Stock Market: What Do Bank Earnings Tell Us?

Banks are the perfect place to show book money:


When the banks built accruals for potential bad loans – earnings went down;

and now Banks release over-accruals – and earnings go up.

This is basically what we saw in Citigroup today.

Banks show their real attainment in the development in the revenue numbers and this is where Citigroup came short (see our article: http://neverlosstrading.wordpress.com/2010/10/18/stocks-makret-solid-earnings-and-home-builder-confidence-increase/

JPM (JP Morgan-Chase-Manhattan) already announced on October 13, 2010 lower revenue numbers, but better earnings. Why is that? All banks are very restrictive in lending money, they enjoy a beautiful margin by the low fed rates and with that do not need to find new business to show profits: profits come from book money: margins, reserves.

With a restrictive – but for the banks comfortable – lending policy, we will not see bigger growth for the economy in the near term future and with that no release on employment numbers.

Based on the sound profits from all corporations in the 3rd quarter earnings release, we have the following investment policy:

- Short term we go with the market and trade towards the upside and we are looking to buy into a market retracement we are waiting for.

- Midterm we get ready for getting short in Banks and our candidate to pick is JPM (we collected a lot of material that indicates a 4th quarter write off from the trading side of JPM).

Good trading.