Deutsche Bank (DB), down 29.8%
Credit Suisse (CS), down 31.4%
HSBC Holdings (HSBC), down 14.8%
Barclays PLC (BCS), down 21.1%
UBS Group (UBS), down 20.6%
Royal Bank of Scotland Group PLC (RBS), down 20.1%
Banco Santander (SAN), down 16.6%
These aren’t tiny banks, or obscure companies I’m cherry-picking to make a point. They are some of the largest banks in the world.
Slightly different methodologies yield varying rankings. But ranked by assets, Barclays is the sixth-largest in the world, Deutsche Bank is the eighth-largest, RBS is the 12th largest, and Santander is the 17th, according to research firm Accuity.
I bring this up because many analysts and portfolio managers who come on CNBC, or who are quoted in the print press, talk about the energy markets. They keep telling viewers and readers that outside of energy, things don’t look too bad.
|Credit Suisse was among the European banks hardest hit today in the markets.|
I completely disagree. I’ve been flagging the poor action in these and other mega-banks for several months, and warning that it represents a spreading sickness. It’s gnawing away at the credit and equity markets behind the scenes, and becoming too big of a problem to ignore.
Think about it: Deutsche Bank’s U.S. shares are now trading for less than they did at the depths of the Great Recession in 2008-09. Credit Suisse’s U.S. shares just sank to the lowest level since 2002.
The catalyst was another round of horrendous quarter results. CS lost a whopping 5.8 billion Swiss francs ($5.8 billion) in the last three months of 2015. That was a huge swing from the year-ago profit of 691 million francs ($695 million), and the biggest loss in any quarter since the credit crisis of 2008. It’s slashing another 4,000 jobs, and writing down the value of assets to reflect their diminished value.
There are a lot of reasons for the weakness. Negative interest rates are crushing margins. European banks are large relative to the size of their home economies, making it tough to bail them out if they get into trouble.
In addition, bad loans have been piling up and opaque derivatives bets are raising concerns among investors. Many of these banks are also paying out billions of dollars in fines and penalties as part of huge settlements related to market manipulation, sketchy mortgage practices, and other alleged transgressions.
|“Add it all up and you have the potential for Black Swan-style events.”|
Add it all up and you have the potential for Black Swan-style events – bank meltdowns that shake confidence even further. After all, it happened with U.S. banks here during our credit crisis. So at the risk of sounding repetitive, this is not the time for placing aggressive upside bets. It’s a time for caution and prudent risk-protection measures.
Let me hear your opinions now. What’s dogging these European mega-banks and how concerned should we be here in the U.S.? Are you getting flashbacks to 2007-09, when several U.S. lenders and banks plunged in value, or is it just me? What do you think the stock and bond markets will do in response? The discussion section is further down on this page.
With the incredible volatility in January showing no sign of fading in February, several of you took the time out to comment on what’s behind it all — and what’s coming next.
Reader Donald L. said: “You’re quite right about central banks. They seem to think they can push on a string to affect economies. All of them are acting as if they are in a glass bowl and can affect everything inside when, in fact, they are buffeted by outside factors, especially incompetent governments over which they have little influence and no control.”
Reader Anthony G. picked up on that thread, saying: “Mario Draghi is bluffing concerning additional stimulus. I believe his tool box is empty. The rest of the eurozone may no longer be willing to play his game.”
And Reader Gordon added: “Mario D. is only an emperor in disguise. He has no clothes. He will only go deeper into negative interest rate territory.
“The same crap orchestrated by the Bank of Japan lasted three whole days and then the yen appreciated again. Why? God only knows as their financial situation is the worst in the world.”
Reader John also said: “Who but crooked banksters and politicians could ever conclude that these massive powers belong in the hands of a private banking cartel? The piper will be paid for mindless monetization, debt and spending. No amount of central banker razzmatazz will do anything but delay the inevitable misery to come.”
Lastly, Reader Jim said: “Von Mises flatly declared that there is no means of avoiding a final collapse of a boom brought about by credit expansion. The only alternatives are whether the crisis comes quickly as the result of a voluntary abandonment of further credit expansion, or later as a final and total collapse of the currency system involved. If he was right, and it’s my guess he was, it doesn’t matter what the charts say. The only place to be is gold and silver.”
Thanks for sharing your comments on this important topic. It’s not just a philosophical debate we’re having on the Fed and other central banks. It’s one that directly impacts our wealth and investment strategies.
If central bankers have lost control of the markets, as I believe they have, you can’t do the same thing you did the last six-plus years. You can’t BUY into rallies driven by central bank policy moves. You have to SELL into them, or re-load with short/inverse ETF/put option positions, because they will be followed by fresh legs down.
Any additional thoughts on this topic? Then don’t hold them in. Share them on this website for your fellow investors to absorb.
Drug company officials got grilled in Congress today over the large price hikes they’ve been instituting. Officials from the Food & Drug Administration, Valeant Pharmaceuticals (VRX), and Turing Pharmaceuticals either testified or pled the Fifth in front of the House Committee on Oversight and Government Reform.
“Big Oil” is taking the axe to big yields. ConocoPhillips (COP) slashed its quarter payout all the way down to 25 cents a share from 74 cents a share. The firm also said it lost $3.5 billion in the fourth quarter, and lowered its capital expenditure target for 2016 to $6.4 billion from $7.7 billion.
* The airbag recall wave shows no sign of receding, with Honda Motor (HMC) becoming the latest company to announce a huge round of recalls. The Japanese automaker is targeting 2.2 million vehicles in the U.S. with air bags made by supplier Takata Corp. A whopping 50 million cars and trucks worldwide have now been swept up in the mess.
On the economic front, initial jobless claims rose by 8,000 to 285,000 in the most recent week. The smoothed-out, four-week moving average has been climbing steadily, signaling some weakening in the labor market.
What do you think about drug pricing? Should Congress try to pass legislation aimed at curbing increases? Will Big Oil be forced to cut dividends further, or can the super-majors mostly ride out the turbulence hitting smaller energy companies? Do you have any thoughts on the state of the job market? Let me hear your answers to these questions in the comment section below.
Until next time,
P.S. In today’s topsy-turvy stock and bond markets, there is one investment vehicle that can insulate you from market volatility. In fact, it would be accurate to say that this strategy BENEFITS from times of global chaos. Boris Schlossberg and Kathy Lien have prepared a special report to show you exactly how to profit with this strategy. It’s called “A World on the Brink,” and could prove to be the most important report of 2016.
If you have any money invested in the stock market, or are even thinking about investing, it’s imperative you read it now.
Click here now to get your vital information.