There’s a sickness spreading in the financial sector – with European banks in particular getting hit by huge losses.
Market Roundup
First up was Deutsche Bank (DB), the biggest bank in the biggest European economy. The German institution said late yesterday that it would lose a whopping 6.2 billion euros ($7 billion) in the third quarter after accounting for several large charges.
They include write-downs in its investment banking division and its Postbank retail banking unit, which it wants to sell. It also lowered the carrying value of its 20% stake in a Chinese bank, and added a hefty 1.2 billion euros ($1.4 billion) to its litigation reserves. Finally, DB said it may eliminate its 2015 dividend of 0.75 euros (84 cents) per share.
Then the Financial Times reported that Credit Suisse (CS) will be forced to hit shareholders up for as much as 5 billion Swiss francs ($5.2 billion) in new money. The capital raise would cover restructuring costs, losses in certain business operations, and demands from regulators that the bank increase its financial cushion against risk.
According to the Times, new Chief Executive Officer Tidjane Thiam wants to reduce the company’s focus on volatile investment banking. Instead, he’s looking to expand private banking operations and the bank’s presence in China and other Asian markets. The funds will help cover those strategic shifts and increase the bank’s equity tier one capital ratio from its current 10.3 percent.
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| Credit Suisse CEO Tidjane Thiam wants to revamp the Swiss-based bank. |
The U.S. mega-banks haven’t reported quarterly earnings yet. But these early reports out of Europe suggest profit pressures are building.
Everything from increased regulatory scrutiny and lousy capital markets to weak overseas growth and low profit margins in core lending businesses could result in some ugly numbers. That, in turn, likely helps explain why financial stocks continue to trade poorly relative to stocks in other sectors.
My advice: Continue to stay away from most bank, broker and insurance shares. Or better yet, use rallies to add inverse ETFs or put options that target vulnerable financial stocks.
That’s a strategy I’ve been using in my Interest Rate Speculator service, and it paid off in the recent market swoon.
| “Stay away from most bank, broker and insurance shares.” |
So what do you think? Are Deutsche Bank and Credit Suisse two huge canaries in the coal mine for the financial sector? Or are these one-off (two-off?) events? Do you expect to see similar problems when U.S. mega-banks report earnings soon? Are there any stocks in the sector you really like … or hate? Let me know over at the Money and Markets website.
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Meanwhile, several of you recently commented on whether earnings warnings in other sectors are a major negative for stocks or a signal about the state of the economy.
Reader Tico C. said the real economy still doesn’t matter to markets in an era of free money: “It’s interesting to list all of the economic reality, but as last Friday proved, the markets love bad news to crush any Fed interest rate hike speculation. Goldman Sachs announcing no rate hikes until 2017 really helped. So recessions/depressions mean little as long as the free money keeps flowing.”
But Reader Vic said the recent weakness in stocks is sending out a warning sign on the economy: “For more than 45 years I have watched the Dow predict six months into the future with pretty good accuracy. I think it has been predicting lower earnings and a weaker economy in late first quarter or early second quarter next year.”
As for how things look on Main Street, two readers offered different takes on the outlook – one bearish, one bullish.
Reader Jay said: “I sell products for several high tech companies and all of them are having a down year. In one product line, sales are off 30 to 35 percent so far this year, and I have heard from the competition that their sales are no better. They are laying off staff and tightening up spending.
“It seems that there are less customers buying this year, so stress in the sales staff is up. Management sees it as a short-term issue. However, I see that next year the economy will be down even more. For years now, China sales have helped management make the numbers for the year, but not this year.”
On the other hand, Reader MJT said: “For the past 25 years, I’ve worked in the manufacturing sector marketing and selling factory automation systems to large manufacturing firms. I weathered the 2008-2010 downturn by the skin of my teeth. Business fell off the edge during those years as everyone pulled back capital spending.
“Currently, however, business is strong. Our order book is in excellent condition and the backlog is growing. Of course, the capital spending faucet can be turned off at any time. But so far, so good. I don’t see the same factors at play here that were creating some of the turmoil in 2008. Overall, I’m cautious, but not in panic mode.”
I really appreciate the on-the-ground insights, and the observations on the market. As I’ve said, I believe we may be at a significant economic and market turning point – from expansion to weakness, and bull to bear. Each new piece of data will help show whether I’m on the right track or not. But the earnings outlooks certainly seem to support the bear case.
Whether you agree or disagree, I’d love to hear from you if you haven’t weighed in already. So go ahead and use this link to comment if you have a minute.
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The proxy fight between Russia and the U.S. is continuing in Syria. Russia is openly backing Syrian leader Bashar al-Assad through cruise missile and airplane attacks on rebel forces, including some on the very same anti-ISIS forces the U.S. has been supporting. Will the situation spiral out of control? That remains to be seen.
The computer company Dell and a private equity firm may buy the storage technology and software firm EMC (EMC) for as much as $50 billion. EMC has performed relatively poorly amid stiff competition in the storage industry, and has been under pressure from the activist investment firm Elliott Management to boost shareholder returns.
The FIFA soccer organization has suspended embattled president Sepp Blatter for 90 days amid an ongoing corruption investigation by Swiss officials. A handful of other FIFA executives were also sanctioned.
Lastly, the Chicago Cubs beat the Pittsburgh Pirates 4-0 thanks to strong pitching from Jake Arrieta and a two-run home by the rookie Kyle Schwarber. They will now face the rival St. Louis Cardinals in a five-game series that starts tomorrow.
Will the corruption at FIFA ever end? Do the massive losses at Deutsche Bank prove the European banking sector is sick? What do you think about how Russia is thumbing its nose at the U.S.? Hit up the website and share your thoughts.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Could it be that the American Banks really need to loan lots of extra money that they were counting on, with the proposed buildup of the war in the Middle East. When I asked my bank manager 1 year ago what he thought of the economy, he said “Great, we are at war again. War and bankers and globalization seem to go hand in hand. Could it be that President Putin calling out the Americans on bombing only infrastructure targets and NOT the ISIS ISIL rebels, sends a clear sign, that America was supporting regime change through destabilization, which is a very sick, corrupt, illegal form of taking over country after country. Maybe Papa Bush was right when he talked to us about the New World Order. I see a light at the end of the tunnel, and it involves indeed the Fed no longer being the world reserve currency. Karen Hudes and Christine Lalonde (IMF) are all talking about the pending global currency reset, which has never happened in the history of the world, and it is set to take place soon, hopefully to bring more stability to the markets. The best thing we could ask for is for the Americans and Israel to concede that they have lost at their bid for world domination, which will make living in the world a safer place, hopefully when these Ponzi scheme fanatics get knocked down a couple of pegs.
very good article alan..and spot on with america’s ‘engagements’ in the middle east (meddle east) when will americans get out of other nations’ affairs and leave those countries to sort out their own mess..starting at home in usa. myob is a good motto for america. the fed is a disaster for the whole world. it should be disbanded,,it would certainly save american taxpayers lots of hoot..maybe over US$1tn per year in interest.
yes indeed then the jews who own it can do something else productive to invest their “money in”..these people have caused so much trouble since 1914. how we can wish that george washington’s words could be effective today: “our armies (nowadays army, navy and airforce) are here to defend our country, not to fight other peoples wars”.where are you george..save us!!
Very slanted comment , as if “Jewry” is the problem. Anyone with a brain today can see that global Islam is the new Nazi with the genocide daily reported in non-mainstream media, against Christian populations. True the Fed was a bad idea and fought against but took over, but don’t lead this over to some conspiracy theory about Jews. Islam is working overtime today with terrorist training camps right here in the USA. They have put bloody domineering Sharia Law into parts of Europe, and have this as their long term goal throughout the world, ask Obama’s Muslim Bro buddies,( the organizations that has been banned in Egypt for decades as terrorists). Thanks to Putin for having the moral courage to fight ISIS. Blame Obama for supporting “freedom fighters” to depose Khadaffi, leading to a terrorist run Libya, and he is working on doing the same in Syria.
Well Ron, It’s easy to blame everything on the jews. If the Fed didn’t step up and bail out the banking system when it did we would already be eating lard sandwiches for lunch like our parents that are still alive and grandparents did during the great depression. If George Bush who I am reminded was not a jew,hadn’t invaded iraq under the highly improbable connection between the taliban and al-quida we wouldn’t be mired in the mid-east supporting other dictator regimes. It’s easy to hide your head in the sand. We don’t really need their oil anymore but we are still helping our allies even in the middle east because if we don’t support and back our allies we won’t have any when we need them. Anyone who thinks the US and Isreal are attempting to control the world has a memory as short as a jellyfish as we just finished signing a peaceful nuclear negotiation with Iran that enabled us to “stay out of a new war” and strangely is at odds with what Isreal wanted. The Fed took their cue out of the historical ramifications of what prolonged the great depression. Yes,they flooded the markets with easy credit and kicked the can down the road. Let’s all hope that a new world order or world economic currency is a solution to what the entire world will soon face. We can’t hide in the sand or blame it on someone else. Count your blessings that you live here in the US and not the middle east.
Head of Credit Suisse doesn’t look all that Jewish to me. I could be wrong.
Brilliant!
it’s not in the Cards for the Cubs, they haven’t won a pennant and it is doubtful they ever will. Go Dodgers!
it’s not in the cub for the cards either, eh?
There is a first time for everything. Joe Madden has won it all with a team not as good as this one. I was not impressed with the Cards September performance. Go Cubs! Jim
What do you think about how Russia is thumbing its nose at the U.S.?
I believe Putin is thumbing his nose at the leader of “another country.” It’s not “Russia” thumbing its nose; it’s Russia’s leadership mocking another country’s inept “executive”
Many Americans favor a policy of non intervention. This is what it looks like. Jim
The USA and all its presidents going back for years have thumbed their nose at the rest of the world, to say nothing of destabilizing and/or attacking sovereign nations and duly elected leaders. What do you think about that?
The only thing Putin and Russia is doing in Syria is calling out the USA lies about how we are going after ISIS. The USA created and armed ISIS in yet another attempt to depose a duly elected leader (Assad). The USA has continued to arm ISIS up until this very day. Putin at least has the balls to stand up to all the carnage and lies the USA imposes on the rest of the world. And I am not defending his personal character as he his far from perfect. But somebody needs to slap the USA down and he is willing to.
Hussein, Mubarak , Khadaffi, now Assad. We fixed all four countries good. Hillary Clinton accurately described our foreign policy as ” We came. We saw. We killed.” She even laughed about it. Jim
St. Louis has best record in all of BB, KC is second. Could be an all Missouri series.
I think the one to fear may be Toronto.
Bautista and Donaldson hurting. Mr. Unclutch with a cracked shoulder blade at SS. Cole Hamels pitching tomorrow. Adios Blue Jays. Jim
Let’s see . Jan 2017 when the new President is sworn in office. Not a second before. So everyone and everything will continue in the same twisted path to destruction of the American Dream.
The sad thing about this is that it will take years to right the ship.
What a mess..
Appears I’ve adopted a right wing troll… :(
Mike S…….You’ve always got the Daily Kos to cheer you up (I guess) when your capitalistic proclivities start weighing on you…. :)
Donald…….The U.S. is providing air cover for the Muslim Terrorists of ISIS?
And I suppose the U.S. crashed the planes into the World Trade Center and the Pentagon too, huh? What other conspiracy theories do you have for us?
The other day, in a rare moment of clarity, I realized it isn’t going to make one bit of difference who the President is in 2017. Jim
Putins forces will waste ISIS in two weeks, the reason he is using cruise missiles is so that his planes do not come into conflict with the NATO (USA, UK, Israeli) air forces who have provided air cover for ISIS since the start of the conflict. Is anyone stupid enough to think that a ground force can survive without air cover? Now that Putin has called the west’s bluff there is no way to stop the Russian forces from destroying the West’s terrorists short of declaring war on Russia, unfortunately, there are many of our politicians who see this as a winnable proposition and damn the consequences.
Donald…….The U.S. is providing air cover for the Muslim Terrorists of ISIS?
And I suppose the U.S. crashed the planes into the World Trade Center and the Pentagon too, huh? What other conspiracy theories do you have for us?
Al Qaeda means “the base”, a sarcastic reference to the CIA database they were recruited from. Jim
I think its all because Venus is in the house of Jupitor.
Its quite amazing to me that the U.S. currency has become as liquid as japans whole monetary policy when certain institutions deem billions of dollars are needed to rebuild, restructure, write down, or just head off in a new direction with a mega company or institution. Shouldn’t Americans such as family home owners be given the same billions to straighten out there lives from the infiltration of nearly all the federal laws put in place during the last two terms by this administration thats limited our free enterprise system and local small businesses that because of this legislation of taxation, reforms, regulated nonsense, and financial intrution on hard working Americans who could thrive without the governments hands in our pockets deserve such similar handouts. Its a crime to print your own U.S. currency, yet our government as a trustee of the people see fit to print with no resolve to mimic the character of trust and hope for the future generations. Instead we see our next generation being encouraged to acquire degrees of education for only $50k of debt which the government without consulting the will of the people purchase all of the student loans @ 1%-2% interest and lovingly send our children a new monthly bill @ a special government sponsored rate of just 5%-6% nearly.
I can simply say that if the US government was only bankrupt and not 18 trillion in debt and lived on a balanced buget the American people of the US of A would finally have something in common with it. Much of the debt good Americans now hold onto is from not having what little liquid cash flow they use to have before increased taxes and government revenue raising plans. If the US faulters on its increasingly rising debt of 18 trillion then all legal Americans should be allowed to do as like. Greed does not grow prosperity. Just more greed and inevitably corruption. Wall street is not the heart beat of America. Try eating an ” over sold stock “.The hard working people of this nation will always pull together in hard times even when the government refuses to acknowledge its insolvent as an intenty several times over. And puts forth not one plan to regulate itself and then stick to it. If it all crashes I will just stay home until the greed of hopeless spending is swept into the gutters and real reforms without career politicians emerge.
I have seen reports of increased Russian involvement in Syria and Iraq, which our media seems to be ignoring, except for the Russian air attacks. Their navy apparently launched cruise missiles against ISIS from ships in the Caspian Sea, some 900 miles away, and may have struck their targets accurately. Reports are that China may be joining in with attacks by their new fighter aircraft, from their only aircraft carrier off the Syrian coast. A target for Israeli subs? Russia is said to be setting up a joint Russian, Iranian. Iraqi, Syrian command center at the airbase outside Bagdad, with Iraq welcoming Russian troops and tanks. Why are our media ignoring these reports, either to confirm or to prove them false? It sounds like censorship of the stupidest kind, since the truth will soon come out, regardless of what it is. Putin seems to be taking over.
he won’t get anywhere. just digging himself a deeper rut.
using the US to leave the gold standard ,thereby de-valuing the dollar…
Both comments on their respective industries performance are right. It all depends on which sector of the industry you belong to. What we look at as an independent third party, we have to be impartial and make our own call and not just look from one side of the coin only.
My evaluation of the CHARTS says we should have a small bump up tomorrow and then a HUGE and HARD ride down. WAY DOWN!! Anyhow, THAT is my current bet.
Larry’s October 7 date was too early. Setting exact dates weeks in advance is usually not a good idea. I do think he was in the ball park with his forecast, however.
Well written article as usual ….. StoxRok.
YOU GUYS ,PARTICULARLY MR EDELSON HAVE BEEN FORECASTING THE APOCOLYPSE AND THE END OF THE ECONOMIC WORLD IN OCTOBER 2015 OR THEREABOUTS–THE STOCK MARKET, UP A THOUSAND POINTS IN THE LAST WEEK OR SO SEMS TO DISAGREE VIOLENTLY WITH YOU—WHAT DO YOU GUYS AT WEISS SAY IN RESPONSE?????
They’ve been looking for a disastrous crash ever since Obama was elected… Hardly a word as Cheney/bush were taking the World over a military, political and economic cliff… Hmmm.. :(
Mike, absolutely!!!! we have numerous canaries in the coal mines.many, many, many more than back in 2008/9. Look at Caterpillar, which reflects the commodities crash. As this DEFLATION takes hold and gets a stronger grip, it will suck the life out of this Keynesian money and banking based world economy. It is quite remarkable to see how this is all unfolding in front of our eyes…
My US bank is raising fees that amount to negative interest rate on savings account. I now have money at credit union to avoid this.
Richard
If USA is the modern Babylon as many commentators are saying, a world-wide crash is inevitable. With serious economic and social problems brewing in the US and Europe in particular (QE, VW no longer the poster boy! Millions more refugees on the way once Putin has mopped up!) it will need a miraculous leader to emerge very soon if the whole sphere of influence is not to move eastwards. Electronic surveillance and tagging technology is bringing the mark of the beast ever closer. Who would have thought a few thousand year old book would have been so accurate in its predictions? This isn’t just about where to position ourselves to cash in: more a case of checking the Bible’s survival guide while there is still time!
That is why England should get out of the European mess because we are the best run country in the World with the highest growth rate in Europe by far, in fact we are doing very well-even our debt load is less than most of Europe.
The difference between 2008 and the crisis today has its roots in the increased enormous debt tha has been amassed world wide, the influx of Gobal government bailouts that has been brought foreward, the low price in oil and the governments that depend on oil Profits. Specifically, Venezuela 8 years ago was prosperous; today in shreds. The failure of the Japaneese economy to rebound from the 90’s, the beginning cracks in the European economy, ie Greece and the enormous increase of debt with other European nations. On top of all that, the Russian economy re oil and Crimean involvement makes this problem that much worse, and if that wasn’t enough, the Chinese economy in 2008-09 was zipping along toward a 10% yearly GDP. THat situation has ended. ONe wonders what crack inthe dike will go first.
Wave 2 up in progress in the new Bear Mkt. Its nothing more than a bull trap, won’t make a new high, the next wave down is the worst and longest and strongest, then there will be another that follows that one after a brief bounce. Looking for Dow 5500 by 2017.
Russia is bombing terrorist groups supported by the USA. Reaching outside U.S. media might help your analysis. In addition to the Russians, the Chinese have parked an aircraft carrier by Syria. Both countries have had enough. Obama has blinked and will continue to do so. Review non-CNN intel here: what.reallyhappened.com. Rense.com and zerohedge.com