A friend of mine messaged me on Monday. He had a simple question.
‘Without Googling the answer, what’s your guess at the market cap of Deutsche Bank?’
Sounded easy enough question. I had a reasonable idea already, so I had a slight advantage. And I knew that since the start of this year Deutsche Bank had lost more than half its value.
My response was, ‘About €20 billion.’
I didn’t cheat either. I only jumped online to check how far away I was after I’d sent my response.
I was wrong. I had overstated their market cap. And not by a little bit, either.
Deutsche Bank [ETR:DBK], at the time of writing, has a market cap of just €14.36 billion. That’s around AU$21 billion. That might sound like a lot, but for the bank’s position it really isn’t. It’s astonishing that the biggest bank in Germany has such a paltry market cap, really. And it’s no great surprise that the bank is seemingly on the verge of collapse.
Compare Deutsche Bank to the size of the ‘Big 4’ Aussie banks. National Australia Bank [ASX:NAB] and Australia and New Zealand Banking Group [ASX:ANZ] are the two smallest, at AU$74 billion and AU$80 billion respectively. Westpac [ASX:WBC] comes in at AU$100 billion, and Commonwealth Bank [ASX:CBA] dominates them all at AU$124 billion.
Put simply, based on market cap CBA is almost six times bigger than DB. Even NAB is around three and a half times bigger than Deutsche Bank.
Germany is the fourth largest economy in the world by nominal GDP, at just over US$3.4 trillion. Yet their biggest, most powerful bank is on the verge of collapse. Something’s just not quite right here, is it?
Which is your favourite chart?
When I was back in Australia at the end of June I headed into the Port Phillip Publishing offices. I had every intention of catching up with everyone in the office. But up the first set of stairs, and the first person I came across was Jason Stevenson.
Now if you know Jason at all you’ll know once you get into conversation with him, it’s hard not to talk with him for hours. And I did. We covered a range of topics, not least the plight of Deutsche Bank.
Remember, this was back in June. We were discussing the implications of a Deutsche Bank failure back then. Jason still believes (as do I) that it’s almost imminent that Deutsche will fail. In yesterday’s Money Morning Jason wrote that he believes Deutsche Bank, ‘could go bankrupt in the months ahead.’
That’s right, he said months.
Jason also suggests that Deutsche going under could bring down the whole banking system again, a-la Lehman Brothers. And in times of crisis like this, investors typically turn to one particular asset class: gold.
If you look at the one year gold price it’s almost a perfect negative correlation to the stock price of Deutsche bank.
Spot price gold one year chart
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Deutsche Bank one year price chart
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There’s a good argument for physical gold in times of turmoil in the banking system. But perhaps physical gold isn’t the only place that investors should consider in turmoil.
I think there’s another ‘gold’ that investors should be looking at again. This ‘gold’ has had a volatile ride over the last few years. But it’s now well past the initial ‘hype’ stage of the hype cycle. This ‘gold’ is now showing that it could be a real long-term hedge against all extremes of the markets.
Not everything has to be physical to be valuable
I’m going to show you one more chart. I want you to ask yourself a simple question before checking out what it’s for. The question is, ‘what asset class do you think this is?’
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Don’t go to the website just yet to find out, if you don’t already know. What do you think this is? This is also a one-year price chart. The price of this asset has gone from US$239 one year ago to US$603 today.
That’s smashed the performance of physical gold by a country mile. In fact, with 152% gain in one year, it smashes most asset classes (except for handpicked small-cap stocks I might add).
Have you figured it out yet?
OK, that’s the price of bitcoin. Yes, the controversial digital currency bitcoin has doubled in price (and then some) over the last 12-months.
You probably haven’t been hearing much about bitcoin this year. But that’s a good thing.
Bitcoin (as a system and as a ‘currency’) has fallen from the public consciousness after a crazy 2013 and 2014. Now it’s steadily building a strong foundation for the coming years.
Almost through the entire 2015 year, the price of bitcoin remained reasonable constant around US$240. And in 2016 it’s taken off. It’s still some way away from its US$1,000 highs of 2013. But it’s encouragingly not going exponential, but consistently rising in price.
Does this recent 2016 rise in prices have anything to do with the uncertainty and extremes of the world markets? You bet your bottom dollar it does.
If the banking system does collapse, as Jason thinks it might, what do you think will happen to the price of bitcoin? In my view it will go bananas, and possibly leave the previous highs of US$1,000 for dust.
In fact my view is that if you want to hedge against a financial crisis and a banking system collapse, your best bet might be a completely alternative financial system — bitcoin.
Of course investing in bitcoin might seem a bit daunting. And for some of you it might even seem impossible. But it’s not. In fact it’s incredibly easy. You just need the right guidance as to how.
I’ve been involved in and following bitcoin since 2010. I know how it works, how to buy it, how to sell it, how to trade it for fiat currency and other ‘cryptocoins’. It’s a lot to understand, and can be overwhelming.
But as I say, with the right guidance from experts, you might just find it’s the most exciting asset class that you’ve ever been involved in. So, as market uncertainty grinds on, and headline-grabbing crises shake the financial system, keep one eye on bitcoin.