The stock market has taken a beating the past few weeks, with the Dow Jones, S&P 500 and Nasdaq all seeing more than 9 percent in losses since Oct. 3, a staggering amount in just 20 days.
And, just like in 2008 at the dawn of the Great Recession, banking stocks are leading the free fall, and not just here in the U.S.
As banking stocks collapsed a decade ago, things got so bad some big global banks had to be bailed out by their governments. And if the flow of money from the banks to the people is cut off or tightened too much, the results can be catastrophic for economies around the globe.
According to an article by The Economic Collapse, systematically important global banks have torpedoed a stunning 27 percent from the peak just after Donald Trump won the 2016 election, and U.S. banking stocks have plunged 17 percent since Jan. 29.
European banks have fared even worse.
But unlike their American brethren, the European banks have remained stuck in the miserable Financial Crisis mire – a financial crisis that in Europe was followed by the Euro Debt Crisis. The Stoxx 600 bank index, which covers major European banks, including our hero Deutsche Bank, has plunged 27% since February 29, 2018, and is down 23% from a year ago
On top of the similarities to 2008, there also is a global trade war going on, particularly between the world’s two largest economies in China and the U.S., and people are now starting to feel the effects.
The CEO of one yacht company recently told USA Today that tariffs have had a “catastrophic” effect on his company…
Tariffs imposed on goods by the European Union, and the Chinese and American governments on boats, cribs, bourbon, and more have put Wisconsin businesses between a rock and a hard place. The tariffs imposed are already damaging a bloated bubble economy and the hardships are just beginning.
“It’s been catastrophic,” said Rob Parmentier, who is the president and CEO of Marquis-Larson Boat Group, which builds Carver yachts in Pulaski, Wisconsin. According to USA Today, the first “hand grenade,” as Parmentier described it, tossed during the trade wars at him specifically, was a 25 percent tariff the European Union placed this year on boats built in the United States, along with scores of other products including Harley-Davidson motorcycles.
According to one source, tariffs paid by U.S. businesses have gone up 45 percent over a year ago.
“For the most recent months available, August 2018, the amount of tariffs paid increased by $1.4 billion — or 45% — as compared to tariffs paid in August 2017. Tariff costs in Michigan tripled to $178 million and more than doubled in multiple states — to $424 million in Texas, $193 million in Illinois, $50 million in Alabama, $29 million in Oklahoma, $23 million in Louisana, and $7.3 million in West Virginia.
And it doesn’t look like China is backing down anytime soon.
On Monday in Beijing, Zhang Qingli, a leading member of a Chinese committee tasked with forging alliances with other nations, told a small group of U.S. business leaders, lobbyists and public relations executives that China refuses to be intimidated by an ongoing trade war with the Trump administration.
“China never wants a trade war with anybody, not to mention the U.S., who has been a long term strategic partner, but we also do not fear such a war,” Zhang said through a translator, according to a meeting attendee who declined to be named.
We are currently in the midst of the longest bull market run in history, so we are due for a slow down economically. But if stock markets continue to head the way they have been and the global banking systems continue to spiral downward, things could get out of control very quickly.
And when there is fear and panic in the air, lending tends to really tighten up, and a major credit crunch is just about the last thing that we need right now.
It’s been a really bad October for global markets so far, and more trouble is brewing. Hold on to your hats, because it looks like it is going to be a bumpy ride ahead.