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Published On: Tue, Apr 12th, 2016

Is The Fed Preparing For The Next Financial Earthquake To Hit? – Dave Kranzler

jannet yellenTND Guest Contributor:  Dave Kranzler

The Fed announced a series of three “expedited procedure, closed” meetings Monday thru Wednesday this week:  FRB Board Meetings.  The Monday meeting was allegedly “a review and determination by the Board of Governors” of the advance and discount rates charged by the Fed.   This is somewhat an absurd waste of time as both of those bank funding mechanisms have become antiquated and rarely used.  The discount window collects dust until a specific bank’s credit profile has collapsed to an extent that prevents it from accessing the interbank-lending market.  It’s seen as an act of desperation.  It’s doubtful that the meeting was convened to discuss the discount rate.

The announced subject matter of the two subsequent meetings are perhaps of more interest:  “bank supervisory matter” (Tuesday) and “periodic briefing and discussion on financial markets, institutions, and infrastructure” (Wednesday).

I find the latter two topics in the context of the fact that it appears that the European banking system – to which the U.S. Too Big To Fail Banks are inextricably tied – appears to be melting down.

For me the “tell tale” for the western financial system is Deutsche Bank.  Deutsche Bank has emerged as a “rogue” bank of sorts that had taken on a catastrophic amount ofreckless credit market risks.  Nothwithstanding its literal financial nuclear portfolio of derivatives, DB thrust its balance sheet into every sector of the global economic system that has been melting down over the past 12-24 months including energy, commodities, “Club Med” European banks and junk bonds.  It also began to choke to death on bank debt loans to companies like Glencore and Volkswagen.

db - lehman

The trading action in DB’s stock price has been unable to mask the underlying melt-down going on at the Company:


db - april 12 - 2016

As you can see, DB’s stock price has been significantly underperforming the BKX bank financial index since mid-July. Coincidentally, or perhaps not coincidentally, the S&P 500 suffered an 11% drop in mid-August.

Bloomberg News released a report about three weeks that surprisingly received little to no commentary in the alternative media world. It was reported that Goldman and JP Morgan were in discussions to buy $1.1 gross “notional” amount of DB’s distressed credit default swaps (LINK). That in and of itself was not necessarily interesting, but the article reported that DB had already sold off two-thirds of its distressed CDS swap book to since October 2015 to Citicorp. The CDS securities were “single-name” direct (not cleared thru DTC) OTC derivatives, meaning they are of the riskiest, most unregulated and most toxic variety.

If you notice on the graph above, around the time that DB was engaged in selling some of its toxic waste to Citi in October, the stock began take a dive and it began to diverge negatively from the rest of the big bank stocks.

I would suggest, and have been suggesting, that there’s been a series of mini-melt downs that have been occurring in the western financial system since late last summer.  I also have written analysis which has connected these melt-downs to Deutsche Bank and has connected the “stick saves” in the markets to the Fed.

I’m suggesting here that the Fed is behind the Citi, Goldman and JP Morgan CDS transactions with Deutsche Bank as means of preventing DB’s collapse.  After all, the TBTF fail banks in the U.S. are catastrophically tied to Deutsche Bank – and  the entire European financial system – via derivatives.

Last week Deutsche Bank’s stock began to sell-off hard again.  On Monday and Tuesday DB’s stock dropped 6.6% and was down as much as 9%, significantly underperforming its peers.

It’s my view that the Fed has been conducting an ongoing de facto bailout of Deutsche Bank since mid-summer, using the balance sheets of Citi, Goldman and JP Morgan as its proxies.  In the context of the behavior of DB’s stock recently, and in the contex of what is now blatant market intervention in the stock market by the Fed, and in the context of the news of the bank bail-in Austria plus the collapsing Italian banks,  I would suggest that “expedited rule, closed door” meetings held by the Fed this were convened in order to discuss the a western financial system which is obviously beginning collapse again.

I would also suggest that the Fed is inching closer to implementing more drastic monetary easing policy measures, which could include taking short rates negative and will likely include more money printing – either overt or cleverly disguised.

This is why gold and the mining stocks have been somewhat “melting up” despite the recent flood of anti-gold propaganda pouring from Wall Street and the mainstream media. It is likely that the “melt-up” in the precious metals space has a lot more “melting up” to do…

I’m finishing up my work on the mining stock that will be presented in the next issue of the Mining Stock Journal (released Thursday).  This is an undiscovered Company that trades under 50 cents and it worth several times it’s current market cap just on its royalty properties.  Oh by the way, it’s in the midst of drilling what appears to be a massive copper/gold porphyry in an area that has been previously ignored.  Click here to access the Mining Stock Journal.

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About Dave Kranzler:

Aspen1-dave I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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  1. BRF says:

    We would all do well to remember that in essence what we are dealing with is a one world bank with branch operations that try to dominate their local market using different corporate names in those localities. CITI group taking on DB’s troubled assets is because the parent corporation is trying to save one of their branch operations.

  2. Eric Dubin says:

    The “one world bank” thesis is an over-statement based on a hyper reading of interlocking corporate directorships (at least, if you’re talking about the same thesis that Jeff Nielson writes about – and yes, I’ve read the studies he references). While there is indeed directorship overlap and collective interests that are facilitated, coordinated and served by relationships and the interface to the Bank of International Settlements, major central banks, and cross-fertilization and control that comes from large share holders owning large positions in multiple banks as well, the thesis of a “one world bank” is an over-statement. There is no “one world bank” level of integration. The more accurate model would be to say there are amalgamations of power, and each amalgamation pretty much has the EXACT SAME set of interests as all the other bank amalgamations within the global Western financial system. So, even when the Goldman Sachs amalgamation (which includes GS and more, but not a “one world bank”) has corporate directors and executives that also serve as directors with other banks, and even though it takes marching orders from the BIS, it is NOT the case that the interlinking of Goldman Sachs executives and directors move beyond Goldman Sachs and touch all other major banks/amalgamations. Many of them having GS minions, of course. But again, this whole “one world bank” thesis based on interlocking corporate directorships is an over-statement.

    There is no “one world bank default reality” driven by interlocking corporate directorships. There is, however, a Western banking industry and oligarchy that acts within a system that is set-up in a way that, even though there are not total interlocking corporate directorships across the whole industry, the net result of how the Western global financial system is set-up and operates can give the appearance of a “one world bank default reality.”

    Jeff Nielsen, of late, has been the most vocal advocate of this “one world bank” theory and he’s over-stating the case. (Note, I didn’t say he’s 100% wrong; reality, however, is more nuanced)