And well tell you if this is the next notouch sector for the rest of the year. First, the story of the day is shares of Deutsche Bank falling on a report that hedge funds are pulling their money from the beatendown bank through their prime brokerage accounts. Shares fell to an alltime low. Financials went down along with it. The question is simple. Is this shades of 2008 all over again or is this simply a problem with Deutsche Bank . First we want to go to kate kelly. Reporter melissa, good to be here. A number of issues plaguing Deutsche Bank, starting with the report that ten hedge funds were removing capital from the bank, presumably from their prime brokerage accounts but also through their derivatives positions that they had on. Bloomberg mentioning three specific names. I can tell you now, ive spoken to someone familiar with the matter at capula investment management, a European Fund managing 14 billion. They are definitely reducing the capital they have at Deutsche Bank, according to the person. However they do maintain a relationship with deutsche. They have not bailed out altogether. So clearly they still have some faith in deutsche. Another thing i want to mention, breaking news as well, a number of hedge funds that have client relationships there, it appears some of them are demanding triparty trading relationships with deutsche. What does this mean . This means they do not want to face deutsche as a credit counterparty on all of their trades. I dont have a sense of scope of this but i just hung up with unwith Hedge Fund Manager who says were asking a third party be the one to face us as a credit counterparty on trades and Deutsche Bank can be involved but we dont want to be directly exposed to them on some of these. Clearly youre seeing behavior that we saw during the financial crisis when it came to bear stear stearns, to lehman, or even morgan stanley. I dont want to raise alarms, this is contained right now, it would seem. Everyone ive talked to, melissa, still wants to do business with Deutsche Bank and theyre figuring out ways to do that. However there is a lot of concern. We should note Deutsche Bank earlier today put out a statement for its part saying that we are confident that the vast majority of their clients have a full understanding of their position. Kate, what is at the heart of these moves in terms of concerns . Reporter i mean, obviously you have reports earlier this week that the Justice Department was looking for a 14 billion settlement from deutsche, deutsche saying even then theres no way were going to pay that. And in that very sorry it said lower down, they bougthought 2 3 billion was the more reasonable payment for the issues in question. Clearly theres a widespread there. Its a liquidity concern. Reporter right. I mean, obviously this is something they have to pay out quickly. And the question is can their Balance Sheet really sustain that. Obviously theyre also operating in a low growth environment within europe, in germany, which has seen its share of issues economically and the Banking System. Can their Balance Sheet sustain this . What about the fact that some of these clients are getting concerned and pulling capital . The issue here, and we have to be mindful of this as well as part of the media is, how serious is the confidence loss . Will it get worse . Can it with contained . The bank says it can be contained and their clients understand the full picture. Kate, when you talk about clients pulling capital, this is not regulatory capital. This doesnt affect deutsches Capital Position when we think about it from their strength. This is customer capital, right . It isnt counted. I just want to be very clear, its the same word and its a scary word when you hear about a bank thats lost a ton of equity value. But thats not regulatory capital, right . Reporter right. But banks are still highly leveraged, right . If they have to give a hedge fund back money in a short period of time, next day, a week, what have you, they have to look to the cash they have on hand, and that could become an immediate issue. That was the financial crisis scenario. Were obviously in a different world today, but thats where people get nervous. Kate kelly with breaking news on Deutsche Bank, thank you. Of course this was the story of the day. Whether or not you believe this is a Systemic Risk or not Systemic Risk, it took the financials down. It took the markets down, selling begatt selling. Let me make a really important point. If you prime broker there, the risk reward from pulling your account is very small, right . You can go somewhere else. Risk reward from owning even if you believe Deutsche Bank, even if you do. Its very different for the equity, though, thats a very different equation. Okay. Its a great point. The counterparty risk and whether you want to do deutsche as a counterparty is what it comes down to. This is where the lehman crisis becomes relevant. What karen is talking about, you may have heard of hypothecation, having the bank reuse that collateral and pledge it away. Again, there are risks, rehypothecation risks that could be out there. When you think about Deutsche Bank, just think about the various issues theyve had with the regulators. They had a big scandal with their russian unit that went back to london a couple of months ago. Its not just a bad Balance Sheet, but you wonder about control. So i wonder, though, as we go into yearend, everybody has talked about a yearend rally, you start to limit where youre going to put that money, somewhat sectors. We had head wins for the biotech, then headwinds for the financials, then headwinds for the utilities. Were closer to a rate rising cycle than a rate lowering. Then you add another layer. You add wells. Now you add another layer of headwinds. So you get funneled into energy, maybe. That sold off along with Deutsche Bank because it was risk off across the table. This puts into question for me any type of yearend rally. I do think ultimately they get bailed out. But i think its a game where theyll try to have that 2 to 3 billion even lower. Theyre try to play a dangerous game. I worked at drexel, i started at 86. The lifeblood in this industry is having people that will trade and do business with you. When people start to pull back, youre effectively done. Im not suggesting thats on the verge of happening, but thats one of the things thats being talked about right now, number one. I think collectively weve talked about Deutsche Bank, now its becoming seemingly a household name. Im not smart enough to know if this is somewhat systemic, if its bear stearns or lehman. I also cant discount out of hand that its not. I mean, there are clearly things going on with the largest derivatives book in the history of derivatives book. It gets scarier each day. What would you say about the comparisons being made to 2008 . Just mentioning Deutsche Bank in the same sentence as a lehman or bear stearns, that sends shivers down most peoples spines. I feel like its very different. When you look at lehman, their issue was the level 3 book, bigger than their book value, they werent marking it down, it was underwater for sure. And that risk was elsewhere at the time. This seems more unique to me. I understand you have giant derivatives book. Other people are on other sides of that book. Like, you know, aig. This was systemic everywhere. This feels more unique to me. Not enough for me to say, you know what, high go and buy it. Lets take a step back and say theres little to no impact on u. S. Financials. Could the impact just be the impact on the european Banking System . Weve got Commerce Bank announced its suspending its dividend and cutting 20 of its workforce overnight. Weve got Deutsche Bank which is feeling some pressure here as well. Could there be just a risk to europe and therefore a risk to us . No. Its contained to deutsche . I think too big to fail in the case of Deutsche Bank is too big to fail for everybody. I think you have a situation where one of the reasons why deutsche is getting badly hammered by u. S. Regulators is because theyve set up a very big business in this country. Global cross payments means theres a lot of Collateral Damage here. Again, were talking about Different Things in terms of where we were with lehman brothers, although theres no question that the Capital Markets business of deutsche has them in a lot of different pies. I hate the risk to Angela Merkel. I dont like having her be put in a very vulnerable position, which this does. You mean having her not reelect reelected . Yes. What does she do fell if Deutsche Bank needs to be saved. Shes said shes not going to do it. And deutsche said theyre not looking for a bailout. None of them say hey, we need a bailout, dont tell anyone. That very well could be true. But i think Angela Merkel is a very stabilizing force, particularly in a profostbrexi world. She has to deal with it one way or the other. Populism in germany is possibly a bigger issue than any other party in europe. Her party just lost a huge Regional Election in berlin. You would say, let them go under. I think so. What is that impact . If thats what you think shes going to lean towards, because in fact politically it may be more important to look as if were going to protect the people, even though protecting the people is probably bailing out this bank. It absolutely is. Lets get to the decline in Deutsche Bank nearly a year ago. Take a listen to our show last september. What i see is a double top. I see welldefined lows. And my bet is Deutsche Bank breaks. Thats not good for banks. Thats not good for equities. Biggest bank in europe. Somethings wrong. Now, cornerstone macros carter worth is back at the smart board. Carter, now what do you see . Probably the same thing, somethings wrong. In your discussion, think about all the negatives that were discussed there. Before we get to the charts, what makes someone taking all the facts, saying right now, i got to go out and get me some Deutsche Bank shares, thats the problem. I mean, its all pretty grim. One could say its an opportunity. I think the cautious money or the cagey money, either way, has to presume this goes lower. So long trying to get an easy way out or shorts trying to take advantage. Here is the chart, blue line, the stock 600. Index itself versus the bank index within the stock. So the s p 500 of europe. We see the spread, obviously. Im going to add Deutsche Bank. Thats the same chart over five years, and of course Deutsche Bank, which is a big part of this stock, considerably worse. Lets pull it back a little further. Here now is going back some 25 years. Whats so remarkable of course is even as europe bounced, the banks are still at their crisis low. Now, they havent made a new low. Guess which one has, of course . Deutsche bank. Its well below its crisis low. Banks in general at their crisis low. Deutsche bank well below. I would just say somethings wrong, has to be. How do you draw the lines . You can draw them a lot of different ways. I think optically, thats as good a way as any. Weve broken down through the bottom of this. Theres no telling how far it can go, including all the way. You know, these kinds of things have to be considered. Just to put this in perspective, here weve got Deutsche Bank at 15 billion compared to jpmorgan, 237. I mean, 15 versus those big banks. Or how about some stocks in the s p 500 . Deutsche bank at 15 billion is the same as a cosmetics company, same as vulcan materials, one semiconductor or people who make auto parts . Thats not good. I think lower. So before you had some interesting terminology when you had the chart that indicated this wedge sort of getting to the point where we are now. You said it could go i think you said Something Like theres no telling how far it could go. What do you mean by that . Meaning if you have a strike of buyers and you have people who are either forced to sell or want to sell, if can drop 6 in a day, why cant it drop 10 . Why cant it drop 6 and 6 and 6 day after day . Why cant they get cut in half . Anything is possible once youre in a position like this, whether its the confidence that disappears, or just the fact that theres no one to take the other side of a sell ticket. Deutsche bank is now 15 billion in market cap or so. Does this mean the European Bank index cant go higher without Deutsche Bank . Whats your verdict on that . Remember, of course, thats a broad aggregate. It shows there too, if you were to look at that aggregate versus the u. S. Bank index, the bkx, it tells a story as well. Were nowhere near lows. Does this have a Ripple Effect for europe, for u. S. Banks . What is it about anything ive said or your previous discussion that makes one want to buy Deutsche Bank or maybe buy Credit Suisse or anything thats maybe related in some form or fashion . All right, carter, thank you. Carter worth. The man who called it right on Deutsche Bank a year ago. Now what . Brian kellys been on this as well, now what . Tim could speak about the dkx better than me. That think topped out in 2015. If the dkx starts to roll over, that could be the tell for the Broader Market in the united states. Tim might disagree. I think the dax is a big indicator. If the russell fails here, thats not a good sign. We absolutely in my opinion have to hold 2135 in the s p 500. My short term view is not constructive. I think the quarter end tomorrow could be very sloppy based on upon sentiment right now. When i think about the s p, this was a week where you should have seen a breakout. We didnt get it. We talked about this with jeffrey gundlach. I think this is a very, very difficult time for markets when you also weigh in the fact that youve got the volatility from the political sphere. It says to a lot of people i dont need to be fully vested here. When you think about how the European Banks are acting, just because Deutsche Banks got a 15 billion market cap doesnt mean that thats necessarily accurate to what its value is. Lets face it, it effectively has been nationalized or will be. Thats the conversation were having here. So if it was truly 15 billion stands on its own or Deutsche Bank walked in to get a mortgage at wells fargo, they would get turned down. They said get a credit card. They got 160 plus billion dollars of debt to their 15 billion of market cap. Jeffrey gundlach of doubleline who weve had on this show has said Deutsche Bank will go lower until the European Bank gets a bailout. If it gets lower and hes right, how much, karen, pressure on the u. S. Financials . People can argue until theyre blue in the face that theres no Systemic Risk. I mean, i dont think that this Deutsche Bank situation can exist that long, right . I think it needs to be fixed or addressed in a pretty significant way. Whether youre a highly leveraged Financial Institution like they all are, thats the nature of the structure, you dont have a lot of time. This is not like a retailer. People dont care if its bankrupt or not, theyll shop there. Up next, it bucked the downward trend today, well give you the name. Plus a congressman giving it to wells fargos ceo today, but they had no problem taking wellss campaign contributions. Well tell you which representatives took the most money. Later, stocks getting hit today. Well tell you whether the biggest bull on the street, tom lee, is buying, when fast money returns. Myygienist said the most raom tng. She said i shod think of my teeth like an pl it could bher advice . Outside not so great on the inside. Use a tootaste and mouthwash that strengtns both. Go pro with crest proheth advanced. Its uniquy formulated with acvestrength technology to strengthen teeth inside and is better at strengthening the outside than colgateotal. Crest toothpaste and mouthwash makes my who mouth feel amazing. Advance to healthierums and stronger teeth from day one. My checkup was great. Crest. Healthy, beautiful smiles for fe. Welcome back to fast money. One dow stock held on to gains. Caterpillar rallying 1 on the day, the best performing dow stock this year. Quite the turnaround. If the Global Economy is so soft, why is the stock doing so well . Guy . Because people look at where can i find value in an environment where people are looking for valuation or people are looking for yield, i think they go to caterpillar for valuation. I think you made a great point, started the year at 56 or so, trading in the 80s. Thats a great run. Go back a little bit, though. Back, back. Way back, wow. Topped out 120 a few years ago. Its actually down 30 from its all time highs on a Broader Market take thats up significantly. Yes, its havi