The vacation's terrific, but I can't help looking at my screen. And what do I see? A Nasdaq gone wild. But bank stocks are headed down in anticipation of losses from the pandemic. How many companies, how many people, have chosen simply not to pay what they owe?
One of the most sacred pacts of our country is that our signature on a piece of paper from a bank for a loan is worth something. The same goes with the nature of the process of rent between a landlord and a tenant. The landlord typically owes someone else.
All of that is now in question. The voluntary nature of what was once ironclad is now upon us.
That's what we will find out when the banks report.
I hesitate to say it, but that's where the rubber hits the road. That's where we find out if we have balance sheets that allow a new decision by the Fed about dividends.
Curiously, once again, they are all trading similarly.
Regionals are down with money centers. Brokerage, without much exposure to loan losses, is down big vs. fintechs.
I am not worried about the rest of the market. It remains strong. I am worried about financial spillover. Now, naturally, if it is really bad, we can expect the Treasury to try to go for something novel, maybe rent relief?
But, be aware, underneath the Nasdaq, things are not right. Industrials are now China plays. Banks? They are plays on loan losses and not much more. By the way, I mention the brokerages because I now wonder whether the Marcus division of Goldman (GS) is going to count against a firm that doesn't make loans without recourse. We own it for Action Alerts PLUS. It is substantially below book value. To me that means we have support. I doubt even if a major portion of Marcus loans go bad -- something I don't believe can happen -- Goldman is still fine. Our instinct, which we will talk about on next week's call, is to buy more if it helps our basis.
But we need to see what the debtor situation is like; may it not be catastrophic for any bank.