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Last week began with a historic presidential debate and ended under a cloud of worry regarding the potential failure of a truly too-big-to-save financial institution, Deutsche Bank AG (NYSE: DB). I have been warning for nearly a year that DB is the canary in the coal mine and poses genuine systemic risk. Last week fears about the future of the bank came to fruition after the US government asked for a $14 billion fine to atone for DB's sins during the mortgage crisis a decade ago, an amount that would severely hurt the bank even if it were cut in half. By the end of the week, there were unconfirmed reports that a settlement of $5.4 billion was reached, a number that would wipe out the bank's legal reserves but let it live another day.
DB's imminent and well-deserved failure makes me happy.
The debate just made me scared.
The prospect of future financial crises should give serious pause to anybody who watched Monday night's debate. Solving the world's economic problems - too much debt and too little growth - is going to require the types of leadership qualities that were in short supply on the stage at Hofstra University.
The truth is, neither Mrs. Clinton nor Mr. Trump understands what we're really facing here...
Trump and Clinton Ignore the Real Issues Facing the Markets Right Now
Leadership will require an acknowledgement that leverage is a bad thing, that governments can't keep borrowing themselves into insolvency, and that regulation has to be a lot smarter. The world also faces geopolitical fractures that can only be healed by courage, character, and strength. Watching the trivial discussion and name-calling last Monday night was not reassuring.
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Right now, stocks remain close to record highs. Last week the markets barely moved, with the S&P 500 gaining 0.17% to close at 2,168.27, only 22 points below its all-time high of 2,190 set on Aug. 15. The S&P 500 gained 3.3% in the third quarter, recovering from a short-lived plunge after Brexit to recertify its blind faith in central banks and willful suspension of disbelief in reality.
About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.