Tuesday, January 17, 2023

Morning Note: Confirmation

The following regarding last week’s commentary from bank CEOs -- per our latest messaging -- jibes to a T with our present view of general conditions:

"The heads of the nation’s four largest lenders — JPMorgan
Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. — took turns in calls Friday describing customers who are drawing down savings, piling up debt on credit cards and in a growing number of cases struggling to make their payments.
But with many still keeping up, the swelling loan balances
are good for lenders. And so far, most consumers have “plenty of cushion left,” Bank of America Chief Executive Officer Brian Moynihan told analysts."

Despite that "plenty of cushion" (which, on balance, we don't disagree with):

"Altogether, the four lenders wrote off $2.29 billion in bad
credit-card loans in the last quarter of 2022, a 54% jump from a year earlier.
The four banks collectively set aside $6.18 billion in
provisions for bad loans during the fourth quarter — a reversal from a year earlier when the group released past stockpiles. Altogether, the lenders added $2.8 billion in reserves in the quarter.""

Also, consistent with our present view that odds favor a bit more pain before the current bear market comes to a close, Fedhead Kashkari emphasizes the notion that the market is underestimating the Fed's resolve:

“I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic,” Minneapolis Fed President Neel Kashkari told the New York Times. “They are going to lose the game of chicken, I can tell you that.”"

I.e., indications are that the Fed is, for now, accepting of more market pain, which, as long as that's the case -- given the following -- makes for a precarious near-term risk/reward setup: 

"By Farah Elbahrawy (Bloomberg) -- Just as investors are celebrating the prospect of peak inflation and potential for a soft landing, this earnings season is likely to show there’s still plenty that should keep them up at night.
With costs still on the rise, interest rates starting to
bite and consumer spending declining, results are expected to reveal the start of a US earnings recession, which will last
until the second half of 2023, according to Bloomberg
Intelligence strategists.
While analysts have been busy slashing their forecasts over
the past few weeks, the consensus for corporate profits in 2023 remains “materially too high” with or without an economic recession, according to Morgan Stanley’s Michael Wilson, who warns that stocks can fall about 25% in the first quarter under pressure from poor earnings and guidance."

Asian stocks struggled overnight, with 11 of the 16 markets we track closing higher.

Europe's red nearly across the board so far this morning as well, with 17 of the 19 bourses we follow trading down as I type.

US stocks are struggling just a bit to start the session: Dow down 156 points (0.45%), SP500 down 0.06%, SP500 Equal Weight down 0.03%, Nasdaq 100 down 0.11%, Nasdaq Comp down 0.13%, Russell 2000 down 0.10%.

The VIX sits at 19.89, up 8.39%.

Oil futures are up 1.42%, gold's down 0.16%, silver's down 1.56%, copper futures are down 0.53% and the ag complex (DBA) is down 0.08%.

The 10-year treasury is down (yield up) and the dollar is down 0.20%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 16 -- led by energy stocks, Albemarle, consumer staples stocks, AMD and utilities stocks -- are in the green so far this morning. The losers are being led lower by Nokia, silver, communications stocks, Dutch Bros and Brazil equities.

"As far as understanding how the economic machine works, the important thing to understand is that money and credit are stimulative when they’re given out and depressing when they have to be paid back. That’s what normally makes money, credit, and economic growth so cyclical."

--Dalio, Ray. Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail  

Have a great day!


  1. Much appreciated for the updates!
    I am familiar with Mike Wilson from Morgan Stanley. He is the biggest Bear in the market. Despite that, he was right many times in 2022. I think he might be right again in 2023.

  2. Quick question:
    How does missing the debt ceiling deadline affect the market?

    1. Remains to be seen... It seems to me that the script has been replayed enough over recent years that I'd be surprised, frankly, if the market takes it very seriously... We'll see