We’re in the middle of the Fed’s monthly MBS QE purchase settlement week. The Fed is pumping a lot of cash into Primary Dealer accounts. But what will they do with it? Here’s a look at their recent behavior.
I’m really impressed at how JPM, GS, and WFC were able to generate enormous profits in Q1 despite the losses in the bond market. I guess the rise in stocks bailed them out, among other things. Their portfolio positioning was likely better than the 21 other Primary Dealers.
Meanwhile the Gangsta Bankas cook the books.
As the NY Times put it:
Strength in the banks’ investing, lending and trading businesses added to the euphoria. All three reported robust revenues across multiple lines of business, driven by a combination of active and rising markets, a flurry of new mortgage activity and the boom in special-purpose acquisition companies, or SPACs. Corporate merger and acquisition activity also marked an all-time high by dollar value.
Wow. It’s all good. They also pointed out that the banks boosted their bottom lines by sharply lowering their loan loss reserves.
I’m not a micro anal cyst. I do macro. And the macro clearly showed that the banks who own Primary Dealers took massive losses in their bond portfolios. I guess they can subsidize those from all these other skim lines that they run.
Are these profits real, and will they use them to get their dealer subsidiaries through the coming fiscal cliff?
Those are the questions that I’ll attempt to answer in upcoming reports in Days of Our Lives.
By the way, did you know that only 9 of the 24 Primary Dealers are US owned. That’s right. When the Fed pumps money into the markets via the Primary Dealers’ accounts at the Fed, most of the banks receiving the money are foreign. Don’t believe for a second that Fed policy is about US employment and inflation. It’s about keeping the worldwide US Primary Dealer system alive.
Or at least giving it the appearance of being alive.