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

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

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

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

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

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

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

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

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

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

As I stated in our issue Price Discovery:

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

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

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

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

 

 

 

 

 

 

 

 

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

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

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

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

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

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

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

We are currently down to the last 25.

To pick up yours, swing by….

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

Best Regards

Phoenix Capital Research

 

 

 

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

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

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

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

Let’s let that simmer for a bit…

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

How is this possible?

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

That issue is collateral.

What is collateral?

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

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

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

Remember:

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

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

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

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

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

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

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

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

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

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

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

 

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

 

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

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

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

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

We are currently down to the last 25.

To pick up yours, swing by….

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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.

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….

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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….

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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!

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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:

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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…

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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…

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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…

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Best Regards
Graham Summers
Phoenix Capital Research

The Fed has bet the financial system on academic theories, that upon close inspection defy even basic common sense.

One could easily write a multi-volume set of books on the Fed’s mistakes. However, in its simplest rending, the biggest flaw in the Fed’s models pertains to its total lack of understanding of human behavior.

The Fed believes that if interest rates are low, investors will seek out higher returns by piling into stocks or even real estate. As these asset prices rose, the investors would feel wealthier and so go out and spend more money… which in turn would drive the economy towards growth (70% of US GDP stems from consumer spending).

Of course, the Fed’s model is far more complicated than this, involving all kinds of “clever” math equations… but ultimately the Fed’s recipe for growth is “cut rates and if necessary, buy bonds with newly printed money and growth will appear.”

The only problem with this all of this is that people buy things with income not based on where their stock portfolio is trading (assuming that have a portfolio, but that’s a issue for another time).

When you go to buy groceries or a new suit, you don’t stop to think where stocks are trading. You think about how much money is in your bank account based on your salary… or you use a credit card and project that you’ll have the money to pay off your debt down the road.

After all, the money you “make” from higher asset prices isn’t actually real money unless you sell the asset. You cannot go into a store and offer to pay your bill with part of your stock portfolio. And most investors have the bulk of their portfolio money in 401(k)s, IRAs, and other investment vehicles which they cannot easily convert into cash without facing a penalty.

Who on earth thinks “I will buy this item today because stocks are up and several years from now (possibly decades) I will sell my stocks and have a lot of money”??? No one but Fed officials apparently.

So while the Fed’s policies haven’t generated any significant growth, one thing they have accomplished is a total mispricing of risk in the financial system. Again, the reason for this has to do with the Fed’s complete and total lack of understanding of basic human nature.

When the Fed began announcing QE programs, the single most obvious trade in the whole world became “front-running the Fed.”

In this trade, traders would buy Treasuries at Treasury auctions only to then turn around and sell the bonds to the Fed a few days (or maybe a week or two) to the Fed. After all, if you know that someone else is going to be buying bonds at a certain date and time in the future… and you know they’re not going to be too picky about the price they pay…why not try to game this system to eek out a profit?

By piling into bonds, traders forced prices higher and yields lower: precisely what the Fed wanted. These folks were looking for profits while the Fed was looking for lower yields (meaning higher bond prices). It’s a match made in heaven.

So how screwed up is the risk profile in the world? Today, the yield on the 10-year Treasury (the benchpark for riskless money according to modern financial theory) is yielding less than 2%

If you were to go all the way back to 1790, the yield on the 10-Year Treasury (or its equivalent at the time) has been lower than it currently is only one time before the Fed started its QE programs, and that was in 1945 at the end of WWII.

Treasuries actually yielded MORE than they are now in the depth of the 2008 collapse when everyone thought the world was ending.

These bonds are the benchmarks for “risk” in the financial system. Stocks, corporate bonds, mortgages, auto loans, emerging market stocks… everything you can name are ultimately priced based on their perceived risk relative to the “risk free” rate of lending money to the US for 10 years.

And believe it or not, Treasuries are actually one of the BETTER bonds to own from a yield perspective. Globally over 45% of Government bonds yield less than 1%… and €2.1 TRILLION in EU bonds now have NEGATIVE yields.

Put another way, the financial landscape is now so screwed up by the Central Planners, that investors are actually INCINERATING their money by lending it to Governments.

What’s coming will be the largest Crisis in financial history. Globally the bond bubble is over $100 trillion in size. It literally dwarfs stocks.

And the ENTIRE bond market is mispricing risk.

This mess will burst just as all bubbles do. And when it does it will be ENTIRE COUNTRIES, not just banks that go bust.

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:

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

Best Regards

Phoenix Capital Research

 

 

 

 

 

 

 

 

 

 

In the early 2000s, Alan Greenspan was worried about deflation. So he hired Ben Bernanke, the self-proclaimed expert on the Great Depression from Princeton. The idea was that with Bernanke as his right hand man, Greenspan could put off deflation from hitting the US. Indeed, one of Bernanke’s first speeches was titled “Deflation: Making Sure It Doesn’t Happen Here”

The US did briefly experience a bout of deflation from late 2007 to early 2009. To combat this, Fed Chairman Ben Bernanke unleashed an unprecedented amount of Fed money. Remember, Bernanke claims to be an expert on the Great Depression, and his entire focus was to insure that the US didn’t repeat the era of the ‘30s again.

Current Fed Chair Janet Yellen is cut of the same cloth as Bernanke. And her efforts (along with Bernanke’s) aided and abetted by the most fiscally irresponsible Congress in history, have recreated an environment almost identical to that of the 1920s.

Let’s take a quick walk down history lane.

In the 1920s, most of Europe was bankrupt due to after effects of WWI. Germany in particular was completely insolvent due to the war and due to the war reparations foisted upon it by the Treaty of Versailles. Remember, at this time Germany was the second largest economy in the world (the US was the largest, then Germany, then the UK).

Germany attempted to deal with the economic implosion created by WWI by increasing social spending: social spending per resident grew from 20.5 Deutschmark in 1913 to 65 Deutschmark  in 1929.

Since the country was broke, incomes and taxes remained low, forcing Germany to run massive deficits. As its debt loads swelled, the county cut interest rates and began to print money, hoping to inflate away its debs.

When the country lurched towards default, US and other banks loaned it money, doing anything they could to keep the country from defaulting on its debt. As a result of this and the US’s relative economic strength compared to most of Europe, capital flew from Europe to the US.

This created a MASSIVE stock market bubble, arguably the second largest in history. From its bottom in 1921 to its peak in 1929, stocks rose over 400%. Things were so out of control that the Fed actually raised interest rates hoping to curb speculation.

The bubble burst as all bubbles do and stocks lost 90% of their value in a mere two years.

Today, the environment is almost identical but for different reasons. The ECB first cut interest rates to negative in June 2014. Since that time capital has fled Europe and moved into the US because 1) interest rates here are still positive, albeit marginally, and 2) the US continues to be perceived as a safe-haven due to its allegedly strong economy.

This process has accelerated in 2015.

• Globally, there have been 20 interest rate cuts since the years started a mere two months ago.

• Interest rates are now at record lows in Australia, Canada, Switzerland, Russia and India.

• Many of these rates cuts have resulted in actual negative interest rates, particularly in Europe (Denmark, Sweden, and Switzerland).

• Both the ECB and the Bank of Japan are actively engaging in QE programs forcing rates even lower.

• All told, SEVEN of the 10 largest economies in the world are currently easing.

Because the US is neutral, money has been flowing into the country by the billions. A lot of it is moving into luxury real estate (particularly in LA and York), but a substantial amount has moved into stocks as well as the US Dollar.

As a result of this, the US stock market is trading at 1929-bubblesque valuations, with a CAPE of 27.34 (the 1929 CAPE was only slightly higher at 30. And when that bubble burst, stocks lost over 90% of their value in the span of 24 months.

Another Crash is coming… and smart investors would do well to prepare now before it hits.

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:

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

Best Regards

Phoenix Capital Research

 

By almost any measure, stocks are sharply overvalued. Warren Buffet’s favorite value metric for stocks is Total Market Cap of the market/ GDP.

Today we find this metric showing stocks as sharply overpriced. As Doug Short recently noted, only the Tech Bubble was more expensive.

 

 

 

 

 

 

 

 

 

 

 

 

This is true going back even to 1870.

Of course this doesn’t mean stocks cannot rally further. But it doesn’t bode well for long-term returns for the market in general.

This is also true from a CAPE perspective.

As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.

Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.

CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.

Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns. Indeed, CAPE outperformed:

1. P/E ratios
2. Government Debt/ GDP
3. Dividend yield
4. The Fed Model,

…and many other metrics used by investors to predict market value.

So what is CAPE telling us today?

 

 

 

 

 

 

 

 

 

The CAPE is at its 3^rd highest reading going back to 1890. Only the 1929 bubble and the Tech Bubble were more expensive relative to earnings.

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

Put another way, even with RECORD HIGH profit margins, the market is overvalued on a scale rarely seen in the last 140 years. One can only imagine what the REAL CAPE would be if we removed all the accounting gimmicks from earnings.

Stocks are in a bubble. And it is one of the largest bubbles in the last century, larger even than the 2007 bubble, which preceded the 2008 Crash.

Another Crisis is coming. And based on the size of the bubble today, it will be worse than the 2008 one.

And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.

If you’re looking for actionable investment strategies to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that 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 under six months.

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

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

You can try Private Wealth Advisory for 30 days (1 month) for less than $10…

If you decide you like it, an annual subscription will kick in and you’ll be charged the remaining $190 of an annual subscription.

But 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 $10 trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers

The global economic implosion continues to worsen.

China is growing at 3%… possibly even lower. One of the only remotely accurate Chinese economic data points is rail traffic. Well, Chinese rail freight has fallen at a pace not seen since the Asia Financial Crisis. In fact, it’s even worse today than it was in 2008.

This tells us that China’s economy is collapsing. China is an export economy… with much of it going to the US.

So it should be little surprise that the US’s import data just posted the worst collapse since Lehman Brothers.

If it is collapsing then global trade should be doing the same. And it is. The Baltic Dry index, which is a proxy for global trade, has fallen 80% in the last 18 months. It just recently hit an all-time low (even lower than during the 2008 collapse).

 

And the Fed’s own GDP tracker has collapsed to ZERO growth (down from a forecast of 2% growth a few months ago)

 

 

 

 

 

 

 

 

 

 

And against this backdrop… investors are completely bullish. The Investors Intelligence Survey shows the lowest number of bears in history.

The time to prepare for what is coming is now BEFORE the Crash hits.

And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.

If you’re looking for actionable investment strategies to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that 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 under six months.

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

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

You can try Private Wealth Advisory for 30 days (1 month) for less than $10…

If you decide you like it, an annual subscription will kick in and you’ll be charged the remaining $190 of an annual subscription.

But 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 $10 trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers

Earnings may very well have peaked.

MarketWatch notes that adjusted profits (even after all of the accounting gimmicks), FELL last year. This is the first time this has happened since we entered the alleged “recovery.”

For the full year, adjusted profits slipped 0.8% to $2.09 trillion. The last time profits fell was in 2008 when a recession was in full swing. Banks and other finance companies showed lower earnings, while nonfinancial firms modestly increased profits. Profit figures are adjusted for depreciation and the value of inventories.

Source: Marketwatch

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

This has resulted in the HIGHEST corporate profit/ GDP ratio since the Feds began tracking this metric in the 1940s:

 

 

 

 

 

 

 

Put simply: corporate profits are at a record high relative to the economy… and they just began to roll over.

Take a look at the below chart showing current stock levels and changes in forwards Earnings Per Share (EPS). Note, in particular how divergences between EPS and stocks tend to play out (hint look at 2007-2008).

 

 

 

 

 

 

 

 

We all know what came next.

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

Best Regards
Phoenix Capital Research

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this.

The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system.

Let’s walk through this together.

Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.

Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt.

This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year.

So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.

However, there’s an even bigger story here.

Currently US banks are sitting on over $236 trillion in derivatives trades.

Of this, 81% ($191 TRILLION) are based on interest rates.

Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates.

Guess which banks did this?

The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America.

In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up.

What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO.

Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.

If you’re looking for actionable investment recommendations to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly 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 less than a year.

These kinds of returns are just par for the course. Private Wealth Advisory has previously seen winning streaks of 20 STRAIGHT winning trades, 40 straight winning trades, and even an incredible 73 straight winning trades.

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Best Regards

Graham Summers

Phoenix Capital Research

This is a trader’s market.

The markets are showing us sharp moves up and down. And while “buy and hold” investors might find this a unpleasant, short-term trades can use moves like this for large gains.

Consider the last four months. Overall, the market has barely budged higher… but if you’d used this volatility to trade the market… you could have made a killing.

 

 

 

 

 

 

This situation is not unique to the US. Emerging markets are currently even MORE attractive for traders.

Take a look at China’s ETF… we’ve had sharp moves up and down that have allowed short-term trades to see some extraordinary gains!

 

 

 

 

 

 

 

Anyone who times these moves well with options trades could have literally DOUBLED their money.

On that note, if you’re looking for short-term trades with BIG upside, I strongly urge you to check out our options trading service Options 1-1-1.

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Phoenix Capital Research

 

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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Best Regards

Phoenix Capital Research