Morning Report: Bank Earnings Improve

Vital Statistics:

S&P futures4,37716.8
Oil (WTI)75.01-0.25
10 year government bond yield 1.37%
30 year fixed rate mortgage 3.14%

Stocks are higher this mornings as the banks report big increases in profits. Bonds and MBS are up.

Jerome Powell will testify in front of the House Financial Services Committee at noon today. Here are his prepared remarks. On the labor market, he laid out the disconnect between job openings and a high number of idle workers:

Conditions in the labor market have continued to improve, but there is still a long way to go. Labor demand appears to be very strong; job openings are at a record high, hiring is robust, and many workers are leaving their current jobs to search for better ones. Indeed, employers added 1.7 million workers from April through June. However, the unemployment rate remained elevated in June at 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish.

Inflation at the consumer level rose 0.9% MOM and 5.4% YOY. Ex-food and energy, the index rose 0.9% MOM and 4.5% YOY. The producer price index (which measures inflation at the wholesale level) rose 1% MOM and 7.3% YOY. While the YOY increases are big numbers, they really deserve an asterisk next to them because the lockdowns of a year ago are distorting the numbers. The Fed is dismissing these increases as “transitory” and believes they will fall again as the supply chain shortages disappear. If you look at the chart below, you will see that inflation is much less volatile than it was from the 1950s through the 1980s. Much of this is due to things like just-in-time inventory management, globalization, and the transition from a manufacturing to an IP-based economy.

Mortgage applications rose 16% last week as purchases increased 8% and refis increased 20%. Note that last week had an adjustment for the 4th of July holiday. “Overall applications climbed last week, driven heavily by increased refinancing as rates dipped again,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Treasury yields have trended lower over the past month as investors remained concerned about the COVID-19 variant and slowing economic growth.” Conforming rates fell 6 basis points last week to 3.09%.

Small Business optimism decreased in May, according to the NFIB. The labor shortage is the biggest problem right now. Rising inflation is beginning to worry small business owners, especially with the perception that the COVID-19 rebound is getting played out. Owners expecting better business conditions over the next six months declined 11 points to a net negative 26%. A net 40% reported increasing average selling prices. The construction sector and the professional sector are the most negative, while manufacturing and agriculture are the most optimistic.

JP Morgan reported better than expected quarterly earnings of $3.78 per share, which was a big increase from the $1.38 it reported a year ago. Earnings were impacted by a $3 billion (or about $0.75 per share) reserve release. These are reversals from provisions for loan losses taken out last year. Simply put, consumers largely did not default on credit card debt during the COVID-19 crisis, so JPM reversed these non-cash charges.

Mortgage banking revenue fell 22% QOQ and 40% YOY as margins compressed. This is interesting given that volumes were flat QOQ and up 64% compared to a year ago. Total originations came in at 39.6 billion.

Wells reported quarterly earnings of $1.38 compared to a loss of $1.01 a year ago. Originations rose 3% QOQ and fell 10% YOY to $53.2 billion. Gain on sale fell compared to Q1, but increased compared to a year ago. Overall mortgage banking income improved as mortgage servicing right valuations rose.

32 Responses

  1. Worth noting:

    “Monday, July 12 Scoreboard:
    Fox News Averages More Adults 25-54 in Primetime Than CNN and MSNBC Combined”


  2. The walls are closing in on Fauci…

    Who wants to bet that when the media finally turns on him, this will be sold as a Trump scandal? “Trump Health Official Hid Truth About Covid!”


  3. How the mainstream media rationalizes it’s behavior to itself:

    “The media must reinvent itself for the era of Trumpian politics. Here’s how.

    Opinion by
    Perry Bacon Jr.
    Today at 9:00 a.m. EDT

    Forced to choose between strict neutrality or defending democracy over the past four years, many news outlets opted for the latter, casting Donald Trump as a threat to the nation. This approach dismantled whatever was left of the facade that the media is a disinterested observer of U.S. politics — and created a new crisis for the industry.”


  4. Like

  5. first day back in the office.
    yep, it blows goats. despite being able to see some people that i genuinely like.


    • What do you see as the likely outcome here? I would think a cruise line could ask for whatever health documentation it wanted. Cruising is not exactly a right. But not a lawyer.


      • I think you are right.

        I think the Plaintiff is smart to ask for an injunction against the operation of the statute as applied. Because of the claimed conflict of federal law and FL law as it applies here the cruise line should win. But it won’t be broader than as applied – I suspect FL’s statute would be upheld against a grocery store that required proof of vaccination. The general libertarian principle that a business can operate how it wants to within the law comes up against – the law, for the grocery store. The cruise line has the advantage of claiming conflicting laws, but I think the grocery store would not.

        A Florida court, as opposed to a federal court, might give less weight to an apparent conflict, but more weight to equitable relief [“t’aint fair” rule]. If I had a mom and pop grocery store in little Havana, at 78 YO in the most danger from Covid, and wanted to only serve the vaccinated, I would try a local Miami court, not a federal one.


        • Is it a law though, that is in conflict, or merely a CDC guideline? If it’s merely a guideline, how does that trump a state law?


        • It depends on the enforcement mechanism from the point of view of the cruise line. That is why I hedged with the word “apparent.” CDC set that stuff out as “mandatory” to begin with. Mandatory fed guidelines conflicting with state mandates regardless of whether regulatory or statutory give the cruise line complete running room for a declaratory judgment.

          It is possible the fed court will not see the additional CDC guidelines as mandatory and that the cruise line would lose, in which case I hope Abbott doesn’t pull the same stunt as DeSantis because it would help Galveston and Texas if the cruise lines were to shut down in FL and come here. Or maybe TX already passed such a rule? IDK.


  6. Spectacular article by Abigail Shrier:

    Its mistake is not in any of the hand-written niceties it revels in, which make life orderly, cozy—even lovely. Its mistake is that it treats Leftist ideologues like quirky out-of-town guests arriving for brunch. It assumes we all want the same things and are equally devoted to the perpetuation of bedrock American commitments: free speech, free exercise of faith, equal protection, rule of law.

    But the Woke are not zany guests. They are home-invasion robbers. The structure they intend to leave behind will contain but a handful of the cultural artifacts they encountered. Bringing down statues of Abe Lincoln, books by Dr. Seuss and schools named for the country’s founders? That’s just their casing the joint. The large-scale heist hasn’t even started.

    Aw Shucks Conservatives are willing to disagree with the Left, but they first want to get all the terminology right—“Now, which is it again: is ‘non-binary’ the same as they/them? Or ‘she/they?’” They don’t understand that the chaos is the point. While they strain to avoid a faux pas, they don’t even feel the dagger going in. They chuckle with their buddies that Woke beliefs are “nonsense upon stilts,” to use Bentham’s term—and that voters will surely respond in the next midterm election. They do not fight Silicon Valley—they are confused about whether their belief in free market economics allows it. They do not fight for women—not if it means any mud splashed on their full-break trousers. They have lost every important cultural battle and – if given over to their protection – we would lose America.


  7. The Dean of the Law School at Cal was all for the filibuster in 2005 or so but now he is against it. That could by itself be an honest change of opinion – but in this case I think it is not. Why? Because he is now arguing that the filibuster is – wait for it -unconstitutional.

    Well, it might be a good thing or a bad thing but it ain’t unconstitutional. The Constitution specifically says the Senate makes its own rules. I don’t think he can get from there to here.


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