Banking sector fears tough to quantify
We know commodity companies are in trouble and that the global economy is shaky. What we don't know is who will be holding the losses.
The market is concluding that banks will be stuck with the losses. It's an assumption right out of the playbook from the housing crisis when unheard of derivatives nearly brought the entire system down.
I love the expression about generals fighting the previous war because it explains how the common consensus can be so wrong.
Deutsche Bank right now is square in the sights of the bears on talk about commodity exposure. The co-CEO put out a note today to say the bank is 'rock solid' and that inspired a brief 5% rally that's now been blown out with shares down 10% from the intraday high.
I don't know what's on DB's balance sheet. Perhaps the top executives don't even know.
But I know that the market can get it wrong in a situation like this. It might be mom & pop investors holding the bag. It might be pension funds. It might not be that bad at all.
I find it bizarre that Canadian banks -- the ones who are on the front lines of the commodity collapse -- have hardly been hit. This is Royal Bank, which is Canada's largest:
It's no time to be a hero and to start guessing which banks are good and bad but be wary of running with the consensus.
