domingo, octubre 16, 2016




Deutsche Bank’s Woes: Will Germany’s Sick Man Infect Global Markets?

Options investors bet that battered stock will keep falling. Bank’s problems include possibility of huge fine from U.S. regulators.

By Steven M. Sears

Co-chairman of Germany's biggest lender Deutsche Bank, John Cryan, at the company's annual shareholders' meeting in May. Photo: Agence France-Presse/Getty Images

Does the black swan speak German?
It’s a question worth pondering, as investors wager that Deutsche Bank might be unable to cure itself of a litany of woes that this year have nearly cut its stock price in half.
The bank’s challenges are immense. They range from restructuring operations and modernizing infrastructure to reducing balance-sheet risk and trying to negotiate a reduction in a U.S. fine that could run as high as $14 billion.
In totality, those challenges are arguably more menacing to the global markets’ stability than the Federal Reserve decision on whether to raise interest rates by a quarter-percentage point, or whether Hillary Clinton or Donald Trump becomes the next U.S. president.
A SMALL RATE HIKE should be easily digestible, even if it would initially disrupt the financial market’s post-crisis high. The American political system has been dysfunctional for so long that the election should be a non-event, especially if Congress remains gridlocked, which would checkmate the White House, regardless of who’s in it. But Deutsche Bank is deeply intertwined with the global capital markets. If it can’t cure itself, it could infect the markets or weaken already wobbly investor confidence.
Those overhangs have many investors viewing the German giant with extreme mistrust. Even though they have humiliated the stock (ticker: DB), they could inflict still more misery on it. From a technical viewpoint, the stock chart seems to be indicating that a new 52-week low is near. Over the past year, the share price, recently around $13, has ranged from $12.43 to $30.82.
“The European Central Bank, through negative interest rates, has essentially made it impossible for Deutsche Bank to make money. And the U.S. government has thrown them a fine” tied to a probe of mortgage-securities “that is essentially greater than their market cap of 14.4 billion euros [$16.4 billion],” one of the Street’s top financial traders says.
John Cryan, the bank’s CEO, has a monumental task. He reportedly explored a merger with Commerzbank(CRZBY), Germany’s second-largest bank, but that led nowhere. Some investors fear Germany’s once mighty No. 1 bank might be forced to raise money, by issuing more stock or taking on debt, to enhance operations. 
“Deutsche Bank has seen among the weakest earnings momentum in the sector, as falling global fee pools and deleveraging have weighed on revenues, and high restructuring and litigation charges have weighed on costs,” John Pease, a Credit Suisse bank analyst, recently told clients.
OPTIONS TRADING PATTERNS show that investors largely are betting that the stock collapses.
The most widely-held positions include some 46,000 January 5 puts, about 34,000 January 13 puts that expire in 2018, and 30,000 January 10 puts. Last week, investors bought January $5 puts that expire in 2018, and December $12 puts.
Of course, it is hard to know if the stock will tumble as sharply as anticipated by the downside puts.
The January 5 puts that expire in 2017 are offered around 10 cents. If the stock falls to $4, they’re worth $1.
Risking 10 cents to make $1 could produce a phenomenal return. Should the stock never trade below $5, the trade will fail, but who cares that much on a 10-cent contract?
Whether you buy Deutsche Bank’s $5-strike puts is perhaps immaterial. What is material is that Deutsche Bank’s difficulties are a reminder, in an uncertain season, that the real risks are usually rarely discussed in the media. Trade it or fade it, but add the German institution’s stock ticker to your trading screen, right next to the VIX.
In short, Deutsche Bank is a tier-one risk factor.

STEVEN SEARS is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.

Greenspan’s Bond Warning Goes Unheeded

The maestro just ain’t what he used to be. Or is he?

Former Federal Reserve Chairman Alan Greenspan warned in a Bloomberg interview on Thursday that yields on the benchmark U.S. Treasury note could rise to 5%. That would mean a paper loss of about 25%, though he didn’t suggest it would occur overnight.

The yield promptly sank to a two-week low. How different it was 20 years ago, when Mr. Greenspan gave his famous “irrational exuberance” speech about technology stocks: The Nasdaq Composite fell 3.4% from its intraday high to the following session’s low.

After that, Mr. Greenspan’s warning was ignored, and the index soared another 280% in a little over three years before sinking nearly 80%. His bond warning may be right eventually, too, but this time it has been ignored from the start.

Doug Casey’s 9 Secrets for Successful Speculation

Editor's note: Today, we have a special essay from International Speculator editor Louis James.

As you may know, Louis is one of the world’s most respected gold stock analysts. He’s visited gold mines all around the world. He understands the geology. And he’s on a first-name basis with some of the industry’s top executives.

But it wasn’t always like this. A little over a decade ago, Louis knew as much about investing as the average Joe…and absolutely nothing about successful speculation. It wasn’t until Casey Research founder Doug Casey took him under his wing that Louis became a global expert.

Today, Louis is going to share 9 priceless investing lessons that he picked up from Doug. This classic essay is a must-read for anyone who owns a gold stock.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying.

When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion.

This may seem like an obvious corollary to the above, but it’s a point well worth stressing on its own.

To be a successful speculator does not require being an emotionless robot, but it does require abiding by reason at times when either fear or euphoria tempt us to veer from our game plans.

When a substantial investment in a speculative pick tanks—for no company-specific reason—the sense of gut-wrenching fear is very real. Panic often causes investors to sell at the very time they should be backing up the truck for more.

Similarly, when a stock is on a tear and friends are congratulating you on what a genius you are, the temptation to remain fully exposed—or even take on more risk in a play that is no longer undervalued—can be irresistible. But to ignore the numbers because of how you feel is extremely risky and leads to realizing unnecessary losses and letting terrific gains slip through your fingers.

Secret #4: Trust your gut.

Trusting a gut feeling sounds contradictory to the above, but it’s really not. The point is not to put feelings over logic, but to listen to what your feelings tell you—particularly about company people you meet and their words in press releases.

“People” is the first of Doug Casey’s famous Eight Ps of Resource Stock Evaluation, and if a CEO comes across like a used-car salesman, that is telling you something. If a press release omits critical numbers or seems to be gilding the lily, that, too, tells you something.

The more experience you accumulate in whatever sector you focus on, the more acute your intuitive “radar” becomes: listen to it. There’s nothing more frustrating than to take a chance on a story that looked good on paper but that your gut was warning you about, and then the investment disappoints. Kicking yourself is bad for your knees.

Secret #5: Assume Bulshytt.

As a speculator, investor, or really anyone who buys anything, you have to assume that everyone in business has an angle. Their interests may coincide with your own, but you can’t assume that.

It’s vital to keep in mind whom you are speaking with and what their interest might be. This applies to even the most honest people in mining, which is such a difficult business, no mine would ever get built if company CEOs put out a press release every time they ran into a problem.

A mine, from exploration to production to reclamation, is a nonstop flow of problems that need solving. But your brokers want to make commissions, your conference organizers want excitement, your bullion dealers want volume, etc. And, yes, your newsletter writers want to eat as well; ask yourself who pays them and whether their interests are aligned with yours or the companies they cover.

(Bulshytt is not a typo, but a reference to Neal Stephenson's brilliant novel, Anathem, which defines the term, briefly, as words, phrases, or even entire books or speeches that are misleading or empty of meaning.)

Secret #6: The trend is your friend.

No one can predict the future, but anyone who applies him- or herself diligently enough can identify trends in the world that will have predictable consequences and outcomes.

If you identify a trend that is real—or that at least has an overwhelming amount of evidence in its favor—it can serve as both compass and chart, keeping you on course regardless of market chaos, irrational investors, and the ever-present flood of bulshytt.

Knowing that you are betting on a trend that makes great sense and is backed by hard data also helps maintain your courage. Remember; prices may fluctuate, but price and value are not the same thing.

If you are right about the trend, it will be your friend. Also, remember that it’s easier to be right about the direction of a trend than its timing.

Secret #7: Only speculate with money you can afford to lose.

This is a logical corollary to the above. If you bet the farm or gamble away your children’s college tuition on risky speculations—and only relatively risky investments have the potential to generate the extraordinary returns that justify speculating in the first place—it will be almost impossible to maintain your cool and discipline when you need it.

As Doug likes to say; it’s better to risk 10% of your capital shooting for 100% gains than to risk 100% of your capital shooting for 10% gains.

Secret #8: Stack the odds in your favor.

Given the risks inherent in speculating for extraordinary gains, you have to stack the odds in your favor. If you can’t, don’t play.

There are several ways to do this, including betting on People with proven track records, buying when market corrections put companies on sale way below any objective valuation, and participating in private placements. The most critical may be to either conduct the due diligence most investors are too busy to be bothered with, or find someone you can trust to do it for you.

Secret #9: You can’t kiss all the girls.

This is one of Doug’s favorite sayings, and though seemingly obvious, it’s one of the main pitfalls for unwary speculators.

When you encounter a fantastic story or a stock going vertical and it feels like it’s getting away from you, it can be very, very difficult to do all the things I mention above. I can tell you from firsthand experience, it’s agonizing to identify a good bet, arrive too late, and see the ship sail off to great fortune—without you.

But if you let that push you into paying too much for your speculative picks, you can wipe out your own gains, even if you’re betting on the right trends.

You can’t kiss all the girls, and it only leads to trouble if you try. Fortunately, the universe of possible speculations is so vast, it simply doesn’t matter if someone else beats you to any particular one; there will always be another to ask for the next dance. Bide your time, and make your move only when all of the above is on your side.