SPX Makes A New High And A Reversal, NDX Reverses From All Time High

BKX declined from Intermediate-term resistance at 92.81, having completed a right shoulder of a Head & Shoulders formation. The sell signal remains in place with a probable new target near mid-Cycle support at 76.04. Serious investors may be well served to sell any rally rather than buy the dip, as the decline may resume imminently.

President Trump suggested during the campaign that he would break up big banks. But Treasury Secretary Stephen Mnuchin said that's not what he meant.

At issue is a Depression-era law known as Glass-Steagall. It prevented Main Street banks that take government-insured deposits from customers from participating in the riskier investment banking business associated with Wall Street. It was repealed in 1999, leading to mergers that created banking behemoths such as JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC).

Congressional proposals, including legislation introduced by Senator Elizabeth Warren, a vocal critic of Wall Street, would reimpose those limits and require breaking up those banks. And Trump has made statements that seem to suggest he supports the idea.

One month ago, China came "this close" to the one event which terrifies Beijing more than anything: a run on China's shadow banks.

As a quick reminder, 150 customers of China's Mingsheng Bank, the country's largest private bank, were furious in mid-April when they learned that some 3 trillion yuan invested in Wealth Management Products, the backbone of China's shadow banking system, had vaporized after bank employees had engaged in fraud and embezzled the funds without ever investing it (later it emerged that Mingsheng employees had put the money into “cultural relics” and jewelry, for their own use).

Back in 2006, some of the wall street banks (ahem, Goldman) managed to layoff quite a bit of their mortgage risk to unwitting European and Asian investors who, in their desperate 'search for yield', had no idea they had just been conned into stepping in front of a freight train. Now, it seems that the same thing may be happening yet again with another favorite wall street structured product, Collateralized Loan Obligations (CLOs).

According to Bloomberg, money managers in Korea, Japan and China are piling into CLOs, and often into the most junior tranches no less, at an alarming rate which has resulted in a staggering 97% increase in YoY new issuance volume.

For months we've written about the imminently doomed auto bubble in the U.S., spurred in no small part by an unprecedented relaxation of underwriting standards by banks that would put even the shenanigans of the 2008 mortgage crisis to shame. From stretched out lending terms to promotional interest rates, auto lenders have increasingly played every trick necessary to get those incremental new car buyers into the most expensive car their monthly budgets could possibly absorb.

That said, in recent weeks there has been growing concern that consumers, auto dealers and/or banks have been going beyond simply relaxing underwriting standards and have instead been forced to commit outright fraud in order to attract that incremental auto volume growth. As UBS Strategist Matthew Mish told Bloomberg, “something is definitely going on under the hood...it’s not just smoke and mirrors anymore.”

Having been accused, and found guilty, of rigging and manipulating virtually every possible asset class, perhaps it was inevitable that Deutsche Bank (DE:DBKGn), currently on trial in Milan for helping Banca Monte deiPaschi conceal losses (as first reported last October in "Deutsche Bank Charged By Italy For Market Manipulation, Creating False Accounts") is now facing accusations that it was actually running an international criminal organization at the time.

Written By: Anthony M. Cherniawski