The global financial system is close to going supernova.
Both Credit Suisse and Deutsche Bank stocks are hitting all-time lows. Both are collapsing despite billions in Central Bank – Fed, ECB, Bundesbank, Swiss National Bank – monetary support.
Deutsche Bank had been advertising a 5% interest rate to customers in Belgium on 90-day deposits of at least 50k euros . Bank deposits are essentially “loans” to a bank from the depositor (creditor). This implies that the rate that DB had to pay to attract deposits is equivalent to a triple-C rated credit (although the 10-yr junk bond rates for double-B rated bonds are around 5.5%, keep in mind that DB is paying 5% for 3-month money). This is the unmistakable sign of a company that is collapsing.
DB stock was down over 3% yesterday on a day when most big TBTF banks for down 1% or less. It’s down another
2.8% 3% as I write this today, trading below $15/share for the first time ever. This bank is obviously collapsing and any money manager who holds onto this stock for clients is in serious breach of fiduciary duty. This is the 2016 version of Enron.
But it won’t be a “Black Swan” event. The Central Bank authorities knew DB was going to collapse when Anshu Jain was fired in June 2015, literally about 2 weeks after DB’s board had given Jain even more control over bank operations. However, the Central Banks mentioned above collectively had a year to put a “ring” around the collateral damage – i.e. the derivative counter-party default risks – that occurs from DB collapsing.
The Credit Suisse problems have been far less visible but the behavior of the stock is signalling to us that CS’ problems are on par with DB’s. I don’t know if both banks will ultimately end up being monetized by a combination of taxpayer bailiouts (including U.S. Taxpayers) and bail-ins. I would suggest that bail-in capital available would not even remotely address the derivatives-related liabilities embedded in the Credit Suisse’s and DB’s balance sheets.
My point here is that – unless there’s even bigger problems hidden from the Central Banks, which have had a year now to address the DB/CS situation – a DB collapse will likely cause a sell-off in the stock market, but would not be the “Black Swan” for which everyone is searching.
I don’t know what the Black Swan is or what it will look like. Otherwise it wouldn’t be a Black Swan, right? What I will suggest is that the day in which the “box” with Schrodinger’s cat appears and we look into to it to see a dead cat is quickly approaching. I would also suggest that this is why those who have been calling for a short-term wipe-out in the price of gold have been proved wrong for over two months, despite the blatant daily attempts by the Fed/ECB/bullion banks to push the price of gold lower.
This is a development that no one is talking about – but I believe that is represents a hidden slow-motion financial collapse that will soon accelerate: