TheChek News Flow

In a note to clients released Wednesday, Murray Gunn, the head of technical analysis for HSBC, said he had become on “RED ALERT” for an imminent sell-off in stocks given the price action over the past few weeks.

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In late September, Gunn said the stock market’s moves looked eerily similar to those just before the 1987 stock market crash. Citi’s Tom Fitzpatrick also highlighted the market’s similarities to the 1987 crash just a few days ago. “With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT,” Gunn said.

“The focus of investors has shifted from the level of capital to the business model, and that is why banks are under pressure,” said Peter Dattels, deputy director in the I.M.F.’s capital markets division.

In their report, the fund’s economists argued that the problems with European banks were deeply structural: a toxic brew of low levels of capital, troubled loans and business models that no longer delivered profits in an era of low growth and negative interest rates.

In particular, Mr. Dattels said, “banks are transitioning from outdated business models that rely on large scale balance sheets,” saying that Deutsche Bank fell into this bucket.

Economists and regulators have argued that Deutsche Bank, given its size and culture of risk-taking, poses more of a risk to financial markets than its peers in Europe and the United States.

The Fed’s disastrous rescue plan after the 2008 financial crisis has left the U.S. economy in a fragile and vulnerable state.

via CNBC:

“We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand,” Bank of America-Merrill Lynch’s head of U.S. equity and quantitative strategy Savita Subramanian recently warned on CNBC’s ” Fast Money .”

“We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year.”

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“What scares me is the market been so fragile.

The head of the investment banking firm Macquarie Group went even further, cautioning that we are witnessing nothing short of a terminal economy… one which they very well might not be able to put back together again:

via the Epoch Times:

Global central banks with their easy money policies of negative interest rates and quantitative easing are working against a debt deflation scenario, with limited success, according to Shvets. “That was the entire idea of aggressive monetary policies: Stimulate investment and consumption. None of that works, there is no evidence. It can impact asset prices, but they don’t flow into the real economy,” he said.

[…]

“There is no productivity on a global basis… The private sector will never recover, it will never multiply money again…”

The pinnacle of the global financial system is warning that conditions are right for a “full-blown banking crisis” in China. Since the last financial crisis, there has been a credit boom in China that is really unprecedented in world history.

At this point the total value of all outstanding loans in China has hit a grand total of more than 28 trillion dollars. That is essentially equivalent to the commercial banking systems of the United States and Japan combined.

The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis. (source)

This wave is characterised by rock-bottom commodities prices, stalling growth in China and other emerging-markets economies, and low global inflation, Goldman Sachs analysts led by Peter Oppenheimer said in a big-picture note.

This triple whammy has its roots in the response to the first two waves of crisis — the banking collapse and European sovereign-debt crisis — and it is all part of the so-called debt supercycle of the past few decades. (source)

The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc

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These “reaction” transactions of the next financial crisis will be intensified by the new financial terrain:

• automated, rapid via computers, algorithms, big data;

• “shallow markets” and threatened with “illiquidity”;

• positioned to charge for deposits and transactions while less likely to lend and returning little or no interest;

• vulnerable to cyber theft and subject to account freezes;

• market “depth” limited by gravity of actions of big fish in the pond – big banks, Federal Reserve bond purchases, derivatives moved by enormous players and rapid computerized trades; dark pools of billionaires steering big deals from the shadows;

Zooming in on the US, auto sales have stabilized over this year despite a solid gain last quarter. Year-to-date, auto sales are up only 1.4%. Nevertheless, at 17.7mn units (saar), US auto sales remain robust. And with the balance of auto loans peaking recently above $1 trillion, there are growing concerns about asset quality. For now, delinquency rates are low. However, given the 35% rise over the past four years in low-credit-score auto loans, the risks are increasing of a more serious deterioration in the event of an economic slowdown.