07/17/17

JP Morgan’s Dimon Perhaps Encapsulated Everything Wrong In The Economy…It Is Not Us But It Is Washington And The Financial Media

By: Kent Engelke | Capitol Securities

Earnings season commenced with the release from three of the country’s largest banks. The headlines suggested nominal disappointments. The comments, especially from JP Morgan’s Dimon, are suggesting frustration.

Generally speaking, bank loan portfolios are solid, thus suggesting ample flexibility to lend. Excess reserves are gargantuan and the interest rate environment is improving.

And then there is Washington where the frustration from the lack of regulatory and tax reform is palpable. Washington is more concerned about politics than the nation’s best interests.

I will argue that if Dodd Frank is repealed in the Senate, monetary velocity and growth will accelerate. All the necessary ingredients are present.

Frustration is also rising with the consumer. According to the University of Michigan Consumer Sentiment survey, 51% of the respondents stated an improvement in finances, the greatest share in 17 years.

However, the percentage of respondents believing there will be further improvement in finances fell to 33%, declining from 40% in June which was a decade high. In my view, there were two interesting components of this data point. Respondents who identified themselves as Republicans were the vast majority of the decline. Second, there was no change in attitudes of those identified as Democrats.

The frustration of society and business leaders alike towards Washington is intense.

How will this frustration continue to unfold?

In the immediacy, headlines will dictate market action given the massive influence of ETFs and technology based trading. As stated many times, this is not investing, but speculating that the current environment will last forever.

JP Morgan’s Dimon inferred such headline investing is very distracting and the financial media should instead focus on the stuff that is holding back and hurting the average American, using the example of the fixation of the bank’s last two weeks of fixed income trading of this meaningless myopicy.

But will the current environment last forever? As indicated, frustration levels are at levels not experienced in at least a generation, levels that historically are associated with tectonic societal change that will impact the economy and the markets.

What will happen his week? To write the obvious, the markets will perhaps be dictated by the immediate interpretation of second quarter earnings reports. The economic calendar is concentrated in various manufacturing indices and housing statistics.

Last night the foreign markets were mixed. London was up 0.58%, Paris was up 0.16% and Frankfurt was down 0.06%. China was down 1.43%, Japan was up 0.09% and Hang Sang was up 0.31%.

The Dow should open flat. The 10-year is up 4/32 to yield 3.31%.