The Federal Reserve is "out of control," and "printing money like wild men," Odeon Capital chief financial strategist Dick Bove told FOX Business' "Mornings with Maria" while discussing bank earnings.
DICK BOVE: Okay, I'm going to have to explain that by giving it three buckets. First bucket is how are they doing in their core business? Making money from banking. And that was very bad right across the board in the quarter. Second bucket is capital markets. How are they doing in the investment banking and trading businesses? Those businesses were phenomenally strong in the quarter because the Fed, in my view, has lost control of the money supply. The third bucket is accounting manipulation. And I think in this quarter we've seen such an incredible amount of accounting manipulation by the banks that it has obscured what they're really doing.
So put them all together and take a look at one bank, Citigroup. Citigroup's banking earnings, earnings from its basic banking business were very poor. They actually went down year over year, which is true of every major bank in the United States. Citigroup's capital markets business did pretty well. They... did a tremendous amount of SPAC underwriting in the quarter and therefore their capital markets results were reasonably good. And then we get to the accounting manipulation issue. And Citigroup was off the charts here, in terms of what they did with their loan loss provision, the loan loss reserves. So when you put it all together, basically the banks did not have good earnings in the quarter. They had great accounting manipulation. And if they were solely in capital markets like Goldman Sachs or Morgan Stanley, they're looking really good.
Now going forward, what should you be looking at? You should be looking at the fact that, again, the Fed is out of control. It's printing money like wild men. Basically, the M2 is up 26% year-over-year. And that money all goes into the banks and the banks, if the economy is going to be very strong in the second half, which I believe it will be, the banks are going to lend that money in core banking business will do better. So not such a good quarter that we've seen. Very good quarters coming up.
In other words, we're still looking at what is left over from the economy that did not turn around yet. And that's showing up in the fact that banks, number one, have not been able to increase the commercial and industrial lending. Number two, are actually not even lending more money on mortgages. Number three, doing poorly in terms of consumer lending, except on autos, where there has been an improvement. So, yes, we're going to see a very strong improvement, I think, in the second half this year. And, yes, that's going to result in a lot of bank loans and a lot of bank profits. But it has not happened yet.
I think that if you take a look at the money supply numbers and compare them to the growth in the economy, you can see that over the past two years, money supply is growing ten times faster than the economy. Now, I know nobody believes in monetary economics any longer. Unfortunately, I'm an old guy, so I do. And... I can't conceive of the fact that I can grow at 10 times faster than the economy without stimulating inflation. And as far as Citigroup is concerned, I think that we're being focused on the wrong issue. We're being focused on this as being a big consumer bank around the world, which it is not. It's been cutting back businesses for the last 25 years and they can't seem to get it right yet. The company has become a capital markets company and hopefully that's where they will grow in the future.
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