WATCH OUT – Super Black Monday – Bank Of America’s JP Morgan And Morgan Stanley Outsized Exposure to the U.K, $150 Billion In Quant Selling Over The Next Three Days
WATCH OUT – Super Black Monday – Bank Of America’s JP Morgan And Morgan Stanley Outsized Exposure to the U.K, $150 Billion In Quant Selling Over The Next Three Days.
Bank of America’s jp Morgan and morgan stanley outsized exposure to the U.K… Monday reckoning
Monday is coming… Banks have sizable risk in U.K…
As the chart below demonstrates, Bank of America’s exposure is quite high in the United Kingdom — considerably more than the investment bank Morgan Stanley (NYSE:MS), and greater than even JPMorgan Chase (NYSE:JPM).
This is another great article by Ben Hunt of Salient partners. I keep quoting this man, because I like how he thinks and writes.
Waiting for Humpty Dumpty June 24, 2016
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.
Brexit is a Bear Stearns moment, not a Lehman moment. That’s not to diminish what’s happening (markets felt like death in March, 2008), but this isn’t the event to make you run for the hills. Why not? Because it doesn’t directly crater the global currency system. It’s not too big of a shock for the central banks to control. It’s not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together. But it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead.
There are two market risks associated with Brexit, just as there were two market risks associated with Bear Stearns.
In the short term, the risk is a liquidity shock, or what’s more commonly called a Flash Crash. That could happen today, or it could happen next week if some hedge fund or shadow banking counterparty got totally wrong-footed on this trade and — like Bear Stearns — is taken out into the street and shot in the head.
In the long term, the risk is an acceleration of a Eurozone break-up, which is indeed a Lehman moment (literally, as banks like Deutsche Bank will become both insolvent and illiquid). There are two paths for this. Either you get a bad election/referendum in France (a 2017 event) or you get a currency float in China (an anytime event). Brexit just increased the likelihood of these Humpty Dumpty events by a non-trivial degree.
What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain). Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.
What’s next? Every central bank in the world will step up their direct market interventions, particularly in the FX market, where it’s easiest for Plunge Protection Teams to get involved. Every central bank in the world will step up their jawboning and “communication policy” to support financial asset prices and squelch volatility. It wouldn’t surprise me a bit if the Fed started talking about a neutral stance, moving away from their avowed tightening bias. As I write this, Fed funds futures are now pricing in a 17% chance of a rate CUT in September. Yow!
What’s the result? I think it works for while, just like it worked in the aftermath of Bear Stearns. By May 2008, credit and equity markets had retraced almost the entire Bear-driven decline. I remember vividly how the Narrative of the day was “systemic risk is off the table.” Yeah, well … we saw how that turned out. Now to be fair, history only rhymes, it doesn’t repeat. Maybe this Bear Stearns event isn’t followed by a Lehman event. But that’s what we should be watching for. That’s what we should be preparing our portfolios for.
So, of course the EU has to punish the UK. The real danger here is stopping other people in other countries from thinking along such dangerous lines as believing one has self-determination, for example. That nonsense has to be nipped in the bud.
But can they? Can they make enough of an example of the UK to deter other people in other countries? Even if they can, can they do it in time? That I am not sure about.
You can be sure that given the emotions, the egos and the power involved, we should expect some really bad behavior on the part of the power structure. You know, to punish those striking mine workers, er, I meant British citizens. Maybe mortgages becoming really hard to obtain, or business lending to small and medium sized enterprises drying up.
You know, along the lines of the local school board cutting the most popular programs when they don’t get the entire 5% budget increase they asked for. Petty point proving, the pettier the better.
At any rate, expect the rescue attempts to already be unfolding.
Nomura Warns “Do Not Underestimate The Global Contagion” From Brexit
“Today Is The Appetizer For Monday”
Brexit-sparked volatility will continue to weigh on U.S. stock market
Bank of America sees S&P 500 falling as much as 6%-7%
Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come