October 19, 2016

Stocks Flat Open As Investors Await Fed Speakers And Deutche Banks Fate

Stock index futures were on a path to flat open as investors longed for news on Deutsche Bank's agreement with the U.S. Department of Justice and the speeches from Federal Reserve's decision makers.

There are meetings that are going on to discuss the terms of settling this fine and speculations were rife in the course of the weekend that the bank desired the penalty to be lowered.

Trading on Monday saw the Dow falling 104.40 points amidst lows before it ended up slipping by 55 points. Additionally, the S&P 500 went down by 0.3 per cent, while real estate plunging by 1.8 per cent to become the lead decliner.

While the U.S. rate hiking schedule kicked off on Tuesday, most investors eye the employment data for September scheduled to be released on Friday.

Two Federal Reserve speakers are scheduled to speak on the possibility of rate hikes in the course of the week. Richmond Fed President Jeffrey Lacker insisted that there was need to increase interest rates and in order to ensure that inflation was kept under control.

In Europe, shares of Deutsche Bank had recorded a higher value on their first day of trading after a long weekend. The bank went through challenging days last week where the Department of Justice leveled a penalty of $14 billion due to the role the bank played in a festival of toxic mortgage securities in Wall Street in the period that leads to the 2008 financial crisis.

Given the many other troubles that Deutsche have experienced – manipulating the financial benchmark, the general confusion that surrounds its mission, and issues of trades that seemed to have violated the sanctions placed in Russia – makes the American move to charge the bank a huge fine visiting at the inopportune moment.

The dangers facing Deutsche Bank sent the stock markets across the globe on a wild ride. However, the biggest worry seems to emanate from the vast array of unknowns and not its finances. Furthermore, the bank seems not to bother whether Europe will be able to muster the will to embark on a rescue mission.

All these seem to heighten the fact that Deutsche Bank – whose shares have declined to more than half their value this year – requires some new investments that are secure, in case it wishes to avoid any impending crisis.

The biggest fear lurks when Deutsche will disintegrate to a point that it will threaten the globe with a financial shock. However, the main question will lie on whether the buffers and new rules that were instigated after the last crisis can prevent the severity from spreading.

The chaos ranging from the debt crisis to the bitterness over the rising number of refugees, European governments have shown something less than an example of a united government action. The EU seems to have embraced populist anger and encouraged constraining solutions. With Germany not allowing bailouts for banks from other countries, the mission to rescue Deutsche is politically radioactive.

If the worst case scenario is to happen – the bank may possibly collapse, forcing the bank to collect money from the global market. Various institutions that carry out trades with Deutsche may be inclined to get their cash back. Given the amounts of cash witnessed in the bank's balance sheet that can extend to up to 1.8 trillion euros, then the effect will have to be distributed to every financial crevice in the world.

Despite rumours in pundit quarters indicating this type of scenario may be re-emerging, provokes similarity to be traced back to the disastrous bankruptcy experienced by one of the American banking big boy, the Lehman Brothers, about eight years ago, but most economists disregard the talk as overambitious and overblown. The shares of Lehman had seen a tremendous decrease in value at the CMC Markets.

Deutsche Bank's cash reserves sums up to about €240 billion. It has further sold bonds that can end up to be equity whenever it deems necessary. The fine of $14 billion proposed by the Justice Department unveils a possibility for a negotiation that could amount to a fraction of the amount. It is such a way of interpretation that left the stock surging on September 30th.

October 3, 2016

Cabela's CAB Merger spread

Cabela's (CAB) is being purchased by Bass Pro Shops in a cash deal for $5.5 billion or $65.50 a share for Cabela's shareholders. So CAB shareholders will receive $65.50 a share. Cabela's stock has been around $62 to $63 all morning. There has been as much as a 4% spread to made. I bought some CAB at 62.90 this morning. There is still over a 3% spread at the moment. If there is a mini market crash the spread could even widen. So it's worth keeping an eye on. All cash deals are the safest. The deal is expected to close in the first half of 2017 and still requires shareholder and regulatory approval. Here is the official SEC filing.