Before we get into it, a short story about firefighting because it sets the table for this morning’s outlooks.
Back when he was still alive, I asked my dad “When you go to a fire, when do you make the call for back-up. Like calling a second response to a house fire?”
His explanation was simple: “If you’re not 100% confident your crew can knock it out, you call a 2-11 right then and there. It’s important thing to remember in life: Call for back-up first, then get your hands dirty.”
What the economy is doing is like that.
It’s on fire and few people have a good handle on how “serious this fire is.”
The “seat of the fire” is Deutsche Bank. Its stock was down more than 7% yesterday alone. Fact is, July 17th, the stock was trading as high as $8.04 and closing yesterday at $6.69, that’s a 16.79% drop in less than a month. No telling where it will end.
“ George, this Depression will begin in Europe,” my consigliere reminded me Wednesday. “Yeah, and we’ve been seeing this one coming since the banks “co-CEO” nonsense blew-up a couple of years ago…” I reminded him.
“Ever wonder what a German version of the Lehman debacle would smell like? Well, based on what I’m seeing, seems to me that whatever plans there are been to “massage the Deutsche Bank mess through blew-up on the parties Tuesday. They’ve set aside over a Billion Dollars to cover their derivatives unwinding but that won’t be anywhere near enough.”
Which gets us around to two pie-simple calls we can make.
- Deutsche Bank will have to be bailed by the German government. They simply don’t appear to have enough ready-cash and this is could easily turn into a “Latter Day Herstatt Effect” if global money masters aren’t careful.
For those not remembers, this from Wikipedia will explain:
“(Bankhaus I.D. Herstatt K.G.a.A.) was a privately owned bank in the German city of Cologne. It went bankrupt on 26 June 1974 in a famous incident illustrating settlement risk in international finance. .”
Which gets us to the notion that “saved the day” (and the world from utter economic collapse in 1976: What is continuous settlement and will it always work?
The first answer goes like this: In theory continuous settlement, which was one of the regulatory outcomes of the Herstatt failure in ’76 SHOULD avoid the problem. But, the reality is that it isa plagued by something called “hidden tail risk.”
“According to Raghuram Rajan, a former chief economist of the International Monetary Fund (IMF), “… it may well be that the managers of these firms [investment funds] have figured out the correlations between the various instruments they hold and believe they are hedged. Yet as Chan and others (2005) point out, the lessons of summer 1998 following the default on Russian government debt is that correlations that are zero or negative in normal times can turn overnight to one – a phenomenon they term “phase lock-in”. A hedged position “can become unhedged at the worst times, inflicting substantial losses on those who mistakenly believe they are protected”.
- Bankers to Attempt a Global Hold-Up. We will recall that when the US Bankster Mafia held-up America in the past with:
- AIG costing $18 billion to bail
- LTCM costing $4.6 billion
- and other global banks…
The US Fed was made ready at the (taxpayer-funded) checkbook to spend (in the AIG case) up to $85-billion to ensure the world didn’t blow up. The bankster class is known for its “never let a good crisis go un-monetized” approach to financial engineering.
Now here are some things to ponder: First, since Deutsche is a global bank, it should be apparent that the clever Krauts will try to “spread the pain” to other countries.,
Interestingly, though, this pending crisis may give the US a way to “go for the gold” in this sense:
In January 2013, the German central bank (Deutsche Bundesbank) announced plans to repatriate 300 tonnes of its 1,500 tons of gold from the US and 374 tonnes from France by 2020, in order to have half (1,695.3 tonnes) of its official gold reserves stored in Frankfurt. The gold in the U.S. was earned by West Germany through trade surpluses in the 1950s and 1960s and was never moved out of the United States due to fear of invasion by the Soviet Union. In 2013, a mere 5 tonnes were shipped due to logistical difficulties. However, Germany repatriated 120 t in 2014 (35 tonnes from Paris, 85 t from New York), 210 t in 2015 (110.5 t from Paris and 99.5 t from New York) and 200 t in 2016. “
Should the US play “hardball” and not (as banksters are likely scheming) trying to find some way to shift this mess onto U.S. tax chattel shoulders, there may be some gold left to impound. This could be fun because the US carries its gold at something liker $43 an ounce on its books while the market price is creeping up on $1,550.
- Prediction 3: Gold Will Rise – Eventually. But maybe not yet.
This one takes a little understanding, but goes something like this: When paper assets globally are being set on fire via losses, the most reasonable thing to invest in would be hard assets like precious metals. By this kind of thinking, gold should already be a new highs.
Since it’s not, what gives? Simply: Big Banks play the gold market and since they’re in free-fall (as an asset class, leading stocks down) they are having to unload at any price in order to bulk-up their cash positions. That means a lot of gold is coming in from the hedged players and we’ve never trusted ANY GOLD REPORTS about what’s in whose vault in NYC.
It’s just too easy, when the gold sits in a vault, to have layers and layers of physical abstractions (contracts) piled on top of one-another. This is ludicrous, because it opens the door to the “same gold” being owned by multiple parties. And yet, there’s only “promises” that this isn’t the case.
Imagine, for example, that you owned a house, but there was no deed registration. Ownership was by possession alone. So, what would keep an “ethically-challenged” person (better: a bankster) from selling the singular asset multiple times over?
Cleverly done, the asset could be sold as a “long position” and simultaneously as a “short position.” The Bankster would look at all parties and claim “No harm, since the positions cancel each other out and the underlying asset is still valid.”
Well, yes, and no. Which is exactly how the ethics of financial engineering work. They’re wrapped up in a thin veneer of honesty. And then folks feel their ankles.
This morning, the Germany DAXI was down 1.2% but in the early pre-open slog, the US decline seemed to be slowing as WalMart did better than expected taking on Amazon in the eCommerce realm. Bentonville versus the Starbucks crowd, we’re thinking. A concilliatory headline in China helped.
- More Downside is likely Ahead, regardless .
Several reasons for this outlook, but let’s begin with our 1929 replay comparison chart:
I need to mention that red double-headed arrow in the middle of the chart shows the odd line-up between the 12/13/1928 market low and the 12/24/2018 lows, a/k/a/ the Christmas Eve slaughter.
We won’t make any predictions on which way this will turn out, but a serious bounce as a II (after a 1 down after the high at V) would be an interesting play to be sure.
Mr. Cowardly has been in cash so we haven’t been hurt by taking the popcorn and beer approach, so far.
Just out from Census:
“Advance estimates of U.S. retail and food services sales for July 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $523.5 billion, an increase of 0.7 percent (±0.5 percent) from the previous month, and 3.4 percent (±0.7 percent) above July 2018. Total sales for the May 2019 through July 2019 period were up 3.3 percent (±0.5 percent) from the same period a year ago. The May 2019 to June 2019 percent change was revised from up 0.4 percent (±0.5 percent)* to up 0.3 percent (±0.1 percent).
Retail trade sales were up 0.6 percent (±0.5 percent) from June 2019, and 3.4 percent (±0.7 percent) above last year. Nonstore retailers were up 16.0 percent (±1.4 percent) from July 2018, miscellaneous stores were up 6.0 percent (±4.6 percent) from last year…”
Which is what flipped the Dow positive.
Worth Knowing About
Border War is coming? As “San Antonio ICE office: Shots fired at ERO field office in Texas.” So far, this is being blamed (by lefties) on Trump and by the right on Idiot Cortext and the Squad. We see the other shootings Like the one last month up in Tacoma, WA where a “Man Attacking ICE Detention Center Is Fatally Shot by the Police.” And the “domestic” case outside the Houston ICE offices in June.
Hand-wringing continues with stories like ICE raids devastate families in Mississippi. Another hand to wring? Advocates say “Remain in Mexico” turns migrants into “marketable commodity”.
Want to remind us where the line between gurerilla action and randomness is drawn?
And, like this is a surprise: Autopsy Raises Questions Around Jeffrey Epstein’s Jail Cell Death.
Woo-Woo: Who’s “Keck”?
As you know, I’ve written whole books about how some people (like me) live pretty-interesting “second lives” in our dream worlds and sometimes these bring hints of the future.
So in the one this morning (*waking time 3:11 AM and couldn’t get back to sleep) I was in an office full of lawyers. It was a big firm and I was a kind of journeyman litigator. I wasn’t sure what was going on, exactly, but there were about six other attorneys standing around (to my left) and they were drinking coffee and arguing about some yet-to-be revealed legal action.
While this was going on, I noticed a woman (paralegal or lawyer) who was to the middle right foreground and she sat down at a desk and was going to call a pal who was one of the attorneys general under William Barr. Might have been a classmate of Barr’s that went on to a judgship, of something.
Anyway, as she dialed, I remember thinking she would either be talking to William Barr, or this “judgely fellow” who I expected her to address as “Your Honor” or some other prestigious title.
“ Hi Keck, it’s me. Anything new on it yet?”
No idea where this snip was coming from, other than it was a dream. But whoever “Keck” is, the name should show up around lawyers shortly, if this was a dream with any precognitive value.
One other oddity: As I woke and thought about it for a few minutes while laying in bed, there was a very clear sense that I’d come back to the “waking state” have left the door open to go back into the dream. Which I did, but there wasn’t anything else going on, so I decided to stay on this side (the waking state) so I got up at 4:15, or so, made coffee and fed the cat…
One other Woo-Woo note: I forget if it was on Urban or Peoplenomics, but I reported on a dream not too far back about an upcoming casino robbery. Well, what do you know, that horse came in!
“Florida Casino Robbed of More than $5 Million.” If you happen to remember when I posted that, could you post a comment, since I can’t remember this early in the day, thanks.
OK, off to putter and putz...moron the morrow…