HSBC

The Next Banking Crisis? No… Well, Not Yet.

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Image Source: Berit Watkin “Washington Mutual customers withdrew $16.7 billion in cash from the thrift in the past nine days, a huge outflow that led to the largest bank failure in U.S. history, the institution’s regulator said Friday.” — MarketWatch, September 26, 2008 By Brian Nelson, CFA Let’s get this out of the way. We’re not sensationalistic or bombastic. We’re realistic, and we love focusing on the risks of investing because an investor that knows his downside risks is a much better investor than the one that is only looking at sunshine in the rear-view mirror. I’m going to put it bluntly. We’re starting to hear of some rather serious developments in the UK following Brexit. If the UK pound hitting … Read more

Brexit: Secession Bells Are Ringing!

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First Baptist Church in Columbia, S.C., where the first secession convention in the United States opened on Dec. 17, 1860. Source: Library of Congress, Washington, DC. Photo. Encyclopædia Britannica Online. Web. 24 Jun. 2016. Global markets are plunging, and the implosion may still be in the early innings. Market valuations remain stretched among stagnant global economic growth, and “Brexit” may be the catalyst for a correction. In the paraphrased words of the well-known The Day of the Jackal author, Frederick Forsyth: the peasants have spoken. On June 23, the UK (EWU) held a referendum, in which anyone of voting age could take part, to decide whether the country should leave the European Union. The turnout was incredible at nearly 72%, and … Read more

Your Hard-Earned Money

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By Brian Nelson, CFA It was Thursday afternoon, February 11, crude oil prices just hit a 13-year low, and the S&P 500 (SPY) was about to break below key technical support. Then, just as the markets were to fall further, rumors again emerged that OPEC may be scheduling a meeting to curb crude oil output, driving crude oil prices from the depths and the market higher off technical support. A barrel of crude oil continues to trade below the $30 mark, but it was quite the “save.” From where we stand, the market hasn’t been this fragile than at any time during the past decade or so, including during much of the Financial Crisis. Optimists may be whistling past the … Read more

Not Doom and Gloom – But Just Cautious…

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You wouldn’t know it on the basis of the strong US market action January 26, but it wasn’t all quiet in overnight trading. Local markets in China (FXI) took another hit, with Shanghai and Shenzhen exchanges experiencing declines to the magnitude of 6%-7%+ on the session. Though some optimistically dismiss the local China markets as irrelevant, the implications on weakened Chinese banks, other Asian nations via trade, and interconnected financial institutions from Standard Charted to HSBC (HSBC) and even Citigroup (C) are material, in our view, and we’re paying close attention. Some may even say that China stocks represent less than 15% of household financial assets in the country — certainly not enough to cause a global calamity… Or is … Read more

Excited About Putting Cash to Work…Eventually

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Investors are fretting over a lot of things as of late. China (FXI) announced January 19 that fourth-quarter GDP fell to 6.8%, with many noting that the measure was a 25-year low. Even if you believe that number, which may be a stretch in light of collapsing local stock markets in Shanghai and Shenzhen, the outlook can’t be much better. Steel mills across the country are reeling, and while published housing numbers don’t look that bad, we have a difficult time believing the Chinese banks are in good shape. HSBC (HSBC), Standard Chartered, and Citigroup (C) remain most exposed to what we would describe to be the growing likelihood of a contagion from weakening commodity-dependent sectors in the country. Intel … Read more

The Fed Freezes; Outlook as Bad as Feared or Worse?

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The cheering on CNBC has been short-lived. The sell-off we had expected irrespective of the Fed’s decision has ensued. Selling pressure in the markets may only intensify in coming weeks as uncertainty regarding Fed policy continues to take center stage. Broader market valuations remain stretched, market technicals remain weak, and sentiment is the worst it has been in some time. On September 17, the Fed announced that it has reaffirmed its view that the current 0%-0.25% target range for the federal funds rate “remains appropriate.” Though acknowledging US economic activity is expanding at a moderate pace and that both the housing sectors and labor markets have improved, it also indicated that “recent global economic and financial developments may restrain economic … Read more

As the World Turns

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Our growing concern over market participants’ lackadaisical approach to what will inevitably become a contractionary monetary cycle has been evident for months. The US market crash of August 24 has disrupted the comfort levels of many investors, however, but it has not derailed the confidence of long-term planners, nor has it interrupted the conviction of optimists that believe the sky is the eventual limit for equity prices in their lifetimes. We take a more measured and cautious view of risky assets at Valuentum, and we’ll never tell investors to ignore the information contained in market prices. The risk of a recession in the US beginning this year is remote, but concerns are mounting for 2016. US gross domestic product continues … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

Forget About the New iPhone; The Banks in China!

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One thing will always be the case – banks never hold enough capital to cover asset losses in excess of the inverse of their leverage. Said differently, if a bank is leveraged 10 to 1–meaning its assets are 10 times as much as its equity–it would only take a 10% decline in the unhedged market-value of asset prices to wipe a bank’s equity capital position clean, all else equal, and provided capital infusions aren’t available. The US lived through this dynamic during the Financial Crisis, and to the credit of the Fed, Treasury, and related participants, they did a fantastic job, all things considered–being that we’re not currently in the midst of a modern-day Great Depression. It is clear to … Read more

Yikes! Brazil’s Real Plunges; Protests in Hong Kong

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Recession worries in Brazil (EWZ) sent the Brazilian real to a five-year low after poll results showed President Dima Rousseff gaining a lead over candidate Marina Silva, according to Bloomberg. Dropping a couple percent versus the US dollar today, its biggest one-day drop in three years, the Brazilian real has fallen more than 10% during the third quarter. Many had hoped a new government would spur economic growth in the country. The Brazilian economy is an important one, a component of the faster-growing BRIC nations, and many firms in our coverage universe are dependent on its resilience. This could potentially compound problems in Latin America, with Argentina defaulting on its debt earlier this year. Fundamentals at PetroBras (PBR), Gol Linhas … Read more