Is Meredith Whitney bullish now?

Submitted by Edward Harrison of Credit Writedowns.

Just when I was wondering where Meredith Whitney had gone, she’s back.  But she has a whole new tone to her.  In this interview on CNBC, she says she is expecting a monster number from Goldman (GS) tomorrow morning, in 2010 and in 2011. She is well above the street on Goldman. She even uses the word ‘cheap’ when referring to the stock.  Is Meredith Whitney a bull now? Have a listen – she also talks about other names and sees Bank of America (BAC) as the one to watch.  I like her reference to ‘junk in the trunk’ when talking about JPMorgan Chase (JPM) in the 2nd video below.


Her comments seem a far cry from the bearish Meredith Whitney of yore.  What happened to that woman?  Maybe she read my post “Marc Faber: “it’s very tough for a forecaster who was ultra-bearish to stay bearish.”

For a view of what Whitney sounded like just a few months ago, see my May post “Meredith Whitney seems onboard with the fake recovery” or my April post “Meredith Whitney: Regardless of stress tests, banks will still need more capital.” She sounds very different today and is singing a tune I first got onboard with in April (“Wells profit forecast is a clear bullish sign”).  But, given the huge run up in shares, I do question how much more upside there is to bank shares now despite what are likely to be very good earnings.  Let’s see how Goldman’s earnings and shares do and that should be a good test.

You will notice that in the first video she suggests that the disappearance of the likes of Lehman and Bear are good for the surviving behemoths (which increases banking concentration, a point I just made).

UPDATE 1230ET: Whitney makes a point regarding loan modifications that I first made on May 26th (“How refinancing helps the likes of Bank of America and Wells Fargo”) i.e. that the big banks are getting a HUGE incentive to do refis and this will goose their earnings short-term in three ways: a. they get a refinancing fee that goes straight to current income. b. they get an incentive fee due to rules the government made on May 21st, the subject of my May 26th post. c. the banks get to at least delay writedowns because past due mortgages become current and this will decrease their loan loss provisions over the short-term.  Nevertheless, home mortgage default recidivism means that re-default likelihood is high and that the writedowns will eventually have to be taken.  Whitney seems to be saying this makes banks a good trading play, not a good holding play.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. kackermann

    I don't even know where to begin with that "junk in the trunk" link.

    I guess all I can say it that Wiki's pop cultural references are probably the most valuable resource on the planet right now.

  2. Edward Harrison

    I admit to having an appreciation for the beauty of pop culture. Apparently Whitney does too.

  3. Leo Kolivakis

    Great post…I really like Meredith Whitney and glad she went off to start her own advisory firm.

    The investment banks like Goldman and JP Morgan are making a killing on state and muni bonds.

    As for traditional banks, it's all about refis and SPREAD. They are also making money short term but not sure these earnings are sustainable longer term. It depends on the recovery, which will be weak.

    Everyone should listen to these interviews and link them back to the pension crisis.

    One final note: keep buying them dips…this market is rigged!!!


  4. Ina Pickle

    I don't think that those were bullish calls in the slightest. I think that she very clearly said that the banks are being handed a HUGE quarter, and to be very careful not to be short them in the near term. DUH. She said a 15% bounce wouldn't surprise her.

    She also continued to say what she's been saying all along: that the core business of banks doesn't make money. I think this is consistent, just pointing out that the rules are completely changed.

    She also made some extremely bearish sounds about the long run: consumers aren't coming back, no new lending, one offs, etc.

    What, do you disagree with her on GS? Seems to me that the market should just price in that they are in a unique position as the government sponsored gorilla in the markets. They have a license to print money.

  5. emca

    Meredith also predicts unemployment will reach 13%-15%. Bullish on banks but not America, I guess. May have something to do with what Ed suggested below, that GS has entered the realm of international financial mechanization and, I would add, should be judged on that variable (all grumblings by fellow peons damned).

    The phenomena of Goldman's was not entirely unpredictable. Earlier this year the New York Times speculated on Goldman's 'competitive' advantage given brain-drain resulting from their (Goldman's) unfretted ability to compensate its troops. Added the demise of organizations with might dull their competitive edge (i.e. Lehman's) and Goldman's political acumen, one can only shrug at marvelous insight Meredith Whitney (et. al.) are now yacking up.

    From this station the train does part, to what destination we care not, as it is the only vestige moving away.

  6. Edward Harrison

    Ina Pickle,

    I have to admit, you're right about Whitney. She IS saying the same things. The problem I have is not with WHAT she is saying, but the stress and the tone.

    I wish she would acknowledge that her tone and stress are different because that would make her statements that much more credible.

    On substance, I agree with her very much i.e. the banks are benefiting from government largesse and accounting rule changes. I don't agree that the underlying earnings power of banks is negligible however.

    For now, that's neither here or there because we both agree that a lot of money is going to be made by GS and probably by JPM, WFC and BAC. Citi is another story.

  7. Martin

    It seems to me that her statements are not bullish at all. She is bullish on a single company which she backs up with her buy rating. She is more or less positive about near term earnings but this shouldn't be a surprise given the Q1 the banks all had. She backs up both her near term trade call with data and her long term bearish call for everyone but GS. You just have to listen to everything she says and at the same time tune out the idiots that are interviewing her and not listen to the headlines or sound bites she is providing. The sound bites are what make her sound bullish, not her comments. It seems to me she is one of the few honest and realistic analysts on CNBC.

    One more comment relating to her tone and stress, she comments that her previous extreme bearishness was due to solvency concerns overall and low profit visibility with respect to Goldman. I think we can all agree that the Government has taken away any solvency concerns for the ring-fenced 19 from the stress tests (meaning they will back those 19 come hell or high water…CIT maybe not so much). Whitney is just playing by the new rules as she understands them, same as we all are. Don't blame the messenger.

  8. Ina Pickle

    Edward, you have a real point: she *sounds* more upbeat. Lots of people are calling this "bullish" on her part. But when I listen to the substance, it is the same.

    I do have to wonder what would cause the change in tone. I think it undermines not only the substance of what she's saying, but also the voice that she has staked out for herself (and profitably, I should hope – she's been right).

  9. john bougearel

    Whitney is only saying that banks (ex GS) make a good trading play, with a potential 15% upside on balance (in line with my thoughts regarding the XLF)Then the sledding gets tougher.

    Great point about loan mods allowing banks to wipe off bad loans off their books. Given the hi refi loan mod activity of late, this can roll the timeline for writedowns into 2H 10 or even 2011.

    Developing a more accurate writedown timeline for banks might be helpful

  10. Richard Kline

    Ina Pickle: "What, do you disagree with her on GS? Seems to me that the market should just price in that they are in a unique position as the government sponsored gorilla in the markets. They have a license to print money."

    No but yes. If the Guvmint is allowing GS to game the equity markets to program glean pennies from all other participants that is not so much a license to print money as a license to tax the public for private gain. That analogy has been made by others, but I believe it valid. . . . In days of yore, when the Royalty ran into difficulty, it would entail it's tax revenue, that is lease for a set sum up front the right to collect and keep the taxes owed to the government for a set term. Some particularly incontinent sovereigns repeatedly, even perpetually entailed their revenue.

    Well, now with the oligarchs, particularly GS, we have the same thing in effect. In exchange for doing something for the Guvmint that the Powers that Be think they want done (or for now reason, really), GS has been granted a carte blanche (signed by unspecified warrant) to tax the entire investing public. We are no democracy while firms like this steal from everyone. What was that old line, "No taxation without representation." Now it seems to be, "They can do what they want as long as I get my bips off it, too." America, rotting from within.

  11. Anonymous

    I agree with the posts above: Totally a short-term bullish trading call; medium- to long-term bearish on the economy, banking models etc.

    One thing about the difference between refi and modification: Refi becomes recourse. Is modification still non-recourse? If so, it’s much better than refi.

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