There Once Was a Bank…

eurozoneBack in 1473, more than 500 years ago, a bank was born in Bologna, Italy. Through the centuries, the bank grew and grew its base. It would eventually absorb the nine largest banks in Italy and “combine” its assets with a large German bank.

Today, the “little” bank that has roots dating back 500 years operates in 22 European countries, has 9,500 branches and employs 160,000 people. Comparatively, Bank of America Corporation (NYSE/BAC) has less than 6,000 branches worldwide. With total assets of about $1.3 trillion, UniCredit S.p.A (IT/UCG), the bank I’m talking about, is the 14th largest bank in Europe.

Why bring up an Italian bank today? To give you an idea of just how terrible things are in the eurozone. UniCredit withstood much during its 500-year history. What it is facing in eurozone today could be its darkest hours.

The debt crisis in the eurozone has become a banking crisis. There is no confidence in eurozone banking sector. Rumors of the breakup of the euro currency are sending the stock prices of major eurozone banks into a tailspin. As I reported yesterday, I believe the eurozone is already in a recession (see: Official Numbers in…2012 Not Looking Good).

Dear reader; please remember back to 2008 and Bear Sterns. This financial institution didn’t fail because it lacked capital. Bear Sterns failed because of a lack of investor confidence in the institution. This is what will happen to the big eurozone banks.

Yesterday, to everyone’s surprise, UniCredit announced that it would need to raise capital through the issuance of stock. The bank said it would sell stock at 40% below the stock’s trading price of Wednesday. What happened? Obviously, the stock price collapsed yesterday.

Only a year ago, UniCredit’s stock sold at $20.25. Yesterday, it closed at $4.48—that’s an even worse one-year performance than Bank of America’s stock!

How would you feel this morning if you had your savings in UniCredit Bank? I know I wouldn’t feel good. I’d probably take the money out and move it to a stronger eurozone bank.

Italy does not have the money to bail out UniCredit if it fails. Hence, UniCredit become a takeover target for other large eurozone banks. However, the majority of other eurozone banks have their own problems. Why add to them?

Dear reader, the crisis in the eurozone is real and getting worse each passing day. Leaders of eurozone countries have been talking for two years now about fixing the problem. They remind me of that CEO who talks a lot, but never executes. Please don’t be fooled by what you read or hear. There will be repercussions in America from the eurozone crisis.

Michael’s Personal Notes:

Don’t be fooled by the U.S. job numbers for December released this morning…

Economists were rejoicing about the job numbers report released by the U.S. Labor Department on Friday morning; 200,000 jobs were created in the U.S. in December, bringing the unemployment rate down to 8.5%.

Below, my dear reader, you will find my contrarian view to the job numbers report released today:

Unemployment rate down to 8.5%: The official unemployment rate is not a true gauge of employment, as it excludes people who have given up looking for work and part-time workers who want full-time jobs but can’t get them. The underemployment rate, which includes the two important categories noted above, stands at 15.2%. That is the true unemployment number. In that respect, the job numbers report does not impress.

U.S. employers added 1.64 million jobs in 2011: After the trillions of dollars the government has thrown at the economy over the past three years, after the unprecedented actions of the Federal Reserve to jump start the economy, only 1.64 million jobs were created in 2011—that’s only 19% of the 8.75 million American jobs lost during the recession. Again, in this light, the December job numbers do not impress.

As you can see, I’m not too impressed with the December job numbers report. But, more importantly, forgetting what I think, what did the stock market, a leading indicator of the economy, think of the December job numbers report?

The market yawned. The Dow Jones Industrial Average fell 40 points just after the market opened Friday morning. That’s funny. You’d think the stock market would jump on the better-than-excepted December job numbers. Maybe the market sees it the same way I do:

It might be a crude calculation, but here’s how I see it:

A $5.0-trillion increase in government debt over four years and 2.58 million jobs created in 2010 and 2011. That equates to $1,937,984 in debt created for every new job. How can anybody be happy with these numbers?

Where the Market Stands; Where it’s Headed:

The first week of 2012 is almost behind us and it looks like a good one for stocks. I’m not a big believer in the “January effect” (an adage that says if stocks rise in January, they will be up for the year), but there is no doubt that a good January sets the stage for the year.

The bear market is achieving its goal of luring investors back into the stock market under the pretense that the economy is improving. If you’ve never lived through a secular bear market, you’re seeing one right now. Phase II of the bear market, the rally that lures investors back into stocks, has been underway for almost three years now.

What He Said:

“Starting two years ago, I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending, and a lower stock market.” Michael Lombardi in PROFIT CONFIDENTIAL, August 15, 2007. You would have been hard-pressed to find another analyst predicting a U.S. recession in the summer of 2007. At the time the stock market was roaring, with the Dow Jones Industrial Average hitting its all-time high of 14,164 in October of 2007.