‘Do or die’: Report warns banks to reinvent themselves to survive the next downturn


“More than half the players in the global banking sector aren’t generating enough returns and should quickly reinvent themselves to weather any future economic storms, according to a report from consulting firm McKinsey. Nearly 60% of banks are not generating returns on equity which could be exacerbated if another crisis hits, the 58-page report released on Monday said. ‘A prolonged economic slowdown with low or even negative interest rates could wreak further havoc,’ the report stated. Chira Barua, a London-based McKinsey partner and co-author of the report, called this a ‘do or die’ moment. Barua explained that a serious downturn could be catastrophic for a number of banks if they don’t reinvent themselves….Added to that are the threats that banks face from fintech (financial technology) players such as Revolut and tech companies such as Apple who have entered the banking space. According to McKinsey, banks only set aside 35% of their IT budgets to innovation and reinventing strategies, whereas fintech players spend more than 70%….The ‘challenged banks’ category includes the remaining 35% of banks globally that are both under performing as well as operate in unfavorable markets. McKinsey warns that the business models in these banks are flawed.”


Breathe free: Capitalism helps protect the environment 

Washington Times

“A recent Rasmussen poll found 20% of voters feel we should eliminate capitalism to protect the environment. That’s like saying we should eliminate teachers to improve education. Truth be told, capitalism has helped cleanse our planet – improving living standards while protecting the environment. Rather than eliminate capitalism, policymakers need to unleash it. Markets incentivize efficiency by rewarding people for coming up with ways to do more or do better with less. People choose – and businesses make – more efficient products because it saves them money while delivering what customers want. Over the past decade, market forces have driven a massive transition within the energy industry. In 2008, coal provided roughly half of the country’s electricity generation. Now, coal’s share is about a quarter. Increased production of natural gas has driven energy bills and emissions downward. The Nuclear Energy Institute organized nuclear power plants nationally to find operating efficiencies that have reduced costs by 19%, saving consumers $1.6 billion and keeping emissions-free electricity in the marketplace….Investments in cement, steel, plastic and other building materials will make our houses and highways sturdier and our products more durable – with a smaller environmental footprint….When America and the rest of the world embrace policies rooted in economic freedom, both prosperity and the environment flourish. In this instance, you really can have your cake and eat it, too.”


U.S. Companies Preparing for Long-Term ‘Confrontational Relationship’ With China 

Wall Street Journal

“U.S. companies are preparing for tensions with China to extend far beyond the status of the continuing trade discussions, an executive for the U.S.-China Business Council said Monday. ‘When we talk to companies, there’s a realization that no matter what happens with this trade deal, we’re going down a trajectory of a much more confrontational relationship with China that’s very unlikely to shift in the opposite direction in the future,’ Jacob Parker, vice president of China operations for the council, said. The council represents about 220 U.S. companies that conduct business in China. Businesses are making arrangements to diversify their supply-chain investments away from the China market and enacting other structural changes to account for that, Mr. Parker said. It could take about three to five years to build up the supply chain elsewhere, he added….The long-term effects of the tariff dispute could affect some companies’ financial positions and credit ratings as well as the loss of long-term supply contracts, said Ted Pokorski, the director of treasury at Regal Beloit Corp., a Beloit, Wis.-based maker of electric motors, who also spoke on the panel. A survey of U.S.-China Business Council members in August said that optimism about China is at a historic low, adding that more businesses are halting their investment in the country and only a slight majority of companies expect their revenue in China to rise next year.”


How an emergency fund can help your retirement savings 

USA Today

“When it comes to preparing for retirement, saving is only half the battle….Unexpected expenses are a part of life. Your old car finally gave out and you need to buy a new one. Your basement flooded and requires costly repairs. Or a sudden injury led to a trip to the hospital. These types of costs are bound to pop up, but they can be detrimental in retirement. Because you’re living on a fixed income in retirement, you likely don’t have much wiggle room in your budget….That’s where the emergency fund comes in. When you have a solid emergency fund in retirement, you have a designated place to pull cash from when an unexpected expense inevitably crops up. That helps protect your retirement savings, guaranteeing that your money lasts for as long as possible….Exactly how much you should save depends on multiple factors, such as how long you expect to spend in retirement and what your current savings look like. If you plan to retire early or have reason to believe you’ll be spending several decades in retirement, you’ll need a larger emergency fund.”


Financial Markets Face Fresh Wave of Political Uncertainty: ‘There’s Literally Nowhere to Hide’ 

Wall Street Journal

“The U.S.-China trade war, Britain leaving the EU and impeachment proceedings in the U.S. are just some of the major political obstacles facing investors. Adding to the uncertainty are the Turkish military operation in Syria, attacks on Saudi oil production and social unrest spanning from Hong Kong to Barcelona. In response, some investors are boosting holdings of cash and other assets that tend to hold their value when markets turn rocky….One index, which captures a range of political and economic uncertainties, rose in August to its highest level on record in data that go back to 1997. It was even more extreme than after previous events such as the 9/11 terrorist attacks, the SARS outbreak in Hong Kong, the European debt crisis and the 2016 U.S. presidential election….’In some ways, there’s literally nowhere to hide today,’ said Michael Parker, director of research and head of strategy for Asia-Pacific at Bernstein Research in Hong Kong….Many investors have turned to haven investments and hedges involving futures and options in case volatility returns. Esty Dwek, head of global market strategy at Natixis Investment Managers, said she favors gold…given the ever-changing geopolitical backdrop.”


Goodbye Middle Class: 50% Of American Workers Make Less Than $33,000 A Year 

Zero Hedge

“The truth is that most American families are deeply struggling, but you hardly ever hear this from the mainstream media…Most of those high paying jobs are concentrated in the major cities along the east and west coasts. For much of the rest of the country, these are very challenging times as the cost of living soars but their paychecks do not. According to the Social Security Administration, the median income in the United States last year was just $32,838.05…Of course nobody can support a middle class lifestyle for a family of four on $2,750 a month before taxes, and so in most families more than one person is working these days. In fact, in many families today more than one person is working multiple jobs in a desperate attempt to make ends meet, and it still is often not quite enough….These numbers help us to understand why survey after survey has shown that most Americans are living paycheck to paycheck. After paying the bills, there just isn’t much money left for most of us. And for an increasing number of Americans, even paying the bills has become exceedingly difficult. In fact, a brand new report from UBS says that 44 percent of all U.S. consumers ‘don’t make enough money to cover their expenses’….That means that about half the country is flat broke and struggling just to survive financially…So why is this happening? Government. In profession after profession, government control freaks have made it nearly impossible to make a living, and this has pushed the percentage of Americans that are self-employed to historic lows….A lot of people accuse me of spreading ‘doom and gloom’, but that is not true at all. There is hope in understand what is happening, and there is hope in getting prepared for the hard times that are ahead. When you take steps to prepare, you are telling yourself and everyone around you that you believe that you can make it through the storm that is coming.”


A darkening outlook for phase 1 of the U.S.-China trade deal 


“The outlook for a meaningful U.S.-China trade deal continues to deteriorate, as the House passed a bill supporting protesters in Hong Kong and China reportedly backtracked on part of the deal it agreed to last week. The House bill would require an annual review of whether Hong Kong is truly separate from Beijing to the point that it justifies the special trading status it receives under U.S. law and would implement sanctions against officials ‘responsible for undermining fundamental freedoms and autonomy in Hong Kong.’ Chinese officials unsurprisingly did not take the news well, accusing the U.S. of a ‘political plot’ to thwart China’’s development. The Chinese Ministry of Foreign Affairs said that it would take strong measures against the U.S. if the bill passed. Bloomberg reported that Chinese officials are seeking a rollback of $50 billion in tariffs before agreeing to raise purchases of U.S. agriculture to the $40-$50 billion range President Trump said was agreed to in the so-called phase 1 trade deal.”


A Deal With China Is a Loss for America 

American Spectator

“With China, if the United States cedes an inch of ground on trade, China’s leaders will turn that inch into a mile – ensuring that Beijing will yet again keep pace with (and possibly ultimately defeat) America in the great strategic competition between Beijing and Washington. It now appears that such a trade deal with China is at hand. I am, unfortunately, reminded of Winston Churchill’s famous quote that you ‘cannot make a deal with a tiger when your head is in its mouth.’ For years, America’s head has been in China’s mouth. All we can do is resist China’s bite. The president, however, appears poised to surrender to China. The problem is that the president’s need for short-term deals will not have the intended effect on the long-term Sino-American strategic competition. Rather than ameliorating the rising tide of hostility between the two economic and military juggernauts, a deal, such as the tentative one that the Trump administration is crafting with Beijing, will weaken the United States in the long term and will allow for Beijing to continue its long march to world preeminence….The first phase of this deal redounds to agriculture. And this is the tell-tale sign that the potential deal is first and foremost political. President Trump has weakened himself politically with his tough trade stance on China. By targeting agricultural products, Trump has put a core contingent of his eclectic voting base – American farmers – in financial peril. Also, the ongoing trade war risks undermining the stock market….Fact is, any deal reached with China will not be final. Even on an issue that the Chinese are willing to make a deal on – such as in the agricultural sector – Beijing will inevitably find ways to cheat, thereby harming American workers and the economy. What’s more, the biggest problems we face, technology transfer and intellectual property theft, are being pushed back in the negotiations to the second round….The president likely secured his reelection with the move toward a trade deal. But without a long-term understanding – and plan – for resisting Chinese IP theft and illicit tech transfers to China – the United States will inevitably become just another middle power in an increasingly Chinese-dominated world.”


The Feds Add Liquidity to Sustain Economic Expansion 

Bonner/Bonner And Partners

“When you know what cards the biggest, dumbest, richest, drunkest player will lay on the table… you ought to be able to profit from it….Neither markets nor economies will be allowed to exhale or retreat – not if the authorities at the Fed can prevent it. And they believe – against all evidence, logic, and reason – that they can stop it with ‘liquidity.’ When the going gets tough, they say, they’ll add more juice. Heck, they won’t even wait for the going to get tough. Now, they’re adding some ‘insurance liquidity,’ like a glass of sherry in the afternoon to keep their spirits up. The Wall Street Journal reports: ‘The Federal Reserve Bank of New York injected $104.15 billion in temporary liquidity into financial markets Thursday. The intervention came in two parts. One was via a term-repurchase-agreement operation that will last for 15 days that added $30.65 billion. The other was via a one-day repo operation that totaled $73.5 billion.’ But it won’t be long before the authorities bring out the hard stuff – even more liquidity. And this noxious brew comes in only one form – new money. It is the money launched in 1971, which has since lost 97% of its value, compared to the pre-1971 model. How to front-run the feds’ cheap new money? Simple: Just hold on to the old money – gold….As our old friend Richard Russell put it, coming up is the most vicious, dangerous, devastating melee in U.S. financial history. But when the dust settles, gold will be the last man standing.”


Russia and China Are Buying Gold, Not Bitcoin 


“Chris Mancini, the analyst of Gabelli Gold Funds, hasn’t changed his stance on Bitcoin. In his latest interview with Kitco, he claims that gold, not its digital competitor, will be used as a hedge currency in case of a potential economic crisis. ‘The Russian government, the Chinese government are buying gold. They are not buying Bitcoin. That’s the ultimate play. That the ultimate currency. That’s what the governments are going to tie their currencies to if and when something really bad happens.’ During his previous appearance on Kitco in June, Mancini called the top cryptocurrency ‘corrupted.’ He particularly lambasted BTC’s controversial forks (Bitcoin Cash and Bitcoin SV) that are allegedly the source of this corruption). Meanwhile, he called gold ‘the creation of God,’ which drew the ire of many cryptocurrency proponents on social media….The Bitcoin vs. gold debate has reignited in 2019 in the light of Grayscale’s ‘Drop Gold’ campaign…While gold is outdated, its digital version is too volatile to become a viable replacement. Peter Schiff of Euro Pacific Capital recently predicted that the price of Bitcoin could soon drop below the $2,000 level due to a bearish chart formation.”


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