Yes, Martha, Another Bank Crisis

The CEO of Deutsche Bank (DB) has a message for you: The balance sheet is strong, liquidity is good and there is no need of an equity infusion. He may be right but it absolutely does not matter. Once a bank loses confidence, the worst fears are always realized. Your stock falls, your bonds drop, depositors leave, other banks refuse to do business with you, and down you go. That’s the reality of a fractional banking system whose assets are long term and illiquid, leaving the bank dependent on overnight access to funds to meet daily requirements.

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Long-Dated Government Bonds In Crash Mode?

Jeff Gundlach of DoubleLine Capital, one of the smartest minds in the money business, said last week that after nearly 35 years, the bond bull market has ended. Interest rates have stopped going down. In fact, he says July 5 marked the top in bonds (bottom in yields). If so, this has major implications for all markets. Why? Rising rates mean that central banks are losing control of the credit markets, governments may have more trouble running deficits and the stock market is on borrowed time.

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If Your Money Is In The Bank, Is It Yours?

Last Thursday, Wells Fargo was fined $185 million (including a $100 million penalty imposed by the Consumer Financial Protection Bureau, its largest penalty ever) for engaging in pervasive fraud. What they did will shock you. Since 2011, the bank opened 1.5 million bank accounts and “applied” for 565,000 credit cards that were not authorized by their customers. Bank employees created fake email accounts and issued fake PIN numbers to sign up customers for online banking services and new credit cards without the knowledge or authority of customers.

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Two Questions That Should Have Bond Investors Shaking

In March 2015, the European Central Bank (ECB) began its journey into Quantitative Easing, setting up to buy €60 billion in bonds monthly. The total was soon raised to €80 billion per month. In the 18 months since, the ECB has now purchased over €1 trillion in government (and corporate) bonds, bringing the ECB balance sheet to nearly Federal Reserve levels as this chart shows.

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Sub-Prime Debt: A Ticking Time Bomb Once Again

As I wrote two days ago, the world’s central bankers have spent the last seven years pushing interest rates toward zero and below. In response, millions of financial operators and capital users have scoured the globe looking for ways to profit from the lowest interest rates in history. Their favourite method was to create and sell higher yielding debt to institutional and individual investors desperate for income, thereby creating the next sub-prime take-down that will be worse than 2008.

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How Central Bank Policies Are Destroying Financial Markets

The world’s central bankers have spent the last seven years pushing interest rates toward zero and below. At the same time, millions of financial operators and capital users have scoured the globe looking for ways to profit from it. Their favourite method was to create and sell higher yielding debt to institutional and individual investors anxious for income.

Continue reading “How Central Bank Policies Are Destroying Financial Markets”