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A Tragedy — But Not A Catastrophe

Thursday, May 23, 2019 19:17

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“A Tragedy — But Not A Catastrophe”

by Brian Maher

“We begin with a question: What is the difference between a tragedy and a catastrophe? Answer shortly… and why it matters so heavily. But first to a farce — Wall Street. The Dow Jones sank another 286 points today. It had plunged over 400 at one point. The S&P shed 34 points on the day. But technology stocks absorbed the worst of the slating. The Nasdaq lost 123 points — more, percentage-wise than the Dow Jones.

To explain today’s violent shakes, once again we look to trade. The United States recently banned American firms from transacting with Chinese telecommunications giant Huawei. Now Chinese officials suggest — forcefully — that negotiations cannot proceed unless Washington lifts the ban.

According to a spokesman for China’s Ministry of Commerce: “If the U.S. would like to continue to talk, it should show its sincerity and correct its wrong actions. Only on the basis of equality and mutual respect can the talks be continued. China urges the U.S. to stop the wrongdoings to avoid the further impact on the China-U.S. trade relations. China will take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.”

And so the thick skulls on Wall Street may finally accept the reality of trade war. So says Art Hogan, managing director and chief market strategist at National Securities: “The previous tariffs hit farmers, some manufacturers. This would hit everybody. If in fact we’re heading toward full-scale, mutually destructive trade war, the market has not yet priced that in. This could well be just the start of the move.” It may yet.

But we return now to the topic of tragedy… and catastrophe. Deutsche Bank has come in for hard sledding of late. Its latest scandal springs from a Sunday report in The New York Times. The paper of record implicated that Deutsche Bank transacted illicitly with Donald Trump. Relatedly, President Trump sued the bank last month to halt it from answering pertinent congressional subpoenas. UBS lowered Deutsche Bank stock from a “neutral” rating to “sell” earlier this week. And the bank’s stock plunged nearly 3% on Monday.

Last year, former Goldman Sachs man and financial cycle expert Charles Nenner issued the following claim: If Deutsche Bank stock slipped beneath $8 a share… “You should be worried.” Today it trades at $7.22. But Nenner presently warns it is nearing the point at which “the world is in trouble.” What is that point precisely? $6.40. Mr. Nenner: “If it breaks below $6.40, it can go out of business. So it’s a very serious situation. If it gets below $6.40, the world is in trouble. That is because $0 is the stock’s likely destination once it sinks beneath $6.40.”

And as the head bone is connected to the neck bone is connected to the shoulder bone is connected to the back bone… Deutsche Bank is deeply interconnected with the world’s banks through complex derivatives. Derivatives are financial products that derive their value from underlying assets or indexes. Mortgage-backed securities are derivatives — for example. It was these derivatives that nearly collapsed the very walls of Jericho in 2008.

Today’s derivatives market vastly exceeds 2008’s. ($2.4 QUADRILLION by best estimate – CP). And Deutsche Bank is loaded to the gunwales with them. Reports the salmon-colored rag — The Financial Times: “Although some progress has been made in cleaning up the bank’s balance sheet, it still has derivatives exposure of more than €300bn.” 300 billion euros equals more than 335 billion dollars. The IMF has in fact labeled Deutsche Bank the “most systemically dangerous bank” in all the world. If Deutsche Bank tips over, many banks may go right along with it.

Again… Nenner: “It is a very dangerous situation. I don’t think DB is the only one. They just got caught. I think if you look at the balance sheets very closely of other banks, especially European and Italian banks, you will see a lot of troubling signs also. I don’t think it’s only Deutsche Bank. It’s much more…

If it breaks $6.40, the downside price target is zero. If everybody watches my analysis and it does go below $6.40, everybody is going to run for the exits. If they have to close their derivatives, who knows which bank is going to lose how much? It’s going to be a big problem.” We shall see. We shall see. Meantime, we’ll be keeping a weather eye on $6.40. If Deutsche Bank crosses the potentially fatal line, be assured we will raise a yell.

And so… what is the difference between a tragedy and a catastrophe? “A tragedy is a ship full of bankers sinking. But a catastrophe is when they can swim.” Deutsche Bank may soon raise the curtain on a tragedy. But not a catastrophe…”

- http://www.thedailyreckoning/.com

Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/05/a-tragedy-but-not-catastrophe.html

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