For several years we have seen the banks of Europe floundering, pressured lower under the weight of enormous debt obligations. Years and years of excesses, bad loans, high unemployment and risky lending finally caught up with the group. As a study, if we just take a look at major Italian banks, including the oldest on the planet (Monte Paschi, since 1472) the value in stock prices has vaporized. Most of these banks are teetering on the brink of bankruptcy, and still Europe's economy has not improved enough to offset the powerful negatives of mounting bank debt.
While the European Central Bank has acknowledged the problems and tried their best to kick the can down the road, there is only so much an aggressive monetary policy can do. Given the largess of central bank money thrown at the banks since the financial crisis it makes one wonder if this is just a house of cards waiting to tumble.
For its part, Deutsche Bank (DB) has had its share of troubles, the equity losing much of its value over the past couple of years amid rumors of bad loans, massive fines from the U.S. for their role in the financial crisis. Recently, the stock hit the lowest levels ever for this giant bank, the biggest in the region. We might compare DB's importance to Bank of America (BAC) or Citigroup (C) , a holding in the Action Alerts PLUS portfolio, here in the U.S. And for better or worse, DB is a bank that is "too big to fail."
But as we embark on a new year there is optimism once again for Deutsche Bank, and the charts as usual get right in front of it. We have seen the stock move higher by 50% off the lows where sellers were hitting the stock hard, but it is well off the lows now and and even 50% below the highs from 2015. Technically the stock is strong and continues to gain money flows from institutions.
A strong DB sends a good message to the euro region. While it won't be a straight line up in 2017 we believe this stock will benefit from an improved euro economy over the next couple of years (and world economy) along with a steeper yield curve. We could see this stock easily double over the next year or so.
