A Powell-Led Economy

Macro Perspectives: Thu 15 Apr 2021

First quarter earnings have kicked off with the big banks, we’ve heard from JP Morgan, Goldman Sachs and Wells Fargo.

Not surprisingly they are putting up huge numbers. Remember, last July, as we were prepping to hear from the banks on Q2 earnings 2020 as the damage from the pandemic economy was just unfolding, we talked about the likelihood that the banks would take the opportunity to put all of the bad news they could muster on the table.

Indeed, the banks threw in the kitchen sink on loan loss provisions (i.e. guesses on what losses would materialise in the future). This, as the Fed had already put up a fortress around the banks, defending them from big losses, and given them a position of strength to print profits in the bazooka-stimulus world. Still, banks managed down those earnings, setting aside huge loan loss reserves.

What does it all mean? It means the banks laid the groundwork last year to come out of the pandemic economy with a war chest of capital (labeled as loan loss reserves), that they can move to the bottom line (earnings) at their discretion. We're in the early stages of seeing it.

The banks are a buy.