Banking
Here’s what I want to see before buying in a stock market that stumbled on solid bank earnings
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We just had three fantastic quarters from three disparate banks, and I didn’t read a good word about them. Think about this. JPMorgan (JPM) reported such an outstanding quarter that I had to read it twice to believe how it could possibly have been that good to rally this very big-cap stock by almost $10-per-share. Almost $10. This is not some tech stock beating faux estimates and being loved by idolatrous research analysts. This is JPMorgan, like the House of Morgan. I have not liked the stock of Citigroup (C) after it began to diverge immensely from its tangible book value (TVB). I do not understand how it could be double the price of the stock when the TVB means that if you closed the bank that’s what you would get. Hmmm, you buy Citi at $50 per share and you get almost a double if CEO Jane Fraser decides to close it? I don’t think so. Put aside that nagging oddity for a second and you have to be impressed with the quarter. I would go as far as to say that Citi seems to become just plain cheap, especially if it sells Banamex, one of Mexico’s biggest banks, for a good price. Looks like the celebration of the far-flung is, at last, joyously over. I know the stock of Wells Fargo (WFC) didn’t do much after it reported. That was just a wrong reaction. The bank, a core position of my Charitable Trust, really did beat the top and bottom line quarterly numbers handily, bought back $4 billion in stock — and yet, it added so much more capital that it has more than it did before the buyback started. It’s oozing with cash. WFC YTD mountain Wells Fargo YTD peformance More important, Wells Fargo is almost done peeling back the regulatory onion. It has had to spend fortunes in fines and technology and risk management hires that I can’t believe it had such a good efficiency ratio, a number I regard as important as all of those net interest income and margin numbers that everyone is so possessed about. Those were, of course, great, too, but that’s simply a question about how stupid the deposit base is. The dumber the base the less likely it is to leave for greener pastures. Wells Fargo’s base seems pretty dumb, but we might see dumber this week. Now, I offer the story of these banks as a preamble to what I see happening in the stock market right now. Bank stocks are notorious underperformers in the aggregate and have been labeled uninvestable by many including, at times, yours truly. That’s because they have become trading vehicles. They screw up too often. Which is why Friday was so remarkable. Bank trading is like playing Russian Roulette with three bullets. Usually, half are going to blow your head off. Instead, we went three for three. Have bank CEOs suddenly become the most brilliant CEOs in the world? No. But this is one special moment for the U.S. economy. First, you have everyone running scared, which is, by nature, good news because banks make far fewer mistakes when they run scared. And, they are making far fewer mistakes. Second, all three showed that the American consumer is still pretty flush and is not living beyond their means. There’s a little increase in bad debt, but nothing like we used to see before Covid. Maybe the aftermath of the pandemic has introduced still one more new wrinkle on the financial landscape: people want to spend but they don’t want to go broke. Third, this commercial real estate boogie man, while real, may not be real for those who know how to lend. We spill barrels of ink, or billions of characters, on how commercial real estate is the graveyard we whistle past or the most hated cliche of my era, the canary in the coal mine, and we never talk about who owns the bad loans on “Class C” and “D” buildings. I know who doesn’t: these banks. Now, I know the cynic says that the grade is in the eye of the beholder. That’s just not true, though, because what these companies do, quite cleverly, is describe where these buildings are because what seems to matter most is density. If there is a shortage of real estate then a not-so-hot piece of real estate earns a “B”, not a “C” or “D”. Yes, that’s me talking, but if you want to go over every building that has a loan that’s current and decide that it isn’t, well, don’t own any banks, period. Finally, there’s a really interesting backfire going on here with what the Federal Reverse is accomplishing, and it’s not all bad. The pandemic produced savers with miserable savings rates. Now these same savers are getting very big, safe, returns on their capital. Their frugality — except, I think we will find when they are on vacation — is matched by their better returns on their holdings. Sure, Wall Street snobs will laugh at those who have $100,000 and are now picking up a few extra percent. But these are the same jackasses who live six months and a day next to The Breakers resort in Palm Beach, Fla., where a dozen stone crabs cost $779 and they don’t mind. So, what they heck to do they know? This brings me back to the most important point of what happened Friday: Our worst fears about spiking bad loans of the auto, credit and home variety didn’t come true and therefore won’t come true this coming week. Amazingly, like the “stays-in-Vegas” cliche — what happened at a bank that loaned against pre-IPO companies while investing at a moronic part of the bond market yield curve, seems to have stayed at Silicon Valley Bank. Or, at least, it has stayed long enough that if there is another bank failure, there’s been plenty of time to come up with a plan. I don’t want to conflate a day of good bank earnings with a month of good stock prices. We are still overbought and are now getting less overbought, which is actually a time when stocks tend to go down. We also know that there are so many people who like to talk about the Fed that there will be a steady drumbeat of negativity. The Fed never inspires positivity — and if you ever say that it does, you are branded an idiot rather quickly. But if are going to name-call, I can tell you that the only thing easier to opine on without doing any homework besides politics is the Federal Reserve. Can there be any other explanation why recently you could go from a prediction of a 50-basis-point interest rate hike, to a 25-basis-point hike, to no hike, to a possible emergency cut, then back to no hike and then all the way back to a 25-basis-point hike, and still be taken seriously? Only if everyone is telling the same idiotic tale. Still, because we live and die by Fed chatter, you can’t rule out some rollercoaster action, not in the plain vanillas that define the week ahead— from the likes of Club holdings Johnson & Johnson (JNJ) on Tuesday, Morgan Stanley (MS) on Wednesday and Procter & Gamble (PG) on Friday — but in the over $500 billion club of techs that always manage to be at the forefront of stock despair. Not economic despair. Just stock despair. Bottom line Maybe that’s why nothing is grabbing us right now, nothing new, nothing exciting. It’s not like we demand lower prices, but believing that things aren’t as terrible as we thought and deciding to put money to work should not be confused. I think it’s fair to say that earnings could ratify prices not necessarily boost them, so why not wait for better prices for more committing of capital? We have made our sales. We have our cash. I am not asking for Dollar Tree pricing (the store, not the stock). But would a bit of a discount from Hermes and Vuitton be too much to ask? (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
People walk past a Wells Fargo branch on January 10, 2023 in New York City.
Leonardo Munoz | View Press | Corbis News | Getty Images
We just had three fantastic quarters from three disparate banks, and I didn’t read a good word about them.
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