Month: March 2016

For six years, the world has operated under a complete delusion that Central Banks somehow fixed the 2008 Crisis.

All of the arguments claiming this defied common sense. A 5^th grader would tell you that you cannot solve a debt problem by issuing more debt. 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.

However, there is an AWFUL lot of money at stake in believing these lies. 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.

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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.

The situation is clear: the 2008 Crisis was the warm up. The next Crisis will be THE REAL Crisis. The Crisis in which Central Banking itself will fail.

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Last week we closed three more winners including gains of 36%, 69% and a whopping 118% bringing us to 75 straight winning trades. 

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Graham Summers

Phoenix Capital Research

Yesterday we outlined that Central Banks’ War on Cash is about to go into Hyperdrive.

Today we’re discussing just the policies Central Banks are already working to implement to eviscerate savings.

Globally, over 50% of Government bonds currently yield 1% or less. These are bonds that are negative in real terms meaning they are trailing well below the rate of inflation.

Even more astounding is the fact that over $7 trillion in debt currently have negative yields in nominal terms, meaning the bond literally has a negative yield when it trades.

This means that when an investor buys these bonds, he or she pays the Government for the right to own. There is NO rate of return; by buying these bonds you are literally incinerating your capital. Large bond funds that are required to own certain types of bonds have no choice but to lose money.

However, this is just the start.

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Back in 1999, the Fed published a paper suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.

The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:

1)   Buy assets (QE)

2)   Money transfers (literally HAND OUT money through various vehicles)

3)   A carry tax (meaning tax the value of actual physical cash that is taken out of the system)

We’ve already seen six years of ZIRP and $3 trillion in QE. Next up are outright money transfers and a carry tax on physical cash.

What is a “carry tax”?

The idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.

The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.

For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).

It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously.  QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.

No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.

The time to take action is now!

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Yesterday we closed out THREE more double digit winners (all of them opened just two weeks ago) bringing our current winning streak to 74 straight winning trades,

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Phoenix Capital Research

The global Central Banks have declared War on Cash.

Historically, one of the safest things to do when the markets begin to collapse is to move a significant portion of your holdings to cash. As the old adage says, during times of deflation, “cash is king.”

The notion here is that cash is a safe haven. And while earning 1-2% in interest doesn’t do much in terms of growing your wealth, it sure beats losing 20%+ by holding on to stocks or bonds during their respective bear markets

However, in today’s world of fiat-based Central Planning, cash represents a REAL problem for the Central Banks.

The reason for this concerns the actual structure of the financial system. As I’ve outlined previously, that structure is as follows:

• The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.

• When you include digital money sitting in short-term accounts and long-term accounts then you’re talking about roughly $10 trillion in “money” in the financial system.
• In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.

• The US bond market (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion.

• Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based “money” that is based on debt) is even larger $58.7 trillion.

• Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion.

When looking over these data points, the first thing that jumps out at the viewer is that the vast bulk of “money” in the system is in the form of digital loans or credit (non-physical debt).

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Over the same time period, the S&P 500 was DOWN.

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Put another way, actual physical money or cash (as in bills or coins you can hold in your hand) comprises less than 1% of the “money” in the financial system.

Here is the financial system in picture form. I’m not including hard assets such as gold, real estate, or the like. We’re only talking about relatively liquid financial assets items that can be sold (turned into cash) quickly.

Of course, Wall Street will argue that the derivatives market is notional in value (meaning very little of this is actually “at risk”). However, even if we remove derivatives from the mix, the system is still very clearly based on credit, with only a small sliver of actual physical cash outstanding:

Put simply, the vast majority of wealth in the US is in fact digital wealth that moves from bank to bank without ever being converted into actual physical cash.

As far as the Central Banks are concerned, this is a good thing because if investors/depositors were ever to try and convert even a small portion of this “wealth” into actual physical bills, the system would implode (there simply is not enough actual cash).

Remember, the current financial system is based on debt. The benchmark for “risk free” money in this system is not actual cash but US Treasuries.

In this scenario, when the 2008 Crisis hit, one of the biggest problems for the Central Banks was to stop investors from fleeing digital wealth for the comfort of physical cash. Indeed, the actual “thing” that almost caused the financial system to collapse was when depositors attempted to pull $500 billion out of money market funds.

A money market fund takes investors’ cash and plunks it into short-term highly liquid debt and credit securities. These funds are meant to offer investors a return on their cash, while being extremely liquid (meaning investors can pull their money at any time).

This works great in theory… but when $500 billion in money was being pulled (roughly 24% of the entire market) in the span of four weeks, the truth of the financial system was quickly laid bare: that digital money is not in fact safe.

To use a metaphor, when the money market fund and commercial paper markets collapsed, the oil that kept the financial system working dried up. Almost immediately, the gears of the system began to grind to a halt.

When all of this happened, the global Central Banks realized that their worst nightmare could in fact become a reality: that if a significant percentage of investors/ depositors ever tried to convert their “wealth” into cash (particularly physical cash) the whole system would implode.

As a result of this, virtually every monetary action taken by the Fed since this time has been devoted to forcing investors away from cash and into risk assets. The most obvious move was to cut interest rates to 0.25%, rendering the return on cash to almost nothing.

However, in their own ways, the various QE programs and Operation Twist have all had similar aims: to force investors away from cash, particularly physical cash.

After all, if cash returns next to nothing, anyone who doesn’t want to lose their purchasing power is forced to seek higher yields in bonds or stocks.

The Fed’s economic models predicted that by doing this, the US economy would come roaring back. The only problem is that it hasn’t. In fact, by most metrics, the US economy has flat-lined for several years now, despite the Fed having held ZIRP for 5-6 years and engaged in three rounds of QE.

Let me put this very bluntly. The Fed and other Central Banks literally took the nuclear option in dealing with the 2008 bust. They have done everything they can to trash cash and force investors/ depositors into risk assets. But these polices have failed to generate growth.

Rather than admit they are completely wrong, Central Banks are reverting to more and more extreme measures to destroy cash and force investors to move into risk against their will.

Over 20% of global GDP is currently sporting NEGATIVE yields on their bonds.

This is just the start of a much larger strategy of declaring War on Cash.

If you’re an investor who wants to increase your wealth dramatically, then you NEED to take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter with an incredible track record.

Yesterday we closed out THREE more double digit winners (all of them opened just two weeks ago) bringing our current winning streak to 75 straight winning trades,

And throughout the last 14 months, we’ve not closed a SINGLE loser.

With a track record like this, we’re getting a LOT of attention, so we’re going to be raising the price of a Private Wealth Advisory in the next few weeks.

However, you can try it right now for 30 days for just 98 cents… but you better move fast, because these slots are selling out!!!

To lock in a $0.98, 30-day trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers

Phoenix Capital Research

The US markets are in a quandary.

On the one hand, some of the data (GDP growth, unemployment, etc.) suggests the Fed should continue to hike rates. On the other hand, other data points (food stamp usage, labor participation rate) suggest the US never actually entered a real recovery.

More importantly, how can the jobs data suggest such a strong employment situation… when one in seven Americans are on food stamps?

Let us, consider how the Labor Department calculates the unemployment numbers… those same numbers that the ENTIRE stock market reacts to every few weeks.

Every month, the US Government conducts a “Current Population Survey” through which it calls or visits 60,000 US households and asks them questions about their current employment or lack thereof. This usually occurs on the week of the month containing the 12^th.

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Thus, in order for the survey to be accurate…

1)   The US Government official has to make the phone call or go in person to the house (there have been some controversies regarding falsifying results).

2)   Someone has to pick up the phone or answer the door when the Government employee calls or visits.

3)   The person has to agree to an interview regarding the employment status of all members of his or her household with the US Government

4)   The person has to answer the interview questions truthfully (more on this shortly).

5)   The Labor Department’s economic model has to take this information and accurately render it into a nationwide unemployment number.

Thus, for the numbers to be accurate, the person being interviewed has to be willing to talk honestly to the US Government about personal details that could be quite embarassing.

Why is this a problem?

Consider that as far back as 2003, 30% of Americans viewed the US Government as an “immediate threat” to their “rights and freedoms.” Post 2008, the number has jumped to just below 50%.

Again, nearly half of Americans see the US Government as an “immediate threat.”

Thus, by proxy, roughly half of the people answering the phone or door for the Labor Department’s Current Population Survey have this view. What are the odds these individuals will be forthright and comfortable discussing the details of their family’s employment situation with a US Government official?

Even if the official is doing their absolute best to get correct information, the survey respondent might not be totally honest!

To top it off, there is debate as to what is the best means of interpreting the raw data. For instance, the Richmond Fed’s NEI measure (which measures those out of the labor force as well as those who are unemployed) puts current unemployment above 8% WAY above the “official” reading of 5.0%!!!

Even after all of this, there are the revisions to consider… Heck, the Bureau of Economic Analysis revised three years worth of GDP growth data DOWN from 2.3% to 2.0% in July of last year.

For this reason and others, we believe that the recovery has been greatly overstated in the media and that the markets are primed for a collapse. Indeed, we’ve already taken out the bull market trendline dating back to the 2009 bottom.

We fully believe this to be the case. And when this bubble bursts, it will trigger a crash that will make 2008 look like a picnic.

If you’re an investor who wants to increase your wealth dramatically, then you NEED to take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter with an incredible track record.

Last week we closed three more winners including gains of 36%, 69% and a whopping 118% bringing us to 75 straight winning trades.

And throughout the last 14 months, we’ve not closed a SINGLE loser.

This track record is a getting a ton of attention, so we are going to be closing the doors on our current offer to explore Private Wealth Advisory at the end of this month.

So if you want to try Private Wealth Advisory for 30 days for just 98 cents, you need to get moving, because the clock is ticking and slots are quickly running out.

To lock in one of the remaining slots…

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Best Regards

Graham Summers

Phoenix Capital Research