Europe On The Brink? When Bad = Bad

Takeaway: The Italian stock market led the losers this morning and German bank stocks are getting crushed as economic reality rules the day.

Europe On The Brink? When Bad = Bad - Italian bank cartoon

What happens when bad economic data = bad news for stocks?


Look no further than Italian equities.


For some time now, Italian banks stocks have been pricing in Europe's already gloomy economic reality remaining a protracted slump. 



Bank stocks just happen to be among the most impacted by this economic slowdown, as the ECB's negative interest rate policy crushes profitability (see net interest margin) and nonperforming loans plague their balance sheets. The evidence of this negative feedback loop is littered throughout the Eurozone. 


(Click here for our most recent look at the ongoing carnage in Italian bank stocks.)

Take Deutsche Bank for example.


In the past 11 months, shares of Germany's largest bank are down -62% and the stock plummeted on Monday on rumors that the company was seeking aid from Berlin, since the bank remains undercapitalized. (Deutsche Bank denied those media reports today but that didn't stop the shares from hitting a 30-year low. Problems persist.)


Europe On The Brink? When Bad = Bad - deutsche bank

Next up... Commerzbank.


Germany's second largest bank announced today that it would eliminate 9,000 jobs and suspend dividend payments in a revamped cost cutting effort. (Note: This is take 2 for Commerzbank, which has already cut full-year profit targets and eliminated 5,200 jobs.)


Europe On The Brink? When Bad = Bad - commerzbank


Among our Macro team's top three 3Q16 Macro Themes (released in July) is #EuropeImploding.

the carnage continues

3 Things We're In Complete Agreement With Donald Trump On...

Takeaway: Trump: "We are in a big fat ugly bubble" .. "The Fed is doing political things" .. "Raise rates & market is going to come crashing down"

Last night's debate...


Pitted Donald Trump's ugly outlook against Hillary Clinton's rosy future. And regardless of your politics, Trump's tirade about the stock market, interest rates and the Fed stuck out. 


3 Things We're In Complete Agreement With Donald Trump On... - trump 3 things 2


The comments above came after a rehearsed Clinton soundbite attempted to excoriate what she calls "Trumped-up Trickle Down." 


"Slashing taxes on the wealthy hasn’t worked. We need to rebuild the middle class. I don’t think top-down works in America. I think we should be building the Middle Class, investing in the Middle Class, making college debt free so young people can get their education, helping people refinance their debt from college at lower rates. Those are the kinds of things that will really boost the economy. Broad-based inclusive growth is what we need in America, not more advantages for the people at the very top."


Trump's eyes rolled throughout until he finally responded, "Typical politician, all talk and no action. Sounds good, doesn’t work. Never going to happen. Our country is suffering because people like Secretary Clinton have made such bad decisions."

He continued... 


"Now look. We have the worst revivial of an economy since the Great Depression; and believe me we’re in a bubble right now. The only thing that looks good right now is the stock market and if you raise interest rates even a little bit that’s going to come crashing down. We are in a big, fat ugly bubble and we better be awfully careful.


We have a Fed that is doing politicals things. This Janet Yellen of the Fed. The Fed is doing political things by keeping interest rates at this level. And believe me, the day that Obama goes off to the golf course for the rest of his life and they raise interest rates, you’re going to see some very bad things happen. Because the Fed is not doing their job. The Fed is being more political than Secretary Clinton."


Hyperbole aside, Trump makes some important points. Namely... the U.S. economy continues to slow and the Fed is propping up equity markets under the guise of "data dependence." So Trump is on to something, but the political gong show continues.


More to be revealed.





[UNLOCKED] Keith's Daily Trading Ranges

[UNLOCKED] Keith's Daily Trading Ranges - Bull and bear extra cartoon

We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


About Everything: The End of Monetary Policy?

About Everything: The End of Monetary Policy? - monetarypolicy1

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses whether central bank monetary policy has finally reached its limits. Howe explains the broader implications for investors.

Q: How Should Investors Risk Manage Presidential Election Volatility?

Takeaway: Don't be distracted by political narratives and focus on the data.

With so many distracted by their own political spew, Long Bond Bulls roar ahead by focusing on the data. One thing is clear, neither Presidential candidate will be able to change our GDP tracker which is currently at 0.4% Q/Q for Q4.


So who do you love? Do you let your politics influence how you risk manage your portfolio? I predict volatility wins into election day; immediate-term risk range for front-month VIX = 12.01-18.78. I'm staying with Long-term Bonds, Utes, Gold, and Low-Beta as a style factor.



As I've said before, there's a ton of risk that could come out of Donald Trump's mouth between now and Election Day (see video below), not to mention more causal macro considerations like earnings season and continued U.S. #GrowthSlowing.


While I'm On #growthslowing...


Was the pre-Fed Day hyperventilation the last big fat pitch of a buying opportunity for those who have missed #GrowthSlowing and Lower-For-Longer on rates? I think so. US Treasury 10-year yield slammed back down to 1.56%; 10s/2s spread right back to the YTD lows at 81bps and Financials (XLF) -4.4% in SEP vs. our beloved Utes (XLU) +3.2% SEP to-date.


Q: How Should Investors Risk Manage Presidential Election Volatility? - buy bonds



Editor's Note: The snippet above is from a note written by Hedgeye CEO Keith McCullough and sent to subscribers this morning. Click here to learn more.

CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race?

Editor's Note: Below is a brief excerpt from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.


"... Going into last night’s brouhaha, the polls basically had the Presidential race at a statistical tie. In fact, at one point yesterday in’s now-cast simulator, which projects as if the election were held today, Trump was ahead of Clinton. At the moment in that same simulator, Clinton’s probability of winning sits at 52.1 and Trump’s is at 47.9.


How will last night’s debate alter the race?


No doubt, Hillary Clinton and Donald Trump dropped the gloves last night. The debate was much less about a discussion of policy, but rather personal attack after personal attack. As it relates to strictly grading the debate, it’s hard not to give Clinton the win as she was prepared, coherent, and largely stayed on point. As for The Donald, well, he was The Donald."


CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race? - EL trump clinton

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