Everything that I blogged about last night appeared on the financial markets’ radar screens today. The non-issue of Deutsche Bank suddenly became an issue as investors became worried about the collateral that they were holding at Deutsche Bank. It was not “locusts” that caused the market to become concerned about Deutsche’s solvency but rather depositors and prime brokerage accounts that feared for their capital. Compounding the DB story was the rise of the price to hedge against a Deutsche Bank default, as well as the infamous COCO bonds that many European banks issued in an effort to enhance their capital ratios in deference to the Basel rules. You could purchase some of the Deutsche COCOs today for an effective yield of 12.7% but if the COCO bondholders are bailed-in, the COCOs will cease paying interest and the DEBT will be automatically converted to equity, thus further diluting existing shareholders.
Posts Tagged ‘Germay’
Notes From Underground REISSUE: January 11, 2016
September 29, 2016Notes From Underground: Come In, She Said, I will Give You Shelter From The Storm (Bob Dylan)
February 16, 2016It seems that Janet Yellen and Angela Merkel are both under attack for offering to provide shelter. Yellen, for offering to shelter investors, and Chancellor Merkel refugees from war-torn countries. Chair Yellen has sparked a heated discussion about the possibility of negative rates in the U.S. as the Fed tries, yet again, to provide a calm port for debtors being tossed about by the lack of any inflation to relieve the burdens of too much debt. Nothing like a good currency debasement to ease the pressure of debt on a society’s balance sheets. The longer the central banks repress savers without igniting the flames of inflation the more detrimental the ZIRP and possibly NIRP (negative interest rate policy). If savers are receiving nothing on their earnings and inflation is not providing debt relief, the entire financial system seems to stagnate and that is apparently what is happening worldwide. This is the ultimate liquidity trap and the fear of central banks having no answers is at the top of the list of investor concerns. I warned about this possible outcome for many years and now it seems the possibility is becoming reality.