I am certain that you remember Lehman Brothers and the “chaos” that it created when it ‘failed’. If you think that the Worlds’ Central Banks are now wiser and consequently will not allow another similar event to occur, think again. We will not only see a repeat of this occurrence, again, but it will be exponentially larger than Lehman’s was!

On June 29^th, 2016 the IMF stated that “among the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse,” reports The Wall Street Journal.

However, if you were to believe that statement, why should you be concerned about a German bank and how it will affect you while living in the U.S.? The IMF adds: “In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,” reports Bloomberg. The chart below clearly shows the systemic risks emanating out of a Deutsche Bank (DBK) collapse.

Two years in succession, the American unit of Deutsche Bank has failed the FED’s “stress test” which is what determines the ability of the bank to weather out yet another ‘financial crisis’.

Leverage of Lehman vs. Deutsche Bank:

In 2007, Lehman had a leverage (the ratio of total assets to shareholder’s equity) of 31:1.  At the time that Lehman filed for bankruptcy, it had $639 billion in assets and $619 billion in debt. Still, it caused a ‘systemic risk’ worldwide.

In comparison, DBK has a mind boggling leverage of 40x, according to Berenberg analyst, James Chappell. He stated, “facing an illiquid credit market limiting Deutsche Bank’s (DBK) ability to deliver and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding.”

Why Can’t the ECB save DBK in the similar fashion as how the FED saved the banks, in the US?

The nominal value of derivatives risk that DBK holds on its’ books is $72.8 trillion, according to the banks’ April 2016 earnings report. What is astounding about this, is that a single bank owns 13% of the total outstanding global derivatives, which was a staggering $550 trillion in 2015.

What is more concerning and alarming is that the market cap of DBK is less than $20 billion.

Nonetheless, the nominal value of derivatives exposure does not mean that DBK will have a default worth trillions of dollars seeing as most of the contracts are covered by counterparties. However, when the domino effect is put into motion, we have witnessed how it engulfs the entire world, into it.

If the domino effect does occur, Germany with its GDP of $4 trillion or the EU with a GDP of $18 trillion will not be in a position to gain control over it.

A nominal figure of the high derivatives risk on DBK, as of December 2014, is shown in the chart below.

Negative interest regime is NOT the solution to global economic problems which we are facing today:

The European Central Banks’ NIRP policy is making matters worse for DBK, as the banks’ profits are getting squeezed thus making it difficult for it to repair its’ balance sheet.

The bank is finding it difficult to sell its’ assets because of illiquid credit markets. The banks’ management will also find it difficult to raise capital as the investment-banking industry is in a “structural decline”, according to Berenbergs’ James Chappell.

 BREXIT is adding to the woes:

DBK receives 19% of its’ revenues from the UK. After the “BREXIT” vote, the uncertainty regarding future relations of the U.K. with Europe has increased the risk for all of the banks. President Francois Hollande of France is eyeing the financial industry and is pitching for them to move to Paris from London.

DBK is the biggest European bank in London. Moving operations, which are handled by 8,000 members of the staff, will not be an easy task for DBK and will further weaken their balance sheet.

How is the stock behaving?

The stock is in a downtrend and has broken below the panic lows of 2009.

The stock is quoting at a price to book ratio of 0.251, which indicates the pessimism of the markets towards the stock. The investors believe that the stock is not worth more than a quarter of its’ liquidation value.

A comparative study of the stock, with Lehman, gives a more accurate picture of the future price of DBK, which is zero.

The German Newspaper ‘Die Welt’ reported that the great George Soros had recently opened a short position of 0.51% of the DBK’s outstanding shares. This equates to 7 million shares, worth $7.5 billion, reports Investopedia.

 Conclusion:

The easy monetary policy of various Central Banks is the main reason for the banks holding such massive leverage. The “next financial crisis” will cause the Central Banks’ actions to be redundant and ineffective, as they will not be in a position to control this impending catastrophe! In such a situation, the world will revert to the only remaining resort left, and that is gold.

My readers have benefited immensely during the mini-crash post the ‘BREXIT’. Please continue to follow me so as you can protect yourself from the next “big one”, which will wipe out tens of trillions of dollars around the world.

Chris Vermeulen
TheGoldAndOilGuy.com

I have no doubt that the implementation of QE 4 will be introduced into the stock markets.  I believe that the FED will commence injecting $50 billion to $100 billion per month into the markets. After seven years, this “short term” emergency measure has now resulted in a permanent fixture of the FEDs’ ‘NEW’ monetary policy.

There is a limit as to what monetary policies are capable of resolving. We must go back in time in order to realize that our problem is a ‘structural’ fiscal policy problem and it is only when we realize this that can we look towards the solutions, at hand.  Our current financial problems cannot be resolved by Central Banks.  These ‘accommodating’ monetary policies of Global Central Banks were never really necessary.  The global legislative governments needed to address these problems as far back as 2008.

“Black Friday” which occurred on June 24^th, 2016 was just the beginning. Once again, Global Central Bankers will scurry to lower their interest rates! A recent article talked about how the market is reading all the data wrong.

The present ‘currency wars’ will continue to heat up more and more and consequently money printing will now escalate while the global debt will continue to rise exponentially. This is just the type of ‘crisis’ that will push gold prices even higher while investors seek out the most sought after ‘safe haven’ that has been in existence for well over 5,000 years.

Gold, will once again, as it did in 2008, offer the most security against stock market meltdowns and currency risks which surround us and have now become part of our daily economic fabric. I have been alerting my subscribers, since last year, of the fact that I was anticipating the timeliest entry point into this ‘asset class’.

It has become most obvious to me that Global Central Bankers have lost touch with ‘reality’ as they continue to lower interest rates and turn towards NIRP.

IS THIS THE POINT OF NO RETURN? 

The sole reason why the Global Central Bankers implemented ‘negative interest rates’ was to get money out of the banks and place it into the hands of consumers in hopes that they would spend more and therefore help to inflate the economy.  If this plan had been successful, consumers would have leveraged these low-interest rates into a positive rate of return.  However, this did not occur!

In general, ‘the velocity of money’ begins to increase after a successful ‘economic recovery. However, since 2007, the ‘velocity of money’, within the U.S., has been further ‘decreasing’ which implies that consumers have not been spending their money seeing as the “stimulus” money, which in fact, never reached them.

The basic idea was to have the banks directly provide consumers with money, which would, in turn, encourage and enable them to spend it. However, the money failed to reach the ‘working classes’. The FED created this “wealth effect” which resulted in the “artificial inflation” of stock prices.

The FED infused bank investment portfolios with cash rather than government securities. This cash was invested in the stock market rather than filtering down to “Main Street”.

The “Consumer Distress Index”, Main Street, was a quarterly measure of the financial condition of the average American consumer. This was the first index to provide a comprehensive snapshot of the American consumers’ total financial picture, over time. While the index is no longer updated, recent data can still provide insight into the financial well-being of consumers. The index was based on a 100-point scale, as can be viewed in the chart below:

What you can extrapolate, from the below chart, is that the consumer is ‘financially unstable’ and needs to take immediate action in order to address their ‘financial problems’.  As of today, the consumer is in the midst of a “financial crisis” and is in need of direct intervention so as to regain ANY “financial stability”.

The following chart below displays where all of the “Quantitative Easing” money was distributed.  The “Quantitative Easing” (QE) money was used to artificially “inflate” stock market prices. The FED was caught up in its’ own wrong doings.  Each and every time that the stock market showed signs of weakness, the FED would step in to support prices by announcing the implementation of more QE.  As you can see, very clearly, in the below chart, there is a positive correlation between QE and the rise in the SPX!

Concluding Thoughts:

In short, the recent price action of the US stock market, economic data, and Brexit results clearing indicate tough times ahead. What will the FED do? No doubt they will try to implement some new form of QE which will try to hold the stock market up and funnel through in the hands of the already wealthy. It seems that is all they are good at doing really.

But will the FED be able to save the market this time? I think not because for the first time in 7 years the data is showing similar and in many cases much worse data than we say in 2001 and 2008.

The good news is that we can not only avoid losing money buy actually become the wealthiest we have ever been if/when the next bear market happens and I tell my readers exactly how we will do that. The reality is, it does not matter when the next bear market takes place whether it is 2016- 2018, or beyond, the key is that we know how and when to get positioned for these life changing moves as the market unfolds.

Follow My Work Free at: www.TheGoldAndOilGuy.com

By Chris Vermeulen

http://www.thegoldandoilguy.com/say-qe-4/

By Gaalen Engen, Stockhouse.com

It is doubtful David Cameron ever really wanted the Brexit vote. Back in 2013 he was head of a minority government, dealing with a fractious Conservative party and an aggressive UKIP which threatened to divide the party even further. He dropped the mic in January of that year on a promise to hold a referendum on whether Brits should remain in the EU. Perhaps at the time it seemed the safest card to play. It wasn’t a stellar term for the prime minister and polls were tight for the upcoming election. At best, he would be the head of another minority government and as such would never have the power to make good on the promise. Then he won a majority election in 2015…oops.

His foot firmly stuck in it, Cameron had to come through. He immediately changed his tune, however, hoping to head off this colossal mistake at the pass, but the fire had been set and the flames kept climbing until last Thursday’s vote. Both the “Leave” and “Remain” campaigns slugged it out and both took liberties with the facts, but the Leavers slung a little more crap and managed to motivate voters, mostly rural and older, to get to the polls and make their voice heard. And on Friday morning, much to Cameron’s chagrin, that voice said, “We’re outta here.”

Markets freaked out. People freaked out. I’m betting Cameron freaked out. He had authored the end of his own political career, dealt a critically damaging blow to his party and could have quite possibly pulled the pin on the EU. No matter what some fanatic Leavers say, the near-term for England doesn’t look good. There’ll be decreased foreign investment and less jobs – their GDP is going to take a serious hit. In fact, according to the National Institute for Social and Economic Research, a think tank, Britain’s GDP is expected to drop 2.9% over the near term.

England won’t be the only one feeling the pain, the EU is going to hurt with Britain out, but when push comes to shove, the degree of discomfort for the EU could be *fingers crossed* survivable. The problem now is France and Greece. Will this Brexit insanity grow into a Frexit and Grexit? Could this all spin out of control and as some extremists predicted, bring on a global depression?

All that’s certain at this point, is uncertainty. There’s no real safety in currency at the moment, the markets are addled and the analysts are divided. Probably the one thing people can agree on is the rising price of gold, good news for a mining industry that was living on red buttons and good looks since 2011 when the commodities market started to tank.

Junior miners like Aldershot Resources (ALZ.H, Forum), currently developing its highly prospective flagship Haultain Gold Project located in the storied Abitibi Greenstone Belt, have been watching all of this unfold closely, in fact, company CEO, Jeremy Caddy had this to say, “Uncertainty and the gold price are like kerosene being poured on smouldering tinder. As long as markets wonder how Britain’s leaving the European Union will work out we have uncertainty; as a result, the price of gold will continue to appreciate. Aldershot would far prefer political stability than the present state of uncertainty but it is an ill wind that brings nobody any good so we will take the good breaks when we can.”
image: http://www.stockhouse.com/getmedia/6a2cef01-ce2f-46c9-a4f9-8a114954598b/alexandria-minerals-logo?width=200&height=50

Eric Owens, CEO of Alexandria Minerals (TSX: V.AZX, Forum), a junior miner exploring and developing one of the largest properties in the prolific Val d’Or, Quebec, gold mining district, affirmed, “Clearly the uncertainty of what the Brexit vote means a strong interest in and demand for gold, as we don’t know yet how the outcome of the vote is going to play out. When superimposed on broader supply-demand issues, this will have a positive impact on gold-focused companies like Alexandria Minerals which will be good for the gold industry.”

If you’re a gold bug, or think you may be one, you might want to consider this. Any post-Brexit re-negotiation between Britain and the EU will be years in the making with no guaranteed outcome. Also, any political fallout, such as the destabilization and dissolution of the EU, will also be years in the making. Then there’s the fate of Scotland and Ireland now that Britain has bid a not-so-found adieu to the EU.

All of this uncertainty is most likely going to last and gold will probably get a good run because of it. Now I’m not dancing on Cameron’s political grave, nor do I have a callous disregard for the profound effect Brexit will have on a global economic community, but if the world is going to take a trip on the crazy train, investors should have a safe place to put their money and right now gold is shining brighter than ever.

–Gaalen Engen

full article: http://www.stockhouse.com/news/newswire/2016/06/27/what-can-we-expect-from-brexit-blunder
http://twitter.com/gaalenengen

FULL DISCLOSURE: The opinions expressed herein are the author’s and don’t necessarily reflect those of Stockhouse Publishing or any of its employees. Alexandria Minerals and Aldershot Resources are Stockhouse Publishing clients.
Read more at http://www.stockhouse.com/news/newswire/2016/06/27/what-can-we-expect-from-brexit-blunder#CjzColxMm2L2iflV.99

by Ranjeetha Pakiam and Yvonne Man

Gold’s investment case has been strengthened by the U.K.’s vote to quit the European Union as the fallout may spur the world’s central banks to step up easing, hurting currencies and favoring bullion, according to Marc Faber, publisher of the Gloom, Boom & Doom Report.

The U.S. Federal Reserve may even embark on a fourth round of quantitative easing, or QE4, Faber said in an interview on Bloomberg Television on Wednesday, adding that he typically buys bullion every month. While he also likes gold shares, they need to correct first after recent gains, he said.

Gold has soared after the U.K.’s vote last week as investors seek a haven from financial turmoil and contemplate the possible implications, including additional steps from central bank policy makers in Europe, the U.S. and Asia. Holdings in bullion-backed exchange-traded products have swelled to the highest level since September 2013 as banks including Goldman Sachs Group Inc. have boosted their price forecasts.

‘Print More Money’

“If Brexit is used as an excuse, the central banks will print more money, QE4 in the U.S. is on the way and the depreciation in the purchasing power of currencies will continue,” Faber said in the interview from Hong Kong. “In that situation, you want to own some gold.”

Bullion for immediate delivery rose as much as 0.7 percent to $1,321.55 an ounce, and traded at $1,321.24 at 1:57 p.m. in Singapore, according to Bloomberg generic pricing. In the immediate aftermath of the vote on Friday prices surged to $1,358.54, the highest in more than two years.

Gold has advanced 25 percent this year as the European Central Bank and Bank of Japan embraced negative rates to kick start growth and the Fed pauses after its first hike since 2006 last December. The U.S. central bank undertook three rounds of quantitative easing starting in 2008 to overcome the impact of the global financial crisis.

New Headwinds

Fed Governor Jerome Powell said Tuesday the vote has the potential to create new headwinds for economies, including the U.S., introducing uncertainties that may merit reassessing policy. Traders now see a greater probability the bank will cut rates in upcoming meetings than raise them.

Faber’s views add to a bullish chorus about bullion in the wake of the poll. The metal may stand at the start of a major bull market should the Brexit vote prove to be a forerunner of greater political and financial instability around the world, Evolution Mining Ltd.’s Jake Klein said on Tuesday.

Still, not every one is optimistic. Veteran investor Jim Rogers said this week that he’d rather seek haven in the dollar than gold, given that bullion had already rallied in 2016 before the referendum. Credit Suisse Group AG has said it’s neutral on gold over the next three to six months.

“Global growth has contracted, in other words, growth rates have been reduced and many countries are in recession already. That has nothing at all to do with Brexit,” Faber said. “Brexit is actually not about an end of globalization. On the contrary, it’s about people that rebel against the arrogant elite in the financial centers.”

full article: http://www.bloomberg.com/news/articles/2016-06-29/gold-may-prosper-as-brexit-will-spur-more-stimulus-faber-says