If you lower expectations enough, if you get bearish enough, if you get whipsawed enough, pretty much anything looks good. You get a smaller loss from Morgan Stanley (MS) -- we love it! You get an EPS number from Bank of America (BAC) that looks something like you might expect, and you buy it. You see some revenue line from Goldman Sachs (GS) that's truly anemic and you say, "Let me in!"
Let's puzzle through how bad things have been for a moment so we can understand how we got here.
First, Morgan Stanley's the kind of firm that used to print money. They idea that they would have huge losing quarters boggles the mind. This is Morgan Stanley, for heaven's sake! This isn't Glen Fed or Cal Fed, two other places that had such huge discounts to book values that you knew they had to be overstated. Of course they failed.
This is Morgan Stanley.
But things got so horrible out there that we began to expect big losses. We got a little one. So we're thrilled.
Goldman Sachs is a revenue powerhouse. I was never expected to do anything other than grow revenues for the line item that was Jim Cramer when I worked there. I just figured if I didn't, I would be fired. Pretty much on the spot. I always felt, though, that even if my Securities Sales segment didn't do well, someone would carry us with explosive sales, munis, or M&A or investment banking. Fixed-income. Currencies.
No, nothing saved the quarter. Nothing. Not one division stood out. There was a lot made about how compensation ratios weren't so good, but that's nonsense. We figured they would be terrible. We figured that the fixed costs of Goldman Sachs were much higher than they turned out to be. We loved the revenue shortfall.
Bank of America? We can peer through every line to figure out why this stock is really up, but it's not worth it. At the end of the year the darned thing was priced for failure, and the bonds were telling you that for certain. More important, there were a couple of on-the-ropes hedge and mutual funds that were getting redemptions at an alarming rate.
The redemptions ended. The earnings were OK, even if they were "made" by big reverses of loan losses. The company's not going under, and now the funds that were getting redeemed are setting themselves up to have the best first quarter of any managers -- and the money will flood in -- so BAC and all of the other "brought down" financials are going to keep going higher barring some exogenous event.
That's just how it works.
2012 is very different than 2011. I would have expected that the hedge funds that leaned on stocks in 2011 could have colored any one of these and hit the futures at the same time and "created" disappointments. Then we could have all of that talk about how it is a risk-off day -- total nonsense. Remember that? We got rid of that term at the height of when a risk-on/risk-off product actually came to market.
Now we have investors searching for bargains. We have investors hunting for value. What passes for value is something that's not going under, that's not doing as horribly as you thought, that doesn't have a lot of sellers in it.
That's Morgan Stanley. That's Goldman Sachs. That's Bank of America.
Random musings: Here's an odd thought. What happens if we catch a bank rally in Europe and these companies raise capital? We saw how it could be raised in the dark days with Santander and Unicredit. Now what happens if these stocks go higher and the companies actually raise money? ... Deutsche Bank (DB) doesn't need to raise capital. Still, take a look at that one. It is roaring. The others could, too.