The signs are everywhere - if you choose to look - Europe's banking system is collapsing (no matter what Draghi has to offer). From record lows in Deutsche Bank and Credit Suisse to spiking default risk in Monte Paschi, the panic in Europe's funding markets (basis swaps collapsing) is palpable.
Two former Deutsche Bank corporate brokers have been sentenced to one of the longest prison terms possible for the crime of insider trading in the UK. As US financial market participants walk free in the streets managing their own "home office" money, Martyn Dodgson and Andrew Hind will be rotting in a Wandsworth prison cell (among the worst reputed of England's prisons) for up to four and half years for what the judge called "persistent, prolonged and deliberately dishonest behavior."As Bloomberg reports, the group, including three other defendants, formed part of the FCA’s biggest insider-trading investigation dubbed Operation Tabernula.
Deustche Bank stock is ripping 10% higher after confirming old news that it will undertake a modest debt buyback of $2 billion and €3 billion (not including the CoCos). Have no fear though as Wolfgang Schaeuble proclaimed Deutsche Bank is a "strong bank" that ios "resilient" and "well positioned."
Oil prices around USD 30/bbl mean that an increasingly significant volume of future oil projects no longer make sense. Although Deutsche Bank does not expect US crude inventories to reach capacity, rising US inventories and high US crude imports may heighten downside pressures to push prices closer to marginal cash costs of USD 7-17/bbl for US tight oil, with few plausible scenarios for a strong price recovery in the short term,
Another day, another fresh all-time record low in The Baltic Dry Index as Deutsche Bank's "perfect storm" appears ever closer on the horizon. Plunging 4.7% overnight to 445 points, this is 20% lower than the previous record low in 1986 and as one strategist warns, "It’s a brutal start of the year, there’s just nowhere to hide on the market."
Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that The Baltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a "perfect storm" is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies.
"... if nominal growth is 3 percent and the debt GDP ratio is 300 percent, the implied equilibrium nominal rates is around 1 percent. This is because at 1% rates, 100% of GDP growth is necessary to service interest costs."
Late last week, after looking at Valeant soaring default risk as measured by the price of its blowing out CDS, soaring to over 30% even as its stock prices was surging, we wondered - does someone know something? It appears someone may have known that this weekend, the same Andrew Pollack whose NYT article exposing Turing's 5000% price increase resulted in Hillary Clinton promising to cap specialty biotech prices if elected, has come back for round two and after taking aim at Shkreli and Turing, much to the chagrin of Bill Ackman, Pollack is now taking aim at the biggest culprit: Valeant Pharmaceutcals.
"A 'policy error' rate hike might well result in positive correlations among equities, commodities and bonds, due to a combination of risk off and higher rates. In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar. This would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike."
China has just cornered the Fed: not just diplomatically, as observed when China's PBOC clearly demanded that Yellen's Fed not start a rate hiking cycle, but also mechanistically, as can be seen by the acute and sudden selloff across all asset classes in the past 3 weeks. Now Yellen has about 365 days or so to find a solution, one which works not only for the US, but also does not leave China a smoldering rubble of three concurrently burst bubbles. Good luck.
Two short weeks ago, Deutsche Bank's cross-asset-class research group suggested "caution" in markets as their "seven signs" signals were flashing red. Today, there are now 13 'cautionary' indicators - up from the 10 previously as the red caution flag just got red-er...