Stocks fell again this morning as problems at Deutsche Bank (NYSE: DB) roiled markets. The Dow, S&P, and Nasdaq Composite all fell, led lower by sagging bank shares.
Today’s selloff was sparked by Deutsche Bank’s credit default swaps, which unexpectedly jumped for no apparent reason this morning. Investors and depositors alike were concerned that another global banking meltdown was at hand despite assurances from central bankers over the last week that the crisis ended with Credit Suisse’s collapse.
“The Silicon Valley Bank problem brought more attention on banks,” said Bear Traps founder Larry McDonald.
“And so, banks like Credit Suisse and Deutsche Bank that have been horribly, horribly managed for decades — and we’re talking about really poor management and horrible decisions — all of a sudden, investors around the planet, focus on that.”
European Central Bank (ECB) President Christine Lagarde told investors that European banks are not in danger. If, however, a bank does fail, Lagarde said that the ECB could provide assistance if necessary.
The market rallied off the daily lows in response before Treasury Secretary Janet Yellen whacked stocks lower for the third consecutive day.
Yellen called for an emergency, unscheduled meeting of the Financial Stability Oversight Council this morning. No details were provided as to what specifically would be discussed, nor when the meeting is taking place. Fed Chairman Jerome Powell will be in attendance, though, leading to speculation on whether an emergency rate cut could arrive just days after Powell raised rates.
This was apparently too much for outspoken CNBC reporter Rick Santelli, whose epic 2008 “Chicago Tea Party” rant skewered the Feds for bailing out bad mortgages. He dialed up the heat again when discussing rates this morning with Joe Kernan.
“Many are seeing recession. I don’t see a way to avoid it. Is this really a banking crisis? It’s a Fed crisis, it’s a rate hiking crisis, it’s a crisis built on a crisis we never solved. Is it any wonder there’s so much volatility in the market?” Santelli asked.
“Listen folks, we all need to take a step back. How many trillions of dollars of negative securities were hovering through Europe? How could anybody be shocked? I was shocked the news wasn’t worse three months ago, and now we are starting to see the realities of it.”
Santelli sprinkled in a mention of “magical monetary theory,” parodying modern monetary theory, while asserting that Congress and the Fed have “[left] us all out to dry.”
Santelli is quite often the lone voice of reason on CNBC, and his remarks today ran completely opposite of Jim Cramer’s, who told investors that their “money is safe at Deutsche Bank.”
Cramer has been virtually wrong about everything since November 2021, including his recommendation to buy Silicon Valley Bank a few weeks ago. Cramer’s poor track record has even led to the creation of SJIM, the inverse Jim Cramer ETF that rises when he makes bad picks.
Critics were quick to highlight Cramer’s comment on Deutsche Bank as a potential “kiss of death.” Let’s not forget that he also infamously said Bear Sterns was “fine” just five days before the bank went belly-up.
Did Cramer unintentionally predict another bank’s demise? Time will tell. Until more is known about why Deutsche Bank’s credit default swaps soared, however, the market’s upside will remain limited.