It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
And away we go …
Credits and Debits
Debit: Did you see this? Britain’s socialized medicine program, the National Health Service, is warning that their hospitals are on the verge of collapse. Again.
Credit: Not coincidentally, on this side of the pond, Obamacare’s death spiral is well underway with only 6 of the original 23 “Affordable” Care Act co-op exchanges still in business after Health Republic Insurance of New Jersey announced it was shutting its doors. Forward!
Debit: Speaking of death spirals, financially-shaky Deutsche Bank (DB) saw its stock slump 7.5% on Monday, closing at an all-time low, over concerns that it lacked sufficient capital to survive a $14 billion fine issued by the US Department of Justice for allegedly misleading investors about the quality of mortgage backed securities prior to the Crash of 2008. (Psst … it doesn’t.)
Debit: As the week progressed, DB’s stock continued to struggle; by Wednesday the most systemically dangerous bank in the world had a market cap that was smaller than Twitter. Yes, that Twitter.
Debit: Struggling DB has seen its stock lose half its value since January alone — as a result, a growing number of people are beginning to worry about another financial crisis that would dwarf the one in 2008 precipitated by the failure of Lehman Brothers.
Debit: Needless to say, fear of a potential financial calamity threatened to morph into sheer panic. That, in turn, led to a growing chorus from the financial community calling for the German government to bail out the teetering banking giant and its $42 trillion derivatives book. No, that’s not a typo — it’s trillion, with a “t.”
Credit: Here’s the problem: DB’s balance sheet is about one-half the size of Germany’s GDP, making the bank too big to bailout. And even if it could be bailed out, doing so would destroy the euro. Oh, and since DB’s massive derivatives book connects it to hundreds of other financial entities, unwinding it would unleash a financial armageddon. In other words: Rock … meet hard place.
Debit: But then a miracle happened and by Friday morning things started looking up: The stock market opened up sharply — despite depressed Euro stock markets and S&P futures being down sharply on Thursday evening. Why? Because of a rumor on Twitter — yes, that Twitter — suggesting the DoJ was going to reduce DB’s fine by $9 billion. Or so we were told.
Credit: Wait; it get’s better. By the end of the day, DB was up 14% (!!) and the Dow and S&P gained almost 1%. Hey … Who knew avoiding a global financial disaster would be so easy?
Credit: It’s just too bad the rumor didn’t claim that the DoJ was cutting Deutsche Bank’s fine to just $1 billion — DB’s stock would have probably climbed another 10%.
Debit: The bottom line is that, by the end of the day on Friday, Deutsche Bank’s stock was sharply higher and the stock markets and world financial system backed away from the abyss on a mere rumor that DB will be getting a relatively small fine reduction from the DoJ. Brilliant.
Debit: Meanwhile, gold — which typically thrives as a safe haven during financial turmoil like that seen over the past five days — lost almost 2% this week. Heh. Uh huh. And so the financial market manipulation continues — more brazen and blatant than ever. Until it can’t.
By the Numbers
On Tuesday, SpaceX founder and CEO Elon Musk unveiled the company’s plans for colonizing Mars. Here’s a look at SpaceX’s broader Red Planet plans, by the numbers:
$10,000,000,000 The amount that it would cost per seat to send people to Mars using currently available technology.
$200,000 The amount that it will cost per seat to send people to Mars using technology now being developed by SpaceX.
1,000,000 The number of people SpaceX hopes to transport to Mars over the next 50 to 100 years.
2024 The year in which the first crewed flights to Mars are anticipated to begin.
115 The initial average length, in days, of the trip from Earth to Mars.
100 The minimum number of passengers to be carried aboard each ship to Mars.
12 Number of people who have set foot on a world beyond Earth. All 12 were Apollo astronauts who walked on the moon between 1969 and 1972.
Source: Space
Insider Notes: Why Banks Don’t Care About Inflation
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Last Week’s Poll Results
How old is your primary car?
- More than 10 years old (40%)
- 1 to 3 years old (25%)
- 6 to 10 years old (16%)
- 4 to 6 years old (15%)
- Less than 1 year old (2%)
- I don’t own a car (2%)
More than 1000 Len Penzo dot Com readers responded to last week’s question and it turns out that 2 in 5 drive a primary car that is more than 10 years old. That is in sharp contrast to the 1 in 50 who bought a brand new car in the last year. My current primary vehicle is now pushing 4 years old — and I intend to drive it another six years, at least. I drove my previous primary car for almost 15 years before I finally cracked and bought my current ride.
The Question of the Week
[poll id="131"]
Other Useless News
Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.
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Letters, I Get Letters
Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
From Saul:
Why are you always so negative?
I don’t know — but even my blood type is negative. So I’ll blame that.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Happy Saturday! And thanks for the round-up Len. I’m very happy you dedicated a large portion of this post to the saga in DB this week. There sure were some fireworks. And while the stock bounced back Friday (maybe they’ll ONLY have to pay $5.4B in fines) I don’t think this story is over yet. The CDS spreads for DB paint a terrifying picture and given the size of that derivative book, who knows what could happen!
Agree. The fine is a red herring anyway — DB is financially on the brink even without the impacts of the fine.
Hi Len. I love my weekend Black Coffee!
As usual, I have another question for you. How would Germany bailing out DB destroy the euro?
Up until now, Germany has been dictating to the rest of the EU that bailouts are not acceptable. They have preached bail-ins, where the depositors, rather than taxpayers, eat the losses. As such, they have forced Greece and Cyprus to forgo any sovereign bailouts — and they most recently nixed a bailout trial balloon that Italy set loose as a way to save one of its biggest banks, Monte dei Paschi.
With that in mind, if Germany were to reverse course and bailout Deutsche Bank, it would almost certainly lead to, among other things, the break-up of the EU — and once nations start leaving the EU, the only entity left to back up the euro will be the European Central Bank (which is really just a bureaucracy of politician-bankers). Without sovereign support, the euro will quickly lose all value and the currency will die.
My guess is they will bail them out, but enshroud it in some kind of linguistic double-speak claiming its not a bail out. Like buying up their shares “temporarily” with more printed money… Central banks seem to have no end to their toolbox of monetary “hocus-pocus” tricks. (Simply delaying and intensifying the final outcomes for us all).
Len,
After watching the action with DB this week it’s more evident to me that it’s going to be a very long time before this sharade ends if indeed it ever does. These bankers and politicians have devised a way of propping up everything and keeping the little guy suppressed and enslaved. If they can get by with what they did thus past week it’s hard to see it ever ending. Like you said who knew it was so easy to avoid a world financial crisis.
Signing off disgruntled and ready to surrender!
Jared
Jared: the markets are enormously larger compared to the bankers and central banks that are manipulating the market. When confidence finally breaks, those markets will overwhelm any attempts at manipulation.
This game may run awhile longer, but I’ll be very very surprised if can continue more than a year or two longer.
Looking around, I see signs of cracking confidence everywhere.
I sure would love to see Mars one day. Might be an impossible dream. I’m sure SpaceX will not come near their goal of 1,000,000 but I’m very excited they have that large of a vision