JP Morgan just released their second quarter financial results. I'm sure people in the financial industry will be combing over them. Its a strong beat. And a good sign for your industry, financial markets, and the direction of the economy.
From my point of view, one of most interesting components of what came out was Jamie Dimon's remarks about seeing encouraging signs in all aspects of his business towards the end of the second quarter. Thats when weather changed, and the sense that the animal spirits changed with it.
I think JPM results signal an upturn in business activities. My belief is that now we will see greater investment by businesses and that investment is also going to include wage growth and hiring.
Even negative international events can turn into a positive impact on the economy. Here are examples of why I said this. Competing with Russia for new markets and a hold on existing markets means both countries will be spending more money to generate relationships and do business. Tensions in the Middle East translate into greater expenditures on defense products and other national security related investments such as energy independence. Stresses in the European banking system, their economy and unemployment problems mean that the ECB will stay very aggressive with monetary policy that is stimulative. And Europeans will start to look for ways to move structural reforms which lead to growth.
I'm not going to worry about inflation yet. After all, before that the market has to heat up and start to test the supply side. Growth will come before worrisome or overwhelming concerns with inflation. If anything, news from the second quarter is probably going to affirm that the Federal Reserve and Janet Yellen have been on, and are on, the right track. Practically perfect when you consider that they are on track to taper purchases completely by the beginning of 4Q. And I think the taper coincides perfectly with incentives for the banks to dramatically increase lending starting in the second quarter, and that we're going to see future investment financed though debt and equity markets continuing to rise throughout the year. Considering this will be leveraged on a ridiculous amount of cash that businesses and others have, we're talking some serious coin!
And not to be overlooked, is how all this leads to tax revenue which can the used on something we all agree is needed - that is infrastructure! If the Federal government would just change the tax code to reinforce corporations commitment to the good ol' USA we would have a remarkable growth cycle. And given the rhetoric out of Washington these days from both sides, partly as a result of the worrisome trend of corporations moving their domiciles overseas, it is not entirely far-fetched that we could see something happen on corporate tax reform which is backed politically by both parties. Holy shit, wouldn't it be nice if Washington finally doing something smart for change!
Watch guidance on the 2Q earnings reports. If what I'm saying is accurate, then there will be a lot of talk about things picking up in the second quarter and translating into better guidance for future quarters.
