Month: August 2015

For six years, the world has operated based on faith and hope that Central Banks somehow fixed the issues that caused the 2008 Crisis.

All of the arguments supporting this defied common sense. A 5^th grader knows that you cannot solve a debt problem by issuing more debt. If the below chart was a problem BEFORE 2008… there is no way that things are better now. After all, we’ve just added another $10 trillion in debt to the US system.

Similarly, anyone with a functioning brain could tell you that a bunch of academics with no real-world experience, none of whom have ever started a business or created a single job can’t “save” the economy. Indeed, few if any of the Fed Presidents have even run a bank before. And yet they’re in charge of the banking system.

However, there is an AWFUL lot of money at stake in maintaining the illusion of Central Banking omniscience. So the media and the banks and the politicians were happy to promote them. Indeed, one could very easily argue that nearly all of the wealth and power held by those at the top of the economy stem from this fiction.

So it’s little surprise that no one would admit the facts: that the Fed and other Central Banks not only don’t have a clue how to fix the problem, but that they actually have almost no incentive to do so.

So here are the facts:

1)   The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.

2)   The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.

3)   Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.

4)   Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.

5)   The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.

6)   The Central Banks have no idea how to exit their strategies. Fed minutes released from 2009 show Janet Yellen was worried about how to exit when the Fed’s balance sheet was $1.3 trillion (back in 2009). Today it’s over $4.5 trillion.

We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work.  They haven’t. All they’ve done is set the stage for an even worse crisis in which entire countries will go bankrupt.

This process has already begun abroad.

In January 2015, the Swiss National Bank (SNB), backed into a corner by the ECB’s QE program, had a choice: print an obscene amount of money to defend the Franc’s peg or break the peg.

The SNB chose to break the peg. In a single day, the bank lost an amount of money equal to somewhere between 10% and 15% of Swiss GDP. More than that, it let the Franc appreciate… in a country in which 54% of the GDP is based on exports.

The next bank to lose its grip is the Central Bank of China.

With an economy in free-fall (GDP is growing by 3% at best), a dual house and stock bubbles bursting simultaneously, China’s regulators went on the offensive: freezing the markets, banning short-selling, arresting short-sellers, and pumping tens of billions of Dollars into the market per day.

Despite this, Chinese stocks continue to crater. And the economy hasn’t budged.

The fact of the matter is that despite public opinion, there are problems that are so big that the Central Banks cannot fix them. We’ve seen this in Switzerland and China. It will be spreading to other countries in the near future.

If you’re looking for actionable investment strategies to profit from this trend 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 can help you  profit from the markets: we just opened seven trades to profit from the above trends in the last two weeks. As we write this, ALL of them are soaring.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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The last 12 months has seen a sharp shift in tone regarding criticism of the Fed. Up until 2014, the mainstream financial media’s view of the Fed and its policies was that they had saved the financial system in 2008 and generated an economic “recovery.”

Anyone with a working brain knew this was bogus: you cannot solve a debt crisis by issuing more debt. But because the financial media makes its money from financial firms’ advertising Dollars, it (the media) was happy to promote the narrative that the Fed was omniscient and expertly adept at managing the economy.

Then things began to change.

First in the summer of 2014, Congress moved to introduce new oversight of the Fed’s policies, particularly regarding its control of interest rates.

Then the Fed was ensnared in a “leak” scandal indicating it had been providing insider information to key individuals before the public (the Fed has been leaking information for years… but the fact it became common knowledge was new).

And then a growing number of commentators began to point out that the Fed’s QE programs didn’t actually do anything for the general economy, but did increase wealth inequality.

It is this last item that has proven to be the most problematic for the Fed… particularly now that the markets are collapsing with interest rates already at zero.

The Fed has openly stated that QE was a success because it pushed stocks higher. However, it’s hard to swallow this when stocks erase ALL of their post-QE 3 gains in a matter of four days.

In simple terms, the market collapse of the last week has proven point blank that the Fed’s theories are bogus and not based on reality. Moreover, now that the financial media has begun to promote the narrative that QE creates wealth inequality, any new QE program would be seen as a bailout of the wealthy.

This means the Fed will be unable to directly intervene to prop the markets up. We get evidence of this from the fact that NO Fed officials appeared yesterday to provide verbal intervention for the markets.

Every other time the markets has broken down in the last six years, a Fed President appeared to talk about some new policy to prop the markets up.

NOT THIS TIME. The Fed’s silence signals that things have changed in a big way. Smart investors should start preparing now. This mess is not over by any stretch.

If you’re looking for actionable investment strategies to profit from this trend 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 can help you  profit from the markets: we just closed TWO new double digit winners yesterday.

 

This brings us to a TWENTY NINE trade winning streak… and 35 of our last 36 trades have been winners!

Indeed… we’ve only closed ONE loser in the 12 months.

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

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

The financial system is in uncharted waters… and it’s not clear that the Fed has a clue how to navigate them.

A number of key data points suggest the US is entering another recession. These data points are:

1)   The Empire Manufacturing Survey

2)   Copper’s sharp drop in price

3)   The Fed’s own GDPNow measure

4)   The plunge in corporate revenues

Why does this matter? After all, the US typically enters a recession every 5-7 years or so.

This matters because interest rates are currently at zero. Never in history has the US entered a recession when rates were this low. And it spells serious trouble for the financial system going forward.

Firstly, with rates at zero, the Fed has little to no ammo to combat a contraction. Some Central Banks have recently cut rates into negative territory. However, this is politically impossible in the US, particularly with an upcoming Presidential election.

This ultimately leaves QE as the last tool in the Fed’s arsenal to address an economic contraction.

However, at $4.5 trillion, the Fed’s balance sheet is already so monstrous that it has become a systemic risk in of itself. And the Fed knows this too… Janet Yellen, before she became Fed Chair, was worried about how the Fed could safely exit its positions back when its balance sheet was only $1.3 trillion during QE 1 in 2009.

Moreover, it’s not clear that the Fed could launch another QE program at this point. For one thing there is that aforementioned upcoming Presidential election. Another QE program would just be fuel for the fire that is growing public anger with Washington’s meddling in the economy. And this would lead to greater scrutiny of the Fed and its decision making.

Even if the Fed were to launch another QE program in the next 15 months, it’s not clear how much it would accomplish. A psychological shift has hit the markets in which investors’ faith in Central Bank policy is no longer sacrosanct.

Consider China, where despite rampant money printing, the stock market has continued to implode, crashing to new lows. China’s Central Bank is pumping $29 billion into its stock markets per day.  This bought a few weeks of a bounce before Chinese stocks continued to collapse.

In short, as we predicted, Central Banks will indeed be powerless to stop the next Crisis as it spreads. The Fed could potentially go “nuclear” with a massive QE program if the markets fall far enough, but this would only accelerate the pace at which investors lose confidence in Central Banks’ abilities to rein in the carnage.

Smart investors should start preparing now. What happened on Monday was just a taste of what’s coming…

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Best Regards

Graham Summers

Phoenix Capital Research

 

The market’s technical damage of the last week has been severe.

The stock market began its near-vertical climb in late 2012. Since that time, the 126-day moving average (DMA) and 280-DMA have served as major lines of support for the bull market.

The 126-DMA acted as initial support whenever the market began to lose momentum. And if the 126-DMA was taken out by intense selling pressure, the 280-DMA acted as CRITICAL support, as it did in October 2014.

Last week we sliced through both lined without any difficulty what-so-ever.

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Investors must now assess two key questions…

They are:

1)   Will the Federal Reserve intervene in the market with a new monetary policy (likely QE)?

2)   If the Fed does intervene, will markets RESPOND to it?

#1 is an absolute certainty if the markets fall far enough.

In contrast, #2 is an uncertainty. When China’s stock bubble burst a few months ago, the Chinese regulators reacted by freezing the markets, banning short-selling, arresting short-sellers, and pumping tens of billions of Dollars into the market.

Despite this, Chinese stocks continue to crater.

This is an absolute first: stocks NOT reacting to Central Bank intervention. And it signals that we may in fact have reached the point at which Central Bank interventions no longer “save” the markets.

If this has happened, and the investment world has reached the point at which it no longer has faith in Central Banks’ abilities to prop up the markets, then THE major crisis of our lifetimes is here.

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 can help you  profit from the markets: we just opened seven trades to profit from the above trends in the last two weeks. As we write this, ALL of them are soaring.

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Indeed… we’ve only closed ONE loser in the TWELVE MONTHS

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Best Regards

Graham Summers

Phoenix Capital Research

 

The Fuse on the Global Debt Bomb has been lit.

It started in the emerging market space, where over 23 stock markets are crashing. It will be spreading to the US soon.

In short… we are now officially in the Crisis to which the 2008 Meltdown was just the warm up.

The process will take time to unfold. The Tech Bubble, arguably the single biggest stock market bubble of all time, was both obvious to investors AND isolated to a single asset class: stocks. In spite of this, it took two years for stocks to finally bottom.

In contrast, the current Crisis that we are facing involves bonds… the bedrock of the financial system.

Every asset class in the world trades based on the pricing of sovereign bonds. So the fact that bonds are in a bubble (arguably the biggest bubble in financial history), means that EVERY asset class is in a bubble.

And what a bubble it is.

All told, globally there are $100 trillion in bonds in existence today.

A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.

Over $100 trillion…the size of the bond bubble alone should be enough to give pause.

However, when you consider that these bonds are pledged as collateral for other securities (particularly over-the-counter derivatives) the full impact of the bond bubble explodes higher to $555 TRILLION.

To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).

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What does all of this mean?

The $100 trillion bond bubble will implode. As it does, the financial system will begin to deleverage as debt is defaulted on or restructured (reducing the amount of US Dollars in the system, pushing the US Dollar higher).

By the time it’s all over, I expect:

1) Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2) The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3) Japan to have defaulted and very likely enter hyperinflation.

4) US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5) Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

This process has already begun in the Emerging Markets. It will be spreading elsewhere in the months to come. Smart investors are preparing now BEFORE it hits so they are in a position to profit from it, instead of getting slaughtered

If you’re looking for actionable investment strategies to profit from this trend 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 can help you profit from the markets: we just closed two new double digit winners last week.

This brings us to a TWENTY ONE trade winning streak… and 27 of our last 28 trades have been winners!

Indeed… we’ve only closed ONE loser in the 12 months.

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

During that time, you’ll receive over 50 pages of content… along with investment ideas that will make you money… ideas you won’t hear about anywhere else.

To take out a $0.98 30-day trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers

Phoenix Capital Research

The US economy is collapsing at a pace not seen since 2008-2009.

Retail sales are showing outright deflation, declining at a pace not seen outside of contractions.

The retail sector is not the only sector showing pronounced weakness.

General Electric (GE), JP Morgan (JPM), Microsoft (MSFT), IBM (IBM), Citigroup (C), Johnson & Johnson (JNJ), Intel (INTC), Coke (KO), Oracle (ORCL), Honeywell (HON), Goldman Sachs (GS), and American Express (AXP) have all reported a decline in Year Over Year sales for the second quarter of 2015.

These companies are not unusual in this regard. Across the board S&P 500 companies have posted a 4% drop in revenues.

The damage is heaviest in the commodity sector, particularly energy, but growth is anemic with the exception of healthcare (which is being boosted by the increase in costs due to Obamacare). Excluding healthcare, the largest growth is a mere 2.4%… and that is being concentrated due to a few key players.

This marks the second quarter of Year Over Year declines in revenues: something that has not occurred since the last recession in 2009.

H/T Charlie Bibello

Moreover, even earnings (which CAN be massaged to overstate growth) are showing signs of weakness.

Profit growth for the S&P 500 companies is at its weakest point since 2009. That’s because, in fact, there isn’t any profit growth.

S&P 500 earnings for the first half of the year are expected to show a 0.7% contraction compared to a year ago, according to numbers from FactSet research. Growth in the first quarter was a meager 1.1%, but the second quarter is more than offsetting that, expected to contract at a 2.2% rate, FactSet estimates. The last time the S&P 500 saw a year-over-year decline for the first half of a year was 2009, when earnings positively cratered at the depths of the global recession, down 30.9%.

Source: Wall Street Journal

The above hard data runs completely counter to the uptick in GDP growth shown by Fed’s models. These items STRONGLY suggest the US is approaching if not already in a recession.

Stocks are completely misunderstanding this. And by the time they “get it” the markets will be a in a free-fall.

Smart investors are preparing now, BEFORE it hits.

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

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Best Regards

Phoenix Capital Research

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Because of the rampant fraud and money printing in the financial system, the real “bottom” or level of “price discovery” is far lower than anyone expects due to the fact that the run up to 2008 was so rife with accounting gimmicks and fraud.

The Greek debt crisis, like all crises in the financial system today, can be traced to derivatives via the large investment banks. Indeed, we now know that Greece actually used derivatives (via Goldman Sachs) to hide the true state of its debt problems in order to join the Euro.

Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn’t exceed 60 percent.

The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics…

“Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html

The above story for Greece is illustrative of the story for all “emerging markets” starting in 2003: tons of easy money, rampant use of derivatives for accounting gimmick, and the inevitable collapse.

From a big picture scenario, in 2003, the global Central Banks abandoned a focus on inflation and began to pump trillions in loose money into the economy. Because large banks could loan well in excess of $10 for every $1 in capital on their balance sheets, global credit went exponential.

The effect was sharply elevated asset prices that greatly benefitted tourism-centric economies such as Greece.

As I stated in our issue Price Discovery:

If the foundation of the financial system is debt… and that debt is backstopped by assets that the Big Banks can value well above their true values (remember, the banks want their collateral to maintain or increase in value)… then the “pricing” of the financial system will be elevated significantly above reality.

Put simply, a false “floor” was put under asset prices via fraud and funny money.

Take a look at the impact this had on Greece’s economy.

Below is Greek GDP dating back to the 1960s. Having maintained a long-term trendline of growth the country suddenly saw its GDP MORE THAN DOUBLE in less than 10 years after joining the EU?

 

 

 

 

 

 

 

 

In many regards, this “growth” was just a credit binge, much like housing prices, stock prices, etc. By joining the Euro, Greece was able to borrow money at much lower rates (2%-3% vs. 10%-20%).

Rather than using these lower rates to pay off its substantial debts, Greece funneled as much money as possible towards Government employees (nearly one in three Greek workers).

As a result, Government wages nearly doubled to the point that your typical Government employee was paid 150% more than his or her private sector counterpart. Add to this a pension system in which retirees are paid 92% of their former salaries and you have a debt bomb of epic proportions.

In simple terms, Greece from 2003-2010 was an economic boom driven by incomes, which were in turn driven by cheap debt NOT real organic growth. Thus, the collapse in GDP was yet another case of “price discovery” in which asset prices fall to economic realities…

Another Crisis is brewing. It’s already hit Greece and it will be spreading throughout the globe in the coming months. Smart investors are taking steps to prepare now, before it hits.

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

We are making 1,000 copies available for FREE the general public.

We are currently down to the last 25.

To pick up yours, swing by….

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

Best Regards

Phoenix Capital Research

 

 

 

Yesterday we assessed how elements of the financial media are either unbelievably lazy or completely complicit in helping to maintain the illusion of success for the Centralized powers (large governments and Central Banks).

Today we move on to addressing how the political class and Central Banks are unable resolve debt issues in any meaningful way.

Going into its financial crisis in 2009, Greece had a GDP of $341 billion. To put this into perspective, it’s roughly the size of the state of Maryland. Greek debt was roughly $370 billion that year, giving Greece a Debt to GDP ratio of about 108%.

It’s a strikingly small amount of money for a collective economy of nearly $18 trillion (the EU). Indeed, Greece contributes only 2% of the EU’s total GDP. And yet, the ECB working with the IMF has not been able to resolve Greece’s issues.

Let’s let that simmer for a bit…

A Central Bank, working with the IMF was unable to resolve a debt issue for a country that comprises less than 2% of the economy of which the Central Bank is in charge.

How is this possible?

First and foremost, the ECB had little if any interest in Greece’s well-being as an economy. For the ECB, the “Greek issue” was really more of a “large European bank issue.” In that regard, the ECB was focused on one thing.

That issue is collateral.

What is collateral?

Collateral is an underlying asset that is pledged when a party enters into a financial arrangement.  It is essentially a promise that should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses.

For large European banks, EU nation sovereign debt (such as Greek sovereign bonds) is the senior-most collateral backstopping hundreds of trillions of Euros worth of derivative trades.

This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the last two Greek bailouts.

Remember:

1)   Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut.

2)   Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy.

Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash. This occurred via two schemes called LTRO 1 and LTRO 2, which were launched on December 2011 and February 2012 respectively.

Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet.

Quite a bit of this was Greek debt, as everyone in Europe knew that Greece was totally bankrupt.

So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB.

So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios.

Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy.

Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand.

Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible.

This is why the ECB and the IMF failed to “fix” Greece. Indeed, the below chart makes it plain that all of the bailouts didn’t actually do anything to solve Greece’s debt problems: the country’s external debt has actually barely budged since 2010!

 

Note that after a brief dip in 2011-2012, Greece’s external debts rose right back to where they were in 2010 at the beginning of the debt crisis. Moreover, because Greek GDP dropped along with its debt levels in 2011-2012, the country’s Debt to GDP ratio has effectively flat-lined.

 

In short… neither of the first two bailouts actually solved ANYTHING for Greece from a debt perspective. Between this and the collateral discussion from earlier, the evidence is clear: the ECB has no interest in fixing Greece’s problems. Both bailouts were nothing but a backdoor means of funneling money to the large European banks using Greek debt as collateral on their derivatives trades!

Another Crisis is brewing. It’s already hit Greece and it will be spreading throughout the globe in the coming months. Smart investors are taking steps to prepare now, before it hits.

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

We are making 1,000 copies available for FREE the general public

We are currently down to the last 25.

To pick up yours, swing by….

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

Best Regards

Phoenix Capital Research