Trying to simply hold onto the standard that you’ve got has become a new normal for financial challenges.
Equity erodes away when interest rates go negative… then everything starts to sour.
China’s economy and stock market are effectively in the toilet, or poised to further collapse the next time anything big happens in Europe or the United States, and perhaps any part of the world.
The U.S. stock market has become jumpy and prone to collapse as well, and all major markets are now global, and trip up anytime the string tied around their ankle is yanked from across the ocean. And collapsing oil prices are adding huge pressures to everything.
Now Europe banks are at the brink. Will it be enough to set off the major crisis everyone has been warning about?
Europe’s bank index has posted its longest weekly string of losses since 2008 […] the Stoxx Europe 600 Banks Index has logged six straight weeks of declines.
Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.
The negative interest rates set by the ECB means that banks effectively have to pay to have cash on their balance sheets, while at the same time getting squeezed on their net interest margins. Debt levels are already really high on the continent, which means further loan growth is expected to be low, he said.
Negative interest rates, a result of the overkill of quantitative easing at the Federal Reserve, is plenty enough rope for all involved to hang themselves. The desperate and poor will fall as a result of borrowing too much on easy credit, and the richer and better off will fall as a result of declining returns and falling standards for income.
Banks and businesses are now seeing no return at all for investment in some cases, and a devastating decline in income security for pensioners and savers. Zero interest rates have caused severe damage.
Things are severely distorted.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year.
“And its worrisome, because banks are much more important for the credit mechanism in the economy here in Europe than it is in the U.S. […] therefore [the current weakness] is a little bit scary,” he said.
When the credit crunch is fully on, it is likely to trigger a debt bomb with low income developing countries and broke, bankrupt mismanaged first world cities and states (like Illinois). It will also be much more difficult for households to gain credit, due to the pressures at higher levels.
According to Market Watch, one of the precursors to this new disaster has been “aggressive easing from the European Central Bank,” in order words, more quantitative easing, Federal Reserve style.
Just as bank regulators have recognized in the United States, this monetary policy has distorted EVERYTHING it has touched.
Every sector, every market. The stocks are in a bubble; asset prices inflated; job growth and wages stagnant; investors with nothing to show; and a grinding halt across the entire machine itself.
The Federal Reserve went way too far with its free flowing easy money, trickling slowly down from the top where most all of it went. Now everything is tangled and messy.
“Normally,” Market Watch claims, “banks benefit from measures such as quantitative easing, but it’s just not doing the trick in Europe.”
What a joke.
Now everyone will be taken for a ride… and it’s sure to be a bumpy ride.
Courtesy of SHTFplan.com