(By Daniel Sckolnik) "Money is better than poverty, if only for financial reasons." – Woody Allen
It's baaack. Yes, the new earnings season is ready to take center stage once more, and investors are hoping for some corporate magic to prop up Wall Street's fragile confidence. Whether that is a wise place to look for encouragement at the moment may be decided rather quickly, as J.P. Morgan Chase and Co. (JPM) will be reporting later this week, and there remains the possibility that bad credit default swaps suffered by the now infamous "London Whale" out of JPM's London office will surpass the $2 billion level currently estimated.
Should a significantly higher loss be revealed during JPM's earnings report and subsequent conference call, all kinds of stuff could hit the fan. Not only would JPM's stock be impacted, it would also negatively impact the markets in general, and the banking industry in particular.
Just a few weeks back, JPM's CEO, Jaimie Dimon, managed to swat away the softball questions lobbed to him when he appeared before a Congressional committee that pretended to care about how such a huge loss could be suffered by one of the "too-big-to-fail" club members. The level of indignation by House members was the exact opposite of palpable, as they seemed to accept completely both Dimon's apologies and perfunctory explanations of the hedging process as performed by big banks. It seemed he was pretty much forgiven by all, as indicated by the rise in price of JPM's stock immediately following his performance.
However, if those trading losses should be reported as north of $5 billion, it is possible that a whole new round of questions about the levels of risk-taking by big banks begins to re-emerge. This time, with the presidential election heating up, it is possible that the issue of market regulation re-emerges as one of the issues du jour.
Should that occur, Wall Street, already concerned about a less than robust domestic economy and a still unresolved sovereign debt crisis in Europe, might get a serious case of the jitters. In that event, investors who may not be convinced of the benefits of a summertime that features a thinly traded equity market may sell off and go to cash, something that has proved a solid bet for a good portion of the year.
Still, it remains a possibility that the reported earnings announcement by Alcoa (AA), which traditionally kicks off the earnings season, may surprise investors in a positive way, which may not prove a difficult task, seeing as how many analysts are predicting a low bar of expectations for this cycle in general. Should AA have good numbers, and JPM adequate ones, investors might find enough reason to go Bullish.
In addition, Monday's scheduled meeting between the Eurozone's finance ministers could continue the momentum established at last month's summit. All it would take would be an indication that what was agreed then is still on track now, particularly that the latest funding level and delivery mechanism of any additional bailout funds remains on track to be implemented this year.
It would cheer Wall Street, as well, to see some indications that the U.S. is moving away from, rather than toward, a new recession. Unfortunately, the economic reports out of Washington this week are rather secondary in nature, and will probably reveal little either way.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week's "What the Periscope Sees."
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