This is not the time of the year when Europe is at its best weather-wise.
Today the evening is cold, rainy and the wind is picking up.
The political events out there have developed a new dynamic too – it’s not just the Italian budget debacle anymore. After president Macron made financial concessions to the yellow-jacketed protesters, the French budget deficit is projected to look no better than the Italian one.
Even in Germany, chancellor Merkel had to blink and allow for the shotgun wedding of Commerzbank and the troubled Deutsche Bank. Let’s stop on the latter for a moment, because it’s an interesting story on its own.
Deutsche Bank is in crisis and everyone has known that – its stock lost more than half its value in 2018 alone. This biggest European bank is in the news a lot and never in a good way - the list of criminal charges against it reads like a crime novel and the bank spends a fortune in fines and settlement.
Its derivative exposure is huge, and it is hard to quantify what is the real net bottom line, but it could well be more than 10 times the Gross Domestic Product of all Germany.
It doesn’t help the situation that the bank’s leadership is a revolving a door - it went through four CEO’s in as many years to the point that is not clear who is actually running that place.
While all this is not unusual among world biggest banks (just look at HSBC, Wells Fargo, or, for a real eye opener, at Goldman Sachs), DB seems to suffer the most. It could be that their derivatives exposure is the source of this downfall, but for a different reason than most think.
These derivatives are delicate credit instruments held in tens of trillions of dollars by major banks around the world, but it’s never clear who is on the other side of the trade. There must be a big player backing it up and it must be default free, at least for a moment. And there is only one player that fits that definition – the US Treasury, more specifically it’s Exchange Stabilization Fund.
So, how this is causing Deutsche Bank trouble? It appears that through its derivative exposure Deutsche Bank helped manipulate interest rates and propped the US dollar.
Throw in the mix the rising tensions between Germany and the US, and the bank’s situation looks terrible politically.
Enter BaFin, the German fiercely independent financial supervisory authority that appears to be calling the shots at Deutsche Bank for a while now. Specifically, it is forcing them to liquidate exposure to dollar credit swaps.
In May of this year the bank stunned the markets by suffering a staggering one-day loss that was almost 12 x VaR (value at risk), or 12 times what DB's risk officers have estimated it might lose on a typical day. And these guys are not incompetent. The only explanation is that they were forced by BaFin to close some positions in the marketplace.
The US Fed isn’t, of course, taking it on the chin with his hands down, they’re punching back like mad, prosecuting DB, damaging them publicly and forcing the bank out of lucrative markets like precious metal trading.
In a related example of the US and Germany exchanging punches, the VW concern recently built an engine plant in Russia, in Kaluga. Clearly against US interest, who want to put Russia in an economic penalty box.
The plant opened on Sept. 4th, 2015, after it took three years to finish.
On September 18th, 2015 the US Environmental Protection Agency served a Notice of Violation (NOV) to Volkswagen for emission problems and the rest is history.
And all this could be a coincidence, of course. Or my mind wandering on a cold December night.
In the movie “The Counselor” Brad Pitt says this about some serious people he deals with south of the border: “you know, they heard about coincidences, they just never saw one.”
Could be a good advice.
The title comes from a song by Gary Moore that was a hit in 1979, but was really based on the jazz standard “Blue Bossa” by Kenny Dorham, an American jazz trumpeter who never received the attention or fame he deserved.
This happens a lot in life but it’s hard to know in the real time what's important, to be fair.
The austerity measures of the EU are having a profound impact in Europe. The proof is in the news - in Paris on December 1st there was a major civil uprising, the worst France has seen in decades. Jeanne d’Hauteserre, the mayor of Paris’ 8th district, near the Arc de Triomphe told the press: “We are in a state of insurrection, I’ve never seen anything like it.” We can easily be witnessing the start of the next French Revolution and there is no solution in sight.
Still, president Macron is unrepentant and unyielding. He said he would not change his policy because of the protests of “thugs”.
By making this statement he follows the French history of misunderstanding major events, which is no different from what Marie Antoinette did.
She said back in the days of Revolution “Let them eat cake”.
It’s is not clear what she really meant – eat cake instead of bread, or crumbles from the crust of the pâté, but her words inspired a revolution nevertheless.
It is simply a wrong thing to tell people in the heat of the battle.
Revolutions always and everywhere start because of excessive oppression or excessive taxation, but those in power do their best not to understand it. To be fair, it’s very difficult to make a person understand something if her/his salary depends on them not understanding it.
And revolutions take time to clean up after - Vienna conference was called to clean up the mess in Europe after Napoleon, who was a product of the French Revolution. Another upheaval of this kind happened in Russia and it took almost a century to contain.
A brutal world war too.
Still, I have this respect for Napoleon Bonaparte, and I can’t finish without saying something about him.
He was a guy’s guy. During his wars he was right there in trenches with his soldiers, dirty with mud and smelling of gunpowder. You don’t get this type of behavior from Pentagon officials these days and it makes a huge difference.
He married Josephine de Beauharnais known as Rose, a name that he disliked. He called her "Joséphine" instead. I like that too. He divorced her eventually, so he could remarry in search of an heir. But he showed his dedication to her for the rest of his life. After they split, Napoleon was never the same - he developed health problems, gained weight. During the battle of Waterloo stomach pains paralyzed him. And then he lost everything, tough for a guy who never knew when to quit, when to stop, or when to say die.
Living his last days on the far island must have been a torture and I think he just wanted to be back with her. I think she did too because he was a unique man and they made a unique couple.
All his life standing on the ledge showing the wind how to fly. Both of them.
This is the thing about the revolutionaries – you can’t help but have a respect.