by Bob Stokes
Updated: December 21, 2016
A variety of sins are brushed aside during times of positive social mood, when the stock market is rising. Bankers tend to get off easy when the markets are climbing.
For example, International Monetary Fund Chief Christine Lagarde was just convicted of negligence. But, there will be no punishment (The New York Times, Dec. 19):
On Dec. 19, a French court found Ms. Lagarde guilty of criminal charges linked to the misuse of public funds when she was France’s finance minister nearly a decade ago. But the court did not impose a fine or a sentence.
This brings to mind the U.S. Congress' Financial Crisis Inquiry Commission investigation into the 2007-2009 financial crisis. In 2011, after two years of rising social mood and rallying stocks, it did not recommend prosecution of a single individual or institution.
In the meantime, the current "Trump Bump" in US stocks has included a rise in the share price of bank stocks. For example, as of Dec. 20, Goldman Sach's stock price has leapt 31% since the Nov. 8 election.
A well-known former hedge fund manager is strongly bullish on the future of bank stocks (Marketwatch, Dec. 20):
[He] says the era of Trump will be a “golden age” for the banking sector. “I think over the next couple of years there will be more leverage, and this will be a golden age of investing in financial stocks.”
But such optimism might be misplaced.
The December issue of our Financial Forecast notes the post-election bounce -- and offers its own view. The publication shows this chart and says:
With hedge fund managers occupying key positions in Donald Trump’s transition team and new cabinet, hedge-fund infatuation is suddenly back in style.
The Elliott Wave Financial Forecast is sticking with our forecast calling for an intensification of the backlash against bankers, Wall Street and hedge funds in particular. For hedge funds, it will mark a resumption of a bear market that began with the peak in many financials in July 2007.
Some anti-bank sentiment can already be seen, but it’s nothing compared to what’s coming.
Our October 2016 Elliott Wave Financial Forecast mentioned the $185 million fine imposed on Wells Fargo for opening phony accounts and charging customers fees without their knowledge, and also discussed the U.S. Justice Department's $14 billion fine against Deutsche Bank for its role in the 2008-2009 mortgage meltdown. The Financial Forecast concluded:
The next inquisition into Wall Street’s ways and means will be far more extensive and the consequences far more punitive.
Right now, the Elliott wave model is showing us when the downtrend in financial stocks is likely to resume.
Our latest analysis suggests that it will arrive much sooner than most investors suspect.