No Surprises; $GS $JPM $BAC $WFC

Macro Perspectives: Wed 14 Jul 2021

As expected, the earnings season has kicked off with a bang.

JP Morgan crushed earnings expectations, nearly tripling the earnings from last year. Goldman Sachs earned almost 50% more than the Wall Street estimates - more than doubling the earnings from a year ago.

Don't forget, (as per my last Macro Perspective on bank’s) the banks have a war chest of loan loss reserves that they will continue to move to the bottom line at their discretion. That means they have a large inventory of positive earnings surprises they will present to us for several quarters to come. The chart below shows how they have faired since the report highlighting positive pressures:

So these big beats are no surprise. In addition to the position of strength they have in managing earnings, business is booming, deposits at JP Morgan are up 25% from the same period last year and the value of investment assets are up 36%. It's all, in large part, thanks to the four-trillion-dollar growth in the country's money supply over the past year. Banks benefit, directly!

With that, we hear from Citi, Bank of America and Wells Fargo today.

The cheapest of the big four banks is Citi. JP Morgan has a book value of $84, the stock trades at $155. Citi has a book value of $88, the stock trades at $68.

Now, yesterday we also discussed the prospects for a hot inflation number in the economic reports. We got it.

By now the media has been trained by the Fed to explain away hot inflation data as "transitory," based on the argument that the data is/will continue to be measured against very low comparable of a year ago (when the economy was in lock down). They want us to focus on the year-over-year change in prices.

However the real information is glaring in the month-over-month data. Inflation in June (both nominal and core) soared almost 1%. Moreover, that's three consecutive months of a monthly increase in the measure of prices near 1% (April +0/9%, May 0.7% and June 0.9%).

Forget the comparisons to last year. Extrapolate this monthly data out, and we are already seeing clear evidence of double-digit annual inflation.