Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.

What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.

However, this process will not be fast by any means.

Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).

There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.

The reasons for this are:

1. Investor psychology and faith in the current Central banking system.
2. As mentioned before, Central Banks and the political elites will do everything they can to prop up the system and remain in power.

Regarding #1, investors have been conditioned for over 30 years to believe that there is no problem that Central Banks cannot fix.

In the last 20 years alone, we’ve experienced the Asian financial Crisis (1997), the Russian Ruble Crisis (1998), the Argentinian Crisis (1999-2002), the Tech Crash (2000-2002), and Housing Bust (2006-2008) the 2008 Meltdown (2008-2009), and finally the Euro Crisis (2010-present).

By hook or by crook, Central Banks have managed to pull the financial system back from the brink for all of these. The end result has been that we are now sitting on the single largest asset bubble in history: the $100 trillion global bond bubble (well, really it’s $555 trillion if you include derivative exposure to bonds). We’ll delve into this more in a moment.

From the perspective of investor psychology, an entire generation of professional fund managers and investors have become pillars of the establishment without seeing Central banks fail at propping up the system (a fund manager who started working at age 22 in 1997 is currently 39… and the pros who actually lived through 1987 are now well into their 50’s if not older)

Because of this, when crises do actually happen, it takes considerable time for investor psychology to shift from the euphoria associated with financial bubbles to initial concern, then from initial concern to outright worried, and from outright worried to panic.

By way of example let us consider the details surrounding the Tech Bubble: the single largest stock market bubble of the last 100 years.

In this case, the Bubble pertained to just one asset class (stocks).  In fact, the bubble was relatively isolated to one specific sector, Tech Stocks.

And to top if off, it was absolutely obvious to anyone that it was a Bubble: note that the Cyclical Adjusted Price to Earnings or CAPE ratio for the Tech Bubble dwarfed all other bubbles dating back to 1890 (see the next page).

Stocks were so obviously overvalued that it was truly absurd.

And yet, despite the fact that this bubble was absolutely obvious and involved only one asset class, it still took investors well over six months after the initial 20% crash to realize that the top was in and the bubble had burst.

Moreover, during this six month period in which the single largest stock market bubble of all time burst, stocks did NOT go straight down. In fact, they were an absolute ROLLER COASTER with more than EIGHT price swings of 16% or greater.

Let that sink in for a moment. Stocks were clearly in a bubble. Indeed, it was literally THE stock bubble of the last 100 years. And yet, when it burst, there was no clear consensus as to where the market was heading.

In a six month period, investors moved stocks down 19%, up 8%, then down 27%, then up 21%, then down 22%, then up 34%, then down 17%, then up 16%, then down 28%, then up 16%, and finally down 17%. Only at that point did stocks break their trendline for the bubble (the blue line) and it became obvious that the bubble had burst.

My point with all of this is that even when the bubble was both very specific AND obvious, the collapse was neither quick nor clean. There were several large 20%+ crashes, but overall, it was a roller coaster with jarring rallies that gradually wore its way down.

Indeed, it took stocks another TWO YEARS to bottom even AFTER the bubble had burst:

And when you extend the collapse from peak to bottom, the whole collapse took nearly three years. And this process was actually accelerated by the Fed actively cutting interest rates and flooding the financial system with liquidity.

To return to my initial point: the coming collapse in the financial markets will take its time. However, this process HAS started. And before it ends, we expect stocks to be 50% lower than they are 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.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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 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.

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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….

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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….

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Best Regards

Phoenix Capital Research

Stocks rallied yesterday on the announcement (what is this, the 105^th?) that Greece’s problems had finally been solved.

The whole charade is tiresome. I say charade because the ECB doesn’t give a hoot about Greece other than the fact that some of its bonds are used as collateral by large European banks for their derivatives trades.

Put it this way, the ECB is a lot more concerned with Deutsche Bank’s €54 TRILLION in derivatives exposure than it is with the state of malnutrition for Greek children or any other number of appalling data points coming out of Greece.

On that note, Greece accepted a bailout extension. It never really had a choice in the matter. With billions of Euros fleeing the country’s banking system, Greece’s choices were A) accept the ECB’s offer or B) face complete systemic financial collapse.

Interestingly, the Euro fell on the news. One would think that the Euro remaining together was Euro positive. One would be wrong. Either the market doesn’t believe the Greek deal is legit, or something else is at work here.

The whole mess really feels like a sideshow to the fact that stocks are now beyond nosebleed territory as far as valuations are concerned. And they are just completing a six-year bearish rising wedge pattern at a time when earnings are collapsing at a pace not seen since 2009 when the financial system was in a meltdown.

The completion of this pattern will take time to unfold. But it predicts a MASSIVE collapse in stocks.

Smart investors should take note of this now. It is a MAJOR red flag to be watched closely.

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

The 2008 crash was a warm up.

Many investors think that we could never have a 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.

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 $11 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.

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.

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

As we write this, there are less than 50 left.

To pick up yours, swing by….

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

Best Regards

Phoenix Capital Research

If you want to see in stark contrast why “top down” Government programs cannot fix the US economy take a look at the recent developments regarding school lunches.

In case you missed it, in 2012 the US public school system implemented a series of reforms to mandate what students should eat based on a healthier diet.

The program was spearheaded by First Lady Michelle Obama, who, despite not being a nutritionist or having any sort of medical degree, has decided she knows what’s best for children in terms of their diets.

As a result of the reforms, the cost of school lunches has risen and the quality has gone down. And students don’t like it. In fact, many of them have begun protesting the reforms saying that they’re hungry and the food portions are not enough.

However, the far more interesting development concerns students who have begun a black market of selling condiments to other students.

Children are creating their own black markets to trade and sell salt due to First Lady Michelle Obama’s school lunch rules.

During a hearing before the House Subcommittee on Early Childhood, Elementary, and Secondary Education, chaired by Rep. Todd Rokita (R., Ind.), a school administrator told Congress of the “unintended consequences” of the Healthy, Hunger-Free Kids Act.

“Perhaps the most colorful example in my district is that students have been caught bringing–and even selling–salt, pepper, and sugar in school to add taste to perceived bland and tasteless cafeteria food,” said John S. Payne, the president of Blackford County School Board of Trustees in Hartford City, Indiana.

Kids Create Salt Black Markets in Cafeterias Due to Michelle Obama’s Lunch Rules

Bear in mind, SAT verbal scores just hit their lowest levels since 1972. And this is after the test was dumbed down several times.

What’s my point with all of this?

That high school students, even those who are borderline-failing their SATs, have a better understanding of economics and job growth than Washington bureaucrats.

Welcome to the USA.

The reason the US rose to power was due to Democratic Capitalism of innovation and entrepreneurialism, NOT the Government running things. In the recent case of school lunches, the Government has gotten involved, prices have gone up, and students are unhappy. As a result, other students have stepped in, creating a sub-economy for lunches in the schools.

This has also been the case with Government run insurance, and Government run everything. Amtrak has never turned a profit and has been called a massive “failure” by its founder. In DC, they just spent over $200 MILLION to build a 2.2 mile trolley track… that’s a cost of $17,217 per FOOT of track.

And on and on.

Want to fix the economy? Get the Government out of the way and start pushing for people to start their own businesses. Not apps or social media gadgets but actual businesses. Fix this chart, and you fix the economy.

Sincerely

Phoenix Capital Research

The official data is out and it shows that GDP collapsed 0.7% in the first quarter of 2015.

The financial world is shocked by this because:

1)   The drop occurred despite the Government massaging the heck out of the data to make it look better.

2)   The world has bought into the idea that the Fed can remove any and all recessions by printing money.

Regarding #1, the Government recently added a bunch of bogus measures to GDP such as intellectual property. How exactly you can accurately measure the value of intellectual property is beyond me. But then again, much of what the Government does in the name of “the better good” is beyond me as well.

Despite adding this and a slew of other accounting gimmicks, the economy collapsed 0.7% in the first quarter. This is shocking only to those who believe that official GDP is an accurate measure of economic growth.

Our readers have been well aware for some time that the GDP number is largely an accounting fiction meant to overstate growth. Indeed, if you strip out the various gimmicks employed by the BLS, you find that the year over year growth for GDP has been at levels usually associated with recessions for years.

Recessionary levels are circled in the chart below.

Small wonder the “recovery” has felt so weak… the economy has been moving at pace usually associated with a contraction!

Still… the fact that even the “official” numbers are now showing a contraction means that things are only getting worse. The bubble heads on TV will try to blame seasonal adjustments for the reason the GDP numbers looked so bad… but these folks have not once mentioned that those same seasonal adjustments have overstated economic growth for the last five years.

We’ve been calling for a new recession for months now. And it looks like it’s finally showing up in the official numbers. With stocks pricing in economic perfection and the Fed cornered from more serious easing (the Fed can, at best, promise to put off a rate hike… more QE is completely out of the question) the markets are set for a significant drop.

If you’re looking for actionable investment strategies to profit from the coming collapse, 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 tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

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

If you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep…

To take out a $0.98 trial subscription to Private Wealth Advisory...

CLICK HERE NOW!

Best Regards

Graham Summers

Phoenix Capital Research

Last week was options expiration week (equities and indexes). This is the week for market gaming as usually two things happen:

1)   The Fed juices the market to provide additional liquidity to Wall Street.

2)   Wall Street uses the additional liquidity to gyrate the markets to make sure as many options positions as possible expire worthless.

Today is Monday, which has become a rally day for stocks. However, there are several large negatives on the horizon.

The first concerns Greece. For three years now we’ve been told that Greece was “fixed.” It was not for the simple reason that you cannot fix a debt problem with more debt. There are only four ways to solve a debt problem:

1)   Default

2)   Restructure (partial default)

3)   Pay it off

4)   Inflation (a default of sorts)

Greece cannot engage in #4 because, as part of the Euro, it cannot print its own currency. This leaves one of the other three. Thus far, the IMF, ECB, and EU Government have managed to avoid facing the music largely because Greek politicians have been willing to sacrifice their economy in order to remain in power.

This appears now to be changing. The current Greek ministers seem far more willing to disagree with the Troika, to the point that there is talk of a Grexit (Greece leaving the Euro) on the other side of the aisle, particularly from Germany.

At the end of the day, it all boils down to money. Greece doesn’t have it. In fact, its latest payment to the IMF was made using funds from the IMF. The country is completely broke and has been raiding social security funds and other Government vehicles just to keep the lights on.

Greek banks have about 3 weeks worth of collateral on hand to remain solvent. And the country as a whole has 14 debt payments worth over €5.5 due within the next 10 weeks. This doesn’t sound like a lot… but for a country that was able to only raise €450 million by raiding its municipalities in April, it’s a gargantuan sum.

The Euro has found support at 1.05. The real issue will be just how much Euro strength ECB President Mario Draghi is willing to stomach before he smashes the currency down again. The lines to watch are below.

The Greek mess has lit a fire under Gold again, which appears to have bottomed in both the Euro (blue) and the Japanese Yen (red). The one exception is Gold priced in US Dollars mainly because the US Dollar has been so strong for much of the last 9 months.

If you’re looking for actionable investment strategies to profit from market action, we strongly urge you to try out our Private Wealth Advisory investment newsletter.

Each Private Wealth Advisory subscription comes with:

1)   12 longer monthly issues (20+ pages) outlining critical macro economic developments along with contrarian investment ideas you won’t hear about anywhere else (we’ve only closed ONE losing position since August 2014).

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3)   Real-time trade alerts via email when it’s time to buy or sell a position.

4)   All EIGHT out of Special Investment Reports outlining extraordinary investment opportunities not available to the general public.

And you can try out Private Wealth Advisory for a full month for less than $1 (just 98 cents).

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Good Investing!

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The 2008 Crisis was caused by too much debt/ leverage, particularly in the form of illiquid derivatives (mortgage backed securities get the most attention, but the derivatives market was well over $800 trillion at the time of the crisis).

To combat the financial crisis, the Fed did three things:

1)   Cut rates to zero.

2)   Abandon accounting standards.

3)   Engage in Quantitative Easing/ QE.

None of these policies represented “solutions” to the crisis. In fact, you couldn’t even accurately argue that they represented “containment.” What the Fed did was permit the very cancerous securities that nearly imploded the Wall Street banks to spread beyond from the private sector onto the public’s balance sheet.

You cannot cure cancer by letting it spread from one area of the body to the next. You cannot solve a termite problem by letting the termites move somewhere else in a house. So how could one argue that you could solve a financial crisis by letting the problems spread elsewhere in the financial system?

Consider mere leverage levels. Going into the 2008 crisis, the investment banks sported leverage levels in the 30-40s. Lehman was leveraged at 31 to 1. Morgan Stanley was leveraged at 30 to 1. Merrill Lynch peaked out in the low 40s.

Today, the Fed’s has $57.6 billion in capital and $4. 4 TRILLION in assets. That represents a leverage level of 75 to 1.

The Fed will argue that this leverage does not matter because it can print money to increase its leverage levels. This is technically true, but doesn’t alter the fact that the Fed has backed itself into a corner by buying up over $3.5 trillion worth of stuff… which the Fed has no idea how to exit.

Indeed, we know that Janet Yellen was “somewhat concerned about exit strategies” back in 2009 when the Fed’s balance sheet was $2 trillion or so. Today it’s more than TWICE that. One wonders just how “concerned” she is today, with the Fed’s balance sheet larger in size than the GDP foremost developed countries.

Even more absurd is the Fed’s ongoing issue with interest rates. Never before in history has the Fed kept rates at zero for 5+ years. But then again, never before has the Fed’s real taskmasters, the TBTFs, been sitting on over $180 trillion in interest rate based derivatives.

Those who shrug off these issues are overlooking the fact that the treasury dept. has ordered survival kits for employees at the TBTFs… while the New York Fed, has been boosting its satellite office in Chicago in preparation for potential market dislocations when the inevitable interest rate hike hits.

Indeed, nothing exposes the fallacies of the Fed’s policies of the last five years like its horror at the prospect of raising rates even a little bit. Rates have been effectively zero for five years. Today, the Fed is so concerned about what even ONE rate hike would do that it is actively preparing for potential systemic risk.

A second round of the great crisis is coming. The Fed didn’t fix 2008.; it simply set the stage for something even worse.

Smart investors are preparing now.

If you’re looking for actionable investment strategies to profit from the coming collapse, 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 tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

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

If you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep…

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

CLICK HERE NOW!

Best Regards
Graham Summers
Phoenix Capital Research

The global Central Banks, driven by their Keynesian lunacy, have induced the single largest misallocation of capital in history.

Nowhere is this clearer than in the bond market today.

Do the following sound normal?

1)   Globally 45% of all Government bonds yield less than 1%.

2)   Spanish and Italian bonds are at levels not seen since the Black Plague.

3)   German bunds have NEGATIVE yields as far out as 8 YEARS.

4)   The 10-YR US Treasury yield is at levels not seen since we were in a World War.

True, the world faces issues today… so it’s not odd for bond yields to be lower… but are those issues on par with a disease that wiped out 25%+ of Europe’s population… or the single largest military conflict in history?

The bond market is now over $100 trillion in size. The large banks have used a small portion of this (under 10%) as collateral to generate over $551 trillion in derivatives.

The bubble is so massive, that the Treasury department had survival kits delivered to the large banks around the country in anticipation of a crisis.

The NY Fed, similarly, is increasing the scope of operations in satellite office Chicago branch in preparation of a natural disaster or other eventuality could shut down its market operations as it approaches an interest rate hike…”

And then of course there are the big banks themselves… who lobbied Congress to the put taxpayers on the hook for their (the banks’) future losses on their gargantuan derivatives portfolios.

The simple truth is that the Central Banks bet the financial system on their academic theories… and have found that the system didn’t respond as they hoped. The economic “recovery” is the weakest in 80+ years… and that’s based on data that OVERstates growth.

The Fed’s own research shows that its QE programs only dropped unemployment by 0.13%… spending over $390,000 per new job created between the start of the crisis and the alleged end of the recession.

The ECB hasn’t done any better. It is not actively CHARGING depositors for sitting in cash. Several EU nations are now showing metrics on par with 3^rd world countries.

And then there’s the Bank of Japan… which has induced a record high number of Japanese on welfare… and boosted the misery index to a 33 year high (mind you, this period of 33 years includes the collapse of the biggest asset bubble in Japan’s history… and people are MORE miserable NOW).

Another crisis is coming. And judging from the actions of the Fed and others to prepare (survival kits etc) it’s going to be far worse than the 2008 collapse.

Smart investors are preparing now.

If you’re looking for actionable investment strategies to profit from the coming collapse, 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 tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

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

If you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep…

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

CLICK HERE NOW!

Best Regards
Graham Summers
Phoenix Capital Research

The US Dollar as we know it, derives its value based on where it trades against a basket of other currencies. Some 56% of this basket is comprised of Euros. Because of this, moves in the Dollar and the Euro tend to be closely correlated.

So, when the ECB cut interest rates to negative in June 2014, capital began to flow aggressively away from the EU and into the US Dollar. This in turn kicked off a strong US Dollar rally.

Which in turn began to implode the $9 trillion global US Dollar carry trade.

Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.

When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

Below is a chart showing the inverse US Dollar (meaning that when the Dollar strengthens, the black line falls) and the Euro (blue line). Note that the two move almost lockstep together:

This situation is not over. The US Dollar carry trade did not clean itself out in the space of six months. Again, there are over $9 trillion in borrowed Dollars floating around the financial system. If the US Dollar continues to strengthen at a bare minimum 50% of this will need to be unwound.

If you’re looking for actionable investment strategies to profit from the coming collapse, 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 tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for six months.

In fact, we just closed two new winners of 20% and 52% last week!!!

And we’ve only closed ONE loser in the last 7 months!

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

If you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep…

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

CLICK HERE NOW!

Best Regards
Graham Summers
Phoenix Capital Research