No way to know for sure when the Bundesbank, Fed and ECB lose control of Deutsche Bank’s balance sheet. But its stock price just hit an all-time low since its NYSE-listing in October 2001.
Anyone who owns the Deutsche Bank “Tier 1” bonds should sell them now. They are currently yielding about 8%, which puts on the same “tier” as U.S. triple-C (CCC/Caa) rated credits.
I’ve been wondering for quite some time if DB’s demise would be the 2016 “Lehman” event, but I don’t think it will be. Why? Because Germany has a fabled history in which it has demonstrated a willingness to print trillions to keep its system from collapsing.
As everyone knows, the primary stock indices are being aggressively supported and pushed higher by the Fed using the liquidity with which it as flooded the banking system. However, most of the non-marquee indices have been selling off. As an example, the SOX semiconductor index is down 10.5% since June 1st. I’ll bet a lot of you are surprised by that fact, given that the tech-heavy NASDAQ hit an all-time high last week.
When I was a junk bond trader, one of the sectors I traded was semiconductors/electronics. Because semiconductors are used in many everyday-use consumer goods, including automobiles, semiconductor sales is considered to be bellwether economic barometer. Thus, if the SOX is tanking despite a torrid rally in the Dow, SPX and Nasdaq, it likely indicates that the economy is slowing down – significantly.
Another bellwether indicator is financials. I noticed something quite interesting on Thursday, the day that the S&P 500 ramped up 19 points on meaningless to negative economic reports. One of the sub-categories of financials I follow is what I term “specialty” financial stocks. Most of the big bank and financial stocks last Thursday were up big with the SPX. But look at this – click to enlarge:
All six of those specialty financials were down – some down quite a bit. MBI, AMBC and AGO are debt guarantee companies. All three have heavy exposure to Puerto Rico but they also have big exposure to debt-based derivatives in general. RDN is also a financial guarantee company that should have collapsed in 2008 but was saved by TARP and QE. CACC and ALLY are auto-finance companies. CACC is the Countrywide Financial of the current credit bubble. ALLY is the old GMAC, which went bust in 2008 and was taken over by the Government. It will go bust again this time around – Chapter 22, if you will.
Because those stocks were weak all week last week, not just on Thursday, while the S&P 500 was going near-vertical toward a new record high and the NAZ hit an all-time high, those sub-sector financials are telling us the something is melting down behind the extremely thick layer of make-up being applied heavily to the Miss Piggy U.S. economy.
The Federal Reserve exists for the sole purpose of enriching big banks…The Fed does whatever it takes to keep a yacht filled of failed executives and their friends unimaginably rich. If this requires an economy of 300 million people to be blow-torched, then a blow-torching is what that economy will get. – John Titus, “Bailout Films” and “Best Evidence”
My good friend and colleague has written, narrated and produced a short video showing – with data directly obtained from the Fed’s own website to support his analysis – that there is almost a 100% inverse correlation between QE and the Labor Force Participation Rate. I was stunned when he showed the evidence.
The only purpose QE has served is to keep the big banks solvent and to fund the massive pay packages paid to big bank executives. Please watch this video closely and pass it along to everyone you know – it is truly extraordinary:
Argentina is interesting because of the legal issue surrounding the specific Government bonds on which it might default. I called Banco Espirito as a likely bankruptcy after the stock exhibited Enron-esque characteristics. As that one unfolds, it looks like the entire corporate structure above the bank and with the bank itself is engulfed with fraud.
And now we find out that Goldman Sachs plugged its client base with BES bonds and stock: LINK. Classic
The more interesting question in both cases has to do with the credit default swap derivatives. While the default could trigger $29 billion in bondholder claims, Bloomberg ran a story a couple days ago that suggested the default on this one bond issue could trigger $120 billion in credit default claims: LINK.
The details are buried in the bottom of the news report. Since I have not seen anyone mention the $120 billion, I assume that – just like with the footnotes to financials statements – I guess no one read the full article.
However, it’s not the $120 billion in CDS claims that are visible. The real danger lurks in the “daisy-chain” of hidden counterparty default that could trigger a big meltdown. Remember AIG/Goldman? That melt-down – which triggered the big bailout banks – was likely triggered either by the Bear Stearns or Lehman collapse. The former happened several months before AIG and Goldman. When Bear collapsed, Bernanke assured us it was isolated and contained. “Shalom Ben!” – how did the statement work out for you?
The S&P futures are down 15 points right now on the back of the Argentina/BES news. It’s not because of the news itself. It’s because of the related skeletons in the closet that are connected to the events that may be poised to jump out…
Better check the bond and derivatives holdings of your favorite bond fund – you know, the bond funds that your genius investment advisor has you invested in because “they have a good yield.”