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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 20, 2009 at 10:00 AM

Why the stock market isn’t banking on BofA’s rosy earnings report

Top of the News: More investors seem to be wising up to the notion that this is a sucker’s rally, another of at least five bear rallies over the past two years that went nowhere. Of course, some players get in, make a profit and jump out — don’t you wish they were the ones running your 401(k)? Bank of America’s tripling of profit doesn’t impress because it appears to be something of an accounting artifice — something seen on reflection in several of the recent “good news” bank earnings announcements. In BofA’s case, most of the “improved” net income came from adding in Merrill Lynch…hardly organic growth. Meanwhile, look deeper and you see much higher credit-card losses and net charge offs.

Two sobering reports are also feeding the bears. The Wall Street Journal analyzed Treasury data on lending at the largest banks. Despite the huge bailouts, lending has fallen far more drastically than thought. The biggest TARP recipients made or refinanced 23 percent fewer loans in February than in pre-TARP October. Of course, a debt-strapped, recessionary economy might be expected to produce such a result. That’s why I’ve always been uncomfortable with the talk about “unfreezing credit markets.” The reasons behind the rescue are more complicated (and more vulnerable to gaming in favor of the oligarchs).

Also, leading economic indicators fell more steeply than expected last month. Bottom line: no sign of an upturn or even a bottom. Yet you’ll find a contrarian voice from Stanford University’s Nicholas Bloom, who argues that federal intervention has averted another Great Depression, and the economy might restart later this year.

Yet another market romance killer is Oracle’s deal to acquire Sun Microsystems. Legendary Sun never really recovered from the tech bust, and most tech mergers don’t produce the promised results (most mergers of any kind, ditto). But for Wall Street, the deal is paltry — $7.8 billion — and no sign that creative destruction with hefty investment banking fees is coming back anytime soon.

The Back Story: You can’t call it a sign of recovery, but it is definitely a sign of confidence in a Seattle battered by the downturn. is breaking ground today on its 11-building complex in South Lake Union. With so many companies pulling back and commercial real estate at perhaps only at the beginning of its tailspin, this is a big deal. It’s doubly big that has so far avoided the worst of the consumer pullback.

Today’s Econ Haiku:

BofA, Merrill

Two drunks hold each other up?

Their bender, our cash

Comments | More in Banking, Outlook, Tech economy


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