Stock Market Crash Imminent Economic Collapse In 2017

Current stock market valuations are not sustainable. In 1929, 2000 and 2008, stock prices soared to absolutely absurd levels just before horrible stock market crashes with economic collapse.  What goes up must eventually come down, and the stock market bubble of today will be no exception and economic collapse 2017 is possible.

FAIR USE NOTICE: This video contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law http://copyright.gov/

In fact, virtually everyone in the financial community acknowledges that stock prices are irrationally high right now.  Some are suggesting that there is still time to jump in and make money before the financial crash comes, while others are recommending a much more cautious approach and preparing for the imminent economic collapse.  But what almost everyone agrees on is the fact that stocks cannot go up like this forever.

On Tuesday, the Dow, the S&P 500 and the Nasdaq all set brand new record highs once again.  Overall, U.S. stocks are now up more than 10 percent since the election, and this is probably the greatest post-election stock market rally in our entire history.

But stocks were already tremendously overvalued before the election, and at this point stock prices have reached a level of ridiculousness only matched a couple of times before in the past 100 years. Only the most extreme optimists will try to tell you that stock prices can stay this disconnected from economic reality indefinitely.  We are in the midst of one of the most outrageous stock market bubbles of all time, and as MarketWatch has noted, all stock market bubbles eventually burst and global economic collapse imminent…

“The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.”

Learn More THE GREATEST WEALTH TRANSFER

Source: The Economist

The 401k Future

Coming changes in the retirement industry represent a seismic shift decades in the making.

Simply put, a comfortable and secure retirement can no longer be taken for granted by the vast majority of the population. Unlike the past, no single institution or corporation will come to the rescue with guarantees. Today, employees are largely on their own when preparing for the future, yet the extent to which most people will reprioritize to fund their own retirement remains to be seen.

With the looming threat of a flat-lining retirement industry, defined contribution plans like the 401(k) arguably act as a defibrillator—and a good one at that—but they’re far from a sure bet.

Step Back: How Did We Get Here?

No matter how unfashionable it might be to acknowledge past actions or inactions that have led to a current conundrum, every now and then, it’s worth a pause to consider the course of events that have led to where we are and where we’re most likely headed.

Historical Context

Rather than rehashing 50 years of history, suffice to say that globalization is largely to blame for much of the strife facing the retirement industry today. Looking back to the late 1960s, after Vietnam and before low-cost labor from Asia impacted worldwide pay scales, baby boomers became a driving force, both politically and economically, exerting significant pressure on both wages and benefits in the United States. Those were the halcyon days of labor unions, when employees, both skilled and unskilled, were given not only high wages but also high quality medical benefits and pension plans that would ensure a flow of income all the way to the grave.

The risks and costs of guaranteeing lifetime benefits didn’t escape the attention of the companies offering them, but there were no easy solutions. Some defined benefit pension plans were negotiated but then not properly funded. And others got creative with their actuarial assumptions, in some cases applying a discount rate of 8 percent or more in an attempt to deny or forestall the reality of the future cost of the guaranteed retirement plan.

When China decided to become a member of the world community, things went from bad to worse. Product production shifted into high gear in Asia at a cost that was substantially less than goods produced in the United States. And this sent U.S. companies scrambling to remain competitive, which meant reducing costs and overhead as much as possible. As a way of reducing labor costs, benefit plans were among the first expense categories that came under pressure.

Industry Context

Over the past 20 years, corporate America has increasingly done away with defined benefit plans to instead offer profit sharing plans in conjunction with 401(k) plans. Today, DB plans have all but evaporated from the landscape, with the exception of plans offered by local, state and federal governments. These employers have not felt the pressure of foreign competition, however tremendous unfunded liabilities and significantly longer life expectancies are beginning to take their toll. The strain on governments to properly fund these plans leaves few other options than to raise taxes.

Thus, the whole concept of a guaranteed lifetime benefit has gone the way of other impossible dreams. The 401(k), 403(b), and other similar plans are now the primary source of future retirement income to go along with Social Security. And employees are now largely responsible for their own retirements. So, where do we go from here?

The Much Needed Wake Up Call

Right off the bat, employees must be made to understand exactly what’s at stake. And the most effective way to make that point clear is by providing a personalized retirement readiness assessment. For some, this can feel much like a virtual ice bucket challenge, which is just what you want. The report should delineate how much employees should save for retirement, based on their specific needs, versus how much they’re saving currently. And if they’re not going to make it, they need to be told—in no uncertain terms.

Employees are not the only ones that need a wake up call. The responsibility also lies with plan providers. The new DOL ruling is an admonition to the retirement industry—that plan providers and advisors must act in the best interests of plan participants, which should mean helping to alleviate some of the retirement planning burden by providing the best possible services at fair and reasonable prices.

A Pill Worth Swallowing

Breaking the news to plan participants that need to save around 18% of their earnings can be difficult.  But there is good news to deliver as well. The key points to illustrate are the exponential benefits of even small increases in 401(k) contributions, the power of compound interest over time, and the tax savings that can be realized.

Another vital part of this conversation should be a discussion of the optimal asset allocation and investment choices based on the employee’s specific needs. When the advisor can illustrate savings growth, based on realistic rate of return assumptions, financial goals begin to seem achievable.

The employee education process is crucial to the success of the 401(k) plan. But the time and effort it takes to really get through to people—including group educational forums and one-on-one planning session—is substantial.

Increasing the Odds

No matter how much plan participants can discipline themselves to save, if they’re invested in inferior investment products, it could be all for naught. To make a real difference in people’s lives, plan fiduciaries must be hawkish when it comes to the quality of the investments options and the legitimacy of the fees.

Advisors should recommend benchmarking the plan on a continual basis, to determine the latest industry standard for investments and to identify and eliminate any excessive and unnecessary fee. This is at the heart of what it means to be a plan fiduciary—to act solely in the best interests of the plan participants, act in a prudent manner, diversify the plan’s investments, and ensure that the plan expenses are reasonable.

Through a diversified fund lineup, that includes both active and low-cost passive investment options, and by ensuring that providers are free of inherent conflicts of interest, the odds of achieving a desired level of retirement readiness can be well within grasp.

Tracking Progress

Once the right products are in place, it’s imperative to remain vigilant in ensuring that performance remains on course and individual plans stay on track. To that end, a process for the selection, monitoring and replacement of investment choices is imperative.

As those in the retirement industry for any length of time have observed, if the current course is left unchecked, the prospects are bleak. We’re trending toward a scenario where many, many people will find themselves struggling to make ends meet during retirement. That’s why, now more than ever, plans sponsors and their advisors have a duty to help.

If being in this businesses is worth doing, how much more satisfying to know that you’ve helped steer as many people as possible toward a more promising future. It’s a great challenge and it will take a concerted effort on behalf of everyone to see to it that no one is left behind.

Source: 401k Solution Beirne Wealth

The European Banking Crisis

Fears of a European banking crisis have been on the rise in recent months, with the anxiety centering on two banks in particular: Germany’s Deutsche Bank AG (DB) and Italy’s Banca Monte dei Paschi di Siena S.p.A. (BMPS.Milan).

The European Central Bank (ECB) on Friday rejected Monte dei Paschi’s request for more time to raise private money in a €5 billion recapitalization plan. The central bank had given the struggling lender until the end of the year to raise the money and hive off €27.7 billion of non-performing loans; the refusal to grant a three-week extension sent Monte dei Paschi’s shares down 10.6% to €19.50 at close Friday. That price leaves the bank – which has less than a month to raise several billion euro – with a market capitalization of just €571.8 million.

Given the uncertainty caused by Italians’ rejection of Sunday’s referendum, the plan appears impossible to complete. In order to avoid the politically toxic measure of a bail-in, which would tap a large pool of retail bondholders to rescue the bank, the Italian Treasury is planning to take a stake of up to 40% in the bank, Reuters reported Wednesday.

Deutsche Bank, meanwhile, faces a potentially crushing fine from the U.S. Department of Justice, though few expect the bank to end up paying the government’s full initial ask of $14 billion

If Monte dei Paschi, Deutsche Bank or another vulnerable lender runs out of options, many fear that financial contagion reminiscent of the fallout from Lehman Brothers’ collapse could drag the world economy back into chaos. What ails European banks generally, and Deutsche Bank and Monte dei Paschi in particular? Can they be saved, and if not, can the financial system be saved from them?

Why Are European Banks in a Crisis?

Europe’s economy is mostly listless and in a few areas deeply distressed. Average unemployment in the 19-nation euro area is nearly 10%, and the rate is over 20% in Greece. The financial crisis in Europe that began when the U.S. mortgage bubble burst is still grinding across the continent in different guises, including the sovereign debt crisis that periodically threatens to pull Greece out of the eurozone.

Despite the lingering effects of the financial crisis in Europe, the continent’s banks are still profitable: average return on equity was 6.6% in 2015, according to the International Monetary Fund (IMF), compared to 15.2% in 2006 and 2007. But borrowing and fee-generating activities have decreased, and non-performing loans continue to weigh on the sector, particularly in the “PIIGS” countries: Portugal, Italy, Ireland, Greece and Spain.

Source: IMF Global Financial Stability Report, October 2016. Legend edited for space and clarity.

If economic weakness has hurt banks, so have policymakers’ attempts to set the continent on a new course. New regulations have increased costs and cut into profits once achieved through risky trading strategies. Even more painful are negative interest rates, an unconventional monetary policy approach that first appeared in Sweden in July 2009 and has since spread to Norway, Switzerland, Denmark, Hungary and the 19 countries of the eurozone (as well as Japan).

https://docs.google.com/spreadsheets/d/1vINMTkEf_o7csZIHUdicR_VgWB6xKMolfMadMBxAxww/pubchart?oid=1870717026&format=interactive

Six central banks have introduced negative interest rates to 24 countries since 2009 (note: not all rates shown are headline rates). Source: central banks. 

As a result, banks are finding their margins squeezed. Most are unwilling to pass negative interest on to savers, fearing an exodus of deposits. (Your mattress doesn’t charge a fee.) At least one lender has bowed to the pressure to pass on negative savings rates, however: in August, a community bank in southern Germany announced it would charge a 0.4% fee on deposits of more than €100,000 ($109,000). A spokeswoman for the National Association of German Cooperative Banks described the move, which affected perhaps 150 people, as a reaction to the ECB’s “disastrous policy of low interest rates.”

A look at Deutsche Bank and Monte dei Paschi’s stocks bolsters the idea that negative rates have been a nightmare for banks: the lenders’ shares lost 88.6% and 99.6% of their value in the nine years to June 30, respectively, as the ECB’s deposit rate fell from 2.75% to -0.4%. Monte dei Paschi’s stock closed at €18.90 on December 6; if it weren’t for a 100-to-1 reverse stock split on November 28, the price would be €0.19.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=1108617261&format=interactive

This confluence of factors led Credit Suisse Group AG (CS) CEO Tidjane Thiam to call European banks “not really an investable sector” in September. But according to the IMF, blaming economic lethargy and hyper-accommodative monetary policy is not enough. The fund estimates that a rise in interest rates, an increase in fee generation and trading gains, and a fall in provision expenses on soured loans would, combined, boost European bank profitability by around 40% in terms of return on assets. And yet, $8.5 trillion, or around 30% of the system’s assets would “remain weak.”

For all the cyclical challenges facing Europe’s banks, their problems are not just cyclical. According to the IMF, the sector needs to cut costs and rethink business models. Consolidation is also necessary: the fund estimates that 46% of the continent’s banks hold just 5% of its deposits.

Still Too Big To Fail?

Skip to top

If another sector fit the description above – bloated, with too many inefficient competitors scrapping over a highly-regulated, barely-profitable market – the solution might be to let competition do its bloody work. Unfortunately, as the world saw in 2008, some institutions are too big to fail.

When Lehman Brothers’s radioactive portfolio of mortgages began to threaten the bank’s future in mid-2008, CEO Richard Fuld hunted for any sort of rescue, be it fresh investment, a merger, a buy-out, a change to Federal Reserve rules or an outright bailout. The bank ran out of options and declared bankruptcy on September 15, 2008, an event that laid bare the fragility of the global financial system.

Over the following days, hedge funds that traded through Lehman’s London office found that their assets were frozen, sowing panic behind the scenes. The crisis erupted into plain view when major money market funds “broke the buck” – announced they would not be able to repay investors in full – sparking a flight from commercial paper that threatened to deprive large corporations in every sector of the cash they needed to pay workers and invoices.

Gargantuan, system-wide government bailouts stopped the bleeding, but the world still feels the effects of a crisis triggered by a single bank failure eight years ago.

Monte dei Paschi di Siena

Skip to top

On Friday, December 9, the ECB rejected a request from Monte dei Paschi di Siena for additional time to continue with a private recapitalization plan that got underway in late November. The three-week extension would have pushed the deadline to January 20; the rebuff sent Monte dei Paschi’s shares plunging by over 14%, with circuit breakers halting trading more than once. The stock pared losses slightly to close down 10.6% at €19.50.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=2107316543&format=interactive

Faced with a year-end deadline to raise €5 billion in new capital and rid its balance sheet of €27.7 billion in bad loans – the net value of which is estimated at €9.2 billion – it appears increasingly likely that the €571.8 million bank (at close Friday) will be forced to take public money. Reuters reported Wednesday that the Italian government is preparing to take a controlling stake of up to 40% in Monte dei Paschi, in what an unnamed source called a “de-facto nationalization.” The €2 billion injection, which could take place as soon as this weekend, will reportedly take the form of bond purchases by the Treasury: retail investors numbering around 40,000 will receive face value for their bonds, which the government will then convert to shares in the bank. Monte dei Paschi’s stock rose 10.8% Wednesday in response to the news.

The government has been forced to resort to a bailout because voters rejected a referendum on constitutional reforms on Sunday, December 4. Following the vote, which saw “No” triumph by nearly 20 percentage points, Prime Minister Matteo Renzi announced he would resign. His exit has the potential to set off a destructive chain reaction: the Five Star Movement, a euroskeptic party, could come to power as a result. Its leader, former comedian Beppe Grillo, has called for a referendum on Italy’s leaving the eurozone. A far-right party, the Northern League, also stands to gain from the anti-establishment rebuff.

Medium-term political uncertainty has led to acute short-term uncertainty for Monte dei Paschi. Citing unnamed Italian officials and bankers, the Financial Times (FT) reported on November 27 that perhaps eight of Italy’s ricketiest banks could fail in the event that a “No” vote set off market turbulence and endangered rescue plans designed to save them from a bail-in. The euro dropped to a 20-month low against the dollar following the vote; by Monday afternoon EST, the currency had more than recovered those losses, but Monte dei Paschi proved less resilient. Its shares closed down 4.2%.

The €5 billion recapitalization plan, which appears likely to be abandoned, was developed by JPMorgan and unveiled on October 25. It called for the Italian lender to raise €1.6 billion through junior bondholders’ agreeing to convert debt to equity. Atlante, a rescue fund for Italy’s banks, would stump up another €1.6 billion, and a new bond issue would cover the balance. A Qatari government fund was mulling an “anchor” investment of around €1 billion, depending on the outcome of the referendum.

To sweeten the deal for investors, Monte dei Paschi said it would target €1.1 billion in net profit by the end of 2019. The bank has already eliminated its dividend; to cut costs further, it announced in late October a plan to slash 2,600 jobs and shut 500 branches. Investors remained skeptical: shares fell by over 20% after the announcement, leading authorities to temporarily halt trading in the stock. Bank of America Merrill Lynch analysts were hesitant as well, asking in a research note if it is “even possible” to raise €5 billion in fresh capital for a €550 million company (at close on October 25).

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=566960292&format=interactive

Monte dei Paschi began exchanging subordinated bonds for equity in late November in the first stage of the recapitalization plan. On December 2 it said it had raised around €1 billion in the swap. The same day, the Italian daily Corriere della Sera reported that the government was in discussions with the European Commission regarding the terms of a bailout for the bank, apparently anticipating the results of the referendum. When voters rejected Renzi’s reforms two days later, already wary private investors were unwilling to go forward with the rescue plan.

The hope is that, once the Italian Treasury has become the bank’s controlling shareholder (it is already the largest, with a 4% stake), private investors will be confident enough to fill in the €2 billion gap left by the €1 billion debt-for-equity swap and the government’s €2 billion investment.

If the bank is not recapitalized or bailed out by the end of the year, it may have to resort to a bail-in. EU rules that went into effect at the beginning of the year require that junior bondholders take a loss amounting to 8% of assets before taxpayers can be tapped for a traditional bailout. In countries where bank bonds are mostly held by institutions, that might not be a disaster, but Italy’s tax code and cultural norms encourage retail investors to hold bank bonds – around €200 billion nationwide. A much smaller bail-in caused an Italian saver to kill himself in December 2015.

Renzi tried for months to convince Brussels to allow for the use of public money, but Germany and others in Europe’s “core” were in no mood for taxpayer-funded bailouts. “We wrote the rules for the credit system,” German chancellor Angela Merkel, who is facing elections in 2017, told reporters in June. “We cannot change them every two years.” In the wake of the referendum, circumstances appear to have changed.

A Long-standing Problem

Stress tests conducted by the European Banking Authority in July found that, nearly eight years after the financial crisis began, the continent still harbored at least one bank liable to walk off a cliff in a downturn. Monte dei Paschi, Italy’s third-largest lender, saw its fully-loaded common equity Tier 1 (CET1) ratio, a risk-weighed measure of capital, fall to -2.4% in 2018 under the test’s adverse scenario. In other words, the bank would be insolvent, and its collapse could potentially lead to other bank failures. It was the only one among 51 banks surveyed to earn that distinction, though struggling Greek, Cypriot and Portuguese banks were excluded from the test.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=818904730&format=interactive

Monte dei Paschi’s struggles were well-known going into the stress tests. The lender had unveiled a restructuring plan just hours beforehand, showing it was not banking on a pleasant surprise. Founded in 1472, Monte dei Paschi is the world’s oldest surviving bank, but in this case antiquity does not imply stability. Prior to the first quarter of 2015, when it turned a modest profit, it had lost money for 11 straight quarters – over €10 billion in total. In the three months to September the bank swung to loss again, of €1.2 billion.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=324614747&format=interactive

Note: net revenue and net income figures are shown as restated; share prices are adjusted for splits up to September 30.

Shortly before Europe’s financial crisis struck, Monte dei Paschi bought Antonveneta from Banco Santander S.A. (SAN) for an inflated €9 billion. In 2013 that acquisition – funded by a complex hybrid instrument designed by JPMorgan Chase & Co. (JPM) – became the subject of an investigation that also uncovered complex derivative contracts with Deutsche Bank and Nomura Holdings Inc. (NMR), which Monte dei Paschi management had used to conceal losses in 2009. Three former executives received 3.5-year prison sentences in connection with the fraud in 2014.

Monte dei Paschi took a €1.9 billion bailout in 2009 in the form of Tremonti bonds, named for the finance minister at the time. These were hybrid securities designed for sale by struggling banks – four in all, three of which had repaid by mid-2013 – to the Italian government; the proceeds counted towards regulatory capital requirements. Monte dei Paschi ducked out of the European bailout of Spain’s banking system in 2012, but the following year it sold Italy €4.1 billion in rejiggered Tremonti bonds (known as Monti bonds after Tremonti’s successor). Of this sum, €2.1 would substitute for the first bailout, including interest. The bank has raised around €8 billion through additional rights issues since 2014, diluting previous shareholders’ stakes, yet its market capitalization as of December 7 is a mere €614 million.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=1578783929&format=interactive

Deutsche Bank

Skip to top

Ironically, given Merkel’s avowed reluctance to bail out banks, the other European institution that keeps markets up at night hails from Germany. In June, the IMF named Deutsche Bank “the most important net contributor to systemic risks” among the so-called global systemically important banks (G-SIBS).

Linkages among global systemically important banks. Size of bubbles indicates asset size; thickness of arrows indicates degree of linkage; direction of arrows indicates direction of “net spillover.” Source: IMF Financial System Stability Assessment, June 2016.

On September 15 the angst surrounding Deutsche Bank deepened when it confirmed reports that the Department of Justice (DOJ) was seeking a $14 billion settlement for alleged wrongdoing related to mortgage-backed securities from 2005 to 2007. The bank’s New York-listed shares plunged by over 9% the next day, as it had only €5.5 billion ($6.0 billion) set aside for the purpose – less than the €6.8 billion it had lost the previous year. (A couple of weeks later, Greece’s central bank chief relished the opportunity to announce that his country’s banking system was safe from German spillover.)

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=1448859752&format=interactive

Few expect Deutsche Bank to pay the full amount, which could push it over the brink. Citigroup Inc. (C) talked the DOJ down to $7 billion in 2014 from a $12 billion initial ask. Other fines for similar activity range from Morgan Stanley’s (MS) $3.2 billion to Bank of America Corp.’s (BAC) $16.7 billion.

Even with a diminished fine, though, Deutsche Bank is in a precarious position. As of September 30, it had €5.9 billion ($6.4 billion) set aside for litigation expenses, up from €5.5 billion at the end of the previous quarter. JPMorgan analysts wrote on September 15 that a final bill over $4 billion would raise questions about the bank’s capital position. They pointed out that the mortgage-backed security probe is not the last potentially costly legal issue Deutsche Bank could face in the near future: an investigation into money laundering for Russian clients is also underway.

Speculation began to swirl that Germany would flout the bail-in rules it had expended such political energy to defend, though Merkel has ruled out state assistance, according to government sources quoted in Munich-based Focus magazine.

Deutsche Bank’s CET1 capital ratio has fallen since the end of 2014, though it rose slightly in the third quarter of 2016 to 11.1%. At 10.8% in June, the ratio was around €7 billion shy of CEO John Cryan’s 12.5% end-2018 goal. Selling Postbank and its stake in Hua Xia Bank Co. Ltd. will likely bring Deutsche Bank closer to that target, but stricter rules could push its capital ratio even lower.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=424582157&format=interactive

While Deutsche Bank has taken a few heavy losses since the financial crisis in Europe began, it could conceivably have built up more capital through retained earnings and avoided looking so brittle when the DOJ came knocking. John Cryan, the bank’s CEO since July 2015, has set his sights on executive pay, telling a conference in Frankfurt that November, “many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a health-care scheme and playing with other people’s money.” Chief financial officer Marcus Schneck told investors on October 27 the bank would dispense with cash bonuses for the year and may tie executive compensation to the stock price. On November 17 Süddeutsche Zeitung reported that Deutsche bank may cancel six former executives’ unpaid bonuses, without specifying the amount.

In fairness, shareholders have taken a greater share of earnings than executives – though not per head – in the form of dividends, which were discontinued in 2015.

https://docs.google.com/spreadsheets/d/16mzSq1DSDY_jKO-u4I7VqSqsxLRWqY4J6MjRv7S8K9U/pubchart?oid=2120970875&format=interactive

Better-than-expected third-quarter earnings of €278 million, announced on October 27, have given Deutsche Bank a moment to catch its breath, but the firm remains vulnerable, and it does not have to be the European banking crisis’ zero cell to contribute to the carnage – it could serve as a conduit. Deutsche Bank reported net exposure to Italian financial institutions of €1.9 billion at the end of the third quarter, up €1.1 billion from year-end. Its net credit risk exposure to the PIIGS countries is €31.1 billion, up €4.9 billion.

Will There Be a European Banking Crisis?

Skip to top

The ultimate question is whether, if one of these banks or another were to collapse, the world would see a repeat of the Lehman moment. Kevin Dowd, professor of finance and economics at the University of Durham, answered this question in stark terms in an August report for the Adam Smith Institute: “Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale” than in 2007 and 2008.

Not everyone agrees. “No, I don’t see them as the next Lehman,” Harvard Law School professor Hal Scott told Investopedia on October 31. “I think that there are problems that are idiosyncratic to some extent to each bank. I don’t see panic ensuing from how they’re dealt with.” In fact, he sees the European banking system as having “more capability to handle a contagion than in the United States,” due to Americans’ unwillingness to see a repeat of the 2008 bailouts.

Scott explained that European authorities have three “weapons” that would allow them to put a stop to financial contagion “pretty quickly.” First is the ability of national central banks to act as a lender of last resort, although the ECB can cap the amount these banks lend. “I’m pretty confident that the Italian central bank and [German] Bundesbank would lend,” he said, adding, “I think there would be a strong lender of last resort response in Europe.”

The second weapon is the Single Resolution Mechanism, what Scott called a form of “standing TARP,” which envisions the use of banking industry contributions, creditors’ money and public funds to resolve failing banks. Finally, while the EU lacks a system-wide deposit insurance scheme, there are rules governing national schemes, which guarantee up to €100,000 per depositor per bank.

While Scott does not see Deutsche Bank or Monte dei Paschi setting off another Lehman-like chain reaction, he identified flaws in the European banking system’s current design. It would be better, he said, if the ECB acted as the lender of last resort rather than national central banks. He is also doubtful of capital requirements’ ability to stem a panic: “in a run on a system, no amount of reasonable capital is going to be sufficient.” Such requirements are a good thing, he clarified, like enhancing a building’s ability to withstand fire – even so, “you don’t abolish the fire department.”

If and when something goes wrong in Europe’s fragile banking system, avoiding a full-blown financial crisis in Europe will likely depend on policymakers’ ability to quickly reassure markets and depositors. According to Scott, national and continental authorities’ capabilities are “more than adequate.” On the other hand, judging by the state of Europe’s banks nearly a decade after the initial crack-up, resolving crises quickly may not be the continent’s strong suit.

By David Floyd

Why I Hope Donald Trump Paid $0 in Taxes

Written by Robert Kiyosaki | Tuesday, August 16, 2016

And Why Hillary Clinton is Wrong To Attack Him On It

You can tell that the presidential race is heating up because the attack ads are heating up too. In the past, much of political advertising happened on the television. If you didn’t like it, you could change the channel. This election involves social media more than any other I can remember.

Last week, Hillary Clinton, the Democratic nominee for president, sent this out on her Twitter account:

patrickiturra.com
Twitter

Usually, the candidates choose to release their tax returns if they are running for president. Donald Trump has elected, so far, not to do this.

Last week, Hillary and Bill released their 2015 tax return to the public. This was most likely the reason they are attacking Trump on his tax returns. As The New York Times reports, Hillary and Bill paid “$3.6 million in federal taxes for an effective tax rate of about 35 percent.” Most of this income came from speeches and Hillary’s memoir.

I find it interesting that Hillary would choose to attack Donald Trump for not paying anything in taxes and celebrate that she paid so much in taxes. This to me shows that Hillary is a career politician, while Donald is a career entrepreneur. It also shows me that Donald is doing what the tax code was intended for while Hillary and Bill are being penalized for not doing what the tax code was intended for.

As I’ve learned from my Rich Dad tax advisor, Tom Wheelwright, the most patriotic thing you can do is not pay your taxes!

Let me explain.

The Tax Code is Made to Incentivize

As you probably know, the tax codes in the US and in many different countries are long and complicated. The question is, why?

The reason is that government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want by utilizing the tax code.

In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.

There are many scenarios like this in the tax code that incentivize investors and entrepreneurs to do activities the government is looking for while rewarding those who take those actions with lower-or zero-tax burden.

Because of this, limiting your tax liability actually means you’re doing what the government wants you to do through the tax code. And that is the most patriotic thing you can do.

Why Hillary is wrong

This is why it is insanity for Hillary to criticize Donald for not paying taxes. The only way in which he would not pay taxes would be by doing things like investing and creating jobs to receive tax benefits created by the government! Conversely, the fact that Hillary and Bill paid a 35% tax rate and millions in taxes shows they are not doing what the government wants. They are not providing jobs, starting businesses, or investing in a meaningful way.

Personally, I’d rather have someone who understands how money and taxes work, how to create jobs and invest in ways our own tax code incentivizes, than one who doesn’t. This is not an endorsement of either candidate, but it is a true observation regarding this one issue.

Hillary’s tweet is capitalizing on the general ignorance around money and taxes that much of our country has. In that way, it is actually a lie and a form of fear mongering. It is an attack without legs to stand on, preying on emotions rather than appealing to logic and intellect.

But that’s what most of our politics has devolved to these days, so I’m not surprised.

Want to know more? Read Tom’s book on taxes

During the election season, you’ll hear lots of things that sound right, but fall apart upon further analysis. That’s why it pays to do your own homework, especially when it comes to money and taxes.

And that’s why you should read Tom Wheelwright’s book, Tax-Free Wealth.

Tom is a genius when it comes to taxes, and I encourage you to read his book- and to begin looking at how you can be patriotic by not paying your taxes by investing and building businesses that the government rewards with tax breaks and credits for doing exactly what they want.

Also, for more information on using the tax code to get rich, take advantage of our Rich Dad education and coaching classes that will help increase your financial education and your wallet, while decreasing your tax bill.

More to protect your money: Do You Need Insurance Against the U.S Dollar?

Written by Robert Kiyosaki | Tuesday, August 16, 2016

What Happens When Yellen Raises Rates?

Now we’re in the 7th year of good economy, after the FED increased the rate to .25 pts., we will start a deflationary economy, at 9 years, we will start a new recession market.

Be ready and start today, don’t miss the new great opportunity. Start your own business, incorporate, create real wealth with a cash flow system. Contact me HERE for more detail.

It’s never been more important to understand how much control the central banks have over the economy and its limits. There’s one force moving our economy they can not influence…discover what it is in this video.

Mike Maloney candidly explains what actions the Federal Reserve may take in months ahead and what it means to you and your money in this brief video recorded live at the 2015 Silver Summit.

 

Patrick Iturra, Corporate Adviser

Do you need Insurance against the U.S. Dollar?

The world’s financial landscape is changing…
And it could soon cause a lot of money to move out of the U.S. dollar.
So how do you protect yourself? By following China’s lead.
Let me explain…
On Monday, the International Monetary Fund (“IMF”) announced that China’s currency – the yuan – will join its reserve currency basket.
This basket includes the currencies of the world’s financial superpowers – the U.S. dollar, Japanese yen, British pound, and the euro.
The yuan being added to this basket will give China a new global status. And  Steve Sjuggerud says it will cause hundreds of billions of dollars to move into the yuan… and potentially out of the U.S. dollar. Here’s what he wrote in a May DailyWealth essay:
Billions of dollars will move into [the yuan] when it achieves reserve currency status. The likely loser in this will be the U.S. dollar – as governments diversify a percentage of their currency reserves out of the dollar and into this currency.
You see, the U.S. is facing an enormous $59 trillion debt problem. The only way for the U.S. government to pay its incredible debt is to print more and more dollars… and debase an already devalued currency. (Every time the Fed prints a new dollar, the value of every dollar in circulation declines just a little bit.) This doesn’t make the dollar all that appealing to investors.
Printing-money
But soon, investors will have a new, more appealing reserve currency to invest in. China is the world’s second-largest economy. In a few years it could be the world’s largest economy. And China has a huge hoard of gold. From January to September, the country added around 1,171 metric tons of gold to its hoard. That’s more than the Swiss government has in its vaults. And in October, China bought another 14 metric tons of gold. China has spent about $70 million buying gold over the past two years.
While it’s probably impossible for China to have a completely “gold-backed” currency, this gold allows the yuan to offer a guarantee more substantial than the dollar, which is only backed by the “full faith and credit of the U.S. government.”
That’s why investors are soon likely to diversify out of the dollar and into the yuan.
So how do you protect yourself from a decline in the U.S. dollar? Follow China’s lead and buy gold…
China-Gold
In November,  China has secretly been buying massive amounts of gold as insurance against the U.S. dollar.
In short, thanks to its exports, China’s foreign-currency reserves have swollen from $2.5 billion in 1980 to $3.7 trillion today… So China has had to figure out what to do with all that cash.
Initially, China bought U.S. government bonds. It holds $1.3 trillion in U.S. bonds… the most U.S. debt in the world. But with a dollar crisis likely on the way, China faces a huge problem…
So it has been “safeguarding” the value of its currency reserves. That means one thing… buying gold. Because gold is a real store of value, the price of gold goes up if something bad happens to the U.S. stock market or dollar.
I recommend safeguarding your own wealth against the dollar by buying and holding gold bullion. And with the price of gold down more than 40% since its 2011 peak, there hasn’t been a better time to buy in the past five years.
Take a page from China’s playbook… stock up on some gold bullion. It’s a smart insurance policy as the world’s financial landscape changes.
If paper currencies like the U.S. dollar collapse, gold will still hold value. That’s why Doug Casey, one of the world’s top experts on gold and resource investing, views gold as “cash in its most basic form.” 
Contact me HERE if you need more information about my gold free program strategy

Found $2.7 Trillion Magical Dollars

Learn More: Blame the government, not Wall Street [“A liquidity drought can exacerbate, or even trigger, the next financial crisis. Sellers will offer securities, but there will be no buyers”]

If you need to start a new venture. I have the system that can provide the cash flow to build your business and start capitalizing in tangible assets. For more information contact me HERE

Maher on Ahmed Mohamed Incident: ‘It Looked Exactly Like a Bomb…’

The treatment of a Muslim student by a Texas school and local police officers caused an outcry from many on the left, who saw it as a case of Islamophobia.  When Ahmed Mohamed, a ninth grader at MacArthur High School in Irving, brought a homemade clock to school, it was mistaken for a bomb by teachers.

Mohamed was handcuffed and questioned by police after bringing in the clock to show it off to his engineering teacher. No charges were filed.

Among those who rallied to Mohamed’s defense was President Obama, who tweeted, “Cool clock, Ahmed. Want to bring it to the White House? We should inspire more kids like you to like science. It’s what makes America great.”

Bill Maher discussed the incident on his show Friday night, but he put forth a completely opposite view, pointing out that the contraption did look “exactly like a [expletive] bomb.”

Maher said there’s no doubt that Mohamed is owed an apology and that authorities went too far in their response.

“Could we have a little perspective about this? Did the teacher really do the wrong thing?”

(Warning: the video above contains profanity.)