Currently the fate of Deutsche Bank is the most discussed topic in the financial markets. The stock price is rumor-driven, the most recent of which were unsubstantiated rumors of a settlement with the Justice Department that drove the stock up 14% last Friday. As it turns out, the bank has not yet initiated face-to-face settlement discussions.
The gyrations of this stock are like the exaggerated “wobbles” of a spinning top right before it drops the floor (or table-top). Make no mistake, DB will collapse absent a bailout by the German Government – likely in collusion with the Fed, ECB and BoE – or a bail-in by creditors, including depositors.
The cost to buy credit protection on DB’s junior debt moved up to a new record high today. Certainly the OTC derivatives market is not convinced that DB CEO, John Cryan, is being forthright in his pleas to the market proclaiming that everything is under control. Judging from the timing of similar remarks make by Bernanke in reference to the mortgage market and by the CEO’s of Bear Stearns and Lehman, DB could be just a few months away from total collapse.
I wanted to share my comments on DB that I included in my weekly Short Seller’s Journal, released last night:
On Thursday last week, DB hit another new all-time low – $11.19 – intra-day Thusday. It closed that day at $11.48, another new all-time low close. Miraculously, a new rumor hit the tape on Friday in which a French media organization tweeted out that the Justice Department and DB agreed to settle the $14 billion mortgage fraud fine levied earlier this month for $5.4 billion. The stock shot up in frenzied short-covering to close @13.09, up 14% from Thursday’s all-time low close. Of course, the French news source back-pedaled away from the certainty of its tweet later in the day.
The false rumors are intentionally dropped on the market to incite hedge fund short-covering. There is still a lot of “big money” trapped in big positions in DB stock. The short-covering activity creates a bid into which insiders and those connected to insiders can unload big positions. Over 70 million shares traded on Friday. This was 3.5x the 10-day average daily volume of 21.8mm shares per day and more than 10x the 90-day average volume of 6.9mm shares per day. In other words, Friday’s activity enabled a lot “trapped” longs to move closer to the exit (unload their positions).
A much better indicator of what’s going on “behind the curtain” at Deutsche Bank is the report that several hedge fund clients of DB’s withdrew any excess cash held in custody at the banks. This fact was confirmed by the CEO. The other indicator is the cost in the derivatives market to buy default insurance on DB’s bonds. On Friday – even after the French media rumor was floated – the cost buy 1 year default protection on DB’s junior bonds soared to over 600 basis points. To put the cost of this in context, the 1-yr rate on U.S. Treasury bonds is 59 basis points (0.59%).
In terms of U.S. Corporate bonds, any company that has to pay 6% to borrow money for one year is likely headed toward bankruptcy. Think about the rate you are paying on your auto loan, if you have one. It’s probably in the 2-4% range. The derivatives market has determined that lending money to Deutsche Bank is riskier than lending money to you…
Turkey is not taking over DB and DB was technically insolvent before the Justice Department threw a $14 billion mortgage fraud fine at the bank. Too be sure, if a settlement is announced, I recommend shorting DB after waiting for DB to spike up on that announcement. Too be sure, eventually the German Government, likely in conjunction with the ECB and the Fed, will be forced to bailout DB. DB’s derivatives holdings alone are several times larger than Germany’s GDP. And that’s the liabilities that are visible. I can guarantee that, having worked on a trading desk that often hid positions from internal regulators using derivatives, that DB has a lot of unknown skeletons in the closet. I guarantee that.
This up/down rumor-driven trading in DB stock is exactly like the trading that occurred in Enron and Bear Stearns. I shorted Enron in the $40’s and covered it at $12. I covered too soon obviously because of spike-ups on rumors that occurred as the stock approached $10. Same with Bear Stearns, which I shorted in the $20’s. If/when a bailout occurs, it won’t happen until DB stock is well below $10 if not $5.
As for the hidden skeletons lurking underneath DB’s published financial statements, here’s another one that popped out and it’s just the tip of the iceberg: Deutsche Bank Charged Over Paschi Accounts As Legal Hits Mount – Bloomberg. If you read the article, you’ll note that Monte Paschi used derivatives trades with Deutsche Bank to hide losses from previous derivatives trades that DB stuffed into the Italian bank. This is exactly the type of activity I witnessed going on at Bankers Trust before DB bought BT. Then DB took the same operational algorithm and increased the use of it exponentially.
If you bank with Deutsche Bank, you need to get all of your cash out of any accounts there immediately – unless you don’t care about money. In fact, other than loans you have from Deutsche Bank, I would close any accounts you have with the bank, including and especially any assets held with its wealth management group.
There will be no justice served to the people who made $100’s of millions in compensation from DB (see disgraced former CEO, Anshu Jain) through fraud – fraud which has and will result in $100’s of billions of wealth destruction. But you still have time to step-aside and watch the fireworks show from the sidelines.
Haha, just buy some generic silver rounds, ignore Deutsche Bank. It’s turned into the same freakshow, like it was before Lehman tanked. Don’t use any money to buy silver using funds you need as IMMEDIATE commitments for paying bills/rent/mortgage etc. ONLY surplus available above & over it, if any. (Corollary: Don’t borrow against equity to do this, since effectively it will turn into an IMMEDIATE mortgage commitment.)
If they slam silver spot price even more after your purchase(s), DO NOT despair! When in similar situation with surplus funds availability next time, if spot price still manipulated: repeat. If no surplus funds available next time, and spot price hammered even lower: DO NOT despair. You HAVE NOT missed out on anything!
Trying to second-guess your timings, with the magnitude of biblical geopolitical crap going on is definitely not worth it. Nobody with better things to do in life should care to second-guess this crap. Timing manipulated markets to attempt to find perfect bottom or perfect top should not be attempted, except by the manupulators themselves. Others shouldn’t waste energy on futile exercises like that. None of the big players who aren’t manipulators care about it. Surely, I assume Dave Kranzler doesn’t waste energy trying to find “THE PERFECT BOTTOM”. Personally speaking for myself, I most certainly don’t.
Ding Dong!
The Witch is dead!
Which old Witch?
The Wicked Witch!
Ding Dong!
The Wicked Witch is dead!
Wake up you sleepy head,
Rub your eyes,
Get out of bed!
Wake up,
The Wicked Witch is dead!
She’s gone where the goblins go,
Below – below – below!
Yo-ho!
Let’s open up and sing and ring the bells out!
Ding Dong’ the merry-oh,
Sing it high, sing it low!
Let them know,
The Wicked Witch is dead!
Apologies, this was written when it surely seemed that Julian Assange was all set to release the huge truth bomb. But inexplicably, he went on a bizarre tangent & weirded out most of his audience.
I’m still reserving my judgement on Assange. I called him the great “American patriot” the other day. I still feel he has an ace up his sleeve before the election, and will only release it on his terms during US timezone hours with best visibility prospects. I’m not ready to slam him as controlled opposition, like many people are doing. But it was still terribly disappointing with the theatrical press conference he called appearing by video link from London, England to Berlin, Germany. There was no need for him to put on all that nonsensical show. Maybe so many years of in-house confinment @ Ecuador embassy in London has affected his mind (he himself admitted a while ago to be suffering from depression), and this was his strange attention seeking attempt.