The Fed Is Sitting On a $191 TRILLION Time Bomb

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this.

The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system.

Let’s walk through this together.

Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.

Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt.

This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year.

So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.

However, there’s an even bigger story here.

Currently US banks are sitting on over $236 trillion in derivatives trades.

Of this, 81% ($191 TRILLION) are based on interest rates.

Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates.

Guess which banks did this?

The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America.

In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up.

What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO.

Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.

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Best Regards

Graham Summers

Phoenix Capital Research

How to Use Market Volatility to See Extraordinary Gains

This is a trader’s market.

The markets are showing us sharp moves up and down. And while “buy and hold” investors might find this a unpleasant, short-term trades can use moves like this for large gains.

Consider the last four months. Overall, the market has barely budged higher… but if you’d used this volatility to trade the market… you could have made a killing.

 

 

 

 

 

 

This situation is not unique to the US. Emerging markets are currently even MORE attractive for traders.

Take a look at China’s ETF… we’ve had sharp moves up and down that have allowed short-term trades to see some extraordinary gains!

 

 

 

 

 

 

 

Anyone who times these moves well with options trades could have literally DOUBLED their money.

On that note, if you’re looking for short-term trades with BIG upside, I strongly urge you to check out our options trading service Options 1-1-1.

Options 1-1-1 uses options exclusively on short-term trades (think 1-3 days) to lock in gains ranging from 30% to 100%.

The secret to our trading success is to focus on short-term high probability trades: trades that have a 70% chance or greater of making money.

We then use options to juice our gains.

Just last year, Options 1-1-1 subscribers saw an incredible 198% return on invested capital.

We made money on 32 trades (out of 46) with an average gain of 20%.

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We’re on track for a similar year this year… already Options 1-1-1 subscribers have locked in gains of 17%, 18%, 35%, and even a massive 48%…

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Phoenix Capital Research

 

Did the Fed Just Ring the Bell at the Top?

The bells are ringing for the markets, but few are noticing.

The primary driver of all stock prices for the last 5 years has been Fed intervention. The Fed is now actively tapering its QE programs. But more importantly, Fed officials are beginning to leak that the Fed is changing course with its policies.

To understand this, you first need to note that Fed officials are public officials as well as economists. What we mean by this is that when a Fed official speaks in public, their message is carefully crafted. Fed officials hedge their views and find ways of hinting at changes without ever outright saying anything too extreme.

In this sense, it’s important to read “between the lines” when Fed officials speak. With that in mind, we need to note that the Fed is beginning to hint at a potential exit strategy to its policies.

First off, Janet Yellen hints at an interest rate hike during a press conference. Now Philadelphia Fed President Charles Plosser is criticizing the Fed’s “interventionist” actions.

Over the past five years, the Fed and, dare I say, many other central banks have become much more interventionist. I do not think this is a particularly healthy state of affairs for central banks or our economies. The crisis in the U.S. has long passed. With a growing economy and the Fed’s long-term asset purchases coming to an end, now is the time to contemplate restoring some semblance of normalcy to monetary policy.

       Source:  Philadelphia Fed.

The translation to this: the Philadelphia Fed is aware that the Fed is out of control and needs to back off.

Then we get Fed uber-dove Bill Dudley talking about “eventual interest rate increases.”

Federal Reserve Bank of New York President William Dudley said the pace of eventual interest rate increases “will probably be relatively slow,” depending on the economy’s progress and how financial markets react.

A “mild” response “might encourage a somewhat faster pace,” Dudley said today to the New York Association for Business Economics. “If bond yields were to move sharply higher,” on the other hand, “a more cautious approach might be warranted.”

Source: Businessweek.

This is Bill Dudley… the man who has claimed that QE is fantastic and that inflation is too low… now openly talking about when the Fed will begin hiking rates and how it will do so.

The writing is on the Wall. The Fed has reached Peak Intervention with its policies and is now shifting gears. This process will be gradual in nature, but the alleged “exit strategy” which the Fed has been avoiding for the last five years will begin looming on the horizon.

The question now is when the markets will take note of this.

If you’re an individual investor worried about the potential for another 2008-type collapse… we urge you to check out our paid investment newsletter Private Wealth Advisory.

Unlike 99% of investors, Private Wealth Advisory subscribers MADE money in 2008.

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Best Regards

Phoenix Capital Research

 

 

 

 

The $12 Trillion Ticking Time Bomb

Time and again, we’ve been told that the Great Crisis of 2008 has ended and that we’re in a recovery.

Indeed, earlier this year, we were even told by Fed Chair Janet Yellen that the Fed may in fact raise interest rates as early as next year.

If this is in fact true, how does one explain the following statement made by the Fed’s favorite Wall Street Journal reporter, Jon Hilsenrath?

One worry: As they move toward a new system, trading in the fed funds market could dry up and make the fed funds rate unstable. That could unsettle $12 trillion worth of derivatives contracts called interest rate swaps that are linked to the fed funds rate, posing problems for people and institutions using these instruments to hedge or trade.

So… the Fed may not be able to raise interest rates because Wall Street has $12 trillion in derivatives that could be affected?

Weren’t derivatives the very items that caused the 2008 Crisis? And wasn’t the problem with derivatives that they were totally unregulated and out of control?

And yet, here we find, that in point of fact, all of us must continue to earn next to nothing on our savings because if the Fed were to raise rates, it might blow up Wall Street again…

Simply incredible and outrageous.

What’s even more astounding is that Hilsenrath is in fact understating the issue here. It’s true that there are $12 trillion worth of derivatives contracts related to the fed funds rate… but total interest rate derivatives contracts are in fact closer to $192 TRILLION.

And that’s just the derivatives sitting on US commercial bank balance sheets. We’re not even including international banks!

So…the US economy is allegedly in recovery… the financial markets are fixed… and all is well in the world. But the Fed cannot risk raising interest rates to normal levels because Wall Street has over $12 trillion (more like over $100 trillion) in derivatives contracts that could blow up.

That sure doesn’t sound like things were fixed to us. If anything, it sounds like the stage is set for another 2008 type disaster.

If you’re an individual investor worried about the potential for another 2008-type collapse… we urge you to check out our paid investment newsletter Private Wealth Advisory.

Unlike 99% of investors, Private Wealth Advisory subscribers MADE money in 2008.

And we continued our incredible returns during the EU Crisis and US Debt Ceiling fiascoes of 2011 and 2012 respectively.

Indeed, during that period we locked in an incredible 74 consecutive winning trades and not one single loser.

We continue to rack up the gains today, with over 10 positions sharply in the black, including gains of 12%, 16%, 18%, 28% and even 33%.

All for a low annual cost of $179.

To subscribe now to a 90 day trial subscription to Private Wealth Advisory…

CLICK HERE NOW!!!

Best Regards

Phoenix Capital Research

 

 

 

Is This The Most Dangerous Market Ever?

We have entered a very dangerous stock market.

On one side we have entered a period that historically is very weak for stocks. The old adage “sell in May, go away” is based on the fact that the period from May to November has historically been a very weak one for stocks.

According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026 as of 2008. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26 in 57 years.

In contrast, $10,000 invested in the S&P 500 on November 1st and sold April 30th over the same time period would have grown to $372,890. Out of 58 years, you would have had 45 positive and only 13 negative.

So the period from May to November has historically been a very weak one for stocks.

However, on the other side of the equation, the Federal Reserve has conditioned investors to believe that no matter what happens, the Fed or someone else will step in to hold the stock market up should things get hairy.

Time and again, whenever stocks came dangerously close to breaking down, “someone” would step in and prop the market up. You can see the moves clearly in the chart below.

 

 

 

 

 

 

 

Thus, traders have been conditioned to move aggressively into stocks the very moment that the market hits support. This makes for a very bullishly biased environment, a fact confirmed by the record amount of bullishness and margin debt in the system today.

And so we are in a very dangerous environment. One on hand, the market is overbought and due for a pullback. On the other hand, investors at large only believe stocks can move up.

At some point, the market will call this bluff. Given the sheer number of issues in the world today (Ukraine, China’s economic slowdown, the weakness of the US economy, Europe’s ongoing debt crisis, etc.) there is no shortage of potential black swans out there.

The question is, how to determine when it’s time to run for safety.

Be aware, there are warning signs flashing throughout the financial system…

With that in mind, We’ve already urged Private Wealth Advisory clients to start prepping. We’ve opened three targeted trades to profit from the stock bubble bursting. As we write this, all of them are roaring higher.

We’ve helped thousands of investors manage their risk and profit from market collapses. During the EU Crisis we locked in 72 straight winning trades and not one loser, including gains of 18%, 28% and more.

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Phoenix Capital Research