Home > News & Commentary > Stress Tests…Not Stressful Enough (JPM, BAC)

Stress Tests…Not Stressful Enough (JPM, BAC)



Banks are lining up behind the camera

Before launching into this, I want to apologize for the lack of posts from me.  My family had an emergency, and I had to schedule a last minute trip to London, where I am currently (yes, before you ask, it is raining).


Anyway, I have been trying to keep up with the latest news whenever a useful Wi-Fi network popped up and lit up my iPhone.  Of course, the headline unemployment figure has been generating a few headlines since it came out this morning, and I thought I would take this opportunity to post and comment on a story I read on The Market Ticker blog concerning the relation to the scenarios presented in the government’s stress tests and reality, which can be found here.

Of course, we have known that the “more adverse” scenario presented in the bank stress tests has long been surpassed as the economy continues to underperform.  In the government’s worst-case scenario, unemployment would not exceed 8.9% this year, and 10.3% in 2010.  And yet the numbers presented this morning show an unemployment rate of 10.2% already before 2009 is even completed.

I have said this in previous posts, but I do believe it bears repeating: The run in the market, and especially the banks, is not sustainable until we see some meaningful recovery in unemployment and consumer confidence.  With the consumer feeling a bit glum, and banks such as JP Morgan Chase (JPM) and Bank of America (BAC) struggling and increasing their consumer loan loss provisions, the market seems to have correctly predicted another of its famous phantom recoveries.


Disclosure: Long JPM

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