Dimon Bottom 2.0

JP Morgan's CEO Jamie Dimon has enjoyed a storied career on Wall Street. He has a first-tier resumé that includes stints at Boston Consulting, American Express, and BankOne, finally landing at JPM, where he has held the top job for two decades. His loquacious style and openness of opinion differentiates him from many of his banking peers who are decidedly more circumspect with theirs. When Jamie Dimon speaks Wall Street listens.

Such was the case when in early 2016 Dimon publicly announced that he was buying 500,000 shares of JP Morgan stock after a brutal correction battered the shares to six-month lows. The market, taking confidence from his actions, promptly rallied smartly and moved back into a bull phase within weeks. CNBC wag Jim Cramer anointed the move with a moniker that stuck - "the Dimon Bottom".

So little wonder the following quote from his recent earnings call caught the attention of the beleaguered stock market. In it, he opined "This may be the most dangerous time the world has seen in decades" Then, in a shock to market confidence, he seemingly doubled down by announcing his intention to sell 1MM shares of JPM for "estate planning" purposes.

With a hot war in the Middle East, and the duress of a 350 basis point rise in 10-yr yields since the October 2022 lows, negative sentiment is becoming self-reinforcing. People who wouldn't have thought twice about the state of the bond market have been wringing their hands lately. I even hear people say the Fed is "selling bonds" when actually they are just letting existing holdings mature without replacing them. Bond phobia seems a bit overhyped to me.

So with that as a backdrop, the natural reaction function of "shoot first. ask questions later" came quickly into play last Friday. JP Morgan stocks cratered on the Dimon news, leading to a coordinated debacle in bank stocks and the market generally.

That gets my contrarian juices flowing. I smell opportunity in the bank stocks here. But I need to see more from the data first.

The U.S. economy has held up better than anybody expected since the Fed's tightening campaign started 6 quarters ago. But now growth seems likely to wane due to a higher-for-longer Fed and the concomitant higher debt costs for consumers and businesses. Add to that the shock effect on the economy of the resumption of student loan payments, and the path of least resistance looks lower for growth, and by extension, interest rates.

And keeping in mind the perversity of the stock market, that will be good news. It will allow for an easing environment to replace the current tight money regime. Remember the first tenet of Tuesat11 - to anticipate the anticipations of others. Easing policy will create the preconditions of the next bull run for stocks as investors change their focus from the dire thoughts of Jamie D to what could go right.

But Bob, who will buy the Treasuries now that the Fed, China, and Japan aren't? People will. They will move out the curve once the curve 'normalizes' - meaning short-term rates are lower than long-term. The herd that moved into the money market will finally have an incentive to extend term when the curve dis-inverts. Don't worry, there is a bid coming once the economy slows. And what other debt market looks better - Mars? The rising U.S. dollar is still sucking in assets from the global savings pool as the cleanest dirty-shirt effect prevails.

U.S. Money Market Assets

But we need to see the whites of the eyes of a slowdown before buying with both hands. Bonds and Utilities are signaling their intentions by hanging tough this week as we await the news on the FOMC meeting, the Treasury Refunding Schedule, and the all-important jobs data on Friday. Bank stocks are only tepidly off the lows created by the Dimon debacle of Friday. We are data-dependent to the max this week.

My dream scenario is a negative data point that the market will use to break the higher-for-longer construct that has the Fed's hands tied. That sounds suspiciously like "hope as a strategy"thinking, but sometimes that's all you can expect to have.

But if we get such a reversal in Fed policy, the ensuing rally now would break the myth of the JP Morgan CEO's predictive prowess.

It would still be a Dimon Bottom - but in reverse!

Risk Model 1/5 - Risk Off

I wouldn't mess with the Model in terms of risk appetite. The data this week is hyper-critical to cement the bottom that Mr. Dimon may have signaled. The equal-weighted market, which by definition is the 'average' stock is well below the 200-day moving average. That would imply that the Model is 0/5 despite the reading above. Keep some dry powder here.

Earnings season is rolling along but the tone is "beat, but guide down". Airlines, Caterpillar, and Tesla are down hard as 'misses' are punished, and, like Microsoft, 'beats aren't rewarded. This is what we usually see at the beginning of a downward trajectory for the economy. Don't be surprised if the data this week doesn't confirm this, as it reflects conditions of the past. I don't know about you but I don't drive a car by looking at only this thing:

Canada is in a statistical recession with two consecutive quarters of negative GDP, a mild recession. Real estate has gone 'no bid', especially in cottage country. Speculation has ceased, but affordability hasn't improved much. The Canadian banks seem to reflect this with rock-bottom valuations only seen during periods of economic duress. But with all the negatives still ahead of us, are they 'value traps'? My buddies in my investment club talked about that last night, concluding that they aren't. I agree, but we all worked for banks so take that for what it's worth.

But on this scariest day of the year, I'll leave you with a bit of optimism. "The thing to remember at times like this is that there have always been times like this."