Can the Financials Rally? (jpm)
Stocks are trying to bounce back after 6 straight weeks of declines. As we noted on Friday, the S&P 500 didn’t even post 6 straight down weeks during the financial crisis. So this string of losses has been somewhat remarkable.
Of course, the decline over the last 6 weeks hasn’t been particularly large. As of last Friday’s close, the S&P 500 is down around 7% from its May 2 highs.
We’ve also noted the performance of the banking sector. It watched as the banks failed to participate in the Spring rally, and we watched them lead the declines over the last 6 weeks.
But Friday, the banks had a strong day on rumors that new capital requirements would not be as onerous as investors feared.
It was very good to see some buying in the financials. And I don’t say that because I’m a fan of the big banks. But if investors could get bullish on banks, perhaps the worst-looking sector in the entire stock market, then they should be able to get bullish in just about anything.
*****Also interesting was the action in oil stocks. Oil stocks rallied (especially the small E&Ps) even though oil prices were down.
It’s been a pretty cut-and-dry relationship: higher oil prices means investors expect stronger growth and buy stocks. Lower oil prices means the opposite: investors sell stock on the expectation that growth is slowing.
But now, after Saudi Arabia appears poised to boost its oil production in spite of OPEC, we may have a catalyst for lower oil prices that’s actually bullish for stocks.
It would clearly be good for the economy to have oil prices back off a bit due to less concern about tight supply and demand fundamentals. And what’s more, it would be nice to see the anti-America faction of OPEC (Venezuela and Iran) lose some influence.
*****Now, I promised you some “Reader Mail” in response to the Jamie Dimon-Ben Bernanke brewhaha, and reader mail you shall have…(I received so many emails, I can’t print them all. My apologies, I’m know I’ve left out some good responses. And thank you very much for taking the time to write in. Your participation helps keep Daily Profit a top-notch letter.)
Mark B. wrote: You have described an interchange between deck hands on the Titanic. Can they make the ship go faster to keep it afloat or will going slower do the trick. In my view, it doesn't matter because they are incapable of plugging the giant gash in the hull called "entitlement." Fifty five million people are being paid to do nothing in "retirement"; 28 million are being paid to do nothing on unemployment, food stamps and welfare; we are importing $500 Billion more in food and energy than we are exporting in manufactured goods; all this while Bernanke printed $600 Billion in paper, loaned it to bankers like Dimon so he could loan it to speculators margining stocks to inflate the stock market. When this giant house of cards collapses, you won't be able to eat your Linkdin stock or your gold. Look for a food-producing life boat. The captain is simply overwhelmed.
Those are some frightening statistics. One might think that bailout money might have been better spent on job creation…
J. Simpson says the regulators were asleep at the switch: Hey Ian, just a reminder and nothing you don't know already. More regs aren't the answer/solution, the Regulators didn't do there job correctly as it was. Both the Regulators and the Bankers are guilty, they were sleeping on the job, no discipline and lots of greed. The solution is go back to doing there jobs correctly. Spilt milk is spilt milk, you can't unring a bell!
It is very true that regulators were overwhelmed and missed a lot of warnings signs. You can also put the ratings agencies who rubber stamped mortgage-backed securities in the mix as well.
James C. wrote: I am a social security/medicare recipient who is trying desperately to retire while maintaining my income, and am learning to trade, successfully, to supplement that income. Banks should be able to run their business any way they choose - provided the concept of "too big to fail" goes by the way-side. If banks know that no-one will bail them out next time, I believe they will act in self-preservation mode - just as all other businesses do. Austerity, and a little pain, are good once in a while to remind our youth that all is not always good, and that there is a need to prepare for such times.
Good for you for trying to learn new ways to make money and supplement your wealth. That may be one of the best lessons for all of us here.
Colin M. Jamie Dimon is a traitor to the United States. He has perpetrated one of the greatest frauds in history and should be tried for treason and executed in the public square along with many of his Wall Street and Federal Reserve pals. It is time for Patriots to rise up and demand Justice from OUR government and punish these lying thieves.
Harsh words for sure, but certainly reflective of the anger many citizens feel. It sure seems like this government hasn’t been “of the people and for the people” in a long time…
Joe M. wrote: How come we are always the ones to take cuts and congress the culprits don't get a thing but raises. Time for all gov. people to take serious cuts in their salaries. Including the president him especially. Give us seniors a break and tax congress hard. And remove them from healthcare. Let’s even the tables.
This is one of the main problems with austerity: it seems to focus on the citizens that have the least political clout. One reason public servants (i.e. Congresspersons) get paid well is so that you don’t end up with just wealthy people in political office. But clearly, with campaign expenses what they are, Congress is a group of millionaires. It’s not much of a surprise that they are looking out for themselves first.
John M. wrote: While I don't agree with a lot Bernanke has done, at least he gives a damn and is trying.
What incredible chutzpah on Dimon's part to ask if Ben understands the"cumulative effects" and bemoans the scrutiny and potential job losses to big banks. Where the hell was Dimon's concern about job losses, etc. in the years leading up the great recession due in large part to the processes and manipulations used by Dimon and the rest of the too big to fail crony club?
Perhaps Ben doesn't have the best answer, only time will tell, but I sure as hell know Dimon (while MAYBE the best of a bunch of immoral losers) only cares about one thing (profits for JP Morgan) and not the well being of this country!!
I find it hard to argue this…
Kathy S. lambastes pretty much everyone: Gee, where does one start?
Jaime Dimon is a whiner. The wallstreet banksters got us into this mess with their unbridled avarice. JD whines because he can no longer gouge people on the fringes that have to choose between food, medicine, or rent. Poooooor Jamie and his obscene millions. Maybe he should take as many cuts as the middle classes have since Reaganomics turned this country into a rust belt and changed the corporate boards into money trollops. Even Bill Ackman has stated as much.
Austerity: Reagan started this mess with tax breaks for the wealthy and omitting credit card interest deductions on the middle classes. The biggest hidden tax hike on the middle classes in history. Then there's his obscene star wars contest with Gorbachev. Clinton had his dirty little fingers in this too as did Greenspan et.al. Repealing the Glass Stegall act. Where was the CFTC? I'll tell you muzzled. Where was the SEC? Christopher Cox doing away with the uptick rule.
Our government was sold out years ago to the corporations lobbying interests. It's corporations that now control our government. The Supreme's say so! It's not WE THE PEOPLE. Just ask Jack Abramoff or Tom the Hammer Delay. How about Bush II making it harder for people to file bankruptcy when the biggest cause is out of control medical bills. Then he gives the filthy rich the biggest tax cut in history all the while starting 2 wars, (1 valid) so his buddies can get no bid contracts. There's one difference between the USA & Saudi Arabia-------the religion and the regime.
All you hear from corporation's is we have to be competitive. PLEASE, tell me how anyone in this country can be competitive with China when workers are paid $200 per MONTH?
Corporations are slowly slitting their own throat, at least in this country. No jobs, no consumption. Social Security was fully funded under Clinton until the Congress raided it and they now want austerity? I've worked & paid into SS since 1969 and they call it an entitlement? NO, the tax breaks for the wealthy is an ENTITLEMENT! Then Obama procures the same rodents of questionable heritage through these past regimes.
Why do you think the sheer number of expatriates are relinquishing their citizenship in droves and increasing annually? Why do you think there's these fringe militia groups calling themselves the sovereign citizens?
I'll tell you why, there is no satiating the wealthy and when people can no longer feed their families you have a petrie dish of exponentially growing desperate citizens that have no more blood to squeeze.
Yep, that’s just about everybody…
Tom L. and Suzanne B. said: Thanks Ian, Your letter is a model of responsible thought and reflection on our recent experience. Freedom for business--banking or brokering or creating derivatives--is of course good for the moment, but you point out correctly that sustained prosperity needs balance. We need both Dimon's ambition and Bernanke's control. Force with resistance creates dynamics, and that's the real freedom, concurrent position and opposition.
Thanks for the compliment. And I agree wholeheartedly, greed is good, but so is regulation (and moderation).
Robert L. wrote: Is this the same Jamie Dimon whose JPMorgan Chase & Co. (JPM) was in the news earlier this year over committing fraud through misrepresentation, then willfully and maliciously trading against the entities it had sold misrepresented securities to thereby entering the league already occupied by the likes of Goldman Sachs and AIG? Is this the same JPM which demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns (aka JPM)?
Is this the same Bear Stearns (aka JPM) that even after funneling misrepresented loans with Ambac's insurance, implemented a trading strategy to profit from Ambac’s potential demise by shorting banks with large exposure to Ambac-insured securities?
Listen, guys like Jamie Dimon don’t give a whit about austerity, or you, or me. This is a cynical game to them. They have climbed the ladder into the boat, pulled up the ladder without us, and sailed over the financial horizon. Didn’t I see statistics that show these big banks have made money every day of every quarter for the last couple of years simply by using their bail-out money to trade in government securities?
For the record, the banks haven’t made money every day, though they have strung together a couple perfect months in the last year. Statistically, even one perfect month is darn near impossible.
Still, thanks for the laundry list of JP Morgan’s questionable business practices.
Harold W. wrote: it seems everyone is always willing to point the finger at someone else and blame him or her for the mess our country is in. I will identify myself, and you probably will dismiss me. Facts are there is enough blame to go around. The housing bubble was a cause and a symptom of the mindset that thinks that you can get something for nothing. I would point my finger first at Chris Dodd and Barney Frank, who pushed the legislation that set up the framework that allowed people who were totally disqualified to become homeowners, along with the folks who flipped their houses every two years, along with the pure speculators, along with the folks who borrowed against the future to live LARGE in the present. Everyone living beyond his or her means caused the housing bubble.
As for the Bankers, I liken them to a bunch of 17-year-old boys that suddenly find themselves in possession of a beer truck full of cold beer and no adult supervision. They’re gonna have a party. That is exactly what the bankers did when conditions were put in place. They had a party. Problem with parties is, there is usually a hangover.
I have had a real problem… with the inordinate amount of executive compensation that corporate America it taking out of the economy. …the amount money some of these people get is Insulting to hard working Americans who have done the right thing.
You are right: there is enough blame to go around. And even Warren Buffett has lamented the growth in executive compensation.
Here’s a reply from an anonymous reader at one of the “too big to fail” banks: I work for one of the top 3 banks and in the past, I have had to deal with the Fed directly with their overbearing rules and requirements which only continue to increase. They are adding very high fees for their "services" and they are impacting us hugely. It's almost like they are bullying us. Our company has laid off almost half of our staff and are still looking for ways to cut back and operate at maximum efficiency. I know some of our cut backs are due to poor executive decisions and bad investments and loans, but the Fed is only compounding it to get complete control and domination and oversight .
Please remember, The Federal Reserve Bank is not actually the federal government. It is run by the state. They are merely the bank's bank to borrow from and deposit to.
Please post this anonymously if you choose to use my comments. Banks have a HUGE amount of rules and regulations on what we are aloud to say!
I appreciate the perspective of someone who is seeing the regulations firsthand. And I also appreciate the fact that much of the banking actions that helped create the financial crisis came from a very small minority within each bank.
Further, I sympathize that workers who had nothing to do with the problems are dealing with the repercussions while the executives have emerged virtually unscathed.
Still, I find it hard to for me to feel too sorry for the banks in general.
Peter W. wrote: Since the financial crisis was, as Bernanke stated, largely caused by banks-why have these same banksters not been penalized for their misdeeds in any way-instead given even more power
both in the private sector and in the government, received obscene bonuses and laughingly received no jail time. The corruption & greed in high places, it seems, knows no bounds...............
I wish I had an answer for this. There simply must be repercussions for unethical behavior.
Randal J. says “let them fail”: Dimon is a whiner. He took billions ($700 billion???) in our dollars, pays out huge bonuses and we pay for it all. Why not let them manage their money like a real business. If you run it poorly, you go out of business or a better managed company will take you over. Let’s get back to basics and let business run as it should. If they are too big to fail then break them up. I know that I’m basically a libertarian at heart and my opinions disagree with the average citizen but I’m tired of funding poorly run operations like GM, Fannie and Freddie, the banks and other businesses that are supported solely for their unions that pay to get liberal politicians in office. Who’s greasing who’s pockets?
I agree on most counts, but I have to support the bailout of GM (and Chrysler). These companies turned things around and are now making better cars and more money. Letting them fail would have meant an end of the American auto industry. I believe the bailout of GM was a great example of government “by the people and for the people” perhaps the only one to emerge from the financial crisis.
*****Thanks again for all your responses. Feel free to write me anytime: dailyprofit@wyattresearch.com
