Tag Archives: financial markets

Dawn J. Bennett Says ‘It’s All Fake News’

Dawn J. Bennett recently wrote an article “It’s All Fake News” in which she discusses the rise of “fake news” and its implications on our political system and financial markets. According to Bennett, there’s been a recent outcry against fake news, especially considering its impact on the 2016 presidential election. These stories appear to be credible and legitimate but are actually fabricated and designed to go viral throughout the internet. Even Facebook has gone as far to say that they will “do something” about the spreading of fake news.

Bennett notes that exaggerations and lies have been present throughout the history of reporting. The recent Rolling Stones coverage of a gang-rape hoax at UV, Janet Cooke’s imaginary eight-year-old heroin addict, and the 1993 Dateline episode where a truck was set up to explode are all examples of exaggerated and fabricated stories. Then there was Walter Duranty’s reporting for the New York Times that helped Stalin’s Russia hide the Holodomor from the world.

According to Bennett, there’s a systemic and systematic degradation in the quality of news we receive. In fact, there’s a willing collaboration between the mainstream media and government institutions to present manufactured news to the public.

For instance, “The media reports the relentlessly upbeat message of growth and recovery being spouted by the Fed and the White House, and we are left without facts, having to dig through questionable reports to find the real numbers,” says Bennett.

However, Bennett explains that we lie to ourselves also, and the post-election run up in stock prices and bond yields is an example of this.

“The election of Donald Trump resolved a long, ugly period of political uncertainty, and in relief the markets have surged, but corporate earnings have not,” says Bennett.  “The S&P 500 is trading at 27.9 times the corporate earnings of the last ten years, a level last seen just before the market crash of 1929. Energy companies have exorbitant p/e ratios, their stocks priced for $115 oil rather than the actual $55. The financial sector is full of problematic stocks that are likely to get a beatdown during earnings reporting season.”

She continues, ” Add to that the fact that many investors are delaying profit-taking for what they perceive to be tax reasons who will be stuck in the middle of the rush to sell, January 2017 seems set to be a bloodbath, the worst we’ve seen since last January’s selloff. And that doesn’t even take into account the effects of the Fed’s interest rate hike, which happened just before a quad witching day when stock index futures, stock index options, stock options and single stock futures expired on the same day last Friday.”

Bennett suggests we dig for the facts ourselves and be on the offensive against passively receiving news that could impact our lives and wellbeing.

 

 

Dawn J. Bennett Interviews Chris Whalen, Investment Banker and Author

Dawn J. Bennett, a certified management investment analyst and founder and CEO of Bennett Group Financial Services, recently interviewed Chris Whalen on her radio show Financial Myth Busting with Dawn J. Bennett. Chris Whalen is a senior managing director and head of research at Kroll Bond Rating Agency and has previously worked for several prominent financial firms, including Bear Stearns, Prudential Security and Tangent Capital Partners. Whalen is also the author of Inflated: How Money and Debt Built the American Dream (2011) and Financial Stability: Confidence and the Wealth of Nations (2014).

On Financial Myth Busting, Bennett and Whalen discuss what Donald Trump’s surprising victory means for the markets through the end of the year and how his views on monetary policy will affect the larger global economy.

With Trump set to take over the White House, all eyes are on the Federal Reserve, which avoided raising rates before the election. Bennett says she thinks the expectation is that Yellen now has no reason not to raise rates, and asks Whalen whether he thinks Yellen is likely to raise rates.

“Well, I think first and foremost you’ve got to look at the bond market,” Whalen said. “What the bond market tells you that since June when yield for the 10-year really reached their lows, yields have almost doubled. So the 10-year is headed to about 2.2 percent. I think it’s going to go higher. And that has to catch up with the market, Dawn, it’s what it comes down to. Mortgage rates are going up and bondage and linkage are coming back.”

He continued, “We had almost 10 years of kind of managed stability care of the central banks and now I think that people are looking at Trump’s spending program, cutting taxes, various other things and also I think the fact that politically the Fed cannot continue to monetize debt the way it was during quantitative easing when they were buying bonds and they basically got to hold them to maturity. I think that all of that is now putting the market back into the hands of investors who have been on the sidelines in terms of the direction of interest rates for years. I think you’re right. They are going to have to raise rates just to catch up with where the market is.”

Bennett says she thinks the country is in a jam, as Trump will have to contend with Obama’s massive debt burden that has built up over his eight-year term. Trump has to do this at a time when we are at this epic point of accommodative monetary policy. She asks Whalen what he thinks will happen when rates go up.

“Well, you know, the equity markets for the past few years have been substituting debt for equity and I think you’re going to see a lot of big corporate issuers slowly let that debt run off and they’re going to have to issue more stock,” Whalen said. “Now, the markets are hungry for stock. You haven’t had much in the way of quality issuance going back to the crisis. However, it’s going to put pressure on stock prices simply because IBM and many, many other big industrial companies—even companies like Apple, for example—were out buying back shares and issuing debt. That’s going to reverse itself. And I don’t see that as a catastrophe.”

He continued, “I think you’ve got to just be cognizant of the fact that bond yields are going to go up. The pricing on your portfolio may suffer as a result but hopefully you can sit with it, and at the same time I think you’re going to see a lot of companies desperately trying to rebalance their balance sheets in terms of the debt/equity mix. It got very lopsided over the last few years.”

View the full interview here, and catch Financial Myth Busting every Sunday at 10:00 a.m. on WMAL AM 630.

Deutsche Bank: Should We Be Worried?

It’s well known by now that Deutsche Bank is in trouble. From its rising legal costs, to its eroding returns in a low growth environment, there’s a real possibility that the bank could fail. This should be worrisome for all of us. Deutsche Bank, which has operations in over 70 countries and more than 100,000 worldwide, has a high-risk culture and deep connection with other institutions. If it were to fail, it would have a more profound effect than Lehman Brothers, according to financial analyst Dawn J. Bennett.  The bank’s assets are an estimated $1.7 trillion, which equates to about half of Germany’s GDP from a balance sheet perspective.

A key indicator of the bank’s distress is its stocks are now trading at about $14 a share— a significant low compared to its $29 peak in the past year and its all-time high of about $160 in 2007. As the worry increases, the bank will suffer a crisis of confidence. As a result, investors could start to pull their investments from the bank, with depositors pulling out their money.

If it gets to that point, would the German government or European Central Bank bail them out? German Chancellor Angela Merkel has said publically said she won’t bail out or bail in the bank.

“If she [Merkel] actually means that, despite the I.M.F.’s belief that, since Deutsche Bank is of ‘systemic importance,’ authorities will carefully monitor (and supposedly act upon) the situation, then the fallout could be huge,” says Dawn J. Bennett. “And she has every reason to mean it. Germany, which has insisted that Italy and other countries in the ECB accept tough conditions in dealing with their problems, can ill-afford being seen as soft on their own flagship bank.”

As things worsen, the bank is left with very little options.  According to Bennett, “One is to sell their equity in order to provide much-needed liquidity. Another is to approach the European Central Bank (ECB) for a liquidity bridge, an option that has been advocated against by Merkel and denied by the ECB in the case of Greek and Italian banks. A third is that they could eliminate billions in unsecured claims and deposits, which could lead to a full-blown, systemic bank run as depositors everywhere rush to withdraw their savings. No good options here.”

In addition to Bennett’s analysis, a recent study found that the stock market’s valuation of the bank is much less than the company’s valuation. The stock market gives the bank a valuation of around $15 billion, which was generated by multiplying the number of shares by the stock’s price. However, the company says its net worth is $68 billion— four times greater. This shows that Deutsche Bank may be too optimistic about its future revenue, losses and costs.