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Deutsche Bank economists say the Federal Reserve will create more inflation in 2024.

OK, that’s not exactly what they said. But that is the implication of their latest forecast.

The Deutsche Bank analyst forecast that the Fed will cut rates by 175 basis points in 2024 in response to a “mild” recession. That would drive the Federal Reserve funds rate down to between 3.5% and 3.75%.

This loosening monetary policy, by definition, would create more inflation.

The Fed currently has interest rates set at between 5.25% and 5.5%.

Most mainstream analysts now think the central bank will cut rates next year, but not as steeply as Deutsche Bank economists.

The dominant narrative today is that the Fed has successfully beaten down price inflation. A cooler-than-expected CPI report for October reinforced this notion. With inflation on the run, mainstream analysts think that the Fed has initiated its last hike and will pivot to rate cuts next year to guide the economy to a “soft landing.” Even before the CPI data release markets were pricing in 75 basis points of rate decreases in 2024.

Many mainstream analysts and financial news network pundits have taken a recession completely off the table. But Deutsche Bank senior US economist Brett Ryan told Reuters he expects the US economy to hit a “soft patch” that will lead to a “more aggressive cutting profile.”

Ryan said he expects this economic weakness to further ease inflationary pressure.

The Problems With the Forecast

There are several problems with the Deutsche Bank projections, and the entire mainstream narrative more generally.

In the first place, the death of inflation is greatly exaggerated. No matter how you slice and dice the data, none of the numbers come close to the Fed’s 2% target. Core CPI is still double that number.

…click on the above link to read the rest…

“This Is Beyond Imagination”: Polish Homeowners Line Up For Days To Buy Coal Ahead Of Winter

August 28, 2022

“This Is Beyond Imagination”: Polish Homeowners Line Up For Days To Buy Coal Ahead Of Winter

Several weeks ago we reported that amid Europe’s mindblowing gas and electricity prices, Deutsche Bank predicted that a growing number of German households will be using firewood for heating, a forecast which appears to have become self-fulfilling as German google searches for firewood (“brennholz”) had since exploded off the charts:

But while Germans are still “searching” merely in the virtual realm, for countless Poles the search is all too real.

According to Reuters, with Poland still basking in the late summer heat, hundreds of cars and trucks have already lined up at the Lubelski Wegiel Bogdanka coal mine, as householders fearful of winter shortages wait for days and nights to stock up on heating fuel ahead of the coming cold winter in queues reminiscent of communist times.

Artur, 57, a pensioner, drove up from Swidnik, some 30 km (18 miles) from the mine in eastern Poland on Tuesday, hoping to buy several tonnes of coal for himself and his family.

“Toilets were put up today, but there’s no running water,” he said, after three nights of sleeping in his small red hatchback in a crawling queue of trucks, tractors towing trailers and private cars. “This is beyond imagination, people are sleeping in their cars. I remember the communist times but it didn’t cross my mind that we could return to something even worse.”

In Poland, where coal is king, dozens are lining up at the Lubelski Wegiel Bogdanka coal mine, waiting for days and nights to stock up on heating fuel. Read more: https://t.co/jVGwSEfLam pic.twitter.com/zZV3vtzEQk

— Reuters Business (@ReutersBiz) August 27, 2022

…click on the above link to read the rest of the article…

Deutsche Bank Now Modeling German Households Chopping Wood To Keep Warm This Winter

July 15, 2022

Deutsche Bank Now Modeling German Households Chopping Wood To Keep Warm This Winter

Yesterday we reported that just in case the world didn’t have enough things to worry about, it is now also petrified about Europe’s potential “doomsday” on July 22 when Putin will decide the fate of the continent: if he resumes gas flows along the Nord Stream 1 pipeline which is currently undergoing ten-day maintenance, things will be back to normal(ish). If not, this is the scenario contemplated by Wall Street strategists: “European stocks plunging 20%. Junk credit spreads widening past 2020 crisis levels. The euro sinking to just 90 cents, before a full-blown recession slams the world’s 2nd biggest economy.”

Then overnight, in a note from Deutsche Bank senior economist Eric Heymann (available to pro subscribers), the largest German lender laid out the three most likely scenarios for what the post-maintenance period could look like. As Heymann writes, “we developed three scenarios on how Russian gas supplies to Germany via Nord Stream 1 as well as the transition point Waidhaus might evolve over the next few months.”

Scenario 1: Status quo ante. Here, DB assumes that Russian gas deliveries return to the level we had seen in the weeks before the current maintenance period of Nord Stream 1, i.e. 60% below the level at the end of May.
Scenario 2: Balanced on a knife-edge. Here, the bank assumes another halving of Russian gas supplies via both pipelines. That would correspond to only 20% of Russian gas supplies seen until May 2022 (this scenario was validated today as described in “Gazprom Casts Doubt On Reopening Nord Stream Even As Canada Grants Sanctions Waiver For Stranded Turbines“).
Scenario 3: This is the downside case: welcome to a winter of gas rationing. In a third scenario DB assumes that Russia completely turns off the gas taps to Germany after the maintenance period. That also includes supplies via Waidhaus over the next few months…

…click on the above link to read the rest of the article…

One Bank Goes Apocalyptic: Inflation Is About To Explode “Leaving Global Economies Sitting On A Time Bomb”

June 9, 2021

One Bank Goes Apocalyptic: Inflation Is About To Explode “Leaving Global Economies Sitting On A Time Bomb”

As excerpted from “Inflation: The defining macro story of this decade” a must-read report written by Deutsche Bank’s global head of research, David Folkerts-Landau, co-authored by Peter Hooper and Jim Reid.

Ronald Reagan (1978): “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Joe Biden (2021): “A job is about a lot more than a paycheck. It’s about dignity. It’s about respect. It’s about being able to look your kid in the eye and say everything will be okay. Too many people today can’t do that – and it’s got to change.”

Janet Yellen (2021): “Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big”.

Jerome Powell (2021): “During this time of reopening, we are likely to see some upward pressure on prices … But those pressures are likely to be temporary as they are associated with the reopening process.”

Larry Summers, (2021): “I think this is the least responsible macroeconomic policies we’ve had in the last 40 years.”

The above quotes highlight that US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.

It is no exaggeration to say that we are departing from neoliberalism and that the days of the new-liberal policies that begun in the Reagan era are clearly fading in the rear view mirror. The effects of this shift are being compounded by political turmoil in the US and deeply worrying geopolitical risks.

…click on the above link to read the rest of the article…

When Will The Coronavirus Lockdowns Be Lifted? Here Are One Bank’s Estimates

April 5, 2020

When Will The Coronavirus Lockdowns Be Lifted? Here Are One Bank’s Estimates

With most of the developed world on lockdown, and markets and economies paralyzed until there is a material decline in new coronavirus cases, i.e., until we slide “over the hump” of the coronavirus curve, the biggest question – and variable – in assessing the economic damage unleashed by the covid-19 virus is the length of the lockdowns now in force, with Deutsche Bank’s Luke Templeman pointing out that “politicians and health officials have discussed dates ranging anywhere from weeks to over a year.”

In an attempt to answer this most important for capital markets question, namely when will the civic and economic restrictions begin to be lifted in various key countries, Deutsche Bank provides some estimates largely based on the experience of the lockdown and reopening in China’s Hubei province.

Using the “Chinese” experience as indicative of what other countries can achieve, recent studies have confirmed that after implementing various suppression measures, several large countries “appear to be converging onto the decline in the daily growth rate of deaths” seen in China. An Imperial College study in particular pointed out that the overall number of deaths in other countries could be between two and eight times the number of deaths as in China.

As DB notes, one way to look at how other countries are converging on the experience in Hubei province, China is shown in the following chart. As the German bank explains, it uses “a three-day comparison in order to filter out the noise from sudden jumps and drops when figures were relatively small. We also start each time series at the point at which restrictions were introduced to attempt a closer comparison. We then show all the countries individually against the Hubei experience.”

…click on the above link to read the rest of the article…

Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More

December 29, 2019

Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More

Deutsche Bank’s postmodern philosopher-cum-credit strategist Aleksandar Kocic, who missed his true calling and instead of writing a sequel to Ulysses, Finnegan’s Wake or some other pomo stream of consciousness piece in the style of Lacan, Derrida, Deleuze (or even Foucault, Beckett, Ginsberg or Burroughs) was reduced, no pun intended, to predicting the future by describing the shift in yield curves or their “Greek” derivatives, has always had a way with words and he certainly uses them in his 2020 vol market outlook which can be summarized – and we use the term very loosely – as follows, in his own words: “We see last year as the final stage of an on-going process of vega collapse caused by the chronic lack of demand, disruption of the vol/leverage cycle, and activity of the Central Banks. At the core of these developments resides an emerging new perspective of uncertainty: On top of the structural drivers, low volatility levels, compressed vol risk premia, and flat vol forwards present an articulation of the flattening of horizons.”

Like we said, “a way with words.”

While it would be an injustice to the Deutsche Banker to summarize what he talks about in simplistic terms (the problem with post-modernism is that it can’t by definition be reduced, hence why nobody really reads it), what the Serbian strategist focuses on in broad strokes is the ongoing collapse of vega (and its deficit), which however may be approaching the “boundaries of vol decline” (i.e., the moment when the Fed loses control so to speak)…

…click on the above link to read the rest of the article…

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

October 11, 2019

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

Having cracked down on Deutsche Bank in the past, The Fed appears to be playing good-regulator/bad-regulator as The FT reports thatDeutsche is expected to benefit most from an imminent change in The Fed’s liquidity rules.

Specifically, US banking regulators have dropped an idea to subject local branches of foreign banks to tough new liquidity rules(forcing US branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch).

As The FT further details, people familiar with his thinking say Randal Quarles, the vice-chair for banking supervision at the Fed, accepts the banks’ argument that any liquidity rules on bank branches should only be imposed in conjunction with foreign regulators.

“Without some international agreement, we could have the situation where each country is trying to grab whatever isn’t nailed down if there is another scare.”

And Deutsche Bank benefits most (or rescued from major liquidity needs) since it has by far the largest assets in US branches…

Why would The Fed do this?

Simple, it cannot afford another Lehman-like move (or even the fear of one)…

Liquidity Crisis & the Pending European Banking Crisis

October 2, 2019

Liquidity Crisis & the Pending European Banking Crisis

A lot of people have been writing in about the liquidity crisis and the banks with exposure to Deutsche Bank. This is clearly the European Banking Crisis we have been warning about. Most European (and Swiss) banks are having to overpay 30-40bps over libor. Even A+ rated banks are having to pay this premium.

Keep in mind that the Lehman and Bear crisis took place in the REPO market. This is why the crisis is appearing in a market most never hear about or see in interest rates. Those in Europe who have a position in cash, it may be better to have shares or a private sector bond or US Treasury. Given the policy in Europe of no bailouts, leaving cash sitting in your account could expose you to risk in the months ahead.

In all honesty, if this explodes in Europe, no-one will be safe and it will be pot-luck who’s cash you will be holding when it hits the fan. The Fed will bailout the US banks, but it cannot get involved in bailing out the European banks. This is becoming a clash in public policy which all stems from the FAILUREto have consolidated the debts. That refusal to consolidate, the terms demanded by Germany, also precludes bailouts where the money would cross borders. They want to pretend this is one happy family, but they insist on separate accounts.

As one European banker put it in a private conversation, it is almost a calm collapse. As I have REPEATEDLY warned, we are facing scenarios that nobody has ever seen before. The interconnectivity runs so deep, this clash in public policies can result in a serious crisis emanating from Europe.

…click on the above link to read the rest of the article…

The Ghost of Failed Banks Returns

September 30, 2019

THE GHOST OF FAILED BANKS RETURNS

Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.

If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.

Whoever the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. The deterioration in global trade prospects, as well as the US economic outlook and the likelihood that reducing dollar interest rates to the zero bound will prove insufficient to reverse a decline, will take on a new relevance to their decisions.

Problems under the surface

Last week, something unusual happened: instead of the more normal reverse repurchase agreements, the Fed escalated its repurchase agreements (repos). For the avoidance of doubt, a reverse repo by the Fed involves the Fed borrowing money from commercial banks, secured by collateral held on its balance sheet, typically US Treasury bills. Reverse repos withdraw liquidity from the banking system. With a repo, the opposite happens: the Fed takes in collateral from the banking system and lends money against the collateral, injecting liquidity into the system. The use of reverse repos can be regarded as the Fed’s principal liquidity management tool when the banks have substantial reserves parked with the Fed, which is the case today.

…click on the above link to read the rest of the article…

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

July 19, 2019

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

Could it be possible that we are on the verge of the next “Lehman Brothers moment”? Deutsche Bank is the most important bank in all of Europe, it has 49 trillion dollars in exposure to derivatives, and most of the largest “too big to fail banks” in the United States have very deep financial connections to the bank. In other words, the global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes. For years I have been warning that this day would come, and even though it has been hit by scandal after scandal, somehow Deutsche Bank was able to survive until now. But after what we have witnessed in recent days, many now believe that the end is near for Deutsche Bank. On July 7th, they really shook up investors all over the globe when they laid off 18,000 employees and announced that they would be completely exiting their global equities trading business…

It takes a lot to rattle Wall Street.
But Deutsche Bank managed to. The beleaguered German giant announced on July 7 that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business.
Though Deutsche’s Bloody Sunday seemed to come out of the blue, it’s actually the culmination of a years-long—some would say decades-long—descent into unprofitability and scandal for the bank, which in the early 1990s set out to make itself into a universal banking powerhouse to rival the behemoths of Wall Street.

These moves may delay Deutsche Bank’s inexorable march into oblivion, but not by much.

…click on the above link to read the rest of the article…

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

July 16, 2019

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

There is a reason James Simons’ RenTec is the world’s best performing hedge fund – it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That’s what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see “The Deutsche Bank As You Know It Is No More“).

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling – yes, it won’t be insolvent overnight, but like the world’s biggest melting ice cube, there is simply no equity value there any more – everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a “bank run” which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this “bank run”, where it’s not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit – along with technology and potentially hundreds of staff – to French banking giant BNP Paribas.

…click on the above link to read the rest of the article…

The Coming Credit Meltdown Will Be As Bad As The Great Depression And The Financial Crisis: Deutsche

April 2, 2019

The Coming Credit Meltdown Will Be As Bad As The Great Depression And The Financial Crisis: Deutsche

With investor attention increasingly focusing on what most believe will be the catalyst for the next financial crisis, namely a tsunami in corporate defaults as a result of the disastrous combination of record leverage, higher rates and an economic slowdown, overnight we presented the view of FTI global co-leader of corporate finance and restructuring, Carlyn Taylor, who predicted that “a spike in defaults is on the way, sooner or later.”

The expansion is pretty long in the tooth and there’s definitely a lot of buildup. The activity level of restructuring is rising, maybe not at the rate of bankruptcies, but the pipeline of companies we think are going to end up in restructuring, based on metrics that we analyze, that volume has gone up. And we’re so busy, which we don’t think is just market share, because we think our competitors are also very busy.

Yet while investor worries have centered on record corporate leverage…

… a growing number of strategists are warning that corporate bond market illiquidity is an even greater risk factor.

Not long after Goldman most recently warned that the biggest threat facing the broader market in general, as well as corporate bonds in particular, is a sudden collapse in liquidity, overnight UBS credit strategist Steve Caprio and his team laid out four major reasons why global corporate bond market liquidity has deteriorated over time.

These are:

Rising investment fund ownership of corporate debt,
Low interest rates,
A lack of dealer intermediation, particularly in periods of rising credit risk, and
Potential new EU regulation on trade settlement failures.

…click on the above link to read the rest of the article…

Deutsche Bank Crimes Can Cause Next Global Crisis – William Black

December 3, 2018

Deutsche Bank Crimes Can Cause Next Global Crisis – William Black

The International Monetary Fund (IMF) has deemed Deutsche Bank as the most systemically dangerous bank in the world. Professor of Economics and Law, William Black, knows why and contends, “Deutsche Bank (DB) poses as what is called a ‘National Champion’ bank and the largest bank by far in Germany, but it’s actually the largest criminal enterprise in Germany. This is quite a statement because VW is such a massive fraud. . . .It is insane that we allow Deutsche Bank to go from fraud to fraud to fraud. . . .They cheat on everything else you can possibly imagine and, typically, they are getting caught, which is also not a very good sign in terms of their competence even as thieves. Even in the United States, there has been reluctance to crack down on Deutsche Bank. . . . When the New York Commissioner tried to crack down, the Office of the Comptroller of the Currency, the premier banking regulator, actually sought to impede that. He disparaged the New York folks and said there really wasn’t that big of problems and such, and all of that proved to be lies.”

Deutsche Bank was raided by German regulators last week on more allegations of fraud and money laundering.

DB is the epitome of “Too Big To Fail.” So, it will never be allowed to fail, and regulators will not be allowed to regulate them properly. Professor Black says, “Why you should care is Deutsche Bank impedes effective regulation everywhere and because God only knows the next thing they are going to do. This is going to continue until something dramatic changes. Eventually, they can cause the next crisis. . . .There will be a bailout in these circumstances, but that could help trigger another economic crisis.

…click on the above link to read the rest of the article…

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

November 13, 2018

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

With stocks in Europe attempting a modest relief rally after yesterday’s sharp selloff, traders remain on edge over political developments as today is the deadline for Italy’s cabinet to resubmit their budget proposal after the EC requested a new fiscal plan. Virtually nobody expects any material changes, especially with Il Sole reporting this morning that Italy will maintain its 2019 deficit target at 2.4% of GDP and could alter the 2019 GDP growth rate of 1.5%

When looking at next steps, Deutsche Bank economists yesterday concluded that as contagion has been relatively limited for now, the commission will continue to adopt a tough stance on Italy, and it now seems inevitable they will recommend an Excessive Deficit Procedure (EDP) in the next few weeks.

And speaking of Deutsche Bank, the German lender’s Head of Research and Chief Economist David Folkerts-Landau penned a hard hitting Financial Times op-ed on the Italian situation, whose argument is that Europe must cut a grand bargain with Italy and that another costly sovereign debt crisis is inevitable unless the confrontational approach of the EC gives way to greater co-operation. According to Landau, Italy has actually been a frugal member of the single currency with a cumulative primary surplus every year outside of the GFC. However, these surpluses have simply helped finance the interest on the legacy debt and debt/GDP has still climbed. Meanwhile, the associated spending cuts and austerity required to run a primary surplus have lowered the standard of living for the population and led us to the political situation we find ourselves at today. What is his proposal?

The only viable option left is to reduce Italy’s debt service payments. This would create room to increase spending to modernise its economy without increasing the deficit and debt.

…click on the above link to read the rest of the article…

“Peak QE”: This Is What Share Of The Market Central Banks Now Own

October 27, 2018

“Peak QE”: This Is What Share Of The Market Central Banks Now Own

After a decade of unprecedented liquidity injections by central banks to preserve the western financial system, global QE has peaked.

First, the aggregate balance sheet of major central banks started to shrink earlier in the year, a reversal that took investors many months to notice but judging by recent market volatility, it is finally being fully appreciated.

Second, beginning this month the Fed’s bond portfolio run-offs as part of its QT are roughly offsetting the combined tapered net QE purchases by the ECB and BoJ. Worse, QT is now set to dominate.

Some facts: between mid-2008 and early 2018, the “Big-6” central banks expanded their balance sheets by nearly $15tn, most of it due to explicit targeted purchases of domestic assets (QE) in addition to other forms of liquidity injections (collateralised lending such as the ECB’s TLTROs or FX interventions equivalent to foreign-asset QE).

According to Deutsche Bank estimates, the four major central banks involved in QE (Fed, ECB, BoJ and BoE) are now collectively holding $11.3tn of securities accumulated through their asset purchase programs.

Why is the above important? Because as Deutsche strategist Michal Jezek, now that liquidity is contracting makes for a timely moment for looking at the proportion of relevant asset classes owned by central banks and putting the ECB’s corporate bond holdings into a wider context.

To begin, as Jezek confirms what we have been saying since the start of 2009, “clearly, QE matters.” As central banks reduced the free float of some securities and QE has worked its magic on confidence and growth, asset valuations reached unprecedented levels while volatility became suppressed. A couple of years ago, a quarter of the global bond market was trading with a negative yield. With global QE fading, this proportion has now fallen by half but remains significant.

…click on the above link to read the rest of the article…

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