Maybe a three-day weekend is as good for the market as it is for everyone who works for a living. The market jumped out of bed this morning, seemingly raring to go. Good earnings from Wells Fargo and a little better economic showing for China in December perked the market. So little for so much points to the notion that the market wants to go up …
The transition from trader to banker is in full swing now for the big bank boys. Check out the earnings of JP Morgan, Citi, and Wells Fargo and the tale is the same – more loan revenue, higher credit quality, less bad debt, and less income from “investments.” It is all good, if you want to see the banks go back to banking, that is …
Last week ECB President Mario Draghi said the ECB’s three-year loans were clearly having a beneficial impact and were finding their way into the real economy as well as helping to calm government and bank bond markets.
So what would this week be without a look at Europe? As usual, politics rule the flow, but that is just the natural course of events. The LOL reality of the ratings agencies is the most blatant.
Meanwhile, in a move to circumvent their influence, Germany’s Merkel backed a proposal to reduce the reliance of institutional investors on ratings agencies, which some of her allies say are politically driven.
No matter, as the markets clearly discounted the recent downgrade of French creditworthiness, especially after S&P came out singing a different tune about France’s creditworthiness. The important point here is not what the ratings agencies say, but what Greece, the ECB, and the 25 other European nations hammering out a new accord do before the month of March ends. If the accord is what the ECB wants to see, the ECB will take more action to shore up the system. As to Greece, the issue hanging in the balance is not default; it is the degree to which it will default. Currently, talks with investors on an orderly default are suspended, which means they are fighting about how much of loss investors will take. Here is the reality – if you were an investor in Greece, would you rather take a 50-70% loss or a 100% loss? The point is that if Greece outright defaults in March, everybody loses, so which route do you think investors will take?
Now, back to the US of A … I noted last week that commercial/industrial loans were up in 2011 and particularly up in the Q4. A reader wrote in and asked me what that really meant.
Regarding banks lending more money, it would be useful to know how the current increases in lending compare to “typical” or “normal” markets. In other words, is 5.2% growth considered normal? As always, thanks for your positive spin on things.
The best way to answer this is to say “normal” no longer applies. The abnormal events in 2008-2009 changed everything. Now, the numbers matter less than the direction. If you look at a chart of commercial/industrial loans (http://alfred.stlouisfed.org/series?seid=BUSLOANS) from 2007 through last week, you will see the direction has changed (Go to site and click on “5 yrs” just below the chart.). Given that profits are up with companies, borrowing most likely points to expansion, as opposed to survival, which it was in 2009. That is the “normal” you want to see.
Trade in the day – Invest in your life …
