The Brexit vote outcome served to push European banking stocks even lower over the past few days. Banks such as giant derivative holder (and potential derivative time bomb) Deutsche Bank have cratered even further. These banks are struggling with record low and in many cases negative interest rates hurting their profits. And this problem is steadily spreading across the world. Read on to see what to do about it…
By Justin Spittler
Europe’s banking system is collapsing.
Over the past year, shares of Deutsche Bank (DB), Germany’s biggest bank, have plunged 56%. Swiss banking giant Credit Suisse (CS) is down 62% over the same period. Yesterday, both stocks hit record lows.
Dozens of other European bank stocks have also crashed. The Euro STOXX Banks, which tracks 48 of Europe’s largest banks, is down 48% over the past year. This is a major issue…
That’s because banks are the cornerstone of the financial system. They keep money flowing through the economy. If they’re struggling, it often means the economy is having major problems.
Right now, European banks are flashing bright warning signs. That’s not just bad news for Europe—it’s also a serious threat to the rest of the world.
In today’s Dispatch, we’ll show you why Europe’s banking crisis could turn into a global banking crisis. You’ll also learn how to transform this threat into a chance to make big gains.
• European banks are struggling to make money…
Spanish banking giant BBVA’s (BBVA) profits fell 54% last quarter. First-quarter profits at Deutsche Bank were down 58%. Swiss bank UBS’s (UBS) profits plunged 64%.
European banks are hurting for a couple reasons. One, Europe is growing at the slowest pace in decades. Banks are making fewer loans as a result.
Two, negative interest rates are eating European banks alive.
If you’ve been reading the Dispatch, you know negative rates are the latest radical government policy. They basically flip your bank account upside down. Instead of earning interest for keeping money in the bank, you pay the bank to hold your money.
Negative rates are clearly bad for savers. They’re also hurting Europe’s biggest banks. That’s because these huge institutions have to pay their “bank,” the European Central Bank (ECB).
Today, European banks pay £4 for every £1,000 they store at the ECB for a year. That might not sound like a lot. But it adds up quick when you manage trillions of euros like these banks do.
• Last week, investors got another reason to avoid European banks…
On Thursday, Great Britain voted to leave the European Union (EU), which it’s been in since 1973.
The “Brexit,” as the media is calling it, blindsided investors. As we explained yesterday, the market was expecting Great Britain to stay in EU.
The unexpected outcome triggered a global stock market crash.
U.S. stocks had their worst day since August. Japanese stocks had their worst day in five years. European stocks had their biggest decline since the 2008 financial crisis.
Friday’s global selloff erased $2.1 trillion in value from global stocks. It was the global stock market’s worst day in history.
The panic didn’t die down much over the weekend. By the end of Monday, another $930 billion had disappeared from the global stock market.
• European bank stocks were hit the hardest…
Deutsche Bank plunged 22% between Friday and Monday. Credit Suisse fell 23%. UBS fell 20%.
Barclays (BCS) and Royal Bank of Scotland (RBS) each plunged 37%. Both stocks are down more than 57% over the past year.
These are gigantic moves in a matter of days. Remember, we’re not talking about small biotech stocks. These are some of the most important financial institutions on the planet.
• Government officials are scrambling to contain the crisis…
Today, the Bank of England (BoE) injected £3.1 billion into Britain’s banking system. It’s pledged to inject as much as £250 billion to stabilize its financial system.
The BoE made its cash injection hours after the Bank of Japan (BOJ) pumped $1.5 billion into its banking system. As we’ll show you in a second, we don’t believe this will end well. That’s because this excessive money printing (sometimes called “quantitative easing”) doesn’t stimulate the economy like governments intend it to.
Credit Suisse says other central banks could soon print more money too. Bloomberg Business reported on Friday:
“Market liquidity and overall liquidity in the U.K. is drying up as we speak in a very rapid way,” said John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking, told Bloomberg TV in Hong Kong. “It’s highly likely that we see monetary easing in a coordinated response” from central banks across the world, he said.
• Great Britain is headed for a recession…
A recession is when an economy shrinks two quarters in a row. Goldman Sachs (GS) says Britain could be in a recession by early 2017.
But here’s the thing. We don’t think the BoE will let this happen. That’s because central bankers will do anything—including using reckless, unproven monetary policies—to avoid a recession these days.
Credit rating agency Standard & Poor’s agrees with us. Reuters reported today:
“Brexit is likely to represent a drag of about 1.2 percent of GDP for the UK in 2017,” Jean-Michel Six, S&P’s chief economist for Europe, the Middle East and Africa told a conference call for investors on Tuesday.
“We have a significant slowdown but growth remains positive although obviously in a much more disappointing way. That is because we anticipate a very strong monetary response on the part of the Bank of England, in the form of additional quantitative easing, in the form of a further cut in interest rates,” he added.
Bank of America (BAC) and Deutsche Bank also expect the BoE to fire up the printing press again. Bank of America says it could happen as soon as August.
• QE won’t help Great Britain’s economy…
As we told you above, QE doesn’t work.
As regular readers know, the Federal Reserve pumped $3.5 trillion into the U.S financial system after the 2008 financial crisis. This massive money printing effort was supposed to juice the economy. But the U.S. is growing at its slowest pace since World War II.
QE also failed to jumpstart Japan’s economy, which hasn’t grown in two decades.
There’s no reason to think it will work this time.
• If you’re nervous about the global financial system, we encourage you to take action today…
The first thing you should do is own physical gold.
Gold is real money. It’s held its value for thousands of years because it has a unique set of attributes: It’s easy to transport, easily divisible, and durable. You can take a gold coin anywhere in the world and folks will immediately recognize its value.
Unlike paper money, central bankers cannot create gold from nothing. It’s the ultimate antidote to crumbling paper currencies. That’s why the price of gold often soars when governments print money.
This year, gold is up 24%. It’s trading at the highest price in two years. But it could go much higher as governments continue to run reckless monetary experiments.
• If you want big profits from rising gold prices, own gold stocks…
Dispatch readers know gold miners are leveraged to the price of gold. A small jump in the price of gold can cause gold stocks to surge.
Gold’s 24% jump this year has caused GDX, a fund that tracks large gold stocks, to soar 96%.
We believe this gold stock rally is just getting started…
During the 2000 and 2003 gold bull market, the average gold stock gained 602%. The best ones soared 1,000% or more.
• Nick Giambruno, editor of Crisis Investing, has recommended two gold stocks this year…
He already closed out one of them for a quick double. It surged 103% in 14 months.
Nick’s other gold stock is up 30% since March and is still dirt-cheap at today’s levels. Nick currently rates this stock a “Buy”…and says it could soon start paying a double-digit dividend yield if gold keeps rising.
You can learn more about Nick’s gold stock by taking advantage of our special 60%-off sale for Crisis Investing. If you sign up today, you’ll be enrolled in a trial membership, which gives you 90 days risk-free to decide if the service is for you. But we encourage you to act soon. This special offer ends soon, and we likely won’t open this offer again for a long time.
You can learn more about this incredible offer by watching this video presentation. You’ll also learn about an even bigger threat to your wealth than Europe’s banking crisis. As you’ll see, almost no one is talking about this coming crisis. Yet, it could cause millions of Americans to lose their entire life savings.
By the end of this video, you’ll know how to protect yourself. And just as importantly, you’ll know how to profit from this coming crisis. Click here to watch this free video.
Chart of the Day
U.S. bank stocks are also headed lower.
Today’s chart shows the performance of the Financial Select Sector SPDR ETF (XLF) over the past year. XLF holds 94 major U.S. financial companies including behemoths JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC).
You can see XLF is down 11% since last June. While that’s not as severe as the near-50% drop in European banks over the same period, it’s still a clear sign to stay away.
U.S. banks have many of the same problems as European banks. Like Europe, the U.S. economy is growing at the slowest pace in decades. And while the U.S. economy doesn’t have negative rates yet, Fed Chair Janet Yellen has said they aren’t “off the table” if the U.S. economy runs into trouble.
The arrival of negative rates to the U.S. could tip bank stocks into a crisis, just like they have in Europe.