U.S. stocks executed a shallow swan-dive around mid-session on Thursday, spooked by news that a bunch of hedge funds had withdrawn spare collateral parked with Deutsche Bank. (See tout at bottom of this page.) Predictably, the pundits downplayed Deutsche’s problems, including a $14 billion shakedown by U.S. regulators to settle mortgage claims from the Great Financial Crisis. With unintentional, heavy-handed irony, Bloomberg.com calmly noted that “the situation doesn’t appear to be that dire for Deutsche Bank at the moment. But it’s clear the lender’s problems are escalating rapidly.” Did your scalp tighten, or your heart palpitate, when you read that sentence? None of us will have forgotten that “the situation” didn’t appear to be “that dire” for Lehman or Bear Stearns either — up until mere days before each went down like the USS Thresher.
So much for the theory that the problems of some little bank could conceivably be the black swan that topples the global financial system — for the second time in a decade. This particular bank is as symbolically important to perceptions of Germany’s financial stability as B of A is to America’s. Bloomberg’s reassurances aside, and notwithstanding the fact that U.S. stocks ended the session with a moderate bounce, an investor would have to be completely out of his mind to be fully loaded with shares at these levels — just inches from all-time highs, with no respite in sight for a decline in U.S. corporate earnings that is about to enter its sixth straight quarter. To repeat: OUT OF HIS MIND!