Stocks closed a remarkable week of trading in which a Monday Brexit selloff led to a bounce which became a rally. The Dow closed out the week with a gain of 19 points to 17,949 on weak pre holiday volume as traders bolted for the Hamptons. For the week the Dow gained 3.1% and with the 2nd quarter now in the books the Dow is up about 4.1% for the year.
Things in Europe are much calmer today than last Friday when David Cameron’s hair was on fire after EU got an atomic UK wedgie. One item of worry however is the rising discussion surrounding Deutsche Bank’s financial condition. DB is Germany’s oldest (1870) and largest bank. It controls 30% of all German corporate board seats and ties the private sector to the gubment sector in such a way that any problems with DB will be felt by all of Germany. The IMF recently released a damning report about the condition of German banks and insurance companies and in the report said that DB was a risk to the global financial system. Couple this with DB’s recent failure of the US stress test and this issue becomes something to pay attention to. While DB has plenty of reserves it has been positing declining revenue, big losses and is laying off workers. Its stock hit a 30 year low yesterday and the gurus worry that DB has exposure to Italian and Spanish sovereign debt plus a derivative book worth upwards of $40 trillion (capital “T”). Rating agencies are also downgrading DB’s long term debt. This issue might be another reason to steer clear of European markets for now and stay defensive as this situation unfolds.
Maybe the DB situation is also contributing to gold’s move higher today. Gold finished the day up $23.70 per ounce to $1,344. This marks the 5th consecutive week higher for gold. Silver is also on the move gaining 6.2% to $19.79 an ounce to trade near a two year high. HSBC metals guru Jim “Man of” Steel said that buyers are continuing to hedge currency risk and in doing so could push gold to the $1,400 level. Having a metal analyst with the last name of “steel” is like having a dentist named Moeller.
Markets will be closed on Monday. I will be out at a Boy Scout summer camp with 43 energetic lunkheads and will be back on the 11th of July. Cleo will be in the office with her nose to the grindstone.