Wednesday, 21 August 2019

A Analysis

This is the 4th installment of our public service announcements on Deutsche Bank subsidiary, Xetra-Gold's gold note offerings. Since a lot has been covered already, it's advisable that you read the first 3 articles to catch up:

  1. Veritaseum Knowledge Exposes Frightening Counterparty Risk At Deutsche Bank for "Gold Investors"
  2. Is Deutsche Bank Prepping for Fraud Charges Against It's Gold Derivative Products?
  3. The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold

Now, that we have determined that Deutsche Bank subsidiary Xetra-Gold "may" not have been fraudulent, mainly because they stated in their prospectus things that contradict and befuddle the misleading things they stated in their marketing material, we are left to ponder, "Well, we know the offering was unethical, but was it illegal?" Unfortunately, I'm not a lawyer thus cannot accurately opine on such. Alas, I can speculate as a laymen. The Xetra-Gold derivatives were offered in the UK, as well as several other jurisdictions. Let's peruse the UK perspective via the FCA in the difference between clear and misleading financial advertising:

"Financial adverts and promotions can be misleading for many reasons, but there are some questions you can consider to help you spot and avoid misleading financial adverts, such as: ... Are there important points that are only shown in the small print?"

Hmm... Let's take a look at the Xetra-Gold advertisement, and cross reference it to it's prospectus:

DB Xetra-Gold false advertising test

You guys tell me, is this a blatant case of false advertising, or is it not? Let me know in the comment section below. It's not as if DB is totally innocent in these matters, for they just signed a consent order admitting the manipulation of gold prices. This goes deeper than many may care to admit. Deutsche bank seems to be dumping its gold exposure, and what better way to dump it than to sell it unsuspecting gold derivative note buyers. This is how it could be going down...

Deutsche Bank, through it's Xetra-Gold subsidiary, has a guaranteed, zero premium call option.

  1. DB/Xetra-Gold accepts money from investors who are told they are buying gold, from “an economic perspective”.
  2. DB/Xetra-Gold takes money that was supposed to buy gold (at least in the eyes of many investors) and does whatever they want with it (which could include buying gold) because gold delivery on demand is not guaranteed and the investors have been disclaimed against ownership of, and rights to, the gold underlying as well as price correlation, and failure to deliver.
  3. If the price of gold goes up, DB/Xetra-Gold can fail to deliver (as disclaimed) and keep the capital gains profits. They don't even have to match the price of the gold underlying. or return the initial investment.
  4. If the price of gold goes down, DB can deliver gold on demand and keep the spread from gold spot and the price originally charged for the gold notes.

This is good work, if you can get it, no? 

This is how a company like DB can have over 90% in profitable trading days, because they never had a chance of losing in the first place. The losses belong to their clients! This is speculation, of course (wink, wink). Now, legal eagles say that we can't scream fraud, because Deutsche clearly says they have the motivation to, and the ability to, rip you off in their prospectus (but not in their marketing materials).

DB

Which leads us to the end of "The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold", where John Titus (see his videos at the end of this article at the bottom) explained to me after I queried about misleading and contradictory marketing materials:

I asked, "If marketing materials are negatively contradicted by the prospectus then the marketing materials are fraudulent and misrepresentative, no?" He replied...

Misrepresentative, yes (accepting your definition of economic), and the marketing materials probably do in fact flout any number of laws against false advertising.
 
But fraudulent, no. The essence of fraud is to falsely induce someone by words or acts into doing something against his interests that he wouldn't have done but for the dishonesty. Courts consider the totality of the circumstances. So while you would undoubtedly tear the economic investment statement to shreds, you'd still be left with the many other statements from the prospectus that are true, and herein lies the problem.
 
The UK Fraud Act of 2006 is a criminal statute. So each element of the crime has to be proved beyond a reasonable doubt (or whatever the English equivalent burden of proof is). The first element of fraud by false representation under the Act is "dishonestly makes a false representation." The problem posed by the prospectus is that it would preclude a finding that DB acted dishonestly beyond a reasonable doubt. I mean, you've got one false (but arguably vague) statement vs. several clear-cut disclaimers that are accurate. The totality of the statements are perhaps half false and half true, but dishonest beyond a reasonable doubt? Fuhgetaboutit. DB played the game with all of its cards face up. Yeah, they contradicted each other, but they were damn sure visible to investors, who can claim they were misled only in a subjective (personal) sense, not in an objective way (which is how a judge would look at it).
 
Now, if--in addition to the mktg mat's and the prospectus--you've got some Goldman-like behavior where DB took out massive insurance policies on the investments it sold and concealed them from the buyer, it's a totally different story."

Hmmm... On that note, let's take a look at whether DB has been a net buyer or net seller of gold exposure. Remember, Goldman, sold MBS structures to clients and then took big short positions betting against their own clients, reference "Goldman 'bet against securities it sold to clients'.

The subcommittee also released four internal Goldman Sachs emails. In one, says a subcommittee statement: "Goldman employees discussed the ups and downs of securities that were underwritten and sold by Goldman and tied to mortgages issued by Washington Mutual Bank's sub-prime lender, Long Beach Mortgage Company. Reporting the 'wipe-out' of one Long Beach security and the 'imminent' collapse of another as 'bad news' that would cost the firm $2.5m, a Goldman Sachs employee then reported the 'good news' – that the failure would bring the firm $5m from a bet it had placed against the very securities it had assembled and sold."

Goldman is fighting to clear its name after the $1bn fraud charges brought by the US Securities and Exchange Commission last week, and wants the case settled in court.

The movie, "The Big Short" dramatized this rather well.

Well, guess what it looks like Deustche has been doing...

DB gold exposure expressed as VaRDeustche has been a net seller of foreign exchange risk, which includes (wait for it now, and guess....) gold! They probably were not cash sellers, but purchased swaps to reduce exposure, possibly along the parameters I mentioned above with the guaranteed, zero premium call option.

If you enjoy this free analysis, there's much more where this came from as we pick apart many other banks in our paid research and knowledge modules. WE just finished a true forensic valuation (very extensive, and detailed analysis) of a very large European bank that led to a huge short recommendation. Subscribe here and pass the word. Our bank analyses have performed very well in 2016, with Banco Popular and Banco Popular Milano doing roughly 40% to 80% in theoretical returns (contingent on how the positions were taken). We have done an excellent job historically as well, calling the fall of Bear Stearns, Lehman, Countrywide, GGP, etc. If you think the free stuff is intense, you should see the stuff that we sell!

With nearly a billion USD invested in blockchain related startups over the last two years, even the true luddites are starting to take notice. Most still have no idea what this tech is capable of, so my job is to show all the light. On that note, I present a step-by-step guide to Collateralizing and Ensuring Physical Delivery of Gold Through the Blockchain - Faster, Cheaper, Safer!

What many may not realize is that Veritaseum, when used with our commoditized intellectual capital (Veritas), can actually move the value of, and secure, physical assets through the blockchain. This is the trade architecture from a high level.

Veritaseum Pitch Deck

If one where to speculate or hedge the value of gold, you can receive the price value of gold in exchange for USD (or EUR, or even forex pairs such as EURUSD, or even other assets such as copper). The Veritaseum contract would look like this...

Recieve

This is a speculative/hedging contract receiving the derivative gold price and paying the derivative USD price over the weekend to NYSE market close on Monday. Yes! This is cool, but suppose you actually wanted to take physical delivery of said gold rather than take cash settled exposure? Well, to do that you still enter into this contract with the seller of said gold, but set the expiry date at time certain in the future for physical delivery of said gold (to be provided and guaranteed by the transportation service). Let's assume that time and date is as stated above. Said transportation service feeds into the Veritaseum system (via a custom implementation created through a Veritas purchase) and upon delivery confirmation of the physical gold the contract unwinds and the seller gets the buyer's funds plus a refund of their deposit which is put up as BTC collateral linked to the USD price - essentially paying him in USD up front - but locked into the blockchain. The buyer of the physical gold has been hedged into the GLD price this entire time and exchanges his gold-linked BTC for actual physical gold upon arrival as this BTC is released to the physical gold seller along with his USD-linked deposit. With such an arrangement, the gold purchase transaction can literally happen immediately, with all parties hedged into their respected requested exposures as they await physical delivery of the underlying.

If the physical gold does not arrive for whatever reason, the buyer still has his direct gold price exposure - basically a win-win situation. If the seller did not deliver the physical gold, then he/she will be forced to pay as if they sold and delivered the gold anyway by being exposed to USD price exposure relative gold and not receiving that deposit back until the end of the contract - whose expiry was defined as provable physical delivery of the gold.

But what about being exposed to BTC price volatility?

For those who do not want to be exposed to BTC volatility, simply open the advanced tab on the markets tab/interface and lever the contract to "outrun" your perceived exposure to BTC volatility. If you feel bitcoin will have an 4% standard deviation and you lever 5x, you will significantly mute said price delta in your trade results (the actual amount of leverage to use can be calculated using our trade modeling spreadsheet - in this case, 5x is rather excessive for an expected 4% STD).

Recieve GLD lto USD evered 5x

This what that "smart contract" would look like...

Recieve GLD lto USD evered 5x contract

This is what the entire trade would look like, levered 5x with BTC featuring 4% volatility.

Recieve GLD lto USD evered 5x contract trade results chart

Recieve GLD lto USD evered 5x contract trade results descriptionRecieve GLD lto USD evered 5x contract unbounded PL 

Download the Veritaseum wallet and all tools needed to conduct this transaction (sans the physical gold and BTC, of course) here. Purchase Veritas (our tradeable Intellectual Commodity token) here.

Feel free to contact me directly here - I love to chat.

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ReggieMiddleton @fortunekr75 @venmo We have our own internal USD token. We actually use our metal tokens as private currency for transactions.
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