now that we need to go forward in 2008." Such comments had many investors convinced that such dilution wouldn't occur anymore.

In fact, on April 4th of 2008 he even commented: "In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don't need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I'm sure we have enough capital."

Merrill Lynch needs the capital after unloading more than $30.6 billion in repackaged debt at a fire sale price ealier this month in an attempt to reduce the risk on its balance sheet. Such news only underscores the fact that the financial sector remains exposed to losses that will require more loan loss reserves, more write-offs, and more capital to keep afloat. All of this is bad news for Merrill Lynch and others in the financial sector, except perhaps Goldman Sachs.

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