The Way Forward

US equities managed to turn positive in the last 90 minutes of trade yesterday, although gains were modest. Asia has been mixed, but slightly positive on balance and this may be a good couple of days, before the long summer weekend, to sit back and take stock
As I’m bored with being negative, let’s look at one of the success stories so far this year and why we should be celebrating it instead of (as many politicians are) sermonising about it.
Credit Agricole beat profit estimates yesterday and continued the trend of major banks outperforming expectations and restoring profitability. Sections of the press and several politicians have rushed into print to castigate them for this, in the same way they complained and wrung their hands when they lost money in recent years. Apparently they should be taking many more risks and lending far more cash than they are instead of (shock horror) making profits and rewarding shareholders for their patience and bravery in sticking with them.
Of course, these people are ignoring several facts: Irrational lending (actively encouraged and applauded by governments and the media) caused many recent problems in the first place, new rules on capital and leverage prevent banks taking similar risks and people and businesses don’t want to borrow so much money at the moment anyway (thank heavens!)
When will we stop treating reducing debt, assessing risk more carefully and spending within our means as “austerity measures” and “tough measures” and begin to treat them as sound financial management and basic common sense. AS banks make more money and build up reserves they will naturally begin to lend more and take more risk. AS business and consumers pay down old debts and become more confident in the future they will naturally begin borrowing more and thinking more expansively. This is how recoveries that last are built- not by silly speech making and government interference in the natural order of things.
I don’t know what is scarier. The way politicians are reacting to the current situation, or the low number of dissenting voices from people who should know far better.
CDX unchanged last night, VIX a fraction tighter, decent new issue activity headlined by EIB raising $4bn in the 5yr area and I guess US jobless data the only thing that might cause headlines amongst today’s data.
Enough excitement for one week in markets I think, even though business volumes remain awful- happy Thursday everyone.