There are thousands of banks in the U.S., but only a few “big banks.” These big banks are of such size and market share penetration that they have a dominant position in the markets in which they are active. Big banks tend to cover the entire nation, including an international presence. They also provide services in all areas of the financial industry, whereas a small bank might only cover a certain subset of services.
Central banks around the global economy are involved in a race that will not end well. Of course, I’m talking about the race to the bottom of currency devaluation, which is being achieved through the printing of more and more paper money backed by nothing.
Almost weekly, I hear news about different central banks in the global economy cranking up the speed of their printing presses; they are fixated on printing money because these central banks believe they can solve their economic problems by printing. They are wrong!
Our own Federal Reserve is creating $85.0 billion a month in money with the hopes of bringing economic growth to the U.S. economy. But this strategy is failing the masses in America. Those who have benefited the most from this exercise have been big banks, Wall Street, and the rich. The poor and middle-class are in a worse situation now than in 2007!
But it’s not just the Federal Reserve that’s printing massive amounts of new money. Other central banks are doing the same under a fancy phrase: “quantitative easing.”
In its most recent monetary policy statement, the Bank of Japan reiterated it’s take on printing. It said the central bank will continue to work towards increasing the monetary base in the country by 60 trillion to 70 trillion yen per annum. The central bank will buy Japanese government bonds, exchange-traded funds (ETFs), and real estate investment trusts with the freshly printed money. (Source: Bank of Japan, November 21, 2013.) (Yes, the Bank of Japan is buying securities that trade on the stock market. As our next American financial crisis approaches, … Read More
The U.S. Department of the Treasury has reported that for the federal government’s fiscal 2013 year, which ended on September 30, 2013, the U.S. government budget deficit was $680 billion—the smallest budget deficit in five years. (Source: Bureau of the Fiscal Service, October 30, 2013.)
Should this be taken as great news? No, it’s “smoke and mirrors,” as I will explain below. But the mainstream certainly thinks this year’s budge deficit, which came in below $1.0 trillion, is good news. They forget that no matter how you look at it, any budget deficit, no matter how small or large, is adding to a bigger problem at hand—our massive national debt.
Let’s face it: a budget deficit at the end of the day means the government spent more money than it received. Where does this extra money that the government spends come from? The answer is simple: it borrows. And as a result, the national debt rises.
Our national debt has increased significantly over the past few years. At the beginning of 2008, the U.S. national debt stood at $9.2 trillion. Today, it stands above $17.0 trillion. (Source: Treasury Direct web site, last accessed October 31, 2013.) This represents an increase of almost 85% in the national debt in the matter of a few years.
I believe the national debt will double from here…from $17.0 trillion to $34.0 trillion.
Why am I so negative on the national debt? I’m skeptical because I don’t believe this year’s numbers present the real story on government spending. Let me explain…
In the fiscal 2013 year, the U.S. government paid … Read More
The Federal Open Market Committee (FOMC) decided this week to keep quantitative easing and easy monetary policy going. The statement by the Federal Reserve said, “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.” (Source: Federal Reserve, October 30, 2013.)
I’m one of those economists who believes the longer this goes on, the more troubles we are going to see. Is the Federal Reserve playing with fire?
It’s been almost five years since the Federal Reserve introduced the idea of quantitative easing to the U.S. economy. The goal was to help spur the economy and to help the average Joe, who, at the end of the day, lost his job and his house.
Has that happened?
It’s very clear: quantitative easing and the easy monetary policy that the Federal Reserve has been implementing for some time haven’t really filtered down to the average American. But it is helping the big banks; we have seen their profits grow significantly since 2009, while the average consumer has seen his/her real wages decline. Those who are closing in on retirement are forced to stay longer in their career or rethink their options because their savings have either been depleted or haven’t grown enough.
And we are seeing consumer confidence slide lower. This is the exact opposite of what the quantitative easing was supposed to do. For the week ended October 27, the Bloomberg Consumer Comfort Index declined to … Read More
Back in early August, I turned negative on the big banks and suggested that a bearish double-top was forming on the Bank Index chart. At that time, the Bank Index was trading at just over 65, as you can see on the chart below. (Read “Four Important Stock Charts Showing Warning Signs.”)
In early October, the Bank Index fell to around 61 (as indicated by the lowest shaded oval in the chart below). The index held and has since rallied back above the upper resistance, suggesting that it could be set for a breakout back up to its July highs. However, my feeling is that the easy money in the big banks has been made and going forward, the big banks are now dividend plays.
Chart courtesy of www.StockCharts.com
Investment guru Warren Buffett continues to like the big banks. I don’t blame him, as Buffett has made more than $5.0 billion in paper profits on his initial $5.7 billion investment in the ailing Bank of America Corporation (NYSE/BAC; dividend yield 0.30%), when the sector was in disarray following the Lehman Brothers collapse.
So far in the third-quarter earnings season, the big banks have largely delivered decent results.
Bank of America reported earnings of $0.20 per diluted share on year-over-year revenue growth of 5.3% to $21.7 billion, beating the Thomson Financial consensus earnings-per-share (EPS) estimate by $0.02.
JPMorgan Chase & Co. (NYSE/JPM; dividend yield 2.90%) reported a loss of $380 million, or $0.17 per diluted share, but this included a massive $9.15-billion pre-tax charge for legal and government fees. The adjusted earnings of $1.42 per diluted share handily beat … Read More
What the heck is with this stock market? The ability of the stock market to hold and avert a major correction over the past two weeks and then follow this with an upward move on the charts is a surprise—at least in my view it is, as it clearly shows the bullish bias controlling this stock market.
The NASDAQ and Russell 2000 are at new recent highs as the desire for growth by investors continues, which has largely been the story this year.
The S&P 500 is within striking range of its September record high.
The focus on the debt ceiling is important but also way overdone, in my opinion, given that we are in the midst of the third-quarter earnings season and, well, it has been subpar early on.
Yes, it’s still early in the earnings season, but I expect more subpar results. Of course, what I expect doesn’t matter—momentum and speculation are what drive this stock market.
So far, about six percent of S&P 500 companies have reported, and a dismal 55% of these companies have beaten estimates. That’s just not good. The results are also well below the historical average at just over 60%, and to make matters worse, the results were compared to estimates that were already lowered by Wall Street. Revenue growth is also lackluster, as I expected, which is not what we should be seeing with an upward-trending stock market.
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