Phoenix Capital Research

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

The Real Reason the Fed Won’t Raise Interest Rates

Another Fed FOMC meetings has come and gone and interest rates remain at zero.

The investing world is obsessed with guessing when the Fed will raise rates and by how much. The Fed has been dangling the “rate hike” over the markets since the beginning of the year.

First we were lead to believe a rate hike was coming in April, then it was June, then September, and now it might possibly be well into 2016.

The fact of the matter is that no one knows when the Fed will raise rates nor by how much. However, one thing is clear: the Fed cannot and will not allow rates to normalize (meaning the 10-year Treasury yields 5% or more).

The reason for this is that it would implode the bond bubble.

As you know, I’ve been calling for a bond market crisis for months now. That crisis has officially begun in Greece, a situation that we addressed at length other articles.

This crisis will be spreading in the coming months. Currently it’s focused in countries that cannot print their own currencies (the PIIGS in Europe, particularly Greece).

However, China and Japan are also showing signs of trouble and ultimately the bond crisis will be coming to the US’s shores.

However, it’s critical to note that crises do not unfold all at once. The Tech Bubble, for instance, which was both obvious and isolated to a single asset class, took over two years to unfold.

As terrible as the bust was, that crisis was relatively small as far as the damage. At its peak, the market capitalization of the Tech Bubble was less than $15 trillion. Moreover, it was largely isolated to stocks and no other asset classes.

By way of contrast, the bond bubble is now well over $100 trillion in size. And if we were to include credit instruments that trade based on bonds, we’re well north of $600 trillion.

Not only is this exponentially larger than global GDP (~$80 trillion), but because of the structure of the banking system the implications of this bubble are truly systemic in nature.

Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile).

The reason for this is because it is far more likely for a company to go belly up than a country.

Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset on bank balance sheets.

Because banking today operates under a fractional system, banks control the amount of currency in circulation by lending money into the economy and financial system.

These loans can be simple such as mortgages or car loans… or they can be much more complicated such as deriviative hedges (technically these would not be classified as “loans” but because they represent leverage in the system, I’m categorizing them as such).

Bonds, specifically sovereign bonds, are the assets backing all of this.

And because of the changes to leverage requierments implemented in 2004, (thanks to Wall Street lobbying the SEC), every $1 million in sovereign bonds in the system is likely backstopping well over $20 (and possibly even $50) million in derivatives or off balance sheet structured investment vehicles.

Globally, the sovereign bond market is $58 trillion in size.

The investment grade sovereign bond market (meaning sovereign bonds for countries with credit ratings above BBB) is around $53 trillion. And if you’re talking about countries with credit ratings of A or higher, it’s only $43 trillion.

This is the ultimate backstop for over $700 trillion in derivatives. And a whopping $555 trillion of that trades based on interest rates (bond yields).

With that in mind, the bond bubble has already begun to burst. The fuse was lit by Greece, but it is already spreading. The Federal Reserve is well aware of this situation, which is why it continues to hem and haw about raising rates, despite the fact that we are now six years into the “recovery.”

True, the Fed could raise rates this year, but the fact that it is so concerned about how the markes will react to a measly 0.1% rate hike after SIX YEARS of ZIRP only confirms the scope of the bond bubble.

Moreover, any rate hike that the Fed initiates would likely be largely symbolic as the US is already teetering on the verge of recession (if not already in one). The Fed could raise rates to 0.35% this year, but doing so would only accelerate the US’s economic contraction and trigger a flight of capital into quality sovereign bonds (pushing yields even lower).

In this regard the Fed is truly cornered. If it fails to hike rates it will have no ammo for when the next crisis hits the US. But it if hikes rates now while the economy is so weak (more on this in a moment), it’s likely to kick off or deepen a recession.

A second, larger than 2008, Crisis is approaching. Smart investors are preparing in advance.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

Why What’s About to Begin Will Dwarf 2008

Earlier this week I outlined how the next Crash will play out.

Today we’ll assess why this Crisis will be worse than the 2008 Crisis.

By way of explanation, let’s consider how the current monetary system works…

The current global monetary system is based on debt. Governments issue sovereign bonds, which a select group of large banks and financial institutions (e.g. Primary Dealers in the US) buy/sell/ and control via auctions.

These financial institutions list the bonds on their balance sheets as “assets,” indeed, the senior-most assets that the banks own.

The banks then issue their own debt-based money via inter-bank loans, mortgages, credit cards, auto loans, and the like into the system. Thus, “money” enters the economy through loans or debt. In this sense, money is not actually capital but legal debt contracts.

Because of this, the system is inherently leveraged (uses borrowed money).

The Structure of the Financial System

Consider the following:

Total currency (actual cash in the form of bills and coins) in the US financial system is little over $1.2 trillion.

If you want to include money sitting in short-term accounts and long-term accounts the amount of “Money” in the system is about $10 trillion.

In contrast, the US bond market is well over $38 trillion.

If you include derivatives based on these bonds, the financial system is north of $191 trillion.

Bear in mind, this is just for the US.

Again, debt is money. And at the top of the debt pyramid are sovereign bonds: US Treasuries, German Bunds, Japanese Government Bonds, etc. These are the senior most assets used as collateral for interbank loans and derivative trades. THEY ARE THE CRÈME DE LA CRÈME of our current financial system.

So, this time around, when the bubble bursts, it won’t simply affect a particular sector or asset class or country… it will affect the entire system.

The Bond Bubble is Exponentially Larger Than Stocks

So…. the process will take considerable time. Remember from the earlier pages, it took three years for the Tech Bubble to finally clear itself through the system. This time it will likely take as long if not longer because:

The bubble is not confined to one country (globally, the bond bubble is over $100 trillion in size).

The bubble is not confined to one asset class (all “risk” assets are priced based on the perceived “risk free” valuation of sovereign bonds… so every asset class will have to adjust when bonds finally implode).

The Central Banks will do everything they can to stop this from happening (think of what the ECB has been doing in Europe for the last three years)

When the bubble bursts, there will very serious political consequences for both the political elites and voters as the system is rearranged.

First of all, this bubble is larger than anything the world has ever seen. All told, there are $100 trillion in bonds in existence.

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%.

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 (usually 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).

Moreover, you have to consider the political significance of this bubble.

For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.

This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.

In the US today, a whopping 47% of American households receive some kind of Government benefit. This type of social spending is not temporary… this is endemic.

Most Western Nations Are Bankrupt

The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds.

This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.

Central banks cut interest rates to make these gargantuan debts more serviceable.

Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.

Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was economically positive) because it would burst the bond bubble and bankrupt sovereign nations.

So how will all of this play out?

The bond markets have already begun a revolt in the Emerging Market space. There we are on the verge of taking out the bull market trendline dating back to 2009.

When this hits, capital will fly to high quality bonds particularly US treasuries. However as the bond market crisis accelerates eventually it will envelope even safe haven bonds (including Treasuries).

At that point the bad debts in the financial system will finally clear and we can begin to see real sustainable growth.

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

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

These Two Assets Show Us a Crash is Coming

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.

Consider the case of Coal.

In the US, Coal has become a political hot button. Consequently it is very easy to forget just how important the commodity is to global energy demand. Coal accounts for 40% of global electrical generation. It might be the single most economically sensitive commodity on the planet.

With that in mind, consider that Coal ENDED a multi-decade bull market back in 2012. In fact, not only did the bull market end… but Coal has erased virtually ALL of the bull market’s gains (the green line represents the pre-bull market low).

Those who believe that the global is in an economic expansion will shrug this off as the result if the US’s shift away from Coal as an energy source. The US accounts for only 15% of global Coal demand. The collapse in Coal prices goes well beyond US changes in energy policy.

What’s happening in Coal is nothing short of “price discovery” as the commodity moves to align itself with economic reality. In short, the era of “growth” pronounced by Governments and Central Banks around the world ended. The “growth” or “recovery” that followed was nothing but illusion created by fraudulent economic data points.

We get confirmation of this from Oil.

For most of the “so called” recovery, Oil gradually moved higher, creating the illusion that the world was returning to economic growth (demand was rising, hence higher prices).

That blue line could very well represent the “false floor” for the recovery I mentioned earlier. Provided Oil remained above this trendline, the illusion of growth via higher energy demand was firmly in place.

And then Oil fell nearly 80% from top to bottom.

As was the case for Coal, Oil’s drop was nothing short of a bubble bursting. From 2009 until 2014 Oil’s price was disconnected from economic realities. Then price discovery hit resulting in a massive collapse.

Moreover, the damage to Oil was extreme. Not only did it collapse 80% in a matter of months. It actually TOOK out the trendline going back to the beginning of the bull market in 1999.

This is a classic “ending” pattern. Breaking a critical trendline (particularly one that has been in place for several decades) is one thing. Breaking it and then failing to reclaim it during the following bounce is far more damning.

In short, the era the phony recovery narrative has come unhinged. We have no entered a cycle of actual price discovery in which financial assets fall to more accurate values. This will eventually result in a stock market crash, very likely within the next 12 months.

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:

Best Regards

Graham Summers

Phoenix Capital Research

Sep

2015

Is the Treasury Preparing For a Systemic Event?

Behind the veneer of “all is well” being promoted by both world Governments and the Mainstream Media, the political elite have begun implementing legislation that will permit them to freeze accounts and use your savings to prop up insolvent banks.

This is not conspiracy theory or some kind of doom and gloom. It’s basic fact.

In the last 24 months, Canada, Cyprus, New Zealand, the US, the UK, and now Germany have all implemented legislation that would allow them to first FREEZE and then SEIZE bank assets during the next crisis.

With that in mind, I want to devote some time to what has come out concerning the Cyprus “bail-in” and its implications. The reason for this is that this tiny country has provided the world with a template of what is eventually going to be a global phenomenon.

The quick timeline for Cyprus is as follows:

June 25, 2012: Cyprus formally requests a bailout from the EU.
November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
March 18 2013: Bank holiday extended until March 21 2013.
March 19 2013: Cyprus parliament rejects bail-in bill.
March 20 2013: Bank holiday extended until March 26 2013.
March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

The most important thing I want you to focus on is the speed of these events.

Cypriot banks formally requested a bailout back in June 2012. The bailout talks took months to perform. And then the entire system came unhinged in one weekend.

One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out (more on this in a moment).

There were no warnings that this was coming because everyone at the top of the financial food chain are highly incentivized to keep quiet about this. Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.

Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).

With that in mind, now is a good time to prepare for systemic risk. I cannot forecast precisely when things will get as ugly as they did in Cyprus for the financial system as a whole (no one can).

However, the clear signals are clear that the Feds are preparing for something big. The Treasury Department has ordered survival kits for the Big Banks’ employees… and the NY Fed is expanding its satellite office in Chicago in case something major happens that forces the market to collapse.

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

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Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

Could the Fed Implement a “Carry” Tax on Physical Cash?

The Fed meets this week on Wednesday and Thursday.

Many in the investment world believe the Fed will finally raise interest rates during this meeting.

If it does, this will be the first rate hike since 2006. And it will represent the first time in six years that rates are not effectively at zero.

Will the Fed raise rates or won’t it? Honestly, I don’t know and neither does anyone else.

The Fed Has a History of Moving Its “Targets”

Back in 2012, the Fed claimed it would start to raise rates when unemployment fell to 6.5%. We hit that target in April 2014.

Here we are a full 17 months later with the unemployment rate at 5.1% and the Fed has yet to raise rates even once.

Indeed, projecting a rate hike at some point in the future, only to hit that point and offer some other excuse to not raise rates has become something of a pattern for the Fed.

Everyone was convinced the Fed would raise rates in April 2015.

It didn’t.

Then everyone became certain a rate hike would come in June 2015.

It didn’t.

It’s now September and less than half of private economists believe a rate hike is coming this week.

Bottomline: no one has a clue when the Fed will raise rates. This includes Fed officials who continue to make various arguments for not raising rates this week.

However, one thing is relatively certain, whenever the Fed does raise rates, the tightening will be short-lived.

Why the Fed Won’t Let Rates Normalize

With over $555 trillion derivatives trading globally based on interest rates, the Fed cannot normalize rates without triggering a crisis that would make 2008 look like a picnic.

This is not just idle talk either.

Consider that as early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives.

Born said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would “implode.”

So Greenspan knew about the derivatives problem in 1998. Bernanke, knows about it as well. This is why he admitted that rates would not normalize anytime during his “lifetime” during a closed-door luncheon with several hedge funds last year.

Janet Yellen is also aware of the derivatives issue. This is why she has continued to refuse to raise rates for months after hitting the Fed’s unemployment “target.”

The fact of the matter is that the Fed has backed itself into a corner. It should have raised rates in 2012 or 2013 so that it would have some dry powder now. Instead, it continued to ease and now it has nothing left in its arsenal.Well, almost nothing…

Is a Carry Tax Coming For Physical Cash?

More and more outlets have begun to call for imposing a “carry” tax on cash.

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.

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

Indeed, we’ve uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

We detail this paper and outline three investment strategies you can implement right now to protect your capital from the Fed’s sinister plan in our Special Report Survive the Fed’s War on Cash.

We are making 100 copies available for FREE the general public.

To lock in one of the few remaining…

Best Regards

Phoenix Capital Research

Sep

2015

Three Reasons the Fed Cannot Let Rates Normalize

Analysts and commentators remain hung up on whether or not the Fed will raise rates next week.

Certain Fed officials have been stating that the Fed should commence tightening. However, with China’s bubble collapsing, dragging down the Emerging Markets, there are plenty of excuses for the Fed to postpone yet again.

Ultimately, I remain convinced that whenever the Fed does hike rates, it will largely be a symbolic rate hike, say to 0.35% or 0.5%. That will be it for some time.

I say this because the Fed cannot afford raising rates anywhere near historical norms (4%). There are three reasons for this:

The $9 trillion US Dollar carry trade
The $156 trillion in interest-rate based derivatives sitting on the big banks’ balance sheets.
The weak US economy cannot handle rate normalization

Regarding #1, there are over $9 trillion in borrowed US Dollars floating around the financial system invested in various assets. When you borrow in US Dollars you are effectively shorting US Dollars. So if the US Dollar strengthens, you very quickly blow up (carry trades only work when the currency you are borrowing in remains weak or stable).

The US Dollar has rallied over 20% in the last year. It is currently consolidating. But if the Fed were to raise rates significantly, the interest rate differential between the US Dollar and other major currencies (the Yen is at zero, while the Euro is negative) would result in large amounts of capital moving out of the Yen and Euro and into the US Dollar. This would blow up that $9 trillion carry trade leading to systemic risk.

Regarding #2, bonds are the senior most collateral backstopping the derivatives markets. Over 77% of derivatives are based on interest rates. This comes to roughly $156 trillion in interest rate-based derivatives… sitting on the big banks’ balance sheets.

If even 0.1% of this money is “at risk” it would wipe out 10% of the big banks equity. If 1% were “at risk” it would wipe out ALL of the big banks’ equity.

Suffice to say, the Fed cannot afford a spike in interest rates without imploding the big banks: the very banks it has spent trillions of Dollars propping up.

Finally, the US economy cannot handle a normalization interest rates.

This is not the usual “the Fed cannot raise rates ever” nonsense. It is more a structural argument. A sharp drop in business investment is what causes recessions. When businesses stop investing, job growth slows and the layoffs start soon after. This is how a recession begins.

With corporate profits already falling, US corporations already have less cash available to pay off the gargantuan debt loads they’ve accrued in the last six years (courtesy of the Fed keeping rates at zero). A spike in rates would only accelerate the pace at which corporations cut back on investment, as they have to spend more money on debt payments. This in turn would trigger a recession.

At the end of the day, the Fed has failed to implement any meaningful reform. The very issues that caused the 2008 Crisis (excessive debt, particularly in the opaque derivatives markets) are at even worse levels than they were in 2008.

Another Crisis is coming. Smart investors are preparing now.

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

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

2008 Was a Crisis… It Was Not THE Crisis

The 2008 crash was a warm up.

Many investors think that we could never have a financial crash again. The 2008 melt-down was a one in 100 years episode, they think.

They are wrong.

The 2008 Crisis was a stock and investment bank crisis. But it was not THE Crisis.

THE Crisis concerns the biggest bubble in financial history: the epic Bond bubble… which as it stands is north of $100 trillion… although if you include the derivatives that trade based on bonds it’s more like $500 TRILLION.

The Fed likes to act as though it’s concerned about stocks… but the real story is in bonds. Indeed, when you look at the Fed’s actions from the perspective of the bond market, everything suddenly becomes clear.

The Bond Bubble is the REAL Bubble

Bonds are debt. A bond is created when a borrower borrows money from a lender. And at the top of the financial food chain are sovereign bonds like US Treasuries.

These bonds are created when someone lends the US money. Why would they do this? Because the US SPENDS more money than it TAKES IN via taxes. So it issues debt to cover its extra expenses.

This cycle continued for over 30 years until today, when the US has over $16 TRILLION in size. Because we never actually pay our debt off (or rarely do), what we do is ROLL OVER debt when it comes due, so that investors continue to receive interest payments but never actually get the money back… because the US Government doesn’t have it… because it’s still spending more money than it takes in via taxes.

This is why the Fed cut interest rates to zero and will likely do everything in its power to keep them low: even a small raise in interest rates makes all of this debt MORE expensive to pay off.

This is also why the Fed had the regulators drop accounting standards for derivatives… because if banks and financial firms had to accurately value their hundreds of trillions of derivatives trades based on bonds, investors would be terrified at the amount of leverage and the margin calls would begin.

The bond bubble is also why the Fed started its QE programs. Because by buying bonds, the Fed put a floor under Treasuries… which made investors less likely to dump bonds despite bonds offering such low rates of return.

This is also why the Fed is terrified of deflation. Deflation makes future debt payments more expensive. So the Fed prefers inflation because it means the dollars used to pay off debt down the road will be cheaper than Dollars today.

The Fed Only Cares About the Bond Bubble

Again, when look at the Fed’s actions through the perspective of the bond market… everything becomes clear.

The only problem is that by doing all of this, the Fed has only made the bond market even BIGGER. In 2008, the bond market was $82 trillion. Today it’s over $100 trillion. And the derivatives market, of which 80%+ of all trades are based on interest rates (Treasury yields), is at $700 TRILLION.

The REAL Crisis will be when the bond bubble bursts. When this happens, it will be clear that real standards of living have been falling since the ‘70s and that sovereign nations have been papering over this through social spending and entitlements (a whopping 47% of US households receive Government benefits in some form).

Imagine what will happen to the markets when the Western welfare states finally go broke? It will make 2008 look like a picnic.

Smart investors are preparing now.

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

As we write this, there are less than 10 left.

To pick up yours…

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: http://gainspainscapital.com/

Sep

2015

Gold Has CRUSHED Stocks For Over 40 Years

Warren Buffett once noted, Gold doesn’t do anything “but look at you.” It doesn’t pay a dividend or produce cash flow.

As someone who’s devoted his life to increasing his wealth, Buffett should know better than to say this because the fact of the matter is that Gold has dramatically outperformed the stock market for the better part of 40 years.

Gold Was Pegged To Currencies Until 1967

I say 40 years because there is no point comparing Gold to stocks during periods in which Gold was pegged to world currencies. Most of the analysis I see comparing the benefits of owning Gold to stocks goes back to the early 20^th century.

However Gold was pegged to global currencies up until 1967. Stocks weren’t. Comparing the two during this time period is just bad analysis.

Indeed, once the Gold peg officially ended with France dropping it in 1967, the precious metal has outperformed both the Dow and the S&P 500 by a massive margin.

See for yourself… the below chart is in normalized terms courtesy of Bill King’s The King Report.

According to King, Gold has risen 37.43 fold since 1967. That is more than twice the performance of the Dow over the same time period (18.45 fold). So much for the claim that stocks are a better investment than Gold long-term.

The Only Time Stocks Beat Gold Was During the Tech Bubble

Indeed, once Gold was no longer pegged to world currencies there was only a single period in which stocks outperformed the precious metal. That period was from 1997-2000 during the height of the Tech Bubble (the single biggest stock market bubble in over 100 years).

In simple terms, as a long-term investment, Gold has been better than stocks.

Talking negatively about Gold is just one of the means the elites have of “trashing cash” or physical money that can be kept outside of the banks.

You see, any form of capital that can be kept outside of the financial system is a major problem for the banks. The financial system thrives on the use of digital currency in the form of loans that can be used as collateral on derivatives trades.

Gold Keeps Your Money Free From Bankers’ Hands

Consider 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.

This is just the start of a much larger strategy of declaring War on Cash. The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all costs.

We’ve uncovered a secret document outlining how the Fed plans to incinerate savings. In it, the Fed detailed three policies it would impose during a major financial crisis. They were:

Cut interest rates to zero (check)

Launch QE (check)

Impose a carry tax on physical cash or ban it outright (coming soon).

We detail this paper and outline three investment strategies you can implement right now to protect your capital from the Fed’s sinister plan in our Special Report

Survive the Fed’s War on Cash.

We are making just 100 copies available for FREE the general public.

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Click Here Now!!!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

For more investment insights, swing by our FREE e-letter: www.gainspainscapital.com

Sep

2015

Is a Global Debt Crisis Finally Here?

The US Dollar is going to blow up the global debt markets leading to a global debt crisis.

The blogosphere is rife with talk of the “death of the US Dollar.”

The US Dollar will eventually die, as all fiat currencies do. But the fact remains that everyone on the planet has been borrowing in US Dollars or leveraging up using Dollars for decades and a massive debt crisis is coming first.

When you borrow in US Dollars you are effectively shorting the US Dollar. So when leverage decreases through defaults or restructuring, the number of US Dollars outstanding diminishes.

And this strengthens the US Dollar… which means you debts become more expensive… leading inevitably to more defaults and a debt crisis.

With that in mind, it looks as though we are in the early stages of a massive, multi-year Dollar deleveraging cycle. Indeed, the greenback is now breaking out against EVERY major world currency. As I said before, a crisis is coming!

The US Dollar Has Broken Out Against Every Major Currency

Here’s the US Dollar/ Japanese Yen:

Here’s the US Dollar/ Euro:

Even the Swiss’s decision to break the peg to the Euro hasn’t stopped the US Dollar from breaking out of a long-term downtrend relative to the Franc:

The fact that we are getting major breakouts of multi-year if not multi-decade patterns against every major world currency indicates that this US Dollar bull market is the REAL DEAL, not just an anomaly.

With that in mind, I continue to believe the US Dollar is in the beginning of a multi-year bull market. And this will result in various crises along the way culminating in a global debt crisis far greater than 2008.

Globally there is over $9 trillion borrowed in US Dollars and invested in other assets/ projects. This global carry trade is now blowing up and will continue to do so as Central Banks turn on one another.

This will bring about a wave of deleveraging that will see the amount of US Dollars in the system shrink. This in turn will drive the US Dollar higher triggering a debt crisis for any debt that is priced in US Dollars.

The US Dollar Is Now Outperforming Stocks!

Indeed, consider that the US Dollar actually MATCHED the performance of stocks for the year of 2014.

And it continues to crush stocks’ performance in 2015 as well.

Any entity or investor who is using aggressive leverage in US Dollars will be at risk of imploding. Globally that $9 trillion in US Dollar carry trades is equal in size to the economies of Germany and Japan combined. That is a heck of a debt crisis.

Smart investors are preparing now.

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.

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

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

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Sep

2015

Why the Next Crisis Will Be Far Worse Than 2008

Earlier this week I outlined how the next Crash will play out.

Today we’ll assess why this Crisis will be worse than the 2008 Crisis.

By way of explanation, let’s consider how the current monetary system works…

These financial institutions list the bonds on their balance sheets as “assets,” indeed, the senior-most assets that the banks own.

Because of this, the system is inherently leveraged (uses borrowed money).

Consider the following:

1) Total currency (actual cash in the form of bills and coins) in the US financial system is little over $1.2 trillion.

2) If you want to include money sitting in short-term accounts and long-term accounts the amount of “Money” in the system is about $10 trillion.

3) In contrast, the US bond market is well over $38 trillion.

4) If you include derivatives based on these bonds, the financial system is north of $191 trillion.

Bear in mind, this is just for the US.

Again, debt is money. And at the top of the debt pyramid are sovereign bonds: US Treasuries, German Bunds, Japanese Government Bonds, etc. These are the senior most assets used as collateral for interbank loans and derivative trades. THEY ARE THE CRÈME DE LA CRÈME of our current financial system.

So, this time around, when the bubble bursts, it won’t simply affect a particular sector or asset class or country… it will affect the entire system.

1) The bubble is not confined to one country (globally, the bond bubble is over $100 trillion in size).

2) The bubble is not confined to one asset class (all “risk” assets are priced based on the perceived “risk free” valuation of sovereign bonds… so every asset class will have to adjust when bonds finally implode).

3) The Central Banks will do everything they can to stop this from happening (think of what the ECB has been doing in Europe for the last three years)

4) When the bubble bursts, there will very serious political consequences for both the political elites and voters as the system is rearranged.

First of all, this bubble is larger than anything the world has ever seen. All told, there are $100 trillion in bonds in existence.

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%.

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 (usually 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).

Moreover, you have to consider the political significance of this bubble.

This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.

In the US today, a whopping 47% of American households receive some kind of Government benefit. This type of social spending is not temporary… this is endemic.

The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds.

This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.

1) Central banks cut interest rates to make these gargantuan debts more serviceable.

2) Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.

3) Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was economically positive) because it would burst the bond bubble and bankrupt sovereign nations.

So how will all of this play out?

The bond markets have already begun a revolt in the Emerging Market space. There we are on the verge of taking out the bull market trendline dating back to 2009.

At that point the bad debts in the financial system will finally clear and we can begin to see real sustainable growth

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

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…

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Sep

2015

More and More Institutions Call For a Ban on Physical Cash

Over the weekend, The Financial Times published an article calling for a ban on physical cash.

This is just the latest in a series of articles being promoted by the financial media proposing this concept. The arguments presented in these articles are always the same:

1) The Central Banks are wonderful institutions that are trying to save the world.

2) The reason Central Banks have failed to create another economic boom (despite spending $11 trillion) is NOT because they are incompetent, corrupt, and following financial models that have no connection to reality.

3) The reason Central Banks cannot create growth is because of consumers’ unwillingness to spend money.

4) The solution to this is to punish the stubborn consumers and FORCE them start spending more.

5) If we outlaw cash, consumers cannot remove their money from the financial system and so will be forced to spend it eventually (most calls for a ban on physical cash also suggest a “carry tax” or making it so that physical cash loses value the longer it remains outside of the financial system).

6) If we do this, the economy will suddenly explode with growth!

In short, it’s yet another “we need to do this for the greater good argument.” It’s interesting that other options that would actually be for the greater good are never considered (options such as auditing the Fed or demanding that the Fed follow the law), but I digress.

So why are we seeing calls for the banning of cash?

It’s because actual physical cash is a MAJOR problem for the Central Banks. The reason for this concerns the structure of the financial system. As I’ve outlined previously, that structure is as follows:

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

2) 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.

3) In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.

4) 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.

5) 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.

6) 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).

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.

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 their “wealth” into actual physical bills, the system would implode (there is simply not enough actual cash).

Indeed, this is precisely what happened in 2008 when depositors attempted to pull $500 billion out of money market funds in the span of a month.

As a result of this, virtually every monetary action taken by the Fed since 2008 has been devoted to forcing investors away from physical 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.

As a result of this mainstream economists at CitiGroup, the German Council of Economic Experts, and bond managers at M&G have suggested doing away with cash entirely. Over the weekend, an article in the Financial Times called for it too.

The old adage says “you can lead a horse to water, but you cannot make him drink.” The Fed and other Central Bankers lead the horse to the water. The horse wouldn’t drink. So now they’re talking about holding the horse’s head underwater until he does.

This is just the beginning. As Central Bankers grow more and more desperate in the coming months, you’ll see more and more calls for extreme measures such as banning physical cash or imposing a “carry tax” on those who remove cash from the system.

Prepare in advance.

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Best Regards,

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Aug

2015

Are You Ready For the Next Leg Down?

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.

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

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…

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Aug

2015

What Are the Fed’s Options For Stopping This Crisis? Not Much

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…

You can pick up a FREE copy if you …

Best Regards

Graham Summers

Phoenix Capital Research

Aug

2015

China’s Is the First Central Bank to Lose Control… It Won’t Be the Last

ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until last month that things truly became completely and utterly broken.

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A month or so ago, China lost control of its stock market. Despite freezing the market, banning short-selling, arresting short-sellers, and injecting billions of Dollars per day into the markets, China’s stock market continues to implode.

Please let this sink in: a Central bank, indeed, one of the largest, most important Central Banks, has officially “lost control.”

This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

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.

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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…

Best Regards

Graham Summers

Phoenix Capital Research

Aug

2015

The Next Crisis Has Already Hit Emerging Markets… the US is Next

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

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

May

2014

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.

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Phoenix Capital Research

May

2014

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.

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

Best Regards

Phoenix Capital Research

May

2014

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.

All for the the small price of $179: the annual cost of a Private Wealth Advisory subscription.

To take action to prepare for what’s coming… and start taking steps to insure that when this bubble bursts you don’t lose your shirt.

Phoenix Capital Research

May

2014

What the Fed’s Inflation Mania Means For Investors

The signs of inflation continue to appear in the economy.

The Fed is ignoring this because the Fed is afraid of deflation… despite food prices, energy prices, healthcare costs, home prices and stocks soaring.

• FedEx is increasing prices by 42% for some shipments.
• Commonwealth Edison is raising electricity rates by 38% in June.
• Chipotle is raising prices for the first time in three years.
• Netflix is raising prices on new customers.
• Colgate-Palmolive is raising prices.

These are simply explicit price increases. Many companies have been raising prices via a “stealth” price hike by simply charging the same price for less of a product. The latest example of this is bacon, but companies such as Kellogg’s, Snickers, Tropicana, Bounty, Heinz, and others have been using this tactic for some time.

Against this backdrop, the Fed is openly stating that it wants to create inflation. Put another way, the Fed is not only oblivious to the fact inflation is already appearing in the broader economy, the Fed actually wants to create more inflation!

Small wonder the US Dollar is teasing with breaking multi-year support.

In its quest to fight the brief deflation of 2008-2009, the Fed has unleashed a wave of inflation. These developments take time to unfold. But the signs are already there. The grand theme for 2014 will see prices moving higher.

The problem with inflation is that it is a lot easier to create than contain. The Fed continues with its dubious claims that inflation is too low, but the markets and prices are saying otherwise.

Buckle up, much higher prices are coming. The Fed is behind the curve again, just as it was in 2007. We all know what happened next.

With that in mind, We’ve already urged Private Wealth Advisory clients to start prepping. We’ve opened SIX targeted trades all designed to profit from inflation as it surges in the financial system. As we write this, all SIX of them are soaring higher despite the stock market trading sideways.

All for the the small price of $179: the annual cost of a Private Wealth Advisory subscription.

To take action to prepare for what’s coming… and start taking steps to insure that when inflation rips through the system you don’t lose your shirt.