E The Bad News Bears

Today we hear from bad news bears around the world.

Reuters writes on the financial sector:

“Market volatility increased trading revenue at major banks in Q3, but not enough to make up for a decrease in [H1]2014, according to an industry survey. [But] revenue for the top 10 international investment banks reached $36.5 bn in Q3, up 11% [over] Q3 of 2013.” But not enough to offset H1 lag or to pay all those fines I guess. What this means for our subscribers is discussed below.

Today the stock exchanges of Hong Kong and Shanghai activated their long-awaited cross-border link. Most of the trading was by Hong Kong investors buying in Shanghai rather than the reverse, and the modest daily limit of RMB 13 bn was reached well before the closing. The limit on buying HK stocks was not reached although normal arbitrage would have made it the more active trade, as Hang Seng prices for the same equities are often much cheaper than those on the Mainland.

First-day saw both exchanges down, with the Hang Seng down 1.2% and Shanghai down marginally. What this means for our portfolio is discussed below.

From Cleveland, “EarningsScout” Nick Raich writes about the big picture on US stocks:

If Raich is right, Europe’s malaise will hit the US stock market in the next two quarters as earnings, however “massaged”, fall year-on-year. American stock market exceptionalism is doomed. This means global investing makes sense despite the drops lately.

Japanese UnAmerican Sales Taxes

More bad news from Japan from our Chris Loew:

Japan’s GDP figures today showed the economy shrank an annualized 1.6% in the July-Sept. FY Q2 when economists’ median forecast was for a 2.47% rise. Moreover Q1 decline revised downward from minus 7.1% to minus 7.3%.

Two quarters of decline mean Japan officially is in recession.

There should be bargain-hunting opportunities soon. PM Abe is expected to call a snap election to get a new term before his popularity slumps. The additional tax hike (to 10%) will probably be scrapped.

Consumer spending has shrunk because of inflation and higher taxes which wages have not kept up with. It is hard for Japanese workers to switch jobs mid-career, so they have little recourse when their employer decides to build cash reserves for future expansion rather than share the wealth. Japanese unions are also passive and rarely strike.

Front loading of purchases before the hike in the consumption tax was expected, as was the subsequent pull-back in spending. However, the effects are lingering. Japan’s tax is not like US state sales taxes as it applies on food and medicine, business-to-business transactions, and utility bills. Consumers are already paying higher electric bills because of the nuclear shut-down.

Realistically, a 5% tax rise should prompt a 5% spending cut, with the earning power lost to inflation adding more belt tightening. You can’t squeeze blood from a stone. Workers have no money.

More from Spain, Finland, Panama, Canada, Britain, India, China, Hong Kong, Japan, Switzerland, France, and Israel.

Bankster Stocks?

*The failure of trading desks to make big volume gains is ominous because their contributions to bank bottom lines is needed to pay all the fines being imposed for fiddles and cartels in foreign exchange, interest rates, and front-running stock and bond orders. This is an argument for focusing on banks which do not depend for their profits on hot-shot gangs of colluding gonifs, an argument for Santander which operates mostly as a commercial bank. SAN.

*It also applies money-manager and trade finance funder Banco Latino which, being a small player, with hefty government ownership and oversight, is not a trading bankster. BLX.