The Global Bond Market Bubble DWARFS the Housing Bubble

The global Central Banks, driven by their Keynesian lunacy, have induced the single largest misallocation of capital in history.

Nowhere is this clearer than in the bond market today.

Do the following sound normal?

1)   Globally 45% of all Government bonds yield less than 1%.

2)   Spanish and Italian bonds are at levels not seen since the Black Plague.

3)   German bunds have NEGATIVE yields as far out as 8 YEARS.

4)   The 10-YR US Treasury yield is at levels not seen since we were in a World War.

True, the world faces issues today… so it’s not odd for bond yields to be lower… but are those issues on par with a disease that wiped out 25%+ of Europe’s population… or the single largest military conflict in history?

The bond market is now over $100 trillion in size. The large banks have used a small portion of this (under 10%) as collateral to generate over $551 trillion in derivatives.

The bubble is so massive, that the Treasury department had survival kits delivered to the large banks around the country in anticipation of a crisis.

The NY Fed, similarly, is increasing the scope of operations in satellite office Chicago branch in preparation of a natural disaster or other eventuality could shut down its market operations as it approaches an interest rate hike…”

And then of course there are the big banks themselves… who lobbied Congress to the put taxpayers on the hook for their (the banks’) future losses on their gargantuan derivatives portfolios.

The simple truth is that the Central Banks bet the financial system on their academic theories… and have found that the system didn’t respond as they hoped. The economic “recovery” is the weakest in 80+ years… and that’s based on data that OVERstates growth.

The Fed’s own research shows that its QE programs only dropped unemployment by 0.13%… spending over $390,000 per new job created between the start of the crisis and the alleged end of the recession.

The ECB hasn’t done any better. It is not actively CHARGING depositors for sitting in cash. Several EU nations are now showing metrics on par with 3rd world countries.

And then there’s the Bank of Japan… which has induced a record high number of Japanese on welfare… and boosted the misery index to a 33 year high (mind you, this period of 33 years includes the collapse of the biggest asset bubble in Japan’s history… and people are MORE miserable NOW).

Another crisis is coming. And judging from the actions of the Fed and others to prepare (survival kits etc) it’s going to be far worse than the 2008 collapse.

Smart investors are preparing now.

If you’re looking for actionable investment strategies to profit from the coming collapse, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

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Best Regards
Graham Summers
Phoenix Capital Research

The Black Swan Your Broker Won’t Tell You About

The US Dollar as we know it, derives its value based on where it trades against a basket of other currencies. Some 56% of this basket is comprised of Euros. Because of this, moves in the Dollar and the Euro tend to be closely correlated.

So, when the ECB cut interest rates to negative in June 2014, capital began to flow aggressively away from the EU and into the US Dollar. This in turn kicked off a strong US Dollar rally.

Which in turn began to implode the $9 trillion global US Dollar carry trade.

Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.

When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

Below is a chart showing the inverse US Dollar (meaning that when the Dollar strengthens, the black line falls) and the Euro (blue line). Note that the two move almost lockstep together:

This situation is not over. The US Dollar carry trade did not clean itself out in the space of six months. Again, there are over $9 trillion in borrowed Dollars floating around the financial system. If the US Dollar continues to strengthen at a bare minimum 50% of this will need to be unwound.

If you’re looking for actionable investment strategies to profit from the coming collapse, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

You can try Private Wealth Advisory for 30 days (1 month) for just $0.98 cents

If you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep…

To take out a $0.98 trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards
Graham Summers
Phoenix Capital Research

The Fed Has Bet the Financial System on Misguided Theories

The Fed has bet the financial system on academic theories, that upon close inspection defy even basic common sense.

One could easily write a multi-volume set of books on the Fed’s mistakes. However, in its simplest rending, the biggest flaw in the Fed’s models pertains to its total lack of understanding of human behavior.

The Fed believes that if interest rates are low, investors will seek out higher returns by piling into stocks or even real estate. As these asset prices rose, the investors would feel wealthier and so go out and spend more money… which in turn would drive the economy towards growth (70% of US GDP stems from consumer spending).

Of course, the Fed’s model is far more complicated than this, involving all kinds of “clever” math equations… but ultimately the Fed’s recipe for growth is “cut rates and if necessary, buy bonds with newly printed money and growth will appear.”

The only problem with this all of this is that people buy things with income not based on where their stock portfolio is trading (assuming that have a portfolio, but that’s a issue for another time).

When you go to buy groceries or a new suit, you don’t stop to think where stocks are trading. You think about how much money is in your bank account based on your salary… or you use a credit card and project that you’ll have the money to pay off your debt down the road.

After all, the money you “make” from higher asset prices isn’t actually real money unless you sell the asset. You cannot go into a store and offer to pay your bill with part of your stock portfolio. And most investors have the bulk of their portfolio money in 401(k)s, IRAs, and other investment vehicles which they cannot easily convert into cash without facing a penalty.

Who on earth thinks “I will buy this item today because stocks are up and several years from now (possibly decades) I will sell my stocks and have a lot of money”??? No one but Fed officials apparently.

So while the Fed’s policies haven’t generated any significant growth, one thing they have accomplished is a total mispricing of risk in the financial system. Again, the reason for this has to do with the Fed’s complete and total lack of understanding of basic human nature.

When the Fed began announcing QE programs, the single most obvious trade in the whole world became “front-running the Fed.”

In this trade, traders would buy Treasuries at Treasury auctions only to then turn around and sell the bonds to the Fed a few days (or maybe a week or two) to the Fed. After all, if you know that someone else is going to be buying bonds at a certain date and time in the future… and you know they’re not going to be too picky about the price they pay…why not try to game this system to eek out a profit?

By piling into bonds, traders forced prices higher and yields lower: precisely what the Fed wanted. These folks were looking for profits while the Fed was looking for lower yields (meaning higher bond prices). It’s a match made in heaven.

So how screwed up is the risk profile in the world? Today, the yield on the 10-year Treasury (the benchpark for riskless money according to modern financial theory) is yielding less than 2%

If you were to go all the way back to 1790, the yield on the 10-Year Treasury (or its equivalent at the time) has been lower than it currently is only one time before the Fed started its QE programs, and that was in 1945 at the end of WWII.

Treasuries actually yielded MORE than they are now in the depth of the 2008 collapse when everyone thought the world was ending.

These bonds are the benchmarks for “risk” in the financial system. Stocks, corporate bonds, mortgages, auto loans, emerging market stocks… everything you can name are ultimately priced based on their perceived risk relative to the “risk free” rate of lending money to the US for 10 years.

And believe it or not, Treasuries are actually one of the BETTER bonds to own from a yield perspective. Globally over 45% of Government bonds yield less than 1%… and €2.1 TRILLION in EU bonds now have NEGATIVE yields.

Put another way, the financial landscape is now so screwed up by the Central Planners, that investors are actually INCINERATING their money by lending it to Governments.

What’s coming will be the largest Crisis in financial history. Globally the bond bubble is over $100 trillion in size. It literally dwarfs stocks.

And the ENTIRE bond market is mispricing risk.

This mess will burst just as all bubbles do. And when it does it will be ENTIRE COUNTRIES, not just banks that go bust.

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:

http://www.phoenixcapitalmarketing.com/roundtwo.html

Best Regards

Phoenix Capital Research

 

 

 

 

 

 

 

 

 

 

Are Stocks Heading For a 1929-Type Crash?

In the early 2000s, Alan Greenspan was worried about deflation. So he hired Ben Bernanke, the self-proclaimed expert on the Great Depression from Princeton. The idea was that with Bernanke as his right hand man, Greenspan could put off deflation from hitting the US. Indeed, one of Bernanke’s first speeches was titled “Deflation: Making Sure It Doesn’t Happen Here”

The US did briefly experience a bout of deflation from late 2007 to early 2009. To combat this, Fed Chairman Ben Bernanke unleashed an unprecedented amount of Fed money. Remember, Bernanke claims to be an expert on the Great Depression, and his entire focus was to insure that the US didn’t repeat the era of the ‘30s again.

Current Fed Chair Janet Yellen is cut of the same cloth as Bernanke. And her efforts (along with Bernanke’s) aided and abetted by the most fiscally irresponsible Congress in history, have recreated an environment almost identical to that of the 1920s.

Let’s take a quick walk down history lane.

In the 1920s, most of Europe was bankrupt due to after effects of WWI. Germany in particular was completely insolvent due to the war and due to the war reparations foisted upon it by the Treaty of Versailles. Remember, at this time Germany was the second largest economy in the world (the US was the largest, then Germany, then the UK).

Germany attempted to deal with the economic implosion created by WWI by increasing social spending: social spending per resident grew from 20.5 Deutschmark in 1913 to 65 Deutschmark  in 1929.

Since the country was broke, incomes and taxes remained low, forcing Germany to run massive deficits. As its debt loads swelled, the county cut interest rates and began to print money, hoping to inflate away its debs.

When the country lurched towards default, US and other banks loaned it money, doing anything they could to keep the country from defaulting on its debt. As a result of this and the US’s relative economic strength compared to most of Europe, capital flew from Europe to the US.

This created a MASSIVE stock market bubble, arguably the second largest in history. From its bottom in 1921 to its peak in 1929, stocks rose over 400%. Things were so out of control that the Fed actually raised interest rates hoping to curb speculation.

The bubble burst as all bubbles do and stocks lost 90% of their value in a mere two years.

Today, the environment is almost identical but for different reasons. The ECB first cut interest rates to negative in June 2014. Since that time capital has fled Europe and moved into the US because 1) interest rates here are still positive, albeit marginally, and 2) the US continues to be perceived as a safe-haven due to its allegedly strong economy.

This process has accelerated in 2015.

  • Globally, there have been 20 interest rate cuts since the years started a mere two months ago.
  • Interest rates are now at record lows in Australia, Canada, Switzerland, Russia and India.
  • Many of these rates cuts have resulted in actual negative interest rates, particularly in Europe (Denmark, Sweden, and Switzerland).
  • Both the ECB and the Bank of Japan are actively engaging in QE programs forcing rates even lower.
  • All told, SEVEN of the 10 largest economies in the world are currently easing.

Because the US is neutral, money has been flowing into the country by the billions. A lot of it is moving into luxury real estate (particularly in LA and York), but a substantial amount has moved into stocks as well as the US Dollar.

As a result of this, the US stock market is trading at 1929-bubblesque valuations, with a CAPE of 27.34 (the 1929 CAPE was only slightly higher at 30. And when that bubble burst, stocks lost over 90% of their value in the span of 24 months.

Another Crash is coming… and smart investors would do well to prepare now before it hits.

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:

http://www.phoenixcapitalmarketing.com/roundtwo.html

Best Regards

Phoenix Capital Research

 

Stocks Are In the Second Biggest Bubble Since 1870!

By almost any measure, stocks are sharply overvalued. Warren Buffet’s favorite value metric for stocks is Total Market Cap of the market/ GDP.

Today we find this metric showing stocks as sharply overpriced. As Doug Short recently noted, only the Tech Bubble was more expensive.

This is true going back even to 1870.

Of course this doesn’t mean stocks cannot rally further. But it doesn’t bode well for long-term returns for the market in general.

This is also true from a CAPE perspective.

As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.

Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.

CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.

Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns. Indeed, CAPE outperformed:

  1. P/E ratios
  2. Government Debt/ GDP
  3. Dividend yield
  4. The Fed Model,

…and many other metrics used by investors to predict market value.

So what is CAPE telling us today?

The CAPE is at its 3rd highest reading going back to 1890. Only the 1929 bubble and the Tech Bubble were more expensive relative to earnings.

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

Put another way, even with RECORD HIGH profit margins, the market is overvalued on a scale rarely seen in the last 140 years. One can only imagine what the REAL CAPE would be if we removed all the accounting gimmicks from earnings.

Stocks are in a bubble. And it is one of the largest bubbles in the last century, larger even than the 2007 bubble, which preceded the 2008 Crash.

Another Crisis is coming. And based on the size of the bubble today, it will be worse than the 2008 one.

And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.

If you’re looking for actionable investment strategies to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for under six months.

In fact, we just closed two new winners of 20% and 52% yesterday!!!

And we’ve only closed ONE loser in the last 7 months!

You can try Private Wealth Advisory for 30 days (1 month) for less than $10…

If you decide you like it, an annual subscription will kick in and you’ll be charged the remaining $190 of an annual subscription.

But if you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep...

To take out a $10 trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers