Lots going “out there,” but I only have so much room, but let’s start with the obvious. Still, the market is light, meaning the “bad news” outweighs the good, and this is a drag on the market. This reality also creates mild volatility that is highly tradable. Now, back to the news …
Do you recall me writing the new financial regulations would force banks back into the lending business in order to keep their revenue streams up, which would keep their stock prices up? The banks are lending again and in a big way, thanks to fiduciary responsibility and US government policy. This helps the US economic recovery immensely sooner rather than later.
JPMorgan Chase & Co posted a record quarterly profit on Friday as falling interest rates and a recovering housing market brought big increases in mortgage lending. The mortgage market, long a drag on bank results, is starting to lift lenders’ earnings again.
As I said, thanks to US government policy, and here is the reason.
The banks benefit [from government policy] because they act as middlemen in the mortgage machine. Instead of holding on to new mortgages that earn interest over a number of years, banks sell nearly all of them to investors after packaging them into bonds. The federal government, through entities like Fannie Mae, attaches a guarantee of repayment on the loans, making the bonds even more attractive to the investors. When the banks sell the mortgages as bonds, they do so at a profit. This markup has become even bigger after the recent moves by the Federal Reserve and the Treasury Department to help the housing sector.
Ah ha! This is part of what got us into trouble before, you might say. True enough, and the problem of guaranteed bad loans still plagues Fannie and Freddie, but this time around, as we all know, banks are taking a harder line on who gets the loans and who does not. It seems to be paying off.
Now, to counter the bad news out there, look at the data below (and above) as opportunities to find trades and to set up for the coming global economic recovery. The data below is mixed with potential pitfalls in each case. Nevertheless, in each is a seed for making money.
- Output at euro zone factories grew much more than expected in August, helped by summer demand for food and French car production.
- Polish Prime Minister Donald Tusk announced a big program of investment on Friday aimed at reviving a spluttering economy.
- U.S. producer prices rose more than expected in September as the cost of gasoline surged, but underlying inflation pressures were muted.
- U.S. airlines are expected to report solid profits for the third quarter, thanks to steady demand and fuel prices that declined toward the end of the period.
- Brazil might have to raise interest rates to keep a lid on inflation expectations as economic growth rebounds. The IMF expects growth to bounce back in 2013 and reach 4 percent, while inflation is forecast at 5.1 percent in 2013.
- Japanese wireless service provider Softbank Corp is in talks with three major Japanese banks to borrow $23 billion (1.8 trillion yen) to finance a bid for U.S. operator Sprint Nextel Corp.
Trade in the day; Invest in your life …
