On May 5th, star banking analyst Meredith Whitney reiterated a bearish view for the banking sector in her interview with Bloomberg. This morning, JPMorgan Chase (JPM) issued Meredith Whitney a reality check and continued domestic U.S. earnings strength.

JPMorgan Chase (JPM) beat consensus analyst earnings estimates by 63%, or $.42 cents per share, with a 2nd quarter earnings report of $1.09 per share. A year ago in the same quarter, JPMorgan Chase reported $.28 cents per share, an improvement of 289% on quarterly earnings.

Revenues in the quarter came in at $25.6 billion, in-line with consensus estimates.

Chairman and CEO of JPMorgan Chase, Jamie Dimon, stated, “We continue to aggressively do all that we can reasonably and responsibly to contribute to the economic recovery. During the first half of the year, we loaned or raised capital for our clients of nearly $700 billion, and our small-business originations were up 37%.”

Bank analyst Dick Bove said, “On the whole this [earnings] number is not a good number,” pointing to the $1.09 per share. “It’s here because they’ve taken money out of reserves and put it into earnings.” JPM shares have moved lower since his comments.

JPMorgan’s major competitors include Bank of America (NYSE:BAC), Citigroup (NYSE:C), Barclays (NYSE:BCS) and UBS (NYSE: UBS).

For more detailed information on the JPMorgan Chase earnings release, visit here.

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Over the next 3-6 months, US debt obligations will start maturing. Although the mainstream media is not yet focusing on the coming crisis, Keith McCullough from Hedgeye Risk Management and a contributor to Bloomberg says we need to prepare for the road to perdition.

I caught up with Keith to discuss three hot topics for our Wall St. Cheat Sheet podcast:

1) The imminent US debt maturities;

2) Whether we can expect to repeat Japan’s lost decade(s); and,

3) What the Federal Reserve needs to do to set us back on the path to prosperity.

The Road to Perdition with Keith McCullough

Are you looking for good investment and trading opportunities during these challenging times? Click here for a free trial to our acclaimed Wall St. Cheat Sheet Premium products.

Default risk is rising in America, as many states can’t balance their budget.

Although a state default would be unprecendeted, CDS spreads show that traders take the risk seriously. We’ve got the latest numbers from Bloomberg (via Credit Writedowns).

Are you living in the next Greece?

Read more interesting posts by Business Insider >

This morning star banking analyst Meredith Whitney did an interesting interview on Bloomberg. Here is the video and some highlights for those who want the Cheat Sheet:

On how a U.S. bank holding company could get a ‘buy’ rating from her:

“I’m always a sucker for valuation so [WEIL: But they weren't cheap a year ago from what you were seeing at that moment.] They haven’t, well, hold it -- that’s not -- that’s Bank of America at three bucks is, I thought I don’t know what I’m doing because this defies any sense to me. They’ve got a lot of stuff to sell so valuation will always entice me. If there’s another leg down in housing, and even if there isn’t, my estimates are so different from the Street. I just don’t see the earnings power of these institutions by and large. So if, you know, consensus came down and there was enough baked into the stock and the stocks were lower that would tempt me.”

On bank earnings fueled by government backing:

“From a, let’s just talk about specifically last quarter and that business with the government fuel. If you look at what happened throughout last year I would say a vast majority of the profits for the banks, but not just profits, its capital creation was government-induced. I mean, over $100 billion would dwarf the capital that companies raised themselves, so enormous profitability. And I also call it the government’s actions putting a lifeguard on duty so people play in the pool so enormous flow, enormous security so that there could be flow. What happened in the first quarter, so what we – I started to -- I’ve been a bull and a bear and fundamentally I’m still very cautious, but I started to get more, sort of, in the cost camp in the fall because I thought so much of what happened last year, because the government’s out of the lifeguarding business for the moment, was not replicable. So if you look at what happened in first quarter results I would say not much had to do with the government.”

In a recent Bloomberg interview, James Grant, editor of Grant’s Interest Rate Observer, offered his assessment of Greenspan’s performance as Federal Reserve Chairman.

Grant on how he would grade Alan Greenspan:

“Here’s the book on Alan Greenspan. He thinks what everyone else thinks, but one fiscal quarter later.  He has the lamentable knack, or lamentable tendency or personality trait of needing to be liked, which is not the best thing to have when you’re chairman of the Federal Reserve board.”

“So we saw him bullish on technology in March of 2000. We saw him ever so unhelpfully urge the American homeowner to consider adjustable rate mortgages at the very bottom of the interest rate cycle in the mid-aughts. He is a front-running momentum kind of guy and Wall Street’s full of them. He is just a guy in a business suit. That’s Alan Greenspan.”

Why Grant is a skeptic of Greenspan:
“Here’s the thing about Greenspan. The first -- the second sentence of his prepared testimony he comes out against central planning, an audacious stance to take in front of this commission. He is against the Berlin Wall; he was glad it fell -- it exposed the hopeless flaws of central planning.  He is in the business of central planning. He, when he was Fed chairman, fixed an interest rate. And the interest rate he fixed did terrific damage from time to time because he told us how he would fix it and for how long.”

“Wall Street is nothing if not observant. And hearing him tell you that the rates will be low for a considerable period, people did what you would expect them to do which is to tee off. And that was the origin of this terrific debt bubble, the shrapnel of which we are paying for to this day and will continue to pay for.”

This morning on Bloomberg TV, U.S. Special Master on Executive Compensation Kenneth Feinberg had some interesting comments on John Thain’s new package at CIT and bonuses at Goldman Sachs:

Here are the key highlights from the full interview on Bloomberg TV:

Feinberg on whether he was consulted about CIT Group and John Thain’s pay package:

“Not at all. CIT is not part of my mandatory jurisdiction.The good news is that these private companies – CIT, Goldman, JP Morgan etc – they seem to be following the prescriptions I’ve laid out for the companies within my jurisdiction: relatively modest, base cash salaries and any upside is in the form of stock, not cash, so that the total value of compensation of an individual is tied to the overall performance of the company over the long term. That is all very, very good. The problem remains the high total compensation which is very much in excess of what we’re doing at the Treasury in keeping total compensation much more modest.”

Feinberg on whether Goldman CEO Blankfein’s $9M compensation is excessive:

“Yes I think it is [in excess]. If you look at the 700 people that are under my mandatory jurisdiction I do not believe there is more than one or two in the total of 700 that are making that type of total compensation. On the other hand, clearly Goldman is following the prescriptions I’ve laid out. Mr. Lloyd Blankfein is getting a very low base cash salary. His total comp is again tied up in long term stock, the value of which cannot be determined or transferred for about five years. That is the type of compensation we’re looking for, where value is tied to the total performance of the company itself.”

Feinberg on what would be a more reasonable scenario for Blankfein’s pay:

“I can’t speak to the culture and what is going on inside these companies. They are not really part of my jurisdiction. I like the mix of stock and low cash. The overall compensation again points out the necessity of doing something with the total compensation. The administration has proposed various approaches, the Volcker approach, a bank fee approach – I cannot really get to the total compensation but I am pleased at the prescription and that we’re not talking about guaranteed cash, which is something that is prohibited to those companies that are under my watch.”

Feinberg on whether Goldman and CEO Blankfein consulted with him on pay:

“Yes, [we] had a number of conversations. What the Treasury has recommended in terms of structuring, and size, I would like to think we had some influence on what Mr. Lloyd Blankfein finally decided.”

Feinberg on what influence he may have had over Goldman:

“Clearly, low cash base_I think Mr. Blankfein is getting under $600,000-Mr. Lloyd Blankfein is getting under that amount. His entire bonus, no cash, long-term stock, they cannot be transferred for I think five years. So that his ultimate package value will be determined by Goldman’s ultimate success over the long haul.”

Feinberg on the nature of his conversations with Blankfein:

“You will have to ask Mr. Blankfein. It was not about the package, but really about how Goldman as an institution should approach base salaries and compensation over time. He clearly was concerned, wanted to abide by what Treasury is doing and largely I think he has succeeded in adopting the prescriptions.”

Feinberg on whether these compensation changes are permanent:

“We will have to see. The Deputy Secretary of the Treasury pointed out a few months ago that these steps the banks are taking voluntarily is constructive – a small step. Whether or not it will be permanent, whether or not over a long period of time these prescriptions will stay in place [remains to be seen]. I know that Secretary Geithner is also looking to corporate governance reform, shareholder rights, regulatory reform, this is one part of a larger menu of prescriptions.”

Do you think Feinberg has had an effect on CIT and Goldman Sachs? Let us know what you think in the comment section below …

Former Treasury Secretary Henry Paulson is finally cashing in with his book. Below is an interview on Bloomberg in which Paulson discusses how he made his decisions when the economy was “on the brink”:

Do you agree with Paulson? How would you have quarterbacked the crisis? Is Paulson telling all in his new book, or has a lot been left out? Let us know what you think in the comment section below …

This is a guest post by Jordan Roy-Byrne CMT at The Daily Gold.

Because the US economy is much weaker, Americans are buying less foreign goods (especially Chinese made goods). And as a result, the Chinese are recycling less money back into US Treasuries. This is happening at a time when the US is increasing spending dramatically. Hence, the US has to monetize part of the debt because it can’t find enough Americans and foreigners to buy Treasuries.

All was pointed out by the deputy governor of the Peoples Bank of China:

In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.

He then addressed where demand for that debt would come from.

“The United States cannot force foreign governments to increase their holdings of Treasuries,” Zhu said, according to an audio recording of his remarks. “Double the holdings? It is definitely impossible.”

“The US current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world,” he added. “The world does not have so much money to buy more US Treasuries.”

China continues to see its foreign exchange reserves grow, albeit at a slower pace than in past years, due to a large trade surplus and inflows of foreign investment. They stood at US$2.3 trillion at the end of September.

If you want to learn more about Gold & Silver, check our new site: The Daily Gold by Jordan Roy-Byrne CMT.

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This is a guest post by Jordan Roy-Byrne CMT at The Daily Gold.

Before I had the chance to address a recent Gold-bashing piece (Gold isn’t the best protection against inflation), Bloomberg is out with another anti-Gold piece (Gold Buying By CB’s May Send Sell Signal). The amount of misinformation in regards to Gold is bothering me and so too is this disinformation campaign, courtesy of Bloomberg.

First let’s talk about Gold as protection against inflation. Gold is the best protection against inflation over very long periods of time. We are talking about decades and centuries. An ounce of gold today would buy the same amount of goods in 1900 and 1500- and probably in 100 years time. It is very volatile over shorter-term periods but over multiple decades and centuries, it keeps its value.

Over such shorter periods, things like land and commodities usually perform better. In a reflationary period, such as what we had in the mid 1930s and mid 2000s, commodities and stocks perform better than Gold. So I agree with the general point, however the author makes some crucial mistakes. First he utters some typical anti-Gold nonsense:

In reality, gold has a mixed record. Nor should you be surprised about that. A few industrial uses, and jewelry, aside, gold is valuable only insofar as other investors think it is valuable. By itself it isn’t necessarily worth anything. Nor does it generate interest or dividends. If the price doesn’t rise, you don’t get anything.

If it isn’t worth anything then why has it kept its value, over time, unlike every other currency? Gold rises for a reason. It rises when people are concerned about paper money or the financial system. And what can bring about such concerns? Too much debt, funding problems, credit problems and easy monetary policy. This anti-gold argument would have you believe that it only rises randomly or based on human emotion. It is just drivel and nonsense.

The second point is that the author is assuming we are going to have your typical inflation.

As we move into the early stages of an inflationary era, those five assets should do at least as well as gold, if not better.

We already have inflation. The distinction is if we are going to have reflation or hyperinflation. As stated previously, reflation is better for stocks and commodities than for Gold. Hyperinflation occurs, not because of printing too much money and overstimulating the economy. It occurs when there is monetization of debt. We are going through a slow motion hyperinflation, where the Fed has to monetize not constantly but somewhat consistently. The same for the UK and perhaps for the European Central Bank. That environment is best for Gold and Silver and not for commodities. We may get a reflation eventually, but for now we are in a slow motion hyperinflation.

In regards to Central Banks, most of the CB’s that are buying are from emerging market countries. Nations such as China, India and Russia have such a small percentage of their reserves in Gold and a large percentage of their reserves in US Dollars. Their buying of Gold is prudent and hardly does anything to imply a top in the market.

My favorite quote is this one:

“This is late in the game to be buying gold,” said Peter Morici, a professor of business at the University of Maryland in College Park and former economic adviser to the U.S. government. “Central banks are not known for their investment acumen. What it reflects is a lack of confidence in the U.S. economy and the long-term durability of the dollar as a store of value.”

If it reflects a lack of confidence about the dollar as a store of value, then why is it late in the game? And Central Banks are not investors, they are a backstop. Whether their timing is good or bad, they aren’t going to sell anytime soon. Bloomberg just found another anti-Gold fellow to spout an anti-Gold comment.

If you want to learn more about Gold & Silver, check our new site: The Daily Gold by Jordan Roy-Byrne CMT.

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Sam Zell, chairperson of the board for Equity Group Investments, did an interesting interview with Bloomberg Television about the outlook for the commercial real-estate market, the recession, the Tribune bankruptcy, and the Cubs.

Here are some highlights from the interview:

On government intervention in the financial system:

“The government intervention in the financial system has effectively slowed the liquidation of distressed assets and the result is that with government funding, the desire and the need to liquidate the assets is dramatically different.”

On the recession:

“This is a demand recession and I suggest to you that as the economy improves, it’s very likely that these buildings that are currently suffering vacancies will be full. That’s the good news. The bad is, they’ll be full at thirty percent lower rates.”

On the Tribune Company bankruptcy:

“I think that with some reasonable luck I think it’ll be out sometime by the end of the first quarter. I’ve been involved in a lot of bankruptcies in my life. Most of the time as the buyer of the debt, as opposed to the debtor in possession. Bankruptcies, by definition, are very frustrating. And they will continue to be.”

On looking back at the purchase of the Tribune Company:

DEIRDRE BOLTON: Can we ask you if you regret this decision? Is this the worst business decision you ever made?

SAM ZELL: It’s certainly the most amount of money I’ve ever loss in a single deal. But the answer is -

BOLTON: So if you could turn back time….

ZELL: If you could. It’s like maybe I should have married somebody else.

On the Cubs

BOLTON: Don’t know if we can go from motorcycles to baseball, but what happens to the Cubs?

ZELL: Well, on the 27 of this month, which is tomorrow, yesterday, it closed? I did not even know. Ten days ago it went into kind of an automatic mode, and then it just followed a series of events. The answer is, I’m very happy for the Ricketts family. I think the team should be owned by somebody who is local, somebody who is really passionate about baseball. I happen to be local. I’m not passionate about baseball, so I wish them all of the best of luck. And maybe we’ll break the 101 year curse.

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