Deutsche Bank could go to $3 a share!

Even in the great market rebound we’ve had over the last 8 years in world-wide markets, Deutsche Bank has never been able to hold onto a meaningful up trend. It’s consistently headed lower over the past 7 years. A matter of fact if you just take into account the banking sector as a whole, you could say that the sector overall has traded in a sideways uptrend. Most bank stocks such as Bank of America and Goldman Sachs have been trending upwards over the past couple of years but have barely broken the highs of 2009 even during the market’s epic bounce back. If Deutsche Bank can’t even follow the trend of it’s sector in a good market and at-least trade sideways to up, then what would happen to it if the market turns lower? This is obviously a leader in one respect, in that it’s the canary in the coal mine market leader for the sector as a whole on the downside.

Deutsche Bank CEO John Cryan stated today September 30th, 2016 that “Raising capital for Deutsche Bank is not a problem.” Maybe John is not watching his stock price and the German law books close enough. Deutsche Bank by law is only allowed to raise 50% of its outstanding shares per year by German Law. That means right now Deutsche Bank is probably strategically thinking about raising capital before the end of the year, so that they could raise capital if need be within 2 – 3 months from now when the calendar year turns 2017. Maybe, come to think of it, this could be the explanation behind the reason why the stock has been trading lower in a panic over the past couple of days to new all time lows.

Lets think about this. If Deutsche Bank has to tap into the equity market whether it be through offerings, or coco bonds, this stock will go to $3. Deutsche Bank is only allowed to raise $8 billion in cash a year which equates to 50% of its outstanding shares currently. That means at it’s current $13 share price, they would need to sell nearly 600 million shares. Ummmmm….. Deutsche Bank only trades an average of 3 million shares a day. If 600 million shares were ever offered, or even 300 million shares, this stock would be trading less than $3 a share. Even if Deutsche Bank thinks it can play smart by only doing half the dilution through an offering and doing the other half by purposely missing coupon payments and triggering the COCO bond holders to convert to equity (which would essentially turn those holders of bonds into stocks) that would cause just as much equity dilution. This is checkmate. There is no way out except through a bailout. On top of all this comes the untimely news 10 hedge fund derivative Clearing firms all located in Frankfurt Germany withdrawing their supposed “Excess cash” all at the same time. Coincidence? I mean, they’re all the closest to the whispers if you know what I mean. Maybe we should all be paying much more attention then.

On the political side, Angela Merkel cannot bail out Deutsche Bank especially during an election year when she is trying to get elected for the 4th time. She cannot side with the bankers at this critical time when actions during election years are scrutinized in fine detail. She has to distance herself at possibly the worst time. Meanwhile President Obama is on his way out in the next month and couple days so he probably won’t even get around to telling the Department of Justice “Don’t agitate the situation further by demanding a $15 billion dollar fine at this moment, can’t you wait till next year?” He won’t have to say that to save political face because he is leaving in a month. He doesn’t care any more than the previous politicians before him. The car is not his anymore. It was just a lease. That is how a lot of our politicians treat their positions of office, especially the president. They only want to do what they think is good for them while they are in the driver’s seat. Once that lease is up or getting close to it, they start to lose the feeling of responsibility.

This is all the worst timing ever and I don’t think the overall public even knows how well this perfect storm has been brewing over the last couple of year. With all the CEO changes, continual attempts to sell divisions within the bank, and now the fleeing of supposed “excess money” from the bank, I think the narrative is starting to make much more sense now. But of course once again I believe that the European Central Bank or the Federal Reserve will somehow step in and be the lender of last resort to Deutsche Bank before politicians even understans the risks involved in letting Deutsche fail. The counter party risks are way too high for not only Deutsche Bank but the whole European and American banking system.

Just remember that this whole recovery is a phony balancing act to drive asset prices high enough so that banks have ample room to justify their debt payments. This is all one big ponzi scheme and sooner or later the affects of the aftershocks of trying to save the patient (the banks) will start to become more prevalent. Whether this is just another scare before the final day of reckoning or the real deal, it’s definitely coming! I think Deutsche Bank has a very high chance of being that new warning signal to the overall public to realize that the mess of 2008 is not yet over and that cash is the best position in times like this. Remember that cash is also a position. It’s safer to be in cash than to short and bet on a crash. I have and will continue raising cash to take advantage of the opportunities that the market’s are about to present. Good luck all. We are living in perilous times for sure. Volatility is around the corner.