This weekend I spent some time to update my Public StockCharts.com List. If you have not seen my live analysis charts then you are going to love this…
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Deutsche bank (DBK) shares dropped to fresh new lows with the various news announcements, as well as a feeling that Germany will not be capable of bailing out the bank. The imminent outcome for DBK is ‘bankruptcy’ while the world will have to bear the brunt of the fallout from all of the complicated ‘derivatives’ which are being held by Deutsche Bank.
DBKs’ outstanding ‘derivatives’ exposure is 20x the German GDP and 5x the Eurozone GDP.
Amongst all of the chaos, DBKs’ head of currencies trading and emerging-markets debt trading, Ahmet Arinc, has left the company which is the most recent negative news to impact the banks’ financial status. Traders slammed the stock by more than 6% during that trading session, to touch intraday lows of $12.5 after which the stock recovered marginally to close at $12.97.
The latest bank which might require a bailout is the Italian lender Banca Monte dei Paschi di Siena which is the worlds’ oldest bank. The European Central Bank warned that the Italian bank is holding dangerously high levels of bad debt.
Italy wants a bailout for Monte Paschi, however, the Germans are opposing any such move. Wolfgang Schaeuble, the German Finance Minister, stated in a news conference, in Berlin, that Italy intends to stick to the banking-union rules, as was conveyed to him by his Italian Counterpart, Pier Carlo Padoan.
Italian Prime Minister hits back at Germany:
However, Italy did not wait before hitting back at Germany and it came from none other than the Italian Prime Minister, Matteo Renzi.
Mr. Renzi stated that “the difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivatives.” He reminded the Germans that there were other European banks which had much bigger problems than Monte Paschi, in an indirect hint towards DBK.
“If this non-performing loan problem is worth one, the question of ‘derivatives’ at other banks, at big banks, is worth one hundred. “This is the ratio: one to one hundred,” Renzi stated, reports Reuters.
The bank is likely to lose its’ place in the STOXX 50 index, according to analysts at Societe Generale. The bank will face renewed selling pressure as the index funds will have to reposition themselves, post the change, which is more than likely to bring about a fresh round of selling. According to a statement by the IMF, DBK is now the most dangerous bank in the world. DBK is currently the riskiest bank which will bring down the entire financial banking system, globally.
The bond king, Jeff Gundlach, stated that “things are shaky and feeling dangerous”. Regarding the European banking crisis, the Double Line bond king noted: “Banks are dying and policymakers don’t know what to do. Watch Deutsche Bank shares go to single digits and people will start to panic… you’ll see someone say, ‘Someone is going to have to do something’.”
Gundlach stated that “gold remains the best investment amid fears of instability in the European Union and prolonged global stagnation, as well as concerns over the effectiveness of central bank policies,” reports Reuters.
The belief by Wall Street that Germany will not allow DBK to fail is fading. Post the Brexit, tensions are running high among the remaining members, as seen in the spat between Germany and Italy. Due to the earlier hard stance of the Germans, it is likely that any move to bailout DBK will face considerable resistance from all of the member nations. If allowed to fail, DBK will cause a ‘crisis’ many times over that of which Lehman Brothers did. The final meltdown commences!
Americans need to pay attention to this European Financial Crisis because its’ very contagious and going to spread here.
Gold remains the asset to invest in, as I have been advising my subscribers for a long time now. DBK is failing and not even the ECB will be able to stop its’ plunge into oblivion!
Next week I will share with you another asset class rarely mentioned or invested in which could explode in value going forward and actually become a major asset/currency world wide – Stay Tuned!
Chris Vermeulen is full-time trader and research analyst for TheGoldAndOilGuy Newsletter.
Author does not currently have any position in Deutsche Bank at this time.
As you may already know, Larry Jacobs the owner of Traders World Magazine are friends and he sent me the newest issue for me to share with you free of charge. Lots of great reading…
I am certain that you remember Lehman Brothers and the “chaos” that it created when it ‘failed’. If you think that the Worlds’ Central Banks are now wiser and consequently will not allow another similar event to occur, think again. We will not only see a repeat of this occurrence, again, but it will be exponentially larger than Lehman’s was!
On June 29th, 2016 the IMF stated that “among the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse,” reports The Wall Street Journal.
However, if you were to believe that statement, why should you be concerned about a German bank and how it will affect you while living in the U.S.? The IMF adds: “In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,” reports Bloomberg. The chart below clearly shows the systemic risks emanating out of a Deutsche Bank (DBK) collapse.
Two years in succession, the American unit of Deutsche Bank has failed the FED’s “stress test” which is what determines the ability of the bank to weather out yet another ‘financial crisis’.
Leverage of Lehman vs. Deutsche Bank:
In 2007, Lehman had a leverage (the ratio of total assets to shareholder’s equity) of 31:1. At the time that Lehman filed for bankruptcy, it had $639 billion in assets and $619 billion in debt. Still, it caused a ‘systemic risk’ worldwide.
In comparison, DBK has a mind boggling leverage of 40x, according to Berenberg analyst, James Chappell. He stated, “facing an illiquid credit market limiting Deutsche Bank’s (DBK) ability to deliver and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding.”
Why Can’t the ECB save DBK in the similar fashion as how the FED saved the banks, in the US?
The nominal value of derivatives risk that DBK holds on its’ books is $72.8 trillion, according to the banks’ April 2016 earnings report. What is astounding about this, is that a single bank owns 13% of the total outstanding global derivatives, which was a staggering $550 trillion in 2015.
What is more concerning and alarming is that the market cap of DBK is less than $20 billion.
Nonetheless, the nominal value of derivatives exposure does not mean that DBK will have a default worth trillions of dollars seeing as most of the contracts are covered by counterparties. However, when the domino effect is put into motion, we have witnessed how it engulfs the entire world, into it.
If the domino effect does occur, Germany with its GDP of $4 trillion or the EU with a GDP of $18 trillion will not be in a position to gain control over it.
A nominal figure of the high derivatives risk on DBK, as of December 2014, is shown in the chart below.
Negative interest regime is NOT the solution to global economic problems which we are facing today:
The European Central Banks’ NIRP policy is making matters worse for DBK, as the banks’ profits are getting squeezed thus making it difficult for it to repair its’ balance sheet.
The bank is finding it difficult to sell its’ assets because of illiquid credit markets. The banks’ management will also find it difficult to raise capital as the investment-banking industry is in a “structural decline”, according to Berenbergs’ James Chappell.
BREXIT is adding to the woes:
DBK receives 19% of its’ revenues from the UK. After the “BREXIT” vote, the uncertainty regarding future relations of the U.K. with Europe has increased the risk for all of the banks. President Francois Hollande of France is eyeing the financial industry and is pitching for them to move to Paris from London.
DBK is the biggest European bank in London. Moving operations, which are handled by 8,000 members of the staff, will not be an easy task for DBK and will further weaken their balance sheet.
How is the stock behaving?
The stock is in a downtrend and has broken below the panic lows of 2009.
The stock is quoting at a price to book ratio of 0.251, which indicates the pessimism of the markets towards the stock. The investors believe that the stock is not worth more than a quarter of its’ liquidation value.
A comparative study of the stock, with Lehman, gives a more accurate picture of the future price of DBK, which is zero.
The German Newspaper ‘Die Welt’ reported that the great George Soros had recently opened a short position of 0.51% of the DBK’s outstanding shares. This equates to 7 million shares, worth $7.5 billion, reports Investopedia.
Conclusion:
The easy monetary policy of various Central Banks is the main reason for the banks holding such massive leverage. The “next financial crisis” will cause the Central Banks’ actions to be redundant and ineffective, as they will not be in a position to control this impending catastrophe! In such a situation, the world will revert to the only remaining resort left, and that is gold.
My readers have benefited immensely during the mini-crash post the ‘BREXIT’. Please continue to follow me so as you can protect yourself from the next “big one”, which will wipe out tens of trillions of dollars around the world.
Chris Vermeulen
TheGoldAndOilGuy.com
I have no doubt that the implementation of QE 4 will be introduced into the stock markets. I believe that the FED will commence injecting $50 billion to $100 billion per month into the markets. After seven years, this “short term” emergency measure has now resulted in a permanent fixture of the FEDs’ ‘NEW’ monetary policy.
There is a limit as to what monetary policies are capable of resolving. We must go back in time in order to realize that our problem is a ‘structural’ fiscal policy problem and it is only when we realize this that can we look towards the solutions, at hand. Our current financial problems cannot be resolved by Central Banks. These ‘accommodating’ monetary policies of Global Central Banks were never really necessary. The global legislative governments needed to address these problems as far back as 2008.
“Black Friday” which occurred on June 24th, 2016 was just the beginning. Once again, Global Central Bankers will scurry to lower their interest rates! A recent article talked about how the market is reading all the data wrong.
The present ‘currency wars’ will continue to heat up more and more and consequently money printing will now escalate while the global debt will continue to rise exponentially. This is just the type of ‘crisis’ that will push gold prices even higher while investors seek out the most sought after ‘safe haven’ that has been in existence for well over 5,000 years.
Gold, will once again, as it did in 2008, offer the most security against stock market meltdowns and currency risks which surround us and have now become part of our daily economic fabric. I have been alerting my subscribers, since last year, of the fact that I was anticipating the timeliest entry point into this ‘asset class’.
It has become most obvious to me that Global Central Bankers have lost touch with ‘reality’ as they continue to lower interest rates and turn towards NIRP.
IS THIS THE POINT OF NO RETURN?
The sole reason why the Global Central Bankers implemented ‘negative interest rates’ was to get money out of the banks and place it into the hands of consumers in hopes that they would spend more and therefore help to inflate the economy. If this plan had been successful, consumers would have leveraged these low-interest rates into a positive rate of return. However, this did not occur!
In general, ‘the velocity of money’ begins to increase after a successful ‘economic recovery. However, since 2007, the ‘velocity of money’, within the U.S., has been further ‘decreasing’ which implies that consumers have not been spending their money seeing as the “stimulus” money, which in fact, never reached them.
The basic idea was to have the banks directly provide consumers with money, which would, in turn, encourage and enable them to spend it. However, the money failed to reach the ‘working classes’. The FED created this “wealth effect” which resulted in the “artificial inflation” of stock prices.
The FED infused bank investment portfolios with cash rather than government securities. This cash was invested in the stock market rather than filtering down to “Main Street”.
The “Consumer Distress Index”, Main Street, was a quarterly measure of the financial condition of the average American consumer. This was the first index to provide a comprehensive snapshot of the American consumers’ total financial picture, over time. While the index is no longer updated, recent data can still provide insight into the financial well-being of consumers. The index was based on a 100-point scale, as can be viewed in the chart below:
What you can extrapolate, from the below chart, is that the consumer is ‘financially unstable’ and needs to take immediate action in order to address their ‘financial problems’. As of today, the consumer is in the midst of a “financial crisis” and is in need of direct intervention so as to regain ANY “financial stability”.
The following chart below displays where all of the “Quantitative Easing” money was distributed. The “Quantitative Easing” (QE) money was used to artificially “inflate” stock market prices. The FED was caught up in its’ own wrong doings. Each and every time that the stock market showed signs of weakness, the FED would step in to support prices by announcing the implementation of more QE. As you can see, very clearly, in the below chart, there is a positive correlation between QE and the rise in the SPX!
Concluding Thoughts:
In short, the recent price action of the US stock market, economic data, and Brexit results clearing indicate tough times ahead. What will the FED do? No doubt they will try to implement some new form of QE which will try to hold the stock market up and funnel through in the hands of the already wealthy. It seems that is all they are good at doing really.
But will the FED be able to save the market this time? I think not because for the first time in 7 years the data is showing similar and in many cases much worse data than we say in 2001 and 2008.
The good news is that we can not only avoid losing money buy actually become the wealthiest we have ever been if/when the next bear market happens and I tell my readers exactly how we will do that. The reality is, it does not matter when the next bear market takes place whether it is 2016- 2018, or beyond, the key is that we know how and when to get positioned for these life changing moves as the market unfolds.
Follow My Work Free at: www.TheGoldAndOilGuy.com
Chris Vermeulen
This analysis is by Mike Swanson as we share a similar outlook on the various markets. Last week we saw a nasty drop in the stock market following the BREXIT vote, but this week it has rebounded.
I am surprised by the size of the move up from the S&P 500 2000 area for sure and have gotten several emails asking me what I think of the US stock market now.
My view really hasn’t changed about the markets from where it was before the BREXIT vote.
I see the stock market as completely dead money for most people as it has been for well over a year while gold and silver are in new bull markets.
Yesterday silver had a big surge as it smashed through $19.00 an ounce.
Money is to be made in such moves!
Mining stocks have been the best performing sector of the market this year in the entire stock market.
Gold of course is up again in pre-market action.
In the past week gold cleared $1,300 an ounce.
Gold, silver, and mining stocks have totally broken away from the US stock market.
They are acting as safety trades for people who want to get out of stocks and bonds, but are also acting as pure momentum plays for people who want to invest at the start of new bull markets to grow their brokerage accounts.
Most American investors though are totally ignoring them as they remain fully invested in the US stock market too lethargic to make any changes and mesmerized by the up and down action and CNBC calls for massive gains to come.
But CNBC bubble bulls have been making such predictions for over a year while those fully invested in the US stock market are making no money.
To make meaningful money in a market you need that market to make a new high and then keep going higher, but the US stock market has not done that in a long time now.
It’s in a giant topping pattern.
Look at this.
The big high volume drop in the market that hit recently made me get worried about the stock market small fry who is fully invested in the market.
I see it as a bullet that hit the market much like the August and January drops did.
These hits damage the internals of the market and convince me that the topping pattern will lead to a collapse.
So a few days ago I told people that they should reduce their long exposure and do some serious selling.
And GET OFF MARGIN.
The market bounced though so no one is going to listen to any warnings.
Yet what is crazy is that there is money to be made going long silver and gold that these people simply won’t take advantage of.
A lot of exciting things are happening with gold and gold is quickly becoming the necessary investment to own in a portfolio and the safest thing to trade.
It is in fact stock market problems that is also making gold ownership a necessity.
Like you I have seen the boom of 1999 and the bust of 2008 and the wild moves of the past few months in the US stock market.
And I have seen the Federal Reserve take action to make the stock market go up.
In 2008 the Federal Reserve lowered rates to zero and in 2009 it began money printing operations called quantitative easing to force the stock market back up after it crashed.
And they did this in 2010 and 2012 in order to keep it up too.
In fact after they did it in 2012 the stock market went up for two years at a forty-five degree angle without ever pulling back.
Look at this chart and you can see what I mean.
The stock market had never traded like that before in it’s history.
It had never gone up like that for so long without a real correction before.
This was the impact of Federal Reserve manipulation through its money printing.
And as long as the stock market continued to go up like this people had fun, because it seemed like it was easy to make money in it.
But then in 2015 the stock market stalled out and the stairway to heaven came to an end and it has not made a new high ever since. It’s just wobbling. Oh it has big rallies after big drops, but all that is happening is people lose money than make it back and lose again.
You need real bull markets in which a market makes a new high and keeps going up for real for people to make good money.
So now all people are doing is watching the stock market make these big swings up and down as it goes nowhere leaving them feeling confused by the market.
The tough reality is that very few people are making any money in the stock market anymore and most people have no idea what to do with the market to make money now.
But most are not even sure that they know what is happening to the financial markets.
First you need to know that there are three things that have happened to make the stock market behave like this.
Financial markets move in bull and bear cycles.
I call them stages and you can tell what type of risks you are taking for what potential return by identifying what stage in a financial market you are in.
There are four stages to a financial market cycle in a stock or entire financial market. As you know you can have a bull market. Before a bull market starts though you usually have a stage one basing phase in which a market simply goes sideways and builds a base.
Then it breaks out and begins a full blown stage two bull market that typically lasts for several years. Then there is a stage three topping phase and then a stage four bear market.
I can quickly show you one important indicator to watch to identify the trend the market is in.
That’s the long-term 150-day moving average, which is simply a line plotted on a chart using the average price number of the past 150-days.
In a bull market this line slopes up on a chart and the price of the market tends to stay above it, so it acts as a nice price support level in a bull market to make for a good entry point timing mechanism.
In a bear market this line slopes down on a chart and the price of the market tends to stay below it and it acts as resistance.
The stock market was in a stage two advance way back in 2013 and 2014 and that was a long time ago.
But now the long-term moving averages are going sideways to down so the times have changed.
But the stock market did go up so much in that big bull market run that it became overvalued from a valuation standpoint.
In terms of the cyclically adjusted P/E ratio in fact it had only reached a valuation level like this three times in its prior history.
Those times were in 1929, 1999, and in 2007.
The simple fact of the matter is that the more highly valued a stock or market gets the more risky it becomes.
So the market is actually at risk of suffering from more stock market drops.
But this situation is now happening to stock markets all over the world and you have been seeing constant central bank interventions to try to manipulate the markets and prop them up.
But these moves are not all working anymore.
The stock market in China has crashed, despite government action there.
And in January the Japanese Central Bank announced a giant money printing operation to try to make their market go up.
But all it did was pop and dump.
Then just a few months ago the European Central Bank announced a giant money printing program of their own and the markets have done nothing over there.
Those markets have since gone done.
The problem is that such programs cannot create brand new giant bull markets at this stage of the market cycle.
But they do create big moves up that last weeks and sometimes months and so far have kept the US stock market afloat.
But the big swings up and down are confusing to most people and so in the end they do not make any money out of this, because it’s hard to catch a good wave that lasts.
So most people are just caught in this central bank money trap spinning their wheels not knowing what to do and taking more risks every day to make nothing.
The reality is the stock market is becoming a big mess.
But there is a solution to this problem.
This solution is to own gold.
And today gold is easy to own and trade in any brokerage account with exchange traded funds and you can buy mining stocks that mine gold for extra juice.
I am personally making a lot of money this year and a big reason why is because I am invested in gold and mining stocks.
I want you to get involved in these markets, but almost all of the emails I get are just from people bullish on the stock market who want it to go up for them and get angry when warned about the risks they are taking.
They are being lazy when if they took the time to get learn about gold and get involved in it they could be making money.
But it isn’t just the risk of losing money they face, but simply missing out on making money in real bull markets.
Let me make a big point.
A few years ago if you watched CNBC and Mad Money Cramer and the Fast Money boys like pony tail you would see them recommend momentum stocks that made new highs as buys.
Often those stocks would breakout of their highs keep going up.
They no longer do that.
So now they look for bottoms and “rebounds” in stocks to buy.
That is a very difficult way to make money.
This shows the difference in the market structure now.
You see the momentum of new highs and higher highs is now in gold, silver, and mining stocks.
So they are the place to be along with a few others…
The European markets, the British pound, and Euro had rallied for six days prior to its’ meeting based on political polls. These polls were showing that the vote was too close to call. The market incorrectly interpreted this as meaning that the “Remain” side would prevail. The British pound hit a new a year-to-date high last Thursday, June 23rd, 2016, the day of the election. Banks had done especially well in the rally, some being up by almost double digits during their best days. After the Brexit vote, they experienced a massive ‘selloff’.
I prepared my readers in advance of “BREXIT”
Right now, everything is still rebalancing from the “Brexit” vote. The “mass media” will talk about how it will affect the Eurozone and its’ impact on the world for the remainder of this week. The experts will blame “BREXIT” for this decline, but that is only ‘the symptom’.
I sent a ‘trade alert’ to my subscribers on June 8th, 2016 to enter the long position of gold, using the most liquid and most traded ETF, “GLD”, and on “Black Friday” our position was up 5%. Another ‘flash alert’ was sent out on June 9th, 2016 to enter the long position of U.S. twenty year bonds, using the most liquid and most traded ETF for U.S. Bonds, “TLT”, and our position is deep in profits also.
Most hedge funds and money managers experienced heavy losses because they tend to be much more heavily weighted in equities.
As small traders and investors we can be much nimbler and are not forced to hold various positions in equities like most funds. Knowing that we have an added ‘edge’ and if you follow my lead ETF alerts my strategies can help keep you on the right side of all the markets.
Over the next 3 to 5 years, I will present very ‘unique’ opportunities to not only protect your wealth, but to grow your trading account handsomely using my “Cycle Analysis” and my “Predictive Analytics Models”
The SPX could not break out of its’ resistance ‘zone’. It has not been able to get through for over a year and a half and this is typical of a ‘long-term topping pattern’.
This week stocks have rallied huge. Why? It could be for many reasons like: end of month window dressing by the institutions, pre-holiday rally, the market was oversold earlier in the week so a bounce should be expected.
A new Sell Signal is on the rise for stocks. If this is the outcome, then it should continue to sell off down to 1830 level over the next 30 days.
This should look very similar to the ‘sell off’ that occurred back in August 2015. The selling pressure drove the SPX to previous support. In this area, it is a reasonable location for support to now show up. The SPX has not broken out of the established channel over the last few months. On the weekly chart of the SPX there is also channel starting at 2000 up to 2100. Momentum oscillators on the weekly chart suggest the beginning of the channel rollover.
The Only Chart You Needed to See:
The Bullish Percent Index (BPI) is a breadth indicator based on the number of stocks on Point & Figure buy/sell signals within an index. The index is either on a P&F buy or sell signal, there is no ambiguity when it comes to this chart reading. This makes The Bullish Percent Index (BPI) fluctuates between 0% and 100%.
Bear Alert: BPI is above 70% and then declines below 70%.
Concluding Thoughts:
Expect greater volatility because of uncertainty regarding the “bearish sentiment” along with lower prices starting early next week.
Get My ETF Trade Alerts Here: www.TheGoldAndOilGuy.com
Chris Vermeulen
Find out what to expect from the markets this summer for stocks, oil, gold and more importantly gold miners…
The last few days the volatility index has jumped dramatically and so have the market-makers secret price spikes during pre and post market hours telling us where they are trying to move the market to within the next 24 hours.
Below is a chart showing this weeks spikes which I plan to start covering in more detail along with a training video on how to find, read and trade them.
The key with these small yet highly accurate trade setups is leverage. While they may not look like huge moves, when you apply leverage like using the ES mini futures contract these moves can generate $250 – $1000 within hours several times a week.
These are short term momentum and day trades, and the spike signals tell us the market direction/bias for the next 24 hours which is incredible insight.
If you want to know the big picture analysis you can see my economic and stock market cycles HERE, or listen to my recent radio interview HERE.
Stay tuned for more exciting trade ideas and setups!
Chris Vermeulen