The Three Kings of Wall Street: Gifts of the Magi Lifted Last Week's Market

Three kings brought gifts of profitability, financial independence and share rise to the market last week. The CEOs of Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) injected the stock market with greatly needed confidence as a result of their long-overdue news.

The initial spark that gave life to trading was the conspicuous leak of an internal memo at Citigroup. Vikram Pandit, the CEO of the troubled bank, authored a note to employees pleasantly sharing news of the company’s “best quarter since Q3 2007.” We should make note here that the aforementioned quarter was the bank’s last profitable period. Likewise, Vik was relieved to share that the company was also profitable through the first two months of 2009. If ever there were a reason for hope, tangible good news from the financial sector would be it.

Now, shareholders have heard uplifting speeches before, and from reputable sources like Warren Buffet and Barack Obama. Warren has since slipped from his ranking as the richest man in the world, posting his worst year on record in 2008. Barack was only just recently pinned with the dubious label “bear market president,” meaning the market declined 20% within the few months he’s led the poor nation. However, the great discovery arriving from six feet under, where the beaten-down financial sector resides, was much more meaningful to investors. You see, Warren spoke of history and trends, and the wisdom of long-term investing. A lot of good that does us in the short term though! Barack speaks of hope and hard times, which investors find difficult to back with their dollars.

Citigroup actually has a bead on things... They’ve got their feet in the water, or rather their heads barely above it. Either way, believe it or not, investors believed Pandit, and sent both Citigroup shares and those of the broader market to a gap higher open on Tuesday. The interest in Citi shares that ensued got other bankers previewing their own books. Before we knew it, Bank of America had followed suit and declared its own profitability.

Like men lost at sea on a raft, the desperate sailors began offering up any piece of meat they could find to the sharks that had been encircling them. Both the banks also declared they would not need any more government aid, as if that were a proclamation of excellence. Still, it made all the difference to investors. Before the week started, Citi traded below a dollar and BofA touched $3. At Friday’s close, Citigroup hit $1.78 and BofA recovered to $5.76, which was fine indeed.

Not to be left out of the party, JPMorgan Chase CEO Jamie Dimon gave a speech worthy of Morgan himself. Dimon addressed a U.S. Chamber of Commerce event intended to boost confidence. For this reason, we wonder if the three bankers might have devised the grand scheme in advance.

All this excitement might not matter for long, though. You see, every good story has a villain, and this one has Wen Jiabao, the Premier of China. On Friday, addressing media following the conclusion of the National Peoples Congress, the Prime Minister said he was concerned about the credibility of the United States and the security of his nation’s holdings in U.S. issued treasury instruments. Just like that, it seemed the only news that could uplift investors finally met the only news that could stop that rise. However, stocks boldly recovered Friday after a midday drift, and investors seem determined to push them even higher.

What the future holds is less than clear. Still, with St. Patrick’s Day falling this week, at least we’ll have the luck of the Irish going for us.

Comments

[investor88:]

Market technicals are quite promising for a 2 month rally but by all means have a stop loss/sell stop.

Mar 15 06:20 AM

[CautiousInv...:]

McKinsey recently issued an analysis of the banking industry and they expect the industry to be unprofitable in 2009......under a variety of scenarios.

As to the market, anything could happen over the next several weeks but I would be very cautious in front of the release of first quarter earnings.

Mar 15 08:51 AM

[pacman1947:]

Markos,
Your allusion to the Gifts of the Magi, the stuff of myth and legend, to the statements of CEOs trying to save their troubled firms tells a story.

I too hope for some recovery, or retracement, of the horrendous losses of the past few weeks and months. I don't know whether I can believe the memos and press statements.

Should we offer sacrifices on an altar to the Great Bull? We do it every day we invest long in the market. Investor88 and CautiousInvestor (above) have it right. Beware the Bear Trap. Prudence must be the tempering agent for our greed.

Mar 15 09:24 AM

[JC09058:]

First, conspiracy theories aside, each of the three major banking CEO need any good news that they can find to buoy their share prices. They need to because their bosses, the share holders, are not pleased. Each of the CEOs will be looking for new jobs at some point because of what happened. To have any hope at all of saving their jobs, they have to recover profitability and share price as quickly as possible and be in better position than before this mess started. Unlikely.

More than likely, Citigroup actual statement was a prayerful hope to keep from ever dipping to the zero mark on its share price and to spark any kind of turnaround possible. While the Citigroup’s news is good, I don’t think it is quite as rosy and the cleanup will still be expensive to deal with. Plus, the Government is involved and anytime that happens, times get ‘interesting’.

BofA and JPMorgan are in the same boat as Citigroup and any good news is needed as well for the same reasons. Plus, seeing the reaction to Citigroup’s share price after their news release drove BofA and JPMorgan CEOs to do the same thing. Basically, Citi dipped its toe into the water and found it good, and the others were quick to follow suit for want of being left behind.

A conspiracy of bankers? Maybe but highly unlikely.

Secondly, I see the tail is trying to wag the dog again. The Premier of China, Wen Jiabao, is trying to stir things up and the timing is right on the mark too. About three months into a new sitting president, China always tests that new president to see what he will do. Usually, this is through use of their military centered around the South China Sea as is the case right now. To China, our system of government is corrupt and evil, and using our current market troubles, as a tool to stir the pot, is exactly what the Central Committee wants to use to test our president.

These are rhetoric statements and nothing more. The Central Committee, though the Premier, knows as well as we do, that the US Treasury securities will be back to the fullest. We have to. Otherwise, the dollar will have no more the value than the Peso at any period of time and you pick the country.

Any time China can use our troubles, as a propaganda tool, they will do so. They have their own troubles internally and need to show their system is better than ours, internally and externally. Yet, without us, their economy would be no better than it was in the 50’s through the early 70’s. This country drives their economy, and they know this and hate it. Plus, our troubles become their troubles and they hate that as well. They have nowhere else to go to for business because the rest of the world is in the same position economically.

So, I say to China, stop being the tail that wags to dog. Economically, the tail is too small and the dog is too big. Oh yes, to Mr. Wen and the Central Committee of China, welcome to the wonderful world of capitalism and free market societies. From the racing world, sit down, buckle up, shut up and hang on because it’s going to a wild and fun ride.

Mar 15 09:35 AM

[Glen L.:]

"Oh yes, to Mr. Wen and the Central Committee of China, welcome to the wonderful world of capitalism and free market societies."

China is more capitalistic and has a freer market than we do. The Chinese know full well that their trillion or so dollars could be a worthless asset soon, thanks to the anti-free market and fascistic actions of our government and central bank. The sad day has arrived when we are the socialists, and they are the rising capitalists leaving us in the dust. They can do without us much easier than the other way around. The tail will soon be the dog, and vice versa.

Mar 15 10:33 AM

[Duke Wong:]

MARK TO MARKET.
if mark to market rule is suspended then it'll bring up the banking value but the true problem is not fix.

The main problem in our system was financing error. It pulls other sectors to go with it. Actually, other sectors was not that bad as it's be.

Hopeful, the stress test could stabilize the financing system and the system is recovering in the stabilization manner. The investors will be more confidence.

For the investing, there could be loss or gain but we don't want to end up with more loss because the true value is in the mistery.

HOW DO WE EVALUATE THE CURRENT ASSESS?

Mar 15 11:49 AM

[beachbum1:]

each of the three banks mentioned above have lent our tax money to overseas entities. wrong, wrong, wrong use of taxpayer's money. the smoke screen created by the ceos will not translate into confidence in the investor community. reality will show the taxpayers are getting hose again. those 535 individuals in dc have shown they do not understand how to solve the problem. those that caused the problem cannot be in charge of oversight. of course, you all recall what maxine waters said regarding franklin raines.

Mar 15 11:52 AM

[William Cowie:]

What the CEO's did not say is how much more the values of their loans have to be written down. Why not? They know the truth hurts. It hurts their bottom lines (making them insolvent) which in turn will hurt the stock market.

Let's not forget: they were showing operating profits all through the melt-down...

Mar 15 10:53 PM