Deutsche Bank Permanently in Crisis. What Next?

Dear Reader,

Deutsche Bank has been in crisis since 2016. Currently Deutsche's market capitalization is below 30 bln. USD.

Why is Deutsche Bank in crisis. The main reason, as far as I am concerned, is that the bank took too much risk in the run up to the Great Recession(2008-2009). Deutsche Bank has a staggering derivatives exposure of circa 46 trillion Euro notional. Basically, the bank has to offload all toxic derivatives on its balance sheet in order to remain viable.

Will Deutsche survive on its own? According to me, the short answer is NO. Why? The bank is trading at distressed levels currently with market capitalization of 29.60 bln. USD, while its balance sheet has staggering 1.475 trillion EURs of assets. The bank is a classical takeover target. The problem is no one seems to want it? And why should the other banks want Deutsche Bank? To incur mutlibillion losses due to Deutsche Bank's derivatives exposure?

What will happen with Deutsche Bank? Essentially, there are several options. The German government could take over and restructure the bank for 4-5 years and re-privatize it again. This option, however, is unpalatable to both the German government and Deutsche's shareholders. The second option is Deutsche muddles along, cleans its balance sheet and in 4-5 years starts growing extensively again. The third option is a takeover. I view takeover of Deutsche Bank as the most likely option. The acquirer, though, has to be prepared to swallow billions in losses while the acquiring bank restructures Deutsche.

Basically, Deutsche Bank is in for a rough ride in the next 4-5 years. There will be several rounds of cuts, especially in the investment bank. Billions of losses will be accounted for.

P.S. I do realize I am talking about Deutsche Bank, Europe's biggest investment bank by revenue! Actually, I spent two and a half months as an intern at DWS(Deutsche Asset Management). But the hard facts cause me to express the opinions above.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Some Thoughts on Warren Buffett's Investment Style and His Results!

Dear Reader,

Here I am going to make a small analysis of Warren Buffett's investment style and his results.

I know he is regarded as one of the most successful investors of all time. However, according to various reports Warren Buffett's listed stocks investments portfolio over the past circa 20 years has managed to beat the S&P 500 index by 2.1%.

Why? The reason hides mainly in Warren Buffett's investment style. He invests mainly in listed value stocks i.e. mature companies who have proven their ability to generate substantial profits and revenues in the past. However, these companies do not have excellent growth prospects mainly due to two reasons. First, they are already gigantic in  market capitalization style - most of the time more than 10 bln. USD in market capitalization or so called large cap stocks. Their sheer size constrains them from growing fast. The second reason is that these companies are leaders in already mature industries like banking, financial services, beverages, insurance etc. Even in his private equity style(holds them 'forever') portfolio you will find great difficulty to find companies which have outgrown the rate of growth of the market in terms of revenue or profit or the growth rate of US GDP by substantial amount.

A third reason is that Warren Buffett does not usually invest in growth stocks. Growth stocks in the last 20 years have been predominantly technology stocks and  biotechnology stocks. Warren Buffett is notoriously known to shun technology stocks especially in the 1998-2001 technology bubble. Actually, at these times that was quite a savvy decision.

Recently Warren Buffett invested not so successfully in IBM. 1 Year ago he built a very large position in the ultimate technology behemoth - Apple Inc. Actually due to Apple's size and maturity as a company it is unlikely that this Warren Buffett's investment will also beat the S&P 500 and Nasdaq Composite by a wide margin.

If you want to invest and beat the market by a large margin you have to invest in the current growth stocks which are technology stocks and biotechnology. Or predict the future and invest in the next Big thing i.e. in the next growth stocks. The downside of this strategy is that technology and biotechnology stocks are quite risky measured by their volatility. Some of them could wipe out billions of value in weeks or even become worthless over the long run as evidenced by the 1998-2001 tech bubble.

One advantage of Warren Buffett's investment style is that if you invest in value stocks you can invest huge amounts of money and you have some downside protection - the proverbial 'margin of safety'. But as evidenced by Warren Buffett's investments in Tesco, JP Morgan, Wells Fargo, American Express etc. such companies could also lose tens of billions of market capitalization in months if not weeks. However, Warren Buffett has managed to mitigate these effects by holding a very diversified portfolio - usually holding above 30 individual stocks.

Bottom line. Warren Buffett's investment style has worked brilliantly for his own purposes. But if you are small investor looking to make 50-100% a year you have to invest in much riskier stocks than Warren Buffett does and use much less diversification.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Exxon Mobil Corporation Valuation!

Dear Reader,


Here I am going to make an attempt to value Exxon Mobil Corporation, one of the leading global energy producing companies.

The main driver of Exxon Mobil's stock price is the price of oil. That said I forecast the price of WTI oil and Brent Crude oil to soon exceed 80 USD from the current prices of 67.39 USD and 72.58 USD  currently.

What is more the Exxon Mobil seems to be undervalued on Price to Sales of 1.38. As revenue increases with the price of oil Exxon Mobil's profit will increase accordingly. So the current Price to Earnings ratio of 16.81 will decrease. Basically, most energy companies are value stocks. Their market capitalization has been hurt horrendously in 2014 and 2016 along with the fall of the price of oil. I believe  there are still emotional scars in investors' memory from those falls, so the prices of energy stocks are depressed.

The main  reasons for the forthcoming oil increase to 80 USD are OPEC's production cuts and the possibility of a military conflict which will engulf the whole Middle East along with Saudi Arabia and Iran which are major oil producers. An eventual war could even touch Russia which is the third largest oil producer  in the world currently after USA and Saudi Arabia.

Exxon Mobil with its large scale production is poised to benefit from the coming oil price rise. What is more, the USA which is the main production site for Exxon Mobil is poised to become the world's largest oil producer this year(2018) thanks mainly to the hydraulic fracturing oil exploration boom.

So, I think Exxon Mobil  market capitalization could hit 400 billion USD in 2018 which will reflect a price of circa 94.1864 USD, a 21% premium to the current Exxon Mobil price of 77.84 USD.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

US Stocks down Circa 10%. Is it Time to Buy?

Dear Reader,

US stocks measured by the main indices are down circa 10% from their recent highs.

Is this the bottom? Is it time to buy?

Yes, I think for now this is the bottom for US stocks and this should prove a good buy the dip opportunity.

Why? I think the protectionist trade war between US and mainly China will continue. The result is that China's GDP year on year growth will slow from currently 6.7% in 2016 to 2-3% in the next 3-4 years. I will forecast that China's GDP year on year measured in USD terms will soon even start to contract. These developments will have an effect on the US economy, albeit small. US GDP growth year on year will hover just below 2%. How will this affect stocks? US stocks should continue to rise for the next 2 years driven by the recent tax cuts and continuing world GDP growth.

I think the current economic cycle will end in 2-3 years with a medium, but protracted recession. But for now US stocks should go on going higher. US big 5 technology stocks will benefit the most in the next 2-3 years until the recession ensues. When the world's GDP starts falling again US technology big 5(Apple, Google, Amazon, Facebook, Microsoft) will loose more than 40% of their current market value. Why? Because, basically the US top 5 technology stocks are overpriced, in a small bubble. The bubble will burst and will coincide with the world's economic recession, saturation of the smartphone market and stricter government regulation.

Global banks will benefit handsomely in the next 2-3 years having in mind that the Federal Reserve  and Bank of England are already raising rates and soon the European Central Bank will start raising their target interest rates. Commercial banks will benefit from the higher interest rate environment by raising the rates on credits more than they raise the rates on deposits. What is more, currently global banks are undervalued. They are value plays and they will soon start to realize their potential.

I expect soon oil stocks will rise by 20-30%. I forecast that both WTI and Brent crude oil will exceed soon 80 USD. This will benefit hydraulic fracturing oil extracting companies the most, since they are high cost producers. Other oil companies, especially major ones will also increase their market capitalization by a wide margin.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich