On the day in which the government reported modestly stronger than expected retail sales for the month of May, signalling a return to strength for spending and the US consumer - the driving force behind 70% of US GDP - a far more ominous statistic was revealed by credit card company Synchrony Financial, which earlier today announced in a regulatory filing that it expects write-off rates to climb 20 to 30 basis points over the next 12 months, and will increase reserves for soured loans beginning this quarter.
Jamie Dimon said the market for U.S. automobile lending is “a little stressed” and that he foresees higher losses ahead for some competitors. “Someone will get hurt in auto lending,” but not JPMorgan, Dimon said. Meanwhile, CEO Citigroup Mike Corbat indicated that the company's second-quarter net income will be roughly 25% lower than the same period a year earlier, roughly the same as the abysmal first quarter.
"Security prices are not low. I wouldn’t say high, but full. So people are thinking cautiously but they’re acting bullish and they’re behaving in a pro-risk fashion. While investor behavior hasn’t sunk to the depths seen just before the crisis, in many ways I feel it has entered the zone of imprudence... The market is not an accommodating machine. It will not go where you want it to go just because you need it to go there."
The biggest shocker in COF's earnings release was something found between COF's top and bottom line: a surge in provisions for credit losses: at $1.1 billion this was a jump of 21% from Q1 and up a whopping 60% from the year prior. It was also the biggest credit loss provision the credit card company has taken since Q2 2012.
One of the strategies that has emerged in the post-squeeze normal is cornering the most illiquid stocks, and pushing them up, or down with relative ease due to the lack of liquidity and/or broad participation. But how does one go about quantifying what are the most illiquid stocks: is it the ones that trade the least on any given day (a double edge sword, because exiting a position would be that much more problematic after pushing the prices to any desired level), or is it simply those where individual trades have the highest price impact? One suggested answer is to look at the equities whose current float is a small fraction of their total outstanding stock.
GE’s announcement that its getting out of the finance business should be a reminder of how crony capitalism is corrupting and debilitating the American economy. The ostensible reason the company is unceremoniously dumping its 25-year long build-up of the GE Capital mega-bank is that it doesn’t want to be regulated by Washington as a systematically important financial institution under Dodd-Frank. Oh, and that its core industrial businesses have better prospects. We will see soon enough about its oilfield equipment and wind turbine business, or indeed all of its capital goods oriented businesses in a radically deflationary world drowning in excess capacity. But at least you can say good riddance to GE Capital because it was based on a phony business model that was actually a menace to free market capitalism. Its deplorable raid on the public purse during the Lehman crisis had already demonstrated that in spades.