CHARTS OF THE WEEK: Forget The Foreclosures, Here's The Simple Thing That Is Crushing The Banks

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chart of the day, us government securities att commercial banks, oct 2010

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  • Forget The Foreclosures, Here’s The Simple Thing That Is Crushing The Banks
  • It Took U.S. Stocks Way Longer To Respond to Inflation Than Israeli
  • A Quick Reminder Of Why Frustration With China Is So Enormous
  • The Mancession Continues
  • Old People Kill The Economy

Forget The Foreclosures, Here's The Simple Thing That Is Crushing The Banks

A JPMorgan analyst suggests that the current maelstrom surrounding banks could cost the industry somewhere between $50-$120 billion, but arguably the fears here are being overblown.

But there is a clear threat that is very easy to see: the economy is weak and banks don't have the business volume to make a lot of money.

As credit specialist David Goldman observers, banks are still plowing more and more money into government securities -- the opposite of real banking activity.

What should worry investors, rather, is the simple question: how can the banks make money when no-one wants to borrow and asset returns are imploding? The absence of viable investment opportunities for the banks is illustrated most poignantly by one data point, namely banks' accelerating purchases of Treasuries.

Bank purchases of treasuries spiked upward during the past several weeks just as the yield curve flattened and Treasury returns collapsed. It was one thing for banks to borrow at next to nothing and buy 2-year notes at 1%. The trade doesn't make sense now. It is risky for banks to go far out the yield curve, but they seem to be doing so.

It Took U.S. Stocks Way Longer To Respond to Inflation Than Israeli

Last week we showed you how Israeli stocks surged as a result of hyperinflation (nominal terms) in the country.

We wondered how U.S. stocks performed during roughly the same time period, a time epitomized by stagflation and rising oil prices in the U.S.

While the S&P 500 rose, it did not have the same sort of tight relationship with the CPI the Israeli All Share did.

In fact, it took the S&P 500 over 20 years to get in line with a rising CPI.

So don't get too excited about hyperinflation's nominal impact on U.S. equities just yet, particularly if growth remains stagnant.

A Quick Reminder Of Why Frustration With China Is So Enormous

Societe Generale's Albert Edwards suggests the U.S. public is on the brink of revolt.

Why? The trade relationship with China.

The U.S. has never had a larger trade deficit with China, and it looks set to continue to expand unless the country revalues the yuan.

That doesn't look likely, according to Edwards, because China believes a 20% increase in the yuan's value will crush Chinese companies and jobs.

Essentially, China is exporting its unemployment and civil unrest to the U.S. and raking in the dollars.

The Mancession Continues

Men are getting crushed in this unemployment crisis way more than women according to a report from the American Enterprise Institute, written by Mark J. Perry.

What Perry finds is that, not only is the unemployment rate higher for men than women in the aftermath of the recession, but men have lost 219 jobs for every 100 lost by women since late 2007.

As of last month, 10.5% of men were unemployed while 8.6% of women were jobless. We're actually in a Mancession, according to Perry. This might be partially due to the disproportionate loss in construction jobs since 2007.

Old People Kill The Economy

Japan is home to the most devastating demographic crunch on the planet with an ageing population hanging over an already damaged economy.

The result, according to Barclays, is a yearly 1% hit to Japan's GDP.

Note the declining amount of productive members of the Japanese population, and declining real GDP for those working. Here's where Japan is really losing. As that smaller, and smaller section of the population has to support an ageing population, the costs add up, even if Japanese workers are becoming more productive.

Between now and 2020, Japan's demographics are going to be a hindrance and not a help.

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