Deutsche Bank's 10 Reasons Why The Market Is Going Lower

Tyler Durden's picture

Blink and you missed it. With stocks surging back to green and CNBC celebrating, one could be forgiven (were on a goldfish) for believing everything is truly awesome again. However, as Deutsche Bank details, there are ten good reasons why this is far from over...


As Deutsche's David Bianco explains, here are 10 reasons why the S&P likely dips 5-10% or possibly more before any sustained recovery...

1. Poor S&P 500 sales and EPS growth, even ex. Energy

Amid low commodity prices, the stronger dollar, weak investment spending, weak exports and slower foreign markets, S&P sales growth has been poor, even ex. Energy


2. Demanding valuations vs. history, especially ex. big Banks and Tech


3. Plunge in commodity prices has taken another significant down leg


4. Strong dollar with further upside likely even upon modest Fed hikes


5. Subpar US growth trends with weak productivity and investment


6. US and DM acceleration unlikely to offset slowdown in China and EM


7. Record high S&P margins, approaching record years of EPS growth

The GAAP/non-GAAP S&P EPS ratio deteriorated from 94% during 1Q13-3Q14 to 78% the past 3 quarters. Loss on asset sales, asset/ goodwill impairments and restructuring costs lowered the ratio significantly at Energy, Industrials & Materials. Higher M&A costs and excluded stock compensation dragged the ratio lower at Tech, Staples & Healthcare. Pension losses lowered the 4Q ratio too. The S&P avoided down EPS in 1H15, up ~2% y/y on non-GAAP EPS, but the GAAP EPS declined by 13% y/y. We have always argued that the best EPS measure lies somewhere between GAAP and non-GAAP EPS.


8. 3.5+ years since the last correction, no 5%+ dip yet in 2015

10% corrections happen about once every 2 years. Although it has been 978 trading days (as of August 20, 2015), i.e. 3.88 years since last correction, the last -19.4% correction on Oct 2011 was severe, and the Apr-Jun 2012 sell-off (9.94%) was just shy of 10%.
There were several multi-year periods without a 10%+ correction: Oct 57 – Jan 60, Jul 62 – Jan 66, Aug 84 – Jul 87, Nov 90 – Sep 97, and most recently Apr 03 – Sep 07.


9. Fed hikes loom on tightening job market despite slow GDP/ low CPI


10. No sign of baton pass to investor equity demand as buybacks plateau


*  *  *

Ironically, as stocks rebound (on AAPL and hopes of a delayed rate hike) the reflexive bounce actually increases the chance of earlier rate hikes. As Bianco concludes, Sept Fed hike still likely if S&P > 2000, but perhaps one and done for 2015

Our near-term expectation for a 5-10% dip is in part because we think the Fed hikes despite slow growth.


The Fed not hiking might reduce S&P downside risk this autumn, but we think it would equally limit upside potential until a hike occurs. We think the best scenario for the S&P over the next 6-12 month period is the Fed hiking sooner rather than later, while communicating a likely FF rate path of not exceeding 1% in 2016 and not above 2% in 2017.

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JustObserving's picture

11. Deutsche Bank's $55 trillion in derivative exposure that is about to blow up

Headbanger's picture

12)  Headbanger says so


Bar tender... Another round of fresh glue for the boys...

And a JD chaser please..

KnuckleDragger-X's picture

The road goes on forever and the party never ends, so smoke'em if you got'em and drink up cause the whores will be here soon.......

Headbanger's picture

Oh good!

I just hope they shaved their legs this time..

Bar tender.... I uhhh... need... 

NoVa's picture

S&P is turning back down.  Now that they lured all the sheeple back in (Come on - the water's FINE - no sharks here), time to continue the natural down slide.

detached.amusement's picture

actually m'aam, I'm just a dolphin...



actually forget it, at this point they're just knocking on the door and saying "land shark"

Al Tinfoil's picture

It is soooo boring when someone starts citing fundamental facts.   As we saw today (so far today, anyway), fundamentals do not matter as long as:

1. The PPT and BTFDers ride over the hill in time to save the day;  

2. Tim Cook's email service continues to operate; 

3. Jim Cramer remains America's most trusted stock market adviser; 

4. The economic and market meltdowns in China, the meltdown in international trade volume, the Greek/PIIGS debt mess, the low price of commodities, high unemployment, the disappearance of the middle class, bank bail-ins, and debt levels everywhere do not matter; 

5. Aunt Janet does not raise interest rates; 

6. QE and ZIRP to infinity remain a real possibility; and

7. The algos continue to operate the markets.


hxc's picture

"Grandma Yellen" is a better moniker imo. Cracks me up lol.

rejected's picture

Lot's of graphs and technical stuff when all you need to know is....


Gee,,, investing has never been so easy!

Victor E. Overbanks's picture
Victor E. Overbanks (not verified) Aug 24, 2015 12:37 PM



Old Yeller's 2 Reasons Why The Market Is Going Higher

  • DEEZ
  • NUTZ
asteroids's picture

Close to 2000 DOW points in 4 hours. Un-fucking believable. I wonder who blew up today and will margin clerks be busy at 2pm.

Iudaea Delenda Est's picture
Iudaea Delenda Est (not verified) Aug 24, 2015 12:30 PM

first time/long time

a bit ot, not to troll, but I think this should be ok as minor threadjack. ZH got a mention on Krugmans column:

Máire Ni Faodhagáin NYC 40 minutes ago

The reason you're wrong, Dr. Krugman

Is that in a system where banks print our money as a loan at interest, and otherwise have access to very cheap money - deficit spending acts as a transfer of wealth from workers and productive labor to banks and capital.

The rich get richer because they have more capital in the first place.

The banks get richer because they get far more in interest from loans than anyone can get from savings or, for the most part, on investments.

You want to spend yet more?

How about ending the Fed and giving the power to print the public currency back to the US government - **without debt** attached to it upon issuance?

Otherwise, it appears to me that you are most interested in enriching the large banks.

Reply 1Recommended

Kurt CA 5 minutes ago

In answer to your questions:

1. Yes, we should spend more. We have crumbling infrastructure and infrastructure that needs to be built. We have seen all sectors recover but Government and Construction. This is a no brainer. We can borrow for nothing, and should spend in ways that support business competition and improve infrastructure.

2. Because of people like you. You are dumb enough to think that ZeroHedge is a good way to learn about anything at all (it isn't, almost everything on that website is poorly researched or filled with egregious logical errors), so clearly you haven't thought about what would happen if decisions about the size of available currency were decided by the very wealthy that seem to have all the power and are the only people listened to in the nation's Capitol. Does monetary policy inflate assett prices? Of course it does! Is this a bad thing in the face of a depression? Of course it isn't! It helps prevent liquidation which would contribute to a deflationary spiral.

LawsofPhysics's picture

Well I don't know about Mr. Krugman, but before I ever spend anything, I need to have true price discovery. Otherwise you can fuck right the hell off.

But then I am a simple farmer, what do I know about eCONomics. Disgusting social science IMO.

Shad_ow's picture

If we had price discovery in the markets we would see what a real crah was.  Wouldn't that be fun?

Kayman's picture

If we had interest rates set in the free market we wouldn't be subsidizing free-loaders on the backs of productive individuals.

Capitalists ? Hell no. Communists with a good PR department.

FreedomGuy's picture

Krugman believes you really can change lead into gold.

DeProgrammed's picture

"so clearly you haven't thought about what would happen if decisions about the size of available currency were decided by the very wealthy that seem to have all the power and are the only people listened to in the nation's Capitol."

Ummm, isn't that exactly what is happening?

Question Reality's picture

Yep... Once again he demonstrates he has exactly NO comprehension about the basics of our economy or government.


My 5yo understands things better than he does and he can't even read yet. Then again with our manipulated media, perhaps that is exactly why he understands things better.

Down to Earth Thinking's picture

So he admits we are in the face of a depression ? kinda says it all right there without all the fluff and double speak ka ka !


We are only seeing things play out exactly as predicted. But the outlier events will be the real deal to speed it all up and gain momentum. Look around the world in places like China and how many of those outlier events are in place or potential fuel for the fire ? A snow ball is forming rather quickly and approaching a steeper slope. 

Next move by TPTB perhaps more QE and very small rate hike at the same time ! Fact is QE never stopped 


LawsofPhysics's picture

Markets?!?!? Very funny, now about those trillion dollar derivative positions....

Got cash and PMs?

Dr. Engali's picture

11) There is no market.

NoVa's picture

12) his mother and sister-in-law make $78 per hour working from home, part-time in their pajamas on their laptops!


xcehn's picture

They won't be able to insulate the us casinos from global realities. China's tsunami will break the dyke.

Greater Fool's picture

Ha it's going to take more than multi-billion-dollar global selling to pop this self-inflating sex doll of an equity market.

adr's picture

Why not just have the Fed buy a certain amount of the market every day. Guarantee that Apple and Netflix will rise 20% every month and be done with it. Let people know how much money they are going to make and plan for it.

What? There's supposed to be the illusion that there is a function of true price discovery and you can't just have stocks go up for no reason?

Man, could have fooled me. I thought that is what was going on. All the real data shows Apple is getting its ass handed to it, but Tim Cook says things are going fine and the stock surges. Because what would the motivation be for Tim Cook to lie?

Kayman's picture

"Why not just have the Fed buy a certain amount of the market every day."  They already do that.

But why not have the Fed buy up every share ever issued and stop calling this free market capitalism.  If the Fed has to step in every time little billy sees a shadow or dribbles a little bit in his pants, then we will never get market clearing in anything. Just boom and bust only exponentially larger.

Son of Captain Nemo's picture

So we knew after multiple halts this morning that this was probably going to culminate in a slide of 1,000 to the upside which it did.

Make no mistake this time is different and we've already been warned too many times to count!

SSRI Junkie's picture

but we have the ppt deathmobile, guaranteed to piss on any parade

zenon's picture

10 good reasons all balanced against ONE: the Fed could buy the ass off of this market anytime it decides.

detached.amusement's picture

you mean tentacles of the one bank, but your generally in the right direction

Crocodile's picture

Print more and buy more till there is no more. - Old Yeller

dobermangang's picture

People have no disposable income and lots of debt.  Thanks Obamacare!

"Nearly 7 million Americans have gone at least a year without making a payment on their federal student loans, a high level of default that suggests a widening swath of households are unable or unwilling to pay back their school debt."

I Write Code's picture

Reasons?  We don't need no stinking reasons!

Crocodile's picture

We won't have to worry about 2017; just remove that from the picture altogether.  Look, everything is globally slowing down and we are just now seeing the "grand effect".  The Tsunami's first wave hit the world last Thursday and Friday and today the second and larger wave hit, but he "Central Banks" intervened.  The waves get larger until the whole thing is swept away; I'm not convinced we can make it through Q1 2016 after the upcoming dismal Christmas season and double digit increase in Obamacare; these will only add to an already bad problems.


The FED be damned if they raise interest rates (if you call .25% a raise) and be damned if they do not.  Read Revelation 14 & then 16; it talks about a world economic collapse that is coming and as we move forward chronologically the generalities are becoming detailed or clearer. 

fishwharf's picture

The world has experienced economic collapse a number of times since the Book of Revelations was written late in the first century A.D.  This time is not that different.

The apocalyptic passages in Revelations and similar ancient texts are better understood after reading Immanuel Velikovsky's book, Worlds in Collision. 

Crocodile's picture

Must be nice to be on the inside overnight and set your positions knowing that you will make a killing by literally stealing, but the Lord notes it all & in the end no one escapes unnoticed or guiltless.

Kayman's picture

If there really was a god there wouldn't be fractional reserve banking. Lending money you never earned and never had, at interest, over and over again. I think that falls under, "thou shalt not steal."

earleflorida's picture


If 'I' can produce an exact replica of the iPhone [usa/taiwan] Galaxy [s. korea/qualcomm/idcc]  for approx. 66%  less in China with pretty much all the 'bells & whistles' and reliability with a infrastructure to match...[?]

Who ya gonna call...

gmak's picture

11. Our prop desk, JPM's and the squid's prop desks are net short now and closing out any remaining longs, dumping them on the muppets.

Fluidityinglass's picture


Links or copies of the rest of the slides please.