• Tag Archives Deutsche Bank
  • History Says Global Debt Levels Will Lead to Another Crisis

    It may feel like we’ll escape a debt crisis since, well, the world hasn’t ended in spite of runaway debt levels. Some of us hard money people feel like we’re taking crazy pills; how the heck can debt be so out of control, so completely unpayable, and yet the financial system keeps chugging along as if nothing’s wrong?
    Well, history has a message for us: the current calm won’t last forever, because there is a direct link between government debt levels and the number of financial crises that occur. And since global debt levels are high – the second highest level in the past 150 years – it’s not exactly a stretch to conclude that another financial crisis is coming.
    Analysts at Deutsche Bank recently released an extensive study that demonstrates the link between debt and crisis. One chart in particular screamed for attention.
    They measured G-7 government debt levels, as a percent of GDP, and charted that figure against the number of crisis those countries have experienced. Here are the primary events they classified as a crisis or shock:
    15% fall in stocks 10% decline in the country’s currency exchange rate 10% fall in bonds

    This post was published at GoldSeek on Wednesday, 18 October 2017.


  • “This Is Most Worrying”: In One Year, Central Bank Liquidity Will Collapse From $2 Trillion To Zero

    Is it complacency, or simply trader paralysis?
    A question we first asked three months ago is getting a second wind this morning, when in a report by Deutsche Bank’s Alan Ruskin – “Vol: freeze or flight?” – the macro strategist points out that “the new 2017 Nobel laureate for Economics is not the only one at a loss to explain low stock market volatility, and thinks investors are in ‘freeze mode’ in the midst of global uncertainties.”
    According to Ruskin, however, it’s all about to change.
    But why? And what is “the most likely causes of a shift to ‘flight mode’ and a rise in volatility? Here’s one possibility: by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”

    This post was published at Zero Hedge on Oct 11, 2017.


  • Europe’s Fragile and Bad-debt Ridden Banking System (Happy Columbus Day!

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    In honor of Italian explorer Christopher Columbus, here is review of Italian banks (as well as a benchmark, Deutsche Bank).
    Here are two notable Italian banks: Uni Credit (a global systemically important bank – Bucket 1) and Banca Monte dei Paschi di Siena (a domestic systemically important bank). And for comparison, my former employer Deutsche Bank. What do the three of them have in common? Yes, they all peaked in 2007 and all have plummeted since.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ October 9, 2017.


  • Catalan Independence: Deutsche Bank Explains How We Got Here & What Happens Next

    In the past few days, many questions have arisen regarding the exact institutional mechanisms and next steps surrounding the Catalan events.
    In this note, Deutsche Bank’s Marc de-Muizon provides a Q&A addressing these issues.
    Why is the referendum illegal?
    The Spanish Constitution states that Spain cannot be broken up. The Article 2 in the preliminary part of the Constitution states: ” The Constitution is based on the indissoluble unity of the Spanish Nation, the common and indivisible homeland of all Spaniards”. The Spanish Constitutional Court suspended the law passed by the Catalan parliament at the start of September to organise the referendum.

    This post was published at Zero Hedge on Oct 6, 2017.


  • Kolanovic: “This Is What The Next Crisis Will Look Like”

    There are two distinct parts to the latest, just released research note from JPM’s quant “wizard” Marko Kolanovic.
    In the first part, the infamous predictor of market swoons takes on an unexpectedly cheerful demeanor, and explains why contrary to his recent market outlooks, near-term risks for a market selloff appear to have abated. First, he looks at the tax-related rotations within the market in the past month, and notes that in September “the administration drip-fed US tax reform news, which propped up the market and spurred large sector rotations.” As a result, “financials, Industrials, and Materials were up ~5%, Energy ~9% and Small Caps ~7%. On the other side of the Tax trade were bond proxies (Utilities, Staples, REITs) down ~2-3% and Technology-heavy Nasdaq that was down ~0.5%. These offsetting sector moves reduced the typically elevated September volatility to its lowest level since 1964.”
    He then goes on to note that in addition to the tax rotations, “volatility was reduced as market rose and got pinned at the 2,500 level for most of the month (this level was popular with option sellers, leaving dealers locally long gamma).”
    Picking up on what Deutsche Bank’s Aleksandar Kocic has been writing about in recent weeks, namely the apparent failure of “exogenous shocks to shock the market”, as shocks themselves become endogenous phenomena, Kolanovic also writes that in fading daily headline risk, “tax reform and infrastructure will remain a central focus for investors, and it seems that bits and pieces of information can still excite fund managers”, something he previously called the ‘Trump Put’ effect.
    As a result, between rotations and fundamentals, the coast – at least for the near-term – appears to be clear:
    “With the upcoming positive Q3 earnings season, uptick in global growth, promise of tax reform keeping fundamental funds invested, and low volatility keeping systematic strategies invested, near-term risks of a sell-off have abated.”
    Putting this view into a trade recommendation, Kolanovic says that “our equity market upside trades include upside on Small Caps, Financials, Value and diversified tax-beneficiaries basket.”

    This post was published at Zero Hedge on Oct 3, 2017.


  • The Best And Worst Performing Assets In September, Q3 And 2017 YTD

    While September and Q3 were the latest solid month for US risk assets, which ended the month and quarter at all time highs, across the globe returns were relatively more mixed for the sample of assets tracked by Deutsche Bank. That said, a large number of assets (21 of 39 in local currency terms) finished with a total return between -1% and +1% which in part reflects another month of incredibly low volatility with the VIX in particular spending much of it trading between 9.5 and 11.0. In the end, excluding currencies 19 out of 39 assets finished the month with a positive total return in local currency and USD hedged terms.
    As Deutsche Bank’s Jim Reid reports this morning, in terms of the movers and shakers, commodities dominated the top of the German bank’s leaderboard with Wheat (+9%), WTI (+9%) and Brent (+8%) all finishing with a high single digit return. It’s worth noting however that this does follow heavy falls for the price of Wheat and WTI in August. Equities generally had a strong month, particularly in Europe where a slightly weaker euro (-1%) aided local currency returns. The DAX (+6%), FTSE MIB (+5%), Stoxx 600 (+4%), Portugal General (+4%) and IBEX (+1%) all finished firmer – the latter underperforming however reflecting elevated tension around the Catalan referendum. Returns in USD terms were 0% to +6%. It’s worth also noting the return for European Banks (+5% local, +4% USD) which got a boost from the slightly higher rate environment. There were two standout underperformers in equity markets however. The first was the Greek Athex which tumbled -8% in local terms although still remains up an impressive +19% YTD. The other was the FTSE 100 which fell -1% under the weight of a strong month for Sterling (+4%) following the BoE signalling an imminent rate hike as well as some progress around Brexit talks. Indeed in USD terms the FTSE 100 was up +3%.

    This post was published at Zero Hedge on Oct 2, 2017.


  • What Wall Street Thinks Of Trump’s Tax Plan

    Over the weekend, several key aspects of Trump’s tax plan were leaked, including a reduction in the tax rate for the wealthiest Americans to 35% as well as plans to cut the top tax rate for ‘pass through” businesses from 39.6% to 25%. While these would be welcome developments for US corporations, they would be relevant only if confirmed in the coming days as the “fluid” Trump tax plan is formalized and, of course, if it were to pass the Senate, which may very well not happen. As Rafiki Capital’s Steven Englander writes, “the inability to find 50 Republican Senators who can agree on anything and the diminished authority of the tax reform Gang of Six plus the sense that even at this late stage the Six are not on the same page on tax reform versus tax stimulus makes it hard to take the ‘over’ on significant tax reform.”
    As Deutsche Bank also notes over the weekend, “regular legislation would take 60 votes in the Senate and bipartisan support and allow for proper tax reform. However this is seemingly impossible. The reality is that any changes will likely be made through the reconciliation process. However this first requires a budget being passed by Congress which hasn’t been achieved since the Democratic super-majority in 2009-10.”
    Which is why despite the recent surge in market sentiment that Trump’s tax reform is suddenly far more likely, analysts caution investors not to expect too much detail with the release of President Donald Trump’s tax framework this week, let alone passage. As Bloomberg summarizes, the rollout may be designed to show Trump and Congress are unified and committed to aggressive tax reform, Evercore ISI says, while “distractions” (including NFL protests and healthcare repeal) may be helping, as the “Big Six” negotiators stay out of the spotlight, according to Height Securities.

    This post was published at Zero Hedge on Sep 25, 2017.


  • Deutsche Bank: “The Fed’s ‘Transparency’ Killed Long-Term Investing”

    Two weeks ago, one of our favorite derivatives strategists, BofA Barnaby Martin wrote something we have said for years: “QE has been the most effective way for CBs to ‘sell vol’”, arguing that accommodative monetary policies across the globe amid QE have “clearly supported a strong rebound in fixed income markets.” This should not be a surprise: as Martin calculated, there is now some $51 trillion at risk should rates vol spike, not to mention countless housing bubbles that have been created since the financial crisis where the bulk of middle class wealth has been parked, which in turn have trapped central banks, preventing them from undoing nearly a decade of unprecedented monetary largesse that has pumped over $15 trillion in central bank liquidity.

    The BofA strategist showed that every time the Fed embarked on the different phases of its QE program, credit implied vols declined significantly, while during periods of no monetary easing or when the market started pricing the possibility of easing policy removal (tapering tantrum and the subsequent tapering phase) implied vols advanced.

    This post was published at Zero Hedge on Sep 23, 2017.


  • Commerzbank to Merge with French BNP

    According to a the latest spin, the German federal government’s withdrawal from the Commerzbank has left the favored shotgun wedding merger. Commerzbank is the Frankfurt money house which will be merged with the French BNP Paribas. This is being presented as if it were a strong German-French merger which is suggesting that there is a deeper European banking union unfolding. Additionally, they are also going to merge a troubled Italian bank into BNP.
    Behind the curtain, the concern is that Commerzbank could not be merged with Deutsche bank because they have the same portfolios that are in trouble. BNP Paribas is about 10 times the size of Commerzbank. Therefore, the real world view is this is just a shotgun wedding rather than a new German-French merger.

    This post was published at Armstrong Economics on Sep 23, 2017.


  • Broken Velocity: Yellen’s Low Inflation Quandary (Hint: FHFA Home Price Index Growing At 6.62% YoY)

    Here is a brief summary of Fed Chair Janet Yellen’s thoughts from yesterday courtesy of Deutsche Bank’s Peter Hooper: The Fed is on track to raise rates once more this year and three times in 2018. Yellen recognized that inflation has been running low recently, and that while there was some uncertainty around this performance, one-off factors that are not expected to persist, and which have not been associated with the performance of the broader economy, have been important. At the same time, Yellen noted that monetary policy operates with a lag and that labor market tightness will eventually push inflation up.
    Inflation has been running low ‘recently’? Actually, ‘inflation’ (defined as core personal consumption expenditure price growth YoY) has been below 2% since April 2012 and below 3% since July 1992. Notice that hourly wage growth for production and nonsupervisory employees has remained low as well, particularly since 2007.

    This post was published at Wall Street Examiner on September 21, 2017.


  • 21/9/17: Another reminder: Financial Crises are becoming more frequent & more disruptive

    As recently noted by Holger Zschaepitz @Schuldensuehner, new research from Deutsche Bank shows that “Post Bretton Woods (1971-) system vulnerable to crises. Frequency of Financial Crises increased since then. Growth of finance encouraged trend”.

    This post was published at True Economics on Thursday, September 21, 2017.


  • Albert Edwards: “Citizen Rage” Will Soon Be Directed At “Schizophrenic” Central Banks

    Perhaps having grown tired of fighting windmills, it was several weeks since Albert Edwards’ latest rant against central banks. However, we were confident that recent developments out of the Fed and BOE were sure to stir the bearish strategist out of hibernation, and he did not disappoint, lashing out this morning with his latest scathing critique of “monetary schizophrenia”, slamming all central banks but the Fed and Bank of England most of all, who are again “asleep at the wheel, building a most precarious pyramid of prosperity upon the shifting sands of rampant credit growth and illusory housing wealth.”
    Follows pure anger from the SocGen strategist:
    These of all the major central banks were the most culpable in their incompetence and most prepared with disingenuous excuses. And 10 years on, not much has changed. The Fed and BoE are once again presiding over a credit bubble, with the BoE in particular suffering a painful episode of cognitive dissonance in an effort to shift the blame elsewhere. The credit bubble is everyone’s fault but theirs.
    First, some recent context with this handy central bank holdings chart courtesy of Deutsche Bank’s Jim Reid which alone is sufficient to make one’s blood boil.

    This post was published at Zero Hedge on Sep 21, 2017.


  • “So What Did We Learn From Yellen?”: Deutsche, Goldman Explain

    For those still unsure what Yellen’s rambling, disjointed press conference meant yesterday, or are still in shock over the Fed’s admitted confusion by the “mystery” that is inflation, here is a quick recap courtesy of Deutsche Bank and Goldman, explaining what we (probably) learned from the Fed and Yellen yesterday.
    First, here is DB’s Jim Reid:
    So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB’s Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up.
    The complication for markets though is that beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member’s thoughts are meaningless in a few months time and also that Mr Trump’s fiscal plans (or lack of them) have the ability to completely change the debate. So its difficult to read too much into the current FOMC’s forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg’s calculator).

    This post was published at Zero Hedge on Sep 21, 2017.


  • Spot The Moment Inflation Turned Exponential

    In the aftermath of a surreal Janet Yellen press conference, in which the Fed chair admitted that Fed “no longer understands” the “mystery” that is inflation, we did our best to explain to Yellen that the reason why the Fed’s search for inflation has been fruitless, is because for nearly a decade it has been looking in the wrong place: the “real economy” where the Fed’s impact has been negligible, as opposed to “asset prices” where the Fed has unleashed near hyperinflation.
    ***
    Sadly, we doubt the Fed will understand what the above chart means.
    Which of course, is ironic, because it was the Fed’s arrival in 1913 that was the catalyst for inflation to snap and unanchor from 700 years of patterns, and to mutate from gradually upward sloping to spike exponentially over the past 100 years. Furthermore, as Deutsche Bank’s Jim Reid writes, nothing will change, and Inflation remains the most likely outcome “until a new global financial system found.” Incidentally, he adds the latter because even chief credit strategists of major banks have come to the same “tin foil” conclusion we unveiled in 2009, namely that the existing financial and economic (if not social) system is doomed as long as an unconstrained fiat regime, which creates ever greater and greater asset bubbles, remains.

    This post was published at Zero Hedge on Sep 20, 2017.


  • “This Is Where The Next Financial Crisis Will Come From”

    In an extensive, must-read report published on Monday by Deutsche Bank’s Jim Reid, the credit strategist unveiled an extensive analysis of the “Next Financial Crisis”, and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. In our first take on the report yesterday, we showed one key aspect of the “crash” calculus: between bonds and stocks, global asset prices are the most elevated they have ever been.
    ***
    With that baseline in mind, what happens next should be obvious: unless one assumes that the laws of economics and finance are irreparably broken, a deep recession and a market crash are inevitable, especially after the third biggest and second longest central bank-sponsored bull market in history.
    But what will cause it, and when will it happen?
    Needless to say, these are the questions that everyone in capital markets today wants answered. And while nobody can claim to know the right answer, here are some excerpts from what DB’s Jim Reid, one of the best strategists on Wall Street, thinks will take place.

    This post was published at Zero Hedge on Sep 19, 2017.


  • Deutsche Bank: “Global Asset Prices Are The Most Elevated In History”

    In an extensive report published this morning by Deutsche Bank’s Jim Reid, the credit strategist looks at the “Next Financial Crisis”, and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. While we will have much more to say on this study in upcoming posts, we wanted to bring readers’ attention to one observation made by Reid, namely that “we’re in a period of very elevated global asset prices – possibly the most elevated in aggregate through history.”
    Here are the details on what appears to be the biggest asset bubble ever observed, courtesy of Deutsche Bank:
    Figure 57 updates our analysis looking at an equal weighted index of 15 DM government bond and 15 DM equity markets back to 1800. For bonds we simply look at where nominal yields are relative to history and arrange the data in percentiles. So a 100% reading would mean a bond market was at its lowest yield ever and 0% the highest it had ever been. For equities valuations are more challenging to calculate, especially back as far as we want to go. In the 2015 study (‘Scaling the Peaks’) we set out our current methodology but in short we create a long-term proxy for P/E ratios by looking at P/Nominal GDP and then look at the results relative to the long-term trend and again order in percentiles. Nominal GDP data extends back much further through history than earnings data. When we have tracked the two series where the data overlaps we have found it to be an excellent proxy. Not all the data in Figure 57 starts at 1800 but we have substantial history for most of the countries (especially for bonds).

    This post was published at Zero Hedge on Sep 18, 2017.


  • Deutsche Bank: “This Is The $2.5 Trillion Question”

    Next Wednesday, the Fed is widely expected to officially launch its balance sheet reduction or “normalization” process, as a result of which it will gradually taper the amount of bonds its reinvests in the process modestly shrinking the Fed’s balance sheet.
    Very modestly. As shown in the chart below, the Fed’s $4.471 trillion balance sheet will shrink by $10 billion per month in October and November, or about 0.4% of its total AUM. Putting this “shrinkage” in context, over the same time period, the Bank of Japan and the ECB will continue adding new liquidity amounting to more than $400 billion. As a result, in Q4 net global liquidity will increase by “only” $355 billion, should Yellen begin “normalizing” in October following a September taper announcement as expected.

    That much is known, however there are quite a few unknown aspects about the Fed’s upcoming QE unwind, and as a result, Deutsche Bank writes that “the Fed is about to become hugely important for financial assets.”
    Assuming it all goes well, DB forecasts smooth sailing ahead, manifested by “nominal core rates will be relatively stable and the dollar gently weaker. 10s might trade a sustainably lower range 1.8-2.3 percent. There will be more of a gradual risk asset rotation favoring US (growth) equities, EM, some commodities at the expense of (value) equities, Eurostoxx, NKY with credit somewhere in between.”

    This post was published at Zero Hedge on Sep 16, 2017.


  • ‘Things Have Been Going Up For Too Long’

    I have to believe that the Fed injected a large amount of liquidity into the financial system on Sunday evening. The 1.08% jump in the S&P 500, given the fundamental backdrop of economic, financial and geopolitical news should be driving the stock market relentlessly lower. The amount of Treasury debt outstanding spiked up $318 billion to $20.16 trillion. I’m sure the push up in stocks and the smashing of gold were both intentional as a means of leading the public to believe that there’s no problem with the Government’s debt going parabolic.
    Blankfein made the above title comment in reference to all of the global markets at a business conference at the Handlesblatt business conference in Frankfurt, Germany on Wednesday. He also said, ‘When yields on corporate bonds are lower than dividends on stocks – that unnerves me.’ In addition to Blankfein warning about stock and bond markets, Deutsche Bank’s CEO, John Cryan, warned that, ‘We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them.’

    This post was published at Investment Research Dynamics on September 12, 2017.


  • Goldman Slashes Q3 GDP By 30% Due To Hurricane Disaster

    Yesterday, when commenting on the impact of Hurricanes Harvey and Irma, we noted that even before the two devastating storms were set to punish Texas, Florida and the broader economy, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth“), things were turning south for the US economy, which in turn prompted Deutsche Bank to point out that (adjusted) recession risk, at roughly 20%, is now the highest in the past decade, and that it was quite prudent for the Fed, which expects to hike rates at least once more in 2017, to pause its current tightening, especially since a period of both economic and market weakness is imminent.

    This post was published at Zero Hedge on Sep 10, 2017.


  • Deutsche: “Recession Risk Is The Highest In Ten Years; It’s Time For The Fed To Pause Tightening”

    Even before Harvey and Irma were set to punish Texas and Florida, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth”), things were turning south for the US economy, so much so that according to the latest Deutsche Bank model, which looks at economic data that still has to incorporate the Irma/Harvey effects, the risk of a recession starting in the next 12 months is near the highest it has been since the last recession.
    As Deutsche Bank’s Dominic Konstam writes, at first glance, the modeled probability is admittedly low at about 8% as of the end of August (down a touch from near 10% in June), but it has been generally trending higher despite a brief post-election dip. As a result, the bank “sees appeal to buying SPX put spreads and bull flatteners in Eurodollars given the emergence of downside risks.”

    This post was published at Zero Hedge on Sep 9, 2017.