Is the World About to Experience Lehman Brothers 2.0?
We need to talk about Deutsche Bank (DB).
Deutsche Bank is currently the single largest systemic risk for the global financial system. And it’s about to go bankrupt.
DB shares have been going straight down for the better part of a decade. As I write this, they recently hit new all-time lows below $7 per share.
However, it’s not DB’s stock that’s the problem. It’s DB’s derivatives book.
What is a Derivative?
Investopedia defines a derivative as:
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security. Common underlying instruments include: bonds, commodities, currencies, interest rates, market indexes and stocks.
Futures contracts, forward contracts, options, swaps and warrants are common derivatives. A futures contract, for example, is a derivative because its value is affected by the performance of the underlying contract. Similarly, a stock option is a derivative because its value is “derived” from that of the underlying stock.
In simple terms, a derivative is essentially a bet between two parties about the future price or value of a particular asset.
Originally, derivatives were used as a means of hedging future price risk by individuals or companies who produced goods that experience significant price volatility (think oil, cattle, etc.).
For instance, if a cattle farmer was concerned about the future price he’d get for a herd of cattle when it comes time to slaughter them, he could hedge his risk by buying a derivative that gave him the right to sell his cattle at a particular price, no matter what the market is paying for cattle at slaughter time.
Now there are two types of derivatives:
- Regulated Derivatives: Derivatives that pass through open exchanges allowing for transparency and clear price discovery based on active market buying and selling.
- Unregulated, Over the Counter (OTC) Derivatives: Derivatives that are privately traded between “dealer” banks and are priced based on the dealers’ internal valuation models or whatever they can get away with.
Deutsche Bank’s Derivatives Carry Massive Risk
Deutsche Bank is one of the largest owners of OTC derivatives on the planet. All told, the bank owns $48 TRILLION (with a “T”) worth of these things.
To put this into perspective, that’s 13 TIMES greater than the GDP of Germany, the country in which Deutsche Bank is based.
That means there is considerable risk involved with DB’s derivatives.
I realize this is difficult to follow, so think of it this way: At their peak, the specific derivatives that triggered the 2008 meltdown were roughly 400% of U.S. GDP at the time.
DB’s derivatives are 1,300% of Germany’s GDP. We’re talking more than THREE TIMES the risk!
And DB is slowly careening towards bankruptcy. The bank just laid off 18,000 employees and is attempting to restructure its bad debt into a separate entity.
But don’t let this fool you. Any restructuring plan that doesn’t involve DB’s derivatives book is just idle posturing.
Small wonder then that the European Central Bank (ECB) is frantically attempting to introduce new monetary easing programs. They know that if DB goes bust, Europe’s banking system will implode!
Those investors who are correctly positioned for this have the opportunity to generate literal fortunes.
Imagine being able to time the currency markets to profit from what is about to happen to central banks days in advance?
I’ve spent the last six months developing a trading strategy to do precisely this.
In the last month alone, we’ve seen gains of 67% in two days’ time, 75% in five days’ time, even 100% in four days’ time.
I’ll tell you all about it in the coming weeks, but suffice to say, the opportunity to generate literal fortunes from central bank schemes is here.