Via Investment Research Dynamics
DB stock is now in a full panic sell-off as I write this. It just hit another new all-time NYSE low on by the heaviest volume ever in the stock since its 2001 NYSE listing. It’s currently down almost 10%. No doubt the Central Banks will try to bounce it.
Deutsche Bank may well be the scapegoat this time around just like Lehman was the scapegoat in 2008. Central Banks in collusion can prevent just one bank from collapsing. It was the co-collapsing of AIG and Goldman Sachs that prompted then-Secretary of Treasury, ex-Goldman CEO Henry Paulson, to put in motion the bailout of the U.S. and European banking system.
Yesterday it was reported that the rate the Fed charges the banks to borrow collateral surged to its highest rate in 7 years – LINK. The rush to borrow collateral was no doubt prompted by OTC derivatives-related counter-party collateral calls. A collateral call is like a margin call in a stock account. This occurs when a derivatives trade goes south for an entity that is on the long side of the derivatives bet – a bet that Deutsche Bank won’t default, for instance – and the counterparty to that trade demands more collateral to be posted in order to insure that the bet can be paid off if the “long side” loses.
Now multiply that concept across thousands of derivatives trades involving hundreds of hedge fund and bank counterparties totalling $100’s of trillions. It does not take too many collateral calls before counterparties and Central Banks run out of collateral that can posted against these OTC derivatives margin calls. That’s happening now.
This is 2008 redux – only this time the damage inflicted by derivatives counterparties collapsing will be much worse because the size and scale of the problem is much larger.
Deutsche Bank is at the center of focus, but there’s no question that U.S. Too Big To Fails are in similar financial condition. If that’s not the case, then why won’t Fed unwind the “QE” that created the $2.3 trillion in bank “excess reserves” sitting at the Fed? Pull this rug out from under Goldman, JP Morgan, Wells Fargo, B of A etc and the entire U.S. banking system will collapse. But that will happen at some point unless the Fed cranks up the printing press again.
Deutsche Bank may well be the catalyst that throws a “spark” that lights the fuse on $100’s of trillions of financial weapons of mass destruction. It was just reported that DB’s hedge fund clients are rushing to draw all excess cash held at the bank. That’s how the run begins. DB’s stock is down 8% right now on 33 million shares. This is 3x the 10 day average trading volume and over 6x the 90 day average – with 2 hours left in the trading day. It’s as if someone turned on the light in the kitchen and the cockroaches are running for cover.
Make no mistake, DB is not the only big bank in trouble right now. I have no doubt the phone wires between the U.S. and European Too Big To Fails are sizzling. This is also the reason the manipulators have been throwing a “scorched earth” attempt to push gold and silver lower. Again, this is just like 2008 when the manipulators took the price of gold down from $1020 to $700 – right before the entire banking system de facto collapsed.
Deutsche Bank may well be the “canary” but the “coal mine” is the banking system – European and U.S. – and there will be plenty of dead birds before this is over.
We also over rode hnic to allow 911 lawsuits to proceed. A move that when threatened had the Saudis drop 15% of the bonds held in greenbacks. The result was a week long sell fest that carved 600 points off the dow.
They have said they will dump the rest now.
Over-riding that veto was an exercise in pure political stupidity…It looks like support for those who lost in the 911 attacks, but is easily spun into a way to sue the US for shit done in the name of “spreading freedom and democracy”…
Congress and the Senate made a political move that seemed a no-brainer…Generally, no-brainers, are exactly that…Actions taken with no thought…
The whole US is divided and distracted by Trump/Hillary, when the actual culprits of bad government are Congress, and the Senate….
…missing the forest for the trees….fuckin idiots…
WTF, today is only Sep29 not Oct29; but tomorrow is a Friday. Maybe the Fed can buy enough DB Zombie stock to keep them all “walking” for a month and then it will be just the ticket for Obama’s October Surprise and Martial Law. Seriously, call Trumps Accountants and Lawyers, declare DB Bankrupt, the Derivatives in Default and some judge pay them off at whatever DB can afford, say one dollar on a million. There is no God given right of the Elite to force us Goy to make their gambling bets good! If they decide to burn us Goy and dump a huge debt load on us like in 2008, then burn their houses down with them in’em. I believe that would effectively de facto negate all the derivative claims.
A commenter on an article/video interview with Case Shiller…..
Why Long Term Low Interest Rates will lead to an uncontrollable Deflationary Asset Spiral …
Low interest rates encourage a hunt for yield amongst investors. They also encourage corporations, both large and small, to take advantage of this anomalous situation. It is anomalous because never before in history have lenders essentially paid borrowers to take their money. As a result, there is significant growth in global debt both at the public and private level. Under normal conditions, this explosion in lending would lead to a tightening of the supply of funds available, leading to increasing interest rates. Money is as much a commodity as gold or silver.
Instead, Central Banks have been maintaining and expanding the supply of funds to stimulate growth in the global economy. Interest rates are a function of supply and demand. What is interesting about Central Bank intervention is that it is totally misplaced. As this article will show, the natural global economic system is pushing back in an equal and opposite way, nullifying the Central Banks efforts. Economists have been puzzled by the slow growth in the economy. Yet the reason for the slow growth is obvious as this article will explain.
Much of our economic system is based on workers saving during their working lives and then receiving their invested savings back over their retirement years. Much of these savings are put into real estate which makes up another pillar of the financial system. Another significant part of our economic system is savings funds to provide for adverse or catastrophic events, otherwise known as insurance. Demographics globally are leading to a growing aging and retiring population in Asia, Europe and the United States, particularly amongst the Developed Nations and China, where the demand for the return of funds in the form of retirement income is expanding rapidly. These demographics will remain elevated for the next twenty years.
These retirees have been hoping to receive a reasonable income from savings accumulated during their their working years and from the institutions that have been managing their savings. As a result of the sustained low interest rates, those retirees and those institutions are discovering that the income from those savings is not sufficient to last through the remainder of the retirees’s lives or to meet the returns that had been expected. Worse, medical technology has advanced at such a pace over the passed 40 years that the retirees are now going to live 10 to 20 years longer than they had expected. Some economists and commentators have argued that the retiree will just go back to work to replace the lost income. Unfortunately the system favors younger employees as they are less costly. In addition, the mechanization of the workplace has eliminated many of the jobs the retiree was suited for and new skills are required to sustain the previously held income.
Faced with this situation, the retiree and investment institution is forced to replace the income that was expected by the sale of assets. If one thinks of these actions as a seesaw, interest rates have been pushed down to an extreme eliminating interest income. Assets have been pushed up to an extreme (as a result of the very low interest rates) creating new asset wealth.
Now (both insurance and pension) institutions are being forced to sell the new asset wealth gain to replace the loss of income and fund pension and annuity payout requirements. Essentially, the equilibrium in the system has been pushed to two extremes that are now in the process of self-correction back to stasis.
The problem for the global economy is that this growing and continual need to sell assets is and will have a continuing and equally negative effect on the ability of the economy to grow. This growing need to replace income by asset sales may and mostly likely will lead to a stampede to the exit. As more and more people realize that low interest rates may be around for a long time, they will see the advantage in being first to raise cash through the sale of assets because being late to the party would mean they get less for their assets. If any one is in any doubt that this process has already begun, they should investigate the recent behavior of large pension and retirement institutions – although those institutions would be loathe to admit to their behavior for fear of tipping off their competition. There is already a 30% spread between bid and offer for high end real estate in many parts of the US.
Large numbers of pension and retirement institutions selling assets, in concert, to replace income lost from low interest rates can and most likely will lead to a collapse in asset prices globally, as bid prices will disappear, as the market senses the growing crowd of sellers. This process cannot be stopped by Central Banks lowering interest rates still further because those Central Banks have already lowered rates to close to zero, if not in some cases, to negative rates. Central Banks are in a “Catch-22”. If they normalize interest rates, they will crash asset prices and if they keep interest rates low, they will crash asset prices.
The Central Banks stated solution is to raise rates slowly. This is equally dangerous because it is the maintenance of low interest rates that is putting a brake on the global economy and accelerating the stampede towards the sale of assets.
Politically Central Banks will not change their policy because it is better for them to excuse themselves by saying, ‘We did everything we could to keep interest rates low to maintain asset prices’ ,where in reality, it was the low interest rates that crashed the system.
The solution to the problem is to accept that asset prices are going to crash and to raise rates as rapidly as possible to normalize the economy. That is not going to happen. As a result, we will have to sustain a long period of asset deflation which, as its momentum grows, will end in a violent crash. The longer interest remain at current low levels, the more violent the crash.
One only has to worry how this will impact the banks and financial institutions that have been weakened by low interest rates when they find their loan-to-value ratios get crushed by this phenomenon and governments are surprised to find that they will have to revisit their policy of too big to fail.
There is a clear message here to Central Banks and to the Bernanke experiment. We understand that the initial intent was to protect individuals from a depression. Carrying on the experiment is sadly leading to a crushing deflationary spiral and an even worse outcome. Allow natural forces come back into play before more damage is done. Raise interest rates to a normalized (3%) level at a more rapid pace. Slow and measured does not head-off the coming storm.
THIS SITUATION WILL RESOLVE ITSELF BY A VERY SUDDEN, UNEXPECTED AND RAPID BACK-UP IN LONG TERM RATES.
What will cause a back-up in long term rates ?
1. Constriction of movement of labor – the Mexico Wall, migration restrictions in Europe etc.
2. Low unemployment. Low unemployment combined with low labor mobility will lead to rising unit labor costs.
3. Declining earnings caused by the rise in labor costs in a market with high P/Es
4. Rising import costs – see increased shipping costs … https://www.quandl.com/data/LLOYDS/BDI-Baltic-Dry-Index
LLOYDS | Baltic Dry Index
http://www.quandl.com
Data Source: Lloyd’s List: Dataset Name: Baltic Dry Index: Updated: about 12 hours ago, on 22 Sep 2016: Validate: http://www.lloydslist.com/ll/sector/markets/market …
Shipping costs are rising vertically.
5. Sales of U.S. Treasuries by China, Japan and Saudi Arabia at an accelerating rate as they seek to prop up their economies
This combination will lead to skyrocketing inflation and rapidly falling earnings. This combination will happen suddenly and unexpectedly. It is easy to figure out what happens next.
Nine countries—Austria, Britain, Denmark, France, Germany, Italy, Poland, Portugal and Spain—have public-sector pension liabilities of more than 300% of GDP, according to Citigroup.
Further reading : http://www.telegraph.co.uk/business/2016/09/21/un-fears-third-leg-of-the-global-financial-crisis-with-epic-debt/
wip
Thanks for posting that. Laid out the problem without the financial gobbledegook.
cheers
Given what I have read some huge oil deposits have been found off Brazil. Maybe why the US congress is giving the House of Saud the finger?
FWIW, Monday is a bank holiday in Germany. If DB starts crashing tomorrow the PTB can have a few days to examine whatever panic it causes and go ahead on Tuesday either backing up DB to save the system a little while longer, or crash the system globally and commence with their end game of martial law, new currency, end of the Bill of Rights, food rationing, the rounding up of ‘subversives’ and ‘terrorists’, government death squads and whatever else they’ve dreamed up.
It’s going to happen someday. Maybe this will be it. We’ll see.
It will be interesting to see if DB is the canary in the coal mine this time. They are much bigger than lehman, and the size of their balance sheet means they will cause ripples on our side of the pond too. Better fire up the printing press.. Sounds like someone will be in dire need of a bailout.
Merkel has been vocal about german opposition to the italians bailing out their banks, which are in terrible shape too. It will be interesting to see what happens when DB comes up, tiny tim style, asking for more. If they refuse to bail them out, it will result in a giant shitshow if DB collapses. If they bail them out, it will set a dangerous precedent that is guaranteed to lead to a lot more banks holding their hands out for free money. Looks like I may need some more popcorn.
I just submitted this interview to Admin to post… am listening now.
https://www.youtube.com/watch?v=R49TZywpXko
If the world’s financial system is indeed on the cusp of collapse, better “drop your socks and grab your cocks” cuz war is coming!
Paraphrasing Einstein, “after this one, WW4 will be fought with sticks and stones”!