Investors are having flashbacks of 2008.
If you’ve been following the markets, you’ve probably noticed something disturbing.
Deutsche Bank (DB), Germany’s biggest bank, is in free fall. Its stock has plummeted 53% over the past year. Last Thursday, it hit a new all-time low.
Deutsche Bank’s downward spiral has captured the world’s attention. After all, it’s a pillar of Europe’s banking system. If it collapses, the rest of Europe’s banking system could too.
That would be a serious problem for everyday Europeans and European investors. But as you’ll see today, it’s still a major threat to your wealth even if you live far outside Europe…
• Deutsche Bank could spark the next global financial crisis…
That’s because Deutsche Bank is leveraged to the gills.
According to a recent study by the U.S. Federal Deposit Insurance Corporation (FDIC), the German lender has a leverage ratio of 2.68%. This key metric measures a bank’s financial strength. The lower the ratio, the stronger the bank.
By this measure, Deutsche Bank is in far worse shape than any major U.S. bank was before the 2008–2009 financial crisis. Business Insider reported two weeks ago:
Deutsche Bank has a lower capital ratio than the US banks before the 2008 financial crisis, according to Hoenig [FDIC Vice Chairman].
“In 2008, the 10 largest US banks held on average 3.1% tangible equity capital-to-assets. When the financial crisis hit, these institutions experienced significant losses and required extraordinary government support,” he said.
According to the FDIC, the failure of a giant bank like Deutsche Bank “would threaten a financial crisis and economic collapse.” This makes it the most dangerous bank in the world right now.
• Raoul Pal also thinks Deutsche Bank has serious problems…
Pal is one of the world’s top “big picture” investors. He used to run a big hedge fund, but he made so much money that he retired from money managing at the age of 36.
Today, Pal publishes The Global Macro Investor, a research letter read by some of the world’s top hedge funds.
According to Pal, negative interest rates are killing Deutsche Bank.
Negative rates are the latest government “stimulus” measure. The European Central Bank (ECB) introduced them in 2014 to jumpstart its stagnant economy.
But that hasn’t happened. Europe’s economy is growing at the slowest rate in decades.
Negative rates are also starving European banks of income.
You see, banks make money by charging interest on loans. But global interest rates are near record lows today, thanks to idiotic central bankers. That’s made it very difficult for European banks to make money.
Second-quarter profits at HSBC, Europe’s biggest lender, fell 45% from a year ago. Spanish banking giant Banco Santander’s second-quarter profits fell 50%. And Deutsche Bank’s profits plunged 98%.
• According to Pal, Deutsche Bank also has “an enormous derivatives book”…
A derivative is a security that derives its value from another security, such as a stock, bond, currency, or interest rate.
During the last housing bubble, many derivatives were tied to mortgages. When housing prices crashed, people stopped paying their mortgages. The derivatives tied to those mortgages blew up. This is a big reason why the U.S. housing crisis turned into a full-blown global financial crisis.
In other words, derivatives can turn a bad crisis into a catastrophic one. That’s one reason why Warren Buffett famously called them “financial weapons of mass destruction.”
On Monday, Pal told CNBC that the size of Deutsche Bank’s derivative book is so big that “it’s very difficult to unwind. It’s difficult to get rid of. People don’t understand what the risk is with that.”
Deutsche Bank isn’t the only European bank with serious problems either.
• Pal sees “clouds everywhere” in Europe’s banking system…
Pal explained last week in an interview with Yahoo! Finance:
“Deutsche Bank was just one of the warning signs out there for the banks. It just looks the worst based on the shear size,” Pal told Yahoo Finance in an interview. “It’s one of the canaries in the coal mine telling something really bad is going on in the European banks overall.”
Pal doubled down on this warning on Monday:
“It’s all from the same issues. Basically, a lot of the bad loans in Europe, whether it’s Italy, whether it’s Spain, didn’t go away.”
• European bank stocks are already trading like a financial crisis has begun…
The chart below shows the EURO STOXX Banks Index, which tracks Europe’s biggest banks.
You can see European bank stocks have plunged 35% over the past two years. According to Bloomberg Business, European bank stocks have already lost $280 billion in value this year.
And it looks like things are only going to get worse for European banks.
• European banks are bracing for a storm…
Bloomberg Business reported on Monday:
European banks are preparing a fresh round of bloodletting — with some 20,000 jobs set to go — as tougher rules and negative interest rates weigh on profits.
ING Groep NV will slash 5,800 positions over five years as it focuses on Internet and mobile banking and automates systems, the Amsterdam-based lender said Monday. Last week, Germany’s Commerzbank AG disclosed plans to cut 9,600 jobs, while Spain’s Banco Popular Espanol SA said it will eliminate as many as 3,000 posts after tapping investors for funds.
Meanwhile, the “smart money” is already cashing out of Deutsche Bank. On Friday, The Wall Street Journal reported that several large, influential hedge funds have “moved to pull billions of dollars from the bank amid concerns about its stability and their exposure.”
This tells us Europe’s banking crisis could just be getting started.
• If Europe’s banking system collapses, investors from New York to Tokyo will feel it…
We encourage you to take steps to protect your wealth right now.
Start by looking at your portfolio. Get out of expensive stocks. They tend to crash the hardest during major market selloffs. You should also avoid companies that will struggle to make money during a serious economic downturn.
We also encourage you to own physical gold. As we often say, gold is the ultimate safe haven asset. It’s survived every sort of financial calamity in history. If things get really ugly, investors could pile into gold like they’ve done many times in the past.
• Once you’ve taken safety precautions, you can go on the “offensive”…
You see, most investors don’t realize it, but a crisis is actually an opportunity. Some of the world’s greatest investors have made their fortunes by making bold investments before, during, and immediately after financial crises.
To help you “flip” Europe’s coming crisis into big gains, we put together a brand-new presentation.
This video will show you how to turn Europe’s coming crisis into a giant money-making opportunity. As you’ll see, opportunities like this only come along once every decade or so. The last time we saw something like this, Casey Research founder Doug Casey made a massive 4,329% gain.
Buy you have to act soon. Just two months from now, a monumental event will take place in the heart of Europe. If this event goes the way we expect, it could unleash a crisis five times more destructive than the “Brexit.” It could even mark the end of Europe as we know it.
To learn more about this upcoming event, watch this FREE presentation.
Chart of the Day
Don’t wait for the next “Lehman Moment” to take action.
Today’s chart shows the performance of the S&P 500 from 2007 to 2009. You can see Lehman Brothers filed for bankruptcy in September 2008.
The collapse of this iconic investment bank helped set the 2008–2009 financial crisis in motion. But you can see that U.S. stocks started tanking nearly a year before this happened.
Investors who hung on to stocks until Lehman’s collapse already lost a bunch of money. The S&P 500 was already down 24% by the time the iconic bank closed its doors.
We could be facing a similar situation right now. Deutsche Bank, one of the world’s most important banks, is in serious trouble. If something bad happens to the company, it could drag down the entire global financial system.
That’s why it’s so important that you take action today. You can learn how to crisis-proof your wealth right now by watching our latest presentation.