Black swan watch: European banks

EU_dominoes.jpg

In 2007, Nassim Taleb published his best-selling book "The Black Swan: The Impact of the Highly Improbable." Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond those that are predicted by their defective financial models. This proved to be right on the mark as one year later, the financial system almost collapsed due to poor financial models that predicted real estate prices would go up forever.

Systematically Tracking Financial Weather Conditions

weathercock-2-1391640-1280x960.jpgIn the travel industry, prevention of accidents is at the top of its agenda. Safety drills for airplane takeoffs and landings are routinely practiced. On ships, passengers are assembled for lifeboat drills as soon as they board the vessel. Every passenger’s name is called out and checked off; both the passengers and crew take the drill very seriously in view of the fact that just a few years ago the Italian ship Costa Concordia ran aground on the coast of Tuscany and toppled on its side. Ship captains and sailors are in constant touch with weather stations, downloading data into their computers for the most up-to-date weather forecast and analysis.

Will Derivatives Be The Next Black Swan?

derivatives-1.jpg

"It's déjà vu all over again." - Yogi Berra

The stock market has long been classified by economists as a leading indicator of the economy. It tracks and reflects the nation’s economy and industry fundamentals. The market often seems able to anticipate positive or negative change before it happens. Since the beginning of the bear market in August of 2015, the prices of many bank stocks, especially European and Japanese banks, have declined steadily and precipitously. Deutsche Bank has lead the way by dropping below the level it reached in 2009. Shares of HSBC, Citibank, Bank of America, Credit Suisse, Goldman Sachs as well many other big banks have also taken a beating of 25-45%.

The Market Is Broken: Thoughts on Big Investors and Lack of Oversight

In the financial markets, we have always had two important components: investors and regulators. Today, we are seeing governments as significant market participants that impact global markets. Sovereign wealth funds and public pension funds around the world are now among the largest owners of publicly traded stocks and bonds. China and Japan alone represent $5 trillion in public funds out of an estimated total $30 trillion of investments owned by 160 countries. No doubt these are investors of great size that can crowd out individual and institutional investors.

Earnings Recession: Big Negative For the Market

Man-Struggling-with-Fin-Chart.jpgMany media pundits like to skew numbers to fit their narrative and a lot of people out there believe the Wall Street storytelling that "earnings excluding energy are fine" and "sales excluding currency are growing."

Well we disagree. It's too bad that in the real world, many energy companies are nearing bankruptcy and multinational corporations have to deal with currency fluctuations. Therefore, investors can't simply ignore all the bad news and go about life hunky dory. The ugly truth is that S&P reported earnings have declined for 5 consecutive quarters and are in a full blown earnings recession.

Watch out! Negative interest rate policy is coming to the US sooner than later

banksters_robbing_sheeple.jpg

Last August, Runnymede Capital warned our readers that a financial hurricane was coming. Over the past six months, the stock markets around the world tumbled and the US has followed suit in 2016. Our clients, who gave us permission to raise cash reserves, were fortunate and their assets were protected.

They Say The Sky Is Clear, We Say Take Cover

Bubbles are the only things that matter. The rest of it is boring. You show up for work, markets are at normal levels, and there's not much you can do. It's all trivial. But in a great bubble you can get your clients' arses out of the way, and the money you can save can be quite legendary." - Jeremy Grantham

The financial services industry generally frowns upon market prognosticators. "Stay the course," they say. This is especially true in recent years since passive investments have outperformed active ones. Admittedly, peering into one's financial crystal ball and voicing an opinion can be a risky endeavor. Besides the obvious risk of being wrong, another risk is being labeled a perma-bull or perma-bear. In article after article that I read, the media loves to turn to its favorite go-to bulls and go-to bears for an appropriate quote. Unfortunately, few individuals are permitted to change their minds and even fewer do it well.

At Runnymede, we do a lot of research, and our view is dynamic, not fixed. Ultimately, our market outlook is reflected in the positioning of our clients' portfolios.

The Fed: Asleep at the Switch

Fed’s Williams foresees up to five rate hikes this year. Is he clueless?

Many of the economic departments of the regional Federal Reserve banks conduct outstanding research on the economy. At Runnymede, I rely on them heavily for my prognostication on the economy as well as the stock market. The pity is the bosses at the Fed must not read their own research. Is it possible that the Chicago Fed's National Activity Index (CFNAI) is not part of the "data" that the Central bank is so "dependent" upon? CFNAI has missed expectations 9 of last 11 months and has been below 0 (contraction) for 8 months last year. In November the index missed expectations once again, tumbling to its lowest reading since May.

Will Kamikaze Kuroda crash the global financial markets?

kamikaze_kuroda.jpgNear the end of World War II, the Japanese conducted Kamikaze or suicide attacks, designed to destroy warships more effectively than was possible with conventional attacks, against Allied naval vessels in the closing stages of the Pacific campaign. About 3,800 kamikaze pilots died, and fortunately, only a small percentage of kamikaze attacks managed to hit American ships.

Is the Kamikaze behavior alive and well in the 21st century in Japan?

We're Not Too Sure About Janet Yellen's Economic Forecast

The #Fed has NEVER correctly forecast a recession.

 — Jim Rickards December 16, 2015
 

The Fed announced that it would increase its benchmark rate by one quarter of a percentage point. The major beneficiaries will be the banks and brokers, not people on Main Street. Runnymede believes the US and world economies will weaken in the quarters ahead. Our view is supported by Jim Rogers, a top investor, and Sam Zell, a real estate tycoon.

The Fed has a very different opinion. Who will be right?

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.