This Week’s Message: Traders oblivious, for now, to hugely impactful stuff…

Bringing you this week’s message a day early. Tomorrow I’ll be tying up a few loose ends; possibly implementing a marginal move in portfolios that we’ve decided upon but have been fiddling a bit with in terms of entry point(s). Today’s action impacted pricing to the point that may have us holding off a bit, or going even more incrementally. I.e., one thing we absolutely are these days is patient. Not that we aren’t normally, but, trust me, the time to be uber-patient in your core investment decisions is when the rest of the world isn’t.

I’ll be going silent from Thursday through Sunday evening, then on the road next week. While on the road I’ll be working, and no doubt blogging as well.

Speaking of today’s action, well, it was something! It was looking a bit like Monday, but without the intraday volatility signals pointing to another late-session selloff. In fact, in what looked like quite the orchestration of late-session organized buying, the market rallied hard into the close. Futures, after immediately selling off a bit in after-market trading caught a huge bid on Moderna’s positive vaccine news; which kept them afloat right through a White House press conference that included measures against China that would’ve utterly tanked the market a year ago. I.e., that’s long-term fundamental — hugely impactful — stuff that traders simply aren’t bothering themselves with at present.

Speaking of trading oblivious to (or perhaps misinterpreting) “hugely impactful” stuff, here’s from Bloomberg’s assessment of today’s banks’ earnings announcements (pay close attention to the sentence I bolded):

Swift action from the Federal Reserve and U.S. government staved off a pandemic-led spike in missed loan payments. The message from the nation’s biggest banks: It’s coming.

JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. set aside almost $28 billion for bad loans in the second quarter, a mark only surpassed by the last three months of 2008, during the depths of the financial crisis.

The total was higher than analysts had expected, with all three lenders saying their economic outlook had deteriorated as the coronavirus continues to rage through the U.S.

“This is not a normal recession. The recessionary part of this you’re going to see down the road,” JPMorgan Chief Executive Officer Jamie Dimon said Tuesday. “You will see the effect of this recession. You’re just not going to see it right away because of all the stimulus.”

JPMorgan now expects the unemployment rate to remain above 10% for all of 2020, and fall only to 7.7% by the end of next year.

The second-quarter provisions bring the three banks’ 2020 total to $47 billion, more than those firms set aside in the last three years combined.

“I don’t think anybody should leave any bank earnings call this quarter simply feeling like the worst is absolutely behind us and it’s a rosy path ahead,” Citigroup CEO Michael Corbat told analysts.

Loans to companies already have started to sour:

Wells Fargo’s nonperforming assets jumped 22% from the first quarter, largely driven by loans to the oil and gas and commercial real estate industries. The bank boosted its reserve for credit losses by $8.4 billion in the period, with more than three-quarters of the increase coming on the commercial side. Citigroup said its roughly $3.5 billion boost to wholesale lending reserves was partly driven by a slew of credit-rating downgrades.

Then of course — as I pointed out this morning — there’s human nature in action among political appointees:

“The pessimism of banks’ forecasts stands in stark relief to the predictions coming out of Washington. The White House has touted a sharp economic bounce, and said it’s intact even as the virus surges again and threatens new waves of lockdowns.

“I don’t see an interruption to the V-shaped recovery,” White House economic adviser Larry Kudlow told Fox News on Monday. “If there is one, I’ll be honest and factful about it. But at the moment, with our fingers crossed and some prayers, I think we’re on track for a very strong second half of the year, probably still 20% growth plus.””

Well, sounds great, but I’d say it’s at odds with Jamie Dimon’s thoughts on the foreseeable future…

Here, again, is Galbraith on the belief in the power of words:

“…a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue.”

That was him on the words of Andrew Mellon amid the great 1929 stock market meltdown.

I’ll leave you with my closing comment on our inner-office research thread this afternoon:

“…it’ll be interesting to see how long this buying mood holds up against the data and earnings over the next few days/weeks. More positive covid-treatment and add’l stimulus news is critical to keep it alive. The fundamentals — on their own — make present levels extremely precarious. Vol, volume, sentiment and positioning make the market ripe right here as well. But, again, for the moment, at least, the buying mood remains…”

Thanks for reading!


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