Fed Bigger Threat To Depositors Than Wells Fargo – Ep. 199

  • It looks like the U.S. stock market is going to close out the 3rd quarter on a positive note
  • The catalyst for the rally today is the big rally in Deutsche Bank; shares are up better than 14%
  • They were in danger of going below $10 yesterday
  • There were nervous about maintaining accounts with Deutsche Bank
  • People were re-living memories of Lehman Brothers all over again
  • I think the Obama Administration was beginning to get concerned
  • The Dow was off about 200 points on the close yesterday
  • When worries about contagion spilling over from European banks into U.S. Banks
  • It wasn’t good with these Wells Fargo Congressional hearings
  • I am going to chime in on that later in today’s podcast
  • I think the Obama administration was getting nervous about precipitating another financial crisis before the election
  • I think they gave a nudge to the Department of Justice which had been talking about a $14 billion fine on Deutsche Bank
  • The rumors this morning are that they are nearing a settlement with Deutsche Bank for a much lower number; maybe around $5.5 billion
  • Which is below the amount that Deutsche Bank had set aside to settle this
  • So from $14 billion down to about $5.5 billion – this is causing a big rally in the shares of Deutsche Bank and in fact that is returning confidence to the entire sector
  • I don’t think that this means that the European banks or the American banks, for that matter, are out of the woods
  • I still think there are a lot of problems in the financials, because as I said in a previous podcast,”They’re damned if the Fed raises and they’re damned if they don’t”
  • ¬†Negative rates are bad for the banks but rate hikes are also bad for the banks, based on their balance sheets
  • I think there are still a lot of problems percolating beneath the surface for the financials
  • As far as the Obama Administration is concerned, the key is to get everything through the next election without a crisis
  • So I think that having the Department of Justice settle with Deutsche Bank for a much smaller number…
  • You know that $14 billion fine was very close to what the Europeans were looking to fine Apple
  • But I think the Department of Justice is more concerned about elections than the symbolism regarding Apple’s fine
  • So coming to an agreeable solution with Deutsche Bank that was lower than the markets had feared serves the Administration’s purpose right now
  • So that’s where the rally is coming from today and of course the traders like to paint the tape a little bit going into the end of the quarter
  • It’s not just the markets that had a strong quarter – crude oil ended the day about $49
  • We have some kind of agreement among OPEC nations for production cuts
  • And while that might be good for oil stocks, it’s not going to be good for the U.S. consumer, who is already struggling
  • In fact we did get a mixed bag on economic numbers out today
  • The disappointing number was consumer spending, which for the month of August was flat; the anticipation was for an increase of .2%
  • Personal income did manage to meet expectations with a .2% increase
  • But that was about half the increase we got in the prior month
  • Spending went down from +.4 (which was upwardly revised from the original +.3) to flat
  • Higher energy prices, gas prices at the pump are simply going to eat into that consumer spending number