- It looks like the U.S. stock market is going to close out the 3rd quarter on a positive note
- The catalyst for the rally today is the big rally in Deutsche Bank; shares are up better than 14%
- They were in danger of going below $10 yesterday
- There were nervous about maintaining accounts with Deutsche Bank
- People were re-living memories of Lehman Brothers all over again
- I think the Obama Administration was beginning to get concerned
- The Dow was off about 200 points on the close yesterday
- When worries about contagion spilling over from European banks into U.S. Banks
- It wasn’t good with these Wells Fargo Congressional hearings
- I am going to chime in on that later in today’s podcast
- I think the Obama administration was getting nervous about precipitating another financial crisis before the election
- I think they gave a nudge to the Department of Justice which had been talking about a $14 billion fine on Deutsche Bank
- The rumors this morning are that they are nearing a settlement with Deutsche Bank for a much lower number; maybe around $5.5 billion
- Which is below the amount that Deutsche Bank had set aside to settle this
- So from $14 billion down to about $5.5 billion – this is causing a big rally in the shares of Deutsche Bank and in fact that is returning confidence to the entire sector
- I don’t think that this means that the European banks or the American banks, for that matter, are out of the woods
- I still think there are a lot of problems in the financials, because as I said in a previous podcast,”They’re damned if the Fed raises and they’re damned if they don’t”
- Negative rates are bad for the banks but rate hikes are also bad for the banks, based on their balance sheets
- I think there are still a lot of problems percolating beneath the surface for the financials
- As far as the Obama Administration is concerned, the key is to get everything through the next election without a crisis
- So I think that having the Department of Justice settle with Deutsche Bank for a much smaller number…
- You know that $14 billion fine was very close to what the Europeans were looking to fine Apple
- But I think the Department of Justice is more concerned about elections than the symbolism regarding Apple’s fine
- So coming to an agreeable solution with Deutsche Bank that was lower than the markets had feared serves the Administration’s purpose right now
- So that’s where the rally is coming from today and of course the traders like to paint the tape a little bit going into the end of the quarter
- It’s not just the markets that had a strong quarter – crude oil ended the day about $49
- We have some kind of agreement among OPEC nations for production cuts
- And while that might be good for oil stocks, it’s not going to be good for the U.S. consumer, who is already struggling
- In fact we did get a mixed bag on economic numbers out today
- The disappointing number was consumer spending, which for the month of August was flat; the anticipation was for an increase of .2%
- Personal income did manage to meet expectations with a .2% increase
- But that was about half the increase we got in the prior month
- Spending went down from +.4 (which was upwardly revised from the original +.3) to flat
- Higher energy prices, gas prices at the pump are simply going to eat into that consumer spending number
Podcast: Download
