The Upcoming 21st Century Stagflationary Depression, Part 2
Part 2: Equities: Financial Institutions and Insurance Sector.
I hope you found Part 1 of this series informative and got a chance to review Elliott Wave concepts and structures in the meantime. In case you missed it…
As advertised we will now take a look at longer term Elliott Wave structures for major systematically important banks and financial institutions. As a reminder the timing shown in all charts I post here and in other issues is NOTIONAL. Elliott Wave DOES NOT predict timing, only probable levels of resistance and support.
Financial Institutions and Insurance:
Share of US GDP: 7-8%
If the economy is in for a stagflationary depression surely they will take a hit right? Are we going to see bank runs like there were in the 1930s? Let’s see what the charts say. We’ll look at some of the largest banks, insurance, and investment firms in the US, as well as some large international banks to get an idea.
JP Morgan
JPM has is now in the process of finishing Intermediate wave (5) of Primary 3. Looking much better than a number of other bank stocks I’ve looked at and what I will show here and that’s saying a lot.
Bank of America
Honestly the BAC chart looks awful and is one of the many reasons I see deflationary forces ahead for the US economy. As you can see it never made a higher high following the price collapse during the Great Financial Crisis. It since has formed a very large corrective looking bearish wedge in what looks like a giant B wave. The measured move for C will be devastating. Will Bank of America fail? I wouldn’t bank there in fear of my savings being used to bail them in. What about a larger bail-out you might ask. I will discuss my views on that in the summary section following the charts.
Citigroup
Citigroup took a shellacking during the 2008-2009 Great Financial Crisis. Unlike JP Morgan and a few other banks, its share price never made a new all time high and is in a giant ABC correction. This is one of the ugliest charts I’ve seen and actually intend to open a short position as it reaches the top of the rising wedge. A measured move for Primary C very well may put Citigroup out of business for good. There are over 200,000 people employed at Citigroup. This is awful and highly deflationary.
Progressive Corporation
Progressive is the third largest insurance carrier after State Farm and Berkshire Hathaway and the No. 1 commercial auto insurer in the United States. The top is not in yet and the stock is also working on an Intermediate wave (5) of Primary 3 before a larger degree consolidation Primary wave 4 can be expected. I’m thinking Flo will be able to keep selling insurance with optimism for Primary 5 but not after a meaningful haircut (not Flo’s hair, the stock price).
Blackrock
Blackrock is the largest investment firm in the US with over $9T in assets under management. It needs one final wave higher to complete Primary wave 5. Note that Primary 5 is a diagonal with (4) overlapping (1). If price were to drop below the wave (2) low around $528 then I would call into question this count for primary 5. Judging by MACD (Moving Average Convergence Divergence) indicators this has begun moving up. After Primary 5 is done, expect a major cycle top and larger degree correction on the horizon for Cycle II
Goldman Sachs
GS has a very clean impulsive structure and is in basically the same state as JPM except that its Primary count was reset following the 2009 low. It is still facing a larger correction in the Primary degree after Intermediate wave (5) high is in.
Deutsche Bank
Deutsche Bank gets the award for most bearish bank chart. It has been in a bear market ever since the Great Financial Crisis and is now on the brink of entering the final wave down that could send the share price to zero in the coming years. Yikes.
HSBC Holdings
HSBC comes in second place for most bearish bank chart. Its in a Primary degree 5 wave decline, which looks ready to begin Intermediate (5) of Primary 3 quite soon. Primary Wave 5 may take it all the way to zero. Wow!
BNP Paribas
BNP Paribas is the 9th largest bank in the world and is the largest bank in France. Price has not made new all time highs coming off the 2009 low and the wave structure looks extremely corrective with lots of overlap which gives a higher probability that a large Primary C wave will be seen for Cycle II. I placed a few Fibonacci retracement levels where it could head on Primary C. A measured move for C would take it close to zero. Looks like it wants to test the upper channel first though.
Industrial and Commercial Bank of China
Industrial and Commercial Bank Of China Ltd is the largest bank in the world in terms of total assets under management. Though this is a commercial bank, it is state-owned. Its definitely worth charting and may give us a glimpse into how the Chinese banking system will fare in the coming years. Right now I see a very large triangle. If the Primary ABCDE pattern is valid it will break up towards Primary 3 and is in a bullish posture longer term. Still need to watch for a lower (C) of Primary 2 in a false breakdown which would still resolve bullishly longer term provided it did not fall further than the 2014 low. We will need to watch this one closely but I will note that positive divergence is building up on on several degrees/timeframes adding evidence that price is ready to rally to Primary D within the triangle.
Summary
I think the charts speak for themselves. Many banks are going to be struggling in the next decade and some will fail outright. What about bailouts you ask? They worked before didn’t they? Well they worked for some firms in 2008 but look where it got us. Inflation was much lower back then and the energy and commodity sectors were in a secular bear market (unlike now as you’ll see later in this series). Now, if inflation continues to remain elevated and even moves higher and people are unable to pay for food or power bills, do you really think there will be appetite by the public to bail out banks that charge them sky-high interest on their credit cards which are now getting maxed out? Well I have a bridge to sell you if you intend to “bank” on that premise. Stop being Pavlovian, it will destroy your accounts. I believe we’ll probably see bail-ins similar to what was experienced in Cyprus during the European financial crisis of 2010.
Please read this article which gives us more than enough evidence that the banks are not healthy and the most probable outcome are banks forcing bail-ins by their depositors:
https://seekingalpha.com/article/4515825-is-your-bank-safe-there-will-be-no-more-bank-bailouts?
Banks like Goldman Sachs have prepared for this as early as 2016. Why would an investment bank get involved with retail banking? Because they need depositors.
https://money.cnn.com/2016/04/25/pf/goldman-sachs-online-bank-account/
What about FDIC? Let’s consider that in 2009 during the GFC when there was a tremendous amount of stress on the banking system, the FDIC Insurance Fund fell into a deficit of almost $21 billion!! The proclaimed “backstop” had a massive deficit. One must consider how much bank depositors can rely upon the FDIC if we should see an even worse systemic break down than the 2008 GFC.
On that cheery note we’ll look forward to the next installment of this investigation in another week or so. In Part 3 we will look at the largest manufacturers across various industries.
For those keeping score…
We will keep adding to this list as we go.
Until then…
Cheers and #EndTheFed
-Hypersonic78
Great work! A few great looking short opportunities there! Although once that top comes in, short opportunities will be bountiful!
It's surprising to see the Chinese bank having such a good looking chart, when you consider China's ugly/terminal demographic profile. Maybe it being the most powerful of the CCP's banks means it will survive all the turmoil that will likely engulf China over the next 10-20 years.
Thank you. Great content.