An Experiment in Scotch

JP Mor­gan Chase reported today and it sure sounds like every­thing is com­ing up roses for the bank­ing behe­moth. Income is up 85% over last year at 74 cents a share com­pared to 40 cents a share a year pre­vi­ous. Rev­enue is up as well. Of course, as with most finan­cial report­ing these days, you have to read between the lines a lit­tle. The Times arti­cle above reports that Chase is “still hem­or­rhag­ing money” from its con­sumer busi­nesses. So if you do some minor math on that, they are hem­or­rhag­ing money from a line of busi­ness that is a strong indi­ca­tor of the econ­omy at large but are bring­ing in insane prof­its from invest­ment bank­ing to cover it.

This is a sign of where we really are in the recov­ery process and why so many smart thinkers out there are say­ing there’s going to be a dou­ble dip some­time this year. Peo­ple don’t have jobs, they aren’t spend­ing money, fore­clo­sures are still high and the com­mer­cial lend­ing prob­lems are only just now com­ing into the light. JPMC is mak­ing money because the mar­ket is up, because they have priv­i­leged sta­tus with the US Trea­sury and Fed and pos­si­bly because they are manip­u­lat­ing the pre­cious met­als mar­ket. These are not the func­tions that one of the largest banks in the US should be under­tak­ing to make profits.

Do not think for a minute that the all clear has been sounded. I expect most of the large finan­cial firms to report bet­ter than expected earn­ings this quar­ter but that other indus­tries will lag behind. That will likely catch up with us in the third quar­ter and it will become evi­dent that this recov­ery is mostly smoke and mir­rors. The path ahead is fraught with obsta­cles and given the heavy step of our gov­ern­ment and finan­cial indus­tries in recent years, I do not expect them to be able to safely nav­i­gate the dan­gers ahead. Until the Amer­i­can con­sumer is part of the recov­ery process, we are just stick­ing a Band-Aid on a slashed artery. And he’s not going to be part of that recov­ery for a long, long time.