A major ‘Sword of Damocles’ overhanging global stockmarkets has been the situation with Deutsche Bank, which has a monumental derivative book and whose stock has been plunging to new lows. We have largely ignored this situation up until now, on the assumption that everyone else will until the SHTF, a strategy that has until now paid off. However, we should keep in mind that this is potentially a very dangerous situation that could dwarf the Lehman debacle and send world markets into a tailspin. That said, however, we have just seen a turnaround on stupendous record volume in DB stock on Friday, which suggests that the crisis is set to ease at least over the short to medium-term, and if so world markets could rally. Mrs Merkel and the German government have been caught in a dilemma over DB – after lecturing Greece and other southern European governments about the virtues of propriety for ages they can’t very well wade in and rescue Deutsche Bank, so it looks like the bailout will have to come from an international consortium of banks, via the simple expedient of printing up another few trillion, which gets more habitual the more times you do it, and there’s always the fallback position of a coordinated international bail-in, although for obvious reasons they are unlikely to resort to this until they have implemented the cashless society. Cyprus was a trial balloon for this. In the meantime various creditors might take pity and engage in debt forgiveness. The movie Wall St 2 with Michael Douglas is recommended viewing for senior management at Deutsche Bank.
Thus it is ironic that at a time when there are a plethora of ‘end of the world’ articles inspired by Deutsche Bank’s troubles, Deutsche Banks’s latest chart shows what looks like a convincing reversal, with a prominent bull hammer appearing last Monday, the 1st sign of a reversal, then a Double Bottom with Monday’s low on Thursday, followed by a big white candle on titanic record volume on Friday. This could be a major bottom here and the bill for bailing out Deutsche Bank can surely be pushed onto either German taxpayers or international taxpayers, or both, in time-honored fashion, perhaps with a special exemption on this occasion for the Greeks, as an exercise in diplomacy.
This post was published at Clive Maund on October 2nd, 2016.
Follow on Twitter
Recent Comments