Why the US banking crisis is like winter in Europe

Do you remember the black clouds that hung over Europe last autumn? Dire warnings of natural gas shortages, deadly winter blackouts, westward war, endless stagflation—and of course, recession.

It never happened.

Instead, euro-zone stocks are up nearly a third since the September low.

The French, Italian and Spanish markets hit all-time highs in euro terms in early March. UK stocks traded in pounds two weeks ago.

Many US investors caught up in the spectacle of a historic banking crisis in recent weeks failed to notice this unexpected turnaround.

But that’s how markets work – and it’s a bullish signal for the US.

As sad as Americans felt last year, Europeans felt far worse.

Sentix’ expectations for the eurozone stagnated at their lowest level since the 2008 financial crisis.

Commentators routinely predicted that a euro zone recession was almost certain.

Inflation chart comparing the US and Europe
An inflation chart comparing the US and Europe.

The UK’s Office for Budget Responsibility claimed the UK is likely to have entered a multi-year downturn.

The Bank of England forecast Britain’s worst recession since the 1930s.

At the peak in June, galloping US prices lagged the euro-zone’s inflation surge of 10.6% in October and the UK’s 11.1% rise. Italy reached 12.6% and the Netherlands 17.1%.

S&P 500 compared to the European stock index
A chart showing the S&P 500 versus the European stock index.

Germany, traditionally dependent on Russian natural gas imports from Nord Stream pipelines, feared supporting Ukraine lest Putin turn off the lights.

What happened next? Natural gas storage facilities filled up quickly as supply chains reorganized.

New plants and pipelines came online, including the Baltic Pipe project, which will transport Norwegian gas south.

Russian President Vladimir Putin
Fear of gas shortages due to Vladimir Putin swept Europe.
Sputnik/AFP via Getty Images

Mild weather helped. Coal filled some gaps. Fears that Russia would march further west faded as its military made endless mistakes.

Now we have neither perfection nor determination (mind you, we never will). Recession? Weaknesses exist. Germany, which shrank an annualized 1.7% in the fourth quarter, may be facing a mild recession.

But overall euro-zone GDP was flat in the fourth quarter, contracting just 0.1% on an annualized basis.

People demonstrate against the purchase of the Swiss bank Credit Suisse by UBS.
People demonstrate against the purchase of the Swiss bank Credit Suisse by UBS.

Even in the UK, the OBR now sees it avoiding a recession entirely, with a possibility of a slight 0.2% drop this year from previous ugliness.

Flat growth isn’t great — but stocks love it. Why? As I often say, stocks walk the gap between expectations and future realities.

When most expect a deep recession, tiny growth — or even a slight contraction — is hugely optimistic.

Early European fears explain its rally since the fall — and the S&P 500’s lagging 10.4% return since its October low.

Remember: big trends are always global, not local. Especially now that the risk of contagion for banks is galloping.

I detailed on March 15 why these concerns are overdone. Credit Suisse? It’s been trying to die for 15 years.

But the talk about the 2008 banking crisis is omnipresent. It doesn’t take much to exceed expectations.

Those who sell now are making the same mistake as those who sold European stocks last fall – suffering from a downtrend and then missing out on a huge recovery.

A bank of Credit Suisse
Credit Suisse has been trying to die for 15 years.
AFP via Getty Images

Amidst over-the-top bank headlines, ask yourself one question: will it be better or worse than expected from here?

If they end up even a tiny bit better than today’s bank-battered forecasts, the bull market will continue.

Ken Fisher is the Founder and Executive Chairman of Fisher Investments, a four-time company New York Times Bestselling author and regular columnist in 17 countries worldwide.

https://nypost.com/2023/03/26/why-the-us-banking-crisis-is-like-winter-in-europe/ Why the US banking crisis is like winter in Europe


DUSTIN JONES is a USTimeToday U.S. News Reporter based in London. His focus is on U.S. politics and the environment. He has covered climate change extensively, as well as healthcare and crime. DUSTIN JONES joined USTimeToday in 2021 from the Daily Express and previously worked for Chemist and Druggist and the Jewish Chronicle. He is a graduate of Cambridge University. Languages: English. You can get in touch with DUSTIN JONES by emailing dustinjones@ustimetoday.com.

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