Skeptics on Bank Earnings Missing the Point

There seems to be a bit of confusion on the economic front, with banks reporting profits that more than a few observers are finding quite unacceptable . New York Time's Dealbook puts it this way :

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be — presto! — better-than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

(N.Y. Times)

We are willing to go out on an admittedly weak branch and say that the skeptics have it exactly wrong, and we offer this with no contra evidence.  (What, you expected us to voice an opinion and back it up by research? Oh please. It's hot now in Phoenix and we are lazy).

But given that the financial reporters are generally always focused on the last major thing, and trying to recoup from not being in front of the last disaster, we find human nature a likely predictor that the reporters are a little behind the curve on this, and that those on the inside (of the banks) have a clearer picture of what is going on than those observing from afar.

Granted the banks are grabbing their earnings in every conceivable way, with some (Goldman) getting a certain amount of trading revenue in the process, and we still are not privy to the value of assets on their books, but we are of the opinion that the financial bottom occurred back in October or so, and that we are now in the process of gradual (upward) inclination.

Our theory is that all the ingenuity previously applied to milking the housing bubble in every conceivable fashion will thus be directed in fixing the balance sheet in every possible way. It's in the self interest of financial firms to get out from under the obligations to the Feds and thus have their salary pricing power restored. It does not really matter how they earn this income. Whether it's Bank of America disposing of assets at a profit, or Goldman doing proprietary trading, any such gain is one step farther away from being on the edge. The Times argues that the banks should be more focused on loaning and capturing the spread on borrowing costs to loan income, but most likely the banks are doing that to the extent they are capable of doing it, without resorting to the type of shifty bookmaking they did in the past where every breathing soul got the money they did not exactly deserve.

We shouldn't wait for the newspapers to tell us when the bottom is, or when all is okay with the banks, for when they do, it will surely be past the point of any true value.