The Global Financial Structure Is Breaking Apart

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Something is cracking.

Schiff: Bond yields are headed much higher fast!

Powell Looks to a November Pause, Warns of More Rate Hikes if Needed

Federal Reserve Chair, Jerome Powell, raised alarms about lingering high inflation, suggesting that rate hikes are still on the table if the economy doesn’t cool down. His recent remarks hinted at an unstable economic outlook, where the current measures might be insufficient to curb escalating inflation. Despite some suggestions of maintaining steady rates in the near future, the persistent threat of “meaningful tightening” looms large. Powell’s warnings, coupled with concerns voiced by other Fed officials, paint a bleak picture of potential economic pitfalls ahead.

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John Rubino: Crash Alert: That “Spinning Out Of Control” Feeling

Let’s start with regional and local banks, where two bad things are happening. First, their “safe” bond portfolios have tanked in the past year, embedding paper losses of around $700 billion industry-wide. These losses will produce a steady drumbeat of bad earnings reports in the coming year. But in the meantime, as interest rates rise, money market funds are able to pay higher rates than bank accounts, causing depositors to move their savings to greener pastures. To keep their remaining depositors, banks are having to pay way up, which is eating their profits:

Zions Shares Decline as Deposit, Borrowing Costs Soar Tenfold

(Bloomberg) — Zions Bancorp slumped after the regional lender reported soaring deposit costs, as elevated interest rates force banks to pay up for customer funds.

The Salt Lake City-based lender said the cost of total deposits and borrowings soared tenfold in the third quarter to 2.1%, compared with 0.22% for the same period a year earlier. That was up 22 basis points from the second quarter alone as reciprocal deposits, which are often more costly than those gathered through typical checking accounts, doubled to $6 billion.

Zions also said non-performing assets rose 45% to $68 million, largely because of two suburban office commercial real estate loans totaling $46 million.

Credit card debt now exceeds $1 trillion in the US and a growing number of people are putting day-to-day expenses on plastic. The inevitable result is a spike in card defaults and plunging credit card company profits. Next comes a dramatic contraction in credit card balances as recession forces the newly poor to stop spending.

Discover Profit Tumbles 33% as Credit-Card Write-Offs Mount

(Bloomberg) — Discover Financial Services posted a 33% drop in third-quarter profit as write-offs climbed and the firm set aside more money to cover future loan losses.

Net income totaled $683 million, or $2.59 a share, the Riverwoods, Illinois-based credit-card lender said Wednesday in a statement. That missed the $3.17 average estimate of analysts surveyed by Bloomberg.

Discover, led by interim Chief Executive Officer John Owen, said net write-offs rose to 3.52% from 1.71% in last year’s third quarter. Provision for credit losses more than doubled to $1.7 billion.

Tesla disappoints twice

Tesla’s October 18 earnings report missed pretty much across the board:

  • Tesla 3Q Adj EPS 66c, Est. 74c
  • Tesla 3Q Rev. $23.4B (Up 9% Y/Y), Est. $24.06B
  • Tesla 3Q Gross Margin 17.9%, Est. 18%
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Free cash flow was $848 million, only a third of the expected $2.59 billion.

Deliveries rose YoY but declined sequentially:

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