Deutsche Bank – It’s Going Down… (September 30, 2016)

by FI Fighter on September 29, 2016

in Stock Investing Thoughts

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Lehman Brothers 2.0? When it comes to the atrocity that is Deutsche Bank (DB), it sure is looking more and more like it with each passing day…

Shares of DB hit yet another 52-week low in yesterday’s trading session.

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And in the news, from Bloomberg.

Amid mounting concern about Deutsche Bank AG’s ability to withstand pending legal penalties, about 10 hedge funds that do business with the German lender have moved to reduce their financial exposure.

The International Monetary Fund in June said Deutsche Bank may be the biggest contributor to risk among so-called global systemically important banks. The bank has gross notional derivatives exposure of 46 trillion euros, according to an Investor Relations presentation published this month. After netting and collateral, reported derivative trading assets fall to 41 billion euros, the bank said.

“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London. “That’s what’s going on here. The thinking is ‘Deutsche Bank is fine, but there’s a slim chance it might not be, so why leave my money in there?’”

Clients review their exposure to counterparties to avoid situations like the 2008 collapse of Lehman Brothers Holdings Inc. and MF Global’s 2011 bankruptcy when hedge funds had billions of dollars of assets frozen until the resolution of lengthy legal proceedings.

 

Here are some numbers that should scare the pants off of anyone…

From Zero Hedge.

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So, not surprisingly, the DB Sub 1Y Credit Default Swap (CDS) has been surging…

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If you haven’t seen the movie The Big Short, you should seriously watch it sometime (if anything, just to observe how market/investor sentiment can quickly change on a dime)… If you have already seen the film, you might want to replay it again, anyway, just to brush up on history… and get reacclimated with human/banker stupidity…

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From Bloomberg.

In regards to DB, here’s what may turn out to be some famous last words:

“Our trading clients are amongst the world’s most sophisticated investors,” Michael Golden, a spokesman for Deutsche Bank, said in an e-mailed statement. “We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress we are making with our strategy.”

Might we possibly see a government bail out?

The financial pressure on the lender is spilling over into German politics, stirring speculation Chancellor Angela Merkel’s government might be forced to offer support. Chief Executive Officer John Cryan told Bild newspaper this week that government aid was “out of the question.” Any taxpayer-funded solution for the bank’s troubles would be Merkel’s downfall, according to the leader of Germany’s biggest opposition party.

 

From Fortune.

Germany will not help ailing lenders such as Deutsche Bank, a senior lawmaker in Chancellor Angela Merkel’s conservative bloc said on Thursday, as resistance grew to any possibility of staging a rescue.

With Merkel meeting European Central Bank chief Mario Draghi on Thursday, Berlin has already flatly denied it is planning any repeat of the taxpayer-funded bailouts that Germany and other Western countries mounted during the global financial crisis.

This followed a newspaper report earlier in the week that the German government had made provisional plans to rescue Deutsche, which is fighting a fine of up to $14 billion from the U.S. Department of Justice.

 

We shall see…

One thing’s for certain, anyone who has been short DB this last decade has made an absolute killing!

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When this stock eventually breaches $10/share, man, look out below!

From Zero Hedge.

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How the once mighty have fallen…

From Zero Hedge.

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Why am I documenting all this?

 

In short — Time capsule.

 

And if Deutsche Bank goes under, no, it will not be Lehman Brothers 2.0… it will be far worse and much more catastrophic! Deutsche Bank is way more important and tied into the global economic system than Lehman ever was…

 

Important note to self: I will NEVER understand the financials sector… It’s far too complicated… Don’t bother trying, bro… I’m going to invest in something else that makes a whole lot more sense to me, the lowly retail guy… Leave that stuff to the pros.

 

Tread carefully!

{ 14 comments… read them below or add one }

1 Investment HuntingNo Gravatar September 29, 2016 at 9:50 pm

I’ve reading all about DB’s woes the past few days. It really is starting to feel like 2008-2009 all over again. DB, Wells Fargo, who’s next? I’m seriously considering selling everything and holding my cash for a while. Not even selling puts. When the market falls, it will drop like a rock. I don’t want a bunch of puts in the money at the same time.

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2 FI FighterNo Gravatar September 30, 2016 at 2:31 am

Nathan,

Things are accelerating and escalating quickly:

http://www.telegraph.co.uk/business/2016/09/29/now-another-german-bank-is-in-trouble-commerzbank-to-cut-9600-jo/

Is another German bank in trouble? Commerzbank to cut 9,600 jobs and suspend dividend.

Oh boy…

All the best!

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3 Chudi EjekamNo Gravatar September 30, 2016 at 2:48 am

None of these bastards ever really learn do they? They keep repeating the same mistakes over and over again. Does greed really make people that stupid?

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4 The Broke Dividend InvestorNo Gravatar September 30, 2016 at 8:11 pm

Why should they learn? Buy a bunch of bad debt. Crash the economy. Bailout from the govt. Repeat. It’s not greed. It’s entitlement.

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5 FI FighterNo Gravatar October 1, 2016 at 4:37 am

Chudi,

No, unfortunately it’s just human nature and fear/greed playing out as usual again… Whatever they can get away with, they will… and they’ll push things to the limit until something ultimately breaks.

When it does, it will be the little guy on the street who pays the price…

That’s the unfortunate reality of the world we live in… The 1% and 0.1% control everything, and it’s still not enough.

All the best!

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6 SKNo Gravatar September 30, 2016 at 8:10 am

I converted a good chunk of my holdings to cash. Time for me to be patient and see what unfolds.

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7 FI FighterNo Gravatar October 1, 2016 at 4:38 am

SK,

Sounds like a shrewd decision on your part… You won’t be missing much if the markets keep climbing (they’ve more or less maxed out), but if something bad happens this fall, you’ll be glad you’ve got a good chunk of cash to fire away.

Best wishes!

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8 SFtraderNo Gravatar September 30, 2016 at 10:29 am

Talk about a black swan in the making, that derivatives book is massive at 20x German GDP. One thing I learned in the 2008 crisis was about contagion and counterparty risks given that all of these institutions are inter related just by the fact of doing business with one another. Scary stuff.

Also, simply amazing to me that the fine from the DOJ equates to 87% of the market capitalization of the entire company.

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9 FI FighterNo Gravatar October 1, 2016 at 4:42 am

SFtrader,

Yeah, there are lots of potential “black swans” or “snowflakes” that could really set things off and send the markets crashing down this fall. Definitely lots of correlation and mingling between different institutions and funds… Contagion and fear could spread and create a positive feedback system, exacerbating the problem.

I’ve seen this song and dance before, so I’m being cautious right now… Making money is great, but greed knows no limits… We have to check ourselves b/c nobody else will do it for us… I’ve made more than enough gains this upcycle, I’m perfectly content to wait things out until the next cycle takes flight.

Greed takes the stairs up, but fear takes the elevator down.

If you believe in market cycles, you’re always cognizant of the fact that night always follows day. It’s never different this time…

Take care!

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10 SKNo Gravatar September 30, 2016 at 10:32 am

Readers, I am curious what you think about trading a % of portfolio in Ultra shorts at this time like SDS, DSX, SQQQ ?

Too risky? I feel like the Reward/Risk is high. What do you think?

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11 FI FighterNo Gravatar October 1, 2016 at 4:46 am

SK,

I can only speak for myself, but I will not be attempting to short this market. I have taken on put positions before in the past and both made money and lost money… The times I lost, I was almost sure that I would win, until the Fed came out and said something and the markets rallied on “bad news”… So, I’ve learned for myself that I’m not well suited to play the short game… There’s too many obstacles, and if you’re dealing with time decay, Central bank rumors/actions have a way of really moving markets, which can really throw a monkey wrench at your gains…

So, I prefer the long game… It’s just a lot easier and less frustrating to play… Those who can handle the short game, best of luck to you b/c if you time it right you can make good money.

Cheers!

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12 JamesNo Gravatar September 30, 2016 at 10:45 am

Was wondering what the impact on gold mining stocks will be in the face of a DB failure. In 2008 everything sold off including the miners. However, this time gold is in a negative interest rate environment and miners are emerging from a historic 90 year bear market. Any thoughts?

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13 FI FighterNo Gravatar October 1, 2016 at 4:49 am

James,

2008 was instructive, but every downturn/crash is different… In 2008, there was a rush to liquidity and the miners sold off… The spot price of gold/silver went down as well, but that was only temporary, and the precious metals were one of the first sectors to bounce back.

I have heard that back in 2008, even though the spot price was down, had you attempted to go into a dealer and purchase the PMs at the spot price, you wouldn’t have been able to get it b/c nobody was selling that low… Instead, the premiums spiked to compensate for the low price… That’s the beauty of holding hard assets, there is an inherent floor to how far they can drop before people stop wanting to sell… Paper products, on the other hand, can go to zero…

I can’t say I know what will happen this next time around, but I’m hedged with: physical precious metals, cash, and gold/silver miners.

Just trying to cover my bases as best I can.

Take care!

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14 Mr. CarefulNo Gravatar October 7, 2016 at 3:33 pm

My wife and I bought our first home after the last crash. We’re under contract to sell it now. Hopefully it goes through before any crash. After that we will be set for whatever happens.

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