Was it all just a bad dream?
With the Dow hitting 10 thousand and many stocks at one-year highs, was last year’s market panic just a piece of underdone potato?
That’s the way it feels as we watch the market climb ever higher. Credit spreads have come in and global markets go up. Yesterday’s big news was from JP Morgan. Even though they bought Wamu’s bad loans last year, they reported earnings higher than any time since before the recession. Interestingly, their investment bank earned as much as the rest of the bank put together.
So what does this tell us about the economy? Clearly, we’re not in the “winter of discontent” any more. Those folks who advocated nationalizing the four major US banks should be reexamining their premises. Some big banks—notably Citi—have ongoing troubles. But all their investment arms are capitalizing on a deal-making boom.
So while problems relating to the consumer haven’t disappeared, investors are voting with their wallets and expect a solid recovery. There are enormous opportunities out there as energy, industrials, financials, and healthcare companies restructure for new markets. While unemployment is high, the leading elements of our economy continue to surge.
What this means is that banks that focus on transactions will probably continue to do well. While the road ahead may have some bumps, it looks like we’re still in a financial economy.
Douglas R. Tengdin, CFA
Chief Investment Officer
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