EC When Banks Get Beat, Who Wins?

So what’s the issue? The economy may have peaked and the yield curve is flatter than a martini coaster. Banks cannot borrow at an exceptionally low rate and then lend out at a meaningfully higher one when the yield curve is a straight line.

Keep in mind, higher rates have also decimated loan growth in real estate. There’s virtually no demand for refinancing. What’s more, home sales have fallen in 10 out of the previous 11 months.

Overseas banks? They may be even less reassuring when it comes to the potential for a breakdown. Deutsche Bank and Credit Suisse could be signaling that something is amiss.

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db-and-credt-s

Perhaps Yellen recognizes that she had spoken with a little too much reckless abandon in June of 2017. Or perhaps Yellen was looking to hedge her bets in making recent comments that “walked back” her earlier proclamation.

Regardless, everyone should now understand that the prospects for a near-term financial crisis are very real. Indeed, the current chair of the Federal Reserve and his colleagues put out a report that explicitly warned about a potential crisis related to corporate BBB-rated debt.

Crisis concerns notwithstanding, what is/are the catalyst(s) for the S&P 500 to reclaim former glory above 2931? Some think the combination of genuine progress on the international trade front, coupled with solid Q1 corporate earnings and a “we’re finished hiking” Fed will do the trick. I think that near-term rallies would fail to provide longer-term bullishness.

It is true that U.S. stocks recovered from the 2015-2016 manufacturing recession and global slowdown. At that time, however, the entire world went “all-in” on monetary policy stimulus.

Additionally, the real leg up for U.S. equities did not occur until the promise of tax cuts came alongside the Republican sweep in Congress and Trump’s Q4 election. Stocks had moved up, down and sideways for 22 months prior to the tax-cut excitement.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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Gary Anderson 6 months ago Contributor's comment

Everybody says real estate is no longer important. So, those must be the same people who think banks are no longer important. But with credit growth declining across the board, you wonder what will drive the economy going forward.

Sandra Sinclaire 5 months ago Member's comment

Lots to ponder!