I believe 2018 will be the year inflation arrives.

The reason, as I’ve noted throughout mid-2017, is that multiple Central Banks, particularly the European Central Bank (ECB), Bank of Japan (BoJ) and Swiss National Bank (SNB) have maintained emergency levels of QE and money printing, despite the fact that globally the economy is performing relatively well.

All told, in 2017 alone, these Central Banks will printed over a $1.5 trillion in new money and funneled it into the financial system. This is an all-time record, representing even more money printing than what took place in 2008 when the whole world was in the grips of the worst crisis in 80 years!

And it has finally unleashed the much sought after inflation. Around the world, inflationary data are breaking out to the upside. Producer prices are soaring in the EU, Japan, China and the US.

H/T Jeroen Blokland

Why does this matter?

Because the $199 TRILLION Bond Bubble trades based on inflation.

When inflation rises, so do bond yields to compensate.

When bond yields rise, bond prices FALL..

And when bond prices fall, this massive bubble, which I call The Everything Bubble bursts.

This process has already begun. Around the world, bond yields are spiking to the upside as the bond market adjusts to the threat of future inflation.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

I believe 2018 will be the year inflation arrives.

The reason, as I’ve noted throughout mid-2017, is that multiple Central Banks, particularly the European Central Bank (ECB), Bank of Japan (BoJ) and Swiss National Bank (SNB) have maintained emergency levels of QE and money printing, despite the fact that globally the economy is performing relatively well.

All told, in 2017 alone, these Central Banks will printed over a $1.5 trillion in new money and funneled it into the financial system. This is an all-time record, representing even more money printing than what took place in 2008 when the whole world was in the grips of the worst crisis in 80 years!

And it has finally unleashed the much sought after inflation. Around the world, inflationary data are breaking out to the upside. Producer prices are soaring in the EU, Japan, China and the US.

H/T Jeroen Blokland

Why does this matter?

Because the $199 TRILLION Bond Bubble trades based on inflation.

When inflation rises, so do bond yields to compensate.

When bond yields rise, bond prices FALL..

And when bond prices fall, this massive bubble, which I call The Everything Bubble bursts.

This process has already begun. Around the world, bond yields are spiking to the upside as the bond market adjusts to the threat of future inflation.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The Fed concludes its final FOMC meeting of the year today.

The entire financial world expects the Fed to raise rates a final time. This will mark the fifth rate hike since December 2015, and the fourth of the last 12 months.

Throughout this time period, the Fed has routinely stated that it is confused as to why inflation is “too low.”

Inflation is not too low. The method the Fed uses to measure inflation is intentionally incorrect. As a result, the official inflation numbers reflect whatever the Fed wants, as opposed to reality.

Alan Greenspan devised this entire gimmick back in the 1990s. At that point, the amount of debt in the US financial had already become a systemic issue.

So Greenspan opted to “paper over” this fact via inflation… hoping that by aggressively devaluing the US Dollar he could keep this game going.

The only problem as far as the Fed was concerned was that the inflation numbers would reveal the Fed’s strategy. So Greenspan started tinkering with how the Fed measured inflation, removing various components (food and energy) and tweaking things so the Fed would no longer measure the cost of maintaining the same quality of life.

Greenspan hoped understating inflation publicly he would give him the cover he needed to pursue an aggressive devaluation of the US Dollar. The flip side of this was that the Fed would begin intentionally creating asset bubbles by maintaining loose monetary policy ad infinitum.

The late ‘90s was the Tech Bubble.

When that burst in the mid-‘00s, the Fed created a bubble in housing.

When that burst in ’08 the Fed created a bubble in US sovereign bonds or Treasuries.

And because these bonds are the bedrock of the US financial system, the “risk-free rate” of return against which ALL risk assets are valued, when the Fed did this it created a bubble in EVERYTHING.

That bubble is now beginning to burst. And ironically it is inflation (which the Fed claims is too low) that will do it.

It will take time for this to unfold, but as I recently told clients, we’re currently in “late 2007” for the coming crisis.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The Fed claims we’re not in a bubble.

This, like the Fed’s claims inflation is too low, is hogwash.

As I outline in my bestselling book The Everything Bubble: The Endgame For Central Bank Policy, the reality is that the Fed’s entire monetary focus is on papering over declining living standards in the US.

Since 1971, real incomes are down. This fact stares us in the face: before that time, one parent worked and most families got by, today both parents work and rely on debt to get by. Indeed, the fact is that most Americans are worse off than they were 10 years ago, 20 years ago, even 40 years ago.

The Fed tries to mask this by making debt as cheap as possible, and then “inflating the debt away” by debasing the US Dollar.

That, in a nutshell, is the Fed’s entire game.

Asset bubbles are a natural consequence of this, as the Fed is forced to maintain “loose money” policies ad infinitum (the alternative is to risk triggering a sovereign debt crisis/ debt deflationary spiral).

This latest bubble is perhaps the most egregious.

Talking heads like to talk about Price to Earnings (P/E) ratios, but earnings can be easily faked to make this multiple unrealistically low. Sales are much harder to fake: either the money comes in the door or it doesn’t.

With that in mind, consider that based on P/S, the market is right where it was at the peak of the 1999 Tech Bubble: arguably the most insane stock bubble of the last 100 years.

H/T Bill King

The big difference between this bubble and that of 1999 is that currently we are MUCH FARTHER down the monetary rabbit hall than we were during the late ’90s.

The Fed has already engaged in $3.5 trillion in QE. And it’s also employed Zero Interest Rate Policy (ZIRP) for seven years. And that is what lead to the current bubble.

So when this one bursts, the Fed will be forced to engage in even more extreme monetary policy. I’m talking about policies that will make ZIRP and $3T in QE look like child’s play.

It will take time for this to unfold, but as I recently told clients of my Private Wealth Advisory report, we’re currently in “late 2007” for the coming crisis.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The Fed claims we’re not in a bubble.

This, like the Fed’s claims inflation is too low, is hogwash.

As I outline in my bestselling book The Everything Bubble: The Endgame For Central Bank Policy, the reality is that the Fed’s entire monetary focus is on papering over declining living standards in the US.

Since 1971, real incomes are down. This fact stares us in the face: before that time, one parent worked and most families got by, today both parents work and rely on debt to get by. Indeed, the fact is that most Americans are worse off than they were 10 years ago, 20 years ago, even 40 years ago.

The Fed tries to mask this by making debt as cheap as possible, and then “inflating the debt away” by debasing the US Dollar.

That, in a nutshell, is the Fed’s entire game.

Asset bubbles are a natural consequence of this, as the Fed is forced to maintain “loose money” policies ad infinitum (the alternative is to risk triggering a sovereign debt crisis/ debt deflationary spiral).

This latest bubble is perhaps the most egregious.

Talking heads like to talk about Price to Earnings (P/E) ratios, but earnings can be easily faked to make this multiple unrealistically low. Sales are much harder to fake: either the money comes in the door or it doesn’t.

With that in mind, consider that based on P/S, the market is right where it was at the peak of the 1999 Tech Bubble: arguably the most insane stock bubble of the last 100 years.

H/T Bill King

The big difference between this bubble and that of 1999 is that currently we are MUCH FARTHER down the monetary rabbit hall than we were during the late ’90s.

The Fed has already engaged in $3.5 trillion in QE. And it’s also employed Zero Interest Rate Policy (ZIRP) for seven years. And that is what lead to the current bubble.

So when this one bursts, the Fed will be forced to engage in even more extreme monetary policy. I’m talking about policies that will make ZIRP and $3T in QE look like child’s play.

It will take time for this to unfold, but as I recently told clients of my Private Wealth Advisory report, we’re currently in “late 2007” for the coming crisis.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

In the aftermath of the Great Financial Crisis, Central Banks began cornering the sovereign bond market via Zero or even Negative interest rates and Quantitative Easing (QE) programs.

The goal here was to reflate the financial system by pushing the “risk free rate” to extraordinary lows. By doing this, Central Bankers were hoping to:

1)   Backstop the financial system (sovereign bonds are the bedrock for all risk).

2)   Induce capital to flee cash (ZIRP and NIRP punish those sitting on cash) and move into risk assets, thereby reflating asset bubbles.

In this regard, these policies worked: the crisis was halted and the financial markets began reflating.

However, Central Banks have now set the stage for a crisis many times worse than 2008.

Let me explain…

The 2008 crisis was triggered by large financial firms going bust as the assets they owned (bonds based on mortgages) turned out to be worth much less (if not worthless), than the financial firms had been asserting.

This induced a panic, as a crisis of confidence rippled throughout the global private banking system.

During the next crisis, this same development will unfold (a crisis in confidence induced by the underlying assets being worth much less than anyone believes), only this time it will be CENTRAL banks (not private banks) facing this issue.

The consensus view is that a Central Bank can never go bust because it can always print money to remain solvent.

However, this is misguided.

Central Banks are currently sitting atop over $10 TRILLION in bonds, courtesy of nine years of QE programs.

These bonds trade based on inflation.

If inflation rises, these bonds will drop in value as their yields rise to accommodate the move in inflation.

When a Central Bank is sitting atop trillion of dollars in bonds, an inflationary spike inducing those bonds to drop could very quickly wipe out $100 billion or more in capital.

Now, you might argue that the same Central Bank could simply print more money to prop up the bond markets… but doing so would only increase inflation … which in turn would force bonds prices lower… inducing greater losses.

You get the point.

Policies like QE and ZIRP only work as long as the financial system maintains confidence in the currency a Central Bank is printing. The minute that currency begins to devalue rapidly due to inflation, the whole game is over.

This process has already started. The explosion of Bitcoin and other cryptocurrencies is just one way in which the system is losing confidence in primary currencies.

The recent spike in bond yields is another. Across the globe, the $100+ trillion bond market is begin to lurch towards an inflationary future. Below you can see these moves in Germany’s 10-Year Government bonds, Japan’s 10-Year Government bonds, and the US’s 10-Year Treasuries.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

In the aftermath of the Great Financial Crisis, Central Banks began cornering the sovereign bond market via Zero or even Negative interest rates and Quantitative Easing (QE) programs.

The goal here was to reflate the financial system by pushing the “risk free rate” to extraordinary lows. By doing this, Central Bankers were hoping to:

1)   Backstop the financial system (sovereign bonds are the bedrock for all risk).

2)   Induce capital to flee cash (ZIRP and NIRP punish those sitting on cash) and move into risk assets, thereby reflating asset bubbles.

In this regard, these policies worked: the crisis was halted and the financial markets began reflating.

However, Central Banks have now set the stage for a crisis many times worse than 2008.

Let me explain…

The 2008 crisis was triggered by large financial firms going bust as the assets they owned (bonds based on mortgages) turned out to be worth much less (if not worthless), than the financial firms had been asserting.

This induced a panic, as a crisis of confidence rippled throughout the global private banking system.

During the next crisis, this same development will unfold (a crisis in confidence induced by the underlying assets being worth much less than anyone believes), only this time it will be CENTRAL banks (not private banks) facing this issue.

The consensus view is that a Central Bank can never go bust because it can always print money to remain solvent.

However, this is misguided.

Central Banks are currently sitting atop over $10 TRILLION in bonds, courtesy of nine years of QE programs.

These bonds trade based on inflation.

If inflation rises, these bonds will drop in value as their yields rise to accommodate the move in inflation.

When a Central Bank is sitting atop trillion of dollars in bonds, an inflationary spike inducing those bonds to drop could very quickly wipe out $100 billion or more in capital.

Now, you might argue that the same Central Bank could simply print more money to prop up the bond markets… but doing so would only increase inflation … which in turn would force bonds prices lower… inducing greater losses.

You get the point.

Policies like QE and ZIRP only work as long as the financial system maintains confidence in the currency a Central Bank is printing. The minute that currency begins to devalue rapidly due to inflation, the whole game is over.

This process has already started. The explosion of Bitcoin and other cryptocurrencies is just one way in which the system is losing confidence in primary currencies.

The recent spike in bond yields is another. Across the globe, the $100+ trillion bond market is begin to lurch towards an inflationary future. Below you can see these moves in Germany’s 10-Year Government bonds, Japan’s 10-Year Government bonds, and the US’s 10-Year Treasuries.

The time to prepare for this is NOW before the carnage hits.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The bubble in sovereign bonds is looking dangerously close to popping.

And ironically, what could burst it is the very thing Central Banks have been pursuing aggressively for the last 9 years: inflation.

As I explain in my bestselling book The Everything Bubble, Treasury yields adjust to account for inflation. The relationship is not perfect as bonds are also priced based on economic activity. However, the fact remains, if the rate of inflation spikes, Treasury yields rise as well to account for this.

You can see this in the chart below:

Put simply, if inflation rises, so do Treasury yields.

This in turn means Treasury prices will fall (bond prices fall as yields rise).

And that is a HUGE problem for the Federal Reserve.

The entire reflationary move in the financial system since 2008 was based on the Fed creating a bubble in US Treasuries or sovereign bonds. The Fed did this by cutting rates to zero, pulling down the short end of the bond market. It then targeted the long end of the market with QE programs.

Put simply, the Fed tried to corner the Treasury market, thereby creating a bubble in the most senior asset class in the US financial system. But in order for the Fed to create this bubble, it had to print a massive amount of money ($3.5 trillion or so).

Between this, and the Fed maintaining Zero Interest Rate Policy (ZIRP) for seven years, the Fed unleashed inflation. It’s taken longer than one would expect, but it’s finally here.

As I write this, the Fed’s official inflation metric, the CPI, is already clocking in above the Fed’s target rate of 2%.

Similarly, the Fed’s “Sticky CPI” which measures price movements in assets that are slow to adjust to inflation, is clocking in over 2%.

The ISM Prices Paid Index (a survey for managers in the corporate sphere) also shows a spike in both manufacturing AND services prices.

This is critical as it shows that not only is inflation translating into higher prices on manufactured goods, but it also shows that even the services side of the economy is recognizing the threat. Put simply, the cost of everything is rising.

Indeed, this is finally translating into higher wages in the corporate arena (hourly wages are now clocking in at nearly 3%). This is particularly critical because once workers are demanding higher wages due to higher costs of living (inflation) it means that inflation is now firmly entrenched in the economy.

U.S. government debt yields jumped Friday after metrics in the latest Labor Department jobs report showed budding signs of inflation. The closely watched average hourly wages figure rose by an annualized 2.9 percent, a faster pace than the Federal Reserve’s 2 percent target for inflation.

Source: CNBC

Put simply, inflationary pressures are on the rise. And they are going to implode the bond market unless Central Banks step back from the endless money printing.

In that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

As we keep emphasizing, the world is in an Everything Bubble.

In truth, it is a bubble in sovereign bonds, created by Central Banks attempting to corner these markets via ZIRP and QE.

However, because sovereign bonds are the bedrock for the current fiat financial system, if they go into a bubble, EVERYTHING goes into a bubble.

Why?

Because if you skew the “risk-free return” of the financial system (US sovereign bonds or Treasuries) ALL risk will adjust accordingly.

Case in point, consider the latest report from The Economist about corporate debt.

As late as 2008, more than 80% of non-financial corporate bond issuance was rated A or above, according to Torsten Slok of Deutsche Bank; in the past five years, the proportion has been consistently under 60%.

Source: The Economist.

In layman’s terms, this report is telling us that even in 2008 (a period that everyone admits was a disaster in terms of debt) corporate bonds were less risky than they are today.

Yes, corporations have MORE leverage via WORSE debt today, than they did going into the Great Financial Crisis. The Economist report even states this explicitly.

…That means the average corporate bond is riskier than before. At the same time, the reforms that followed the crash of 2008 mean that banks have to hold more capital (quite rightly). But this also means they are less willing to devote capital to market-making; as a result, the bond market is less liquid than before. So investors in corporate bonds are holding a riskier, less liquid asset.

Source: The Economist.

That last phase could very well be the mantra for the entire financial system today: everything is riskier and less liquid than it was in 2008.

Indeed, because Central Banks have soaked up so much sovereign debt in the last nine years, there is less high quality collateral backstopping the $600 TRILLION derivatives markets.

Again… the financial system is riskier and less liquid today than it was in 2008.

You can thank Central Bankers for this.

And when this bubble bursts (as all bubbles do) the policies Central Banks employ will make those from 2008-2015 look like a cakewalk.

We are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Remember how the Fed, ECB and others all claimed ZIRP and QE were about generating economic growth, making mortgages more affordable, and helping consumers?

Well, that was a gigantic lie. The truth is that every major policy employed by Central Banks since 2008 have been about one thing…

Maintaining the bond bubble.

Governments around the world have used the bubble in bonds to finance their bloated budgets. If interest rates were anywhere NEAR normal levels, most countries would lurch towards default in a matter of weeks.

If you think this is conspiracy theory, consider that the European Central Bank openly admitted this in its semi-annual Financial Stability Review this week:

Even so, [the ECB] said that “higher interest rates may trigger concerns about sovereigns’ debt-servicing capacity,” and noted that “distrust in mainstream political parties continues to rise, leading to fragmentation of the political landscape away from the established consensus.”

Source: Bloomberg.

In plain speak, the ECB is admitting here that if rates were to rise, the financial world would quickly realize that most countries couldn’t finance their debt payments. Indeed, the five largest economies in the world are all near or above Debt to GDP levels of 100%

As I explained in my bestseller, The Everything Bubble: the Endgame For Central Bank Policy, the bubble in bonds is what finances this entire mess. It’s what lets the political class continue to spend money the government doesn’t have. And it’s why the entire financial system is now in a bubble.

Remember, sovereign bonds are the bedrock for the current fiat-based financial system, so when they go into a bubble, EVERYTHING goes into a bubble, as all risk assets adjust to ridiculously cheap interest rates.

This is why I coined the term The Everything Bubble in 2014. It’s also why I wrote a book on this issue as well as what’s coming down the pike: because when this bubble bursts (as all bubbles do) the policies Central Banks employ will make those from 2008-2015 look like a cakewalk.

We are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards
Graham Summers

Chief Market Strategist

Phoenix Capital Research

What do formerly successful hedge funds going out of business, wacky economic data points, and the election of populists like Donald Trump all have in common?

All of them are the product of The Everything Bubble.

In the aftermath of the 2008 Crisis, Central Banks attempted to corner the sovereign bond market via low interest rates and massive QE programs.

Doing this represented the End Game for Central Bank policy. In a fiat-based monetary system, (meaning the currencies are not backed by anything) sovereign bonds represent the ultimate backstop of the financial system.

Remember, because currencies are not backed by anything, they can be depreciated via money printing. So they are not immune to inflation. Sovereign bonds on the other hand pay yields based on inflation and so hedge (at least partially) against this risk.

So when Central Banks attempted to create a bubble in the sovereign bond market, they were literally creating a bubble in EVERYTHING because every other asset in the system trades based on where sovereign bonds are trading.

This screwed up EVERYTHING. It screwed up economic data, it screwed up traditional investment analysis, and it screwed the average citizen hence why people like Donald Trump have been elected to positions of power.

Put simply, Central Banks have attempted to rig the entire system. Nothing is real anymore. Everything is trading based on a false risk profile induced by Central Banks cornering sovereign bonds.

This is why I coined the term The Everything Bubble in 2014. It’s also why I wrote a book on this issue as well as what’s coming down the pike: because when this bubble bursts (as all bubbles do) the policies Central Banks employ will make those from 2008-2015 look like a cakewalk.

We are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards
Graham Summers

Chief Market Strategist

Phoenix Capital Research