The following is an excerpt from our most recent issue of Private Wealth Advisory. In it we outline a recent development on the Fed’s Board of Directors. The implications of this will be severe for all asset classes.

To find out more about Private Wealth Advisory and how it can help you stay ahead of the major developments in the market… Click Here Now

The Fed is growing increasingly splintered as an organization.

The media hasn’t really picked up on this issue yet. But once they do things could become quite problematic for the Fed.

Remember, the primary force that has held the financial system together since the Crash of 2008 was the view that the Fed could backstop everything.

However, dissent is now growing at the Fed… which means it will be harder for it to move forward in a unified fashion.

Consider its recent FOMC minutes released on January 3 2013.

With regard to the possible costs and risks of purchases, a number of participants expressed the concern that additional purchases could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation, for example, by potentially causing inflation expectations to rise or by impairing the future implementation of monetary policy. Participants also discussed the implications of continued asset purchases for the size of the Federal Reserve’s balance sheet. Depending on the path for the balance sheet and interest rates, the Federal Reserve’s net income and its remittances to the Treasury could be significantly affected during the period of policy normalization. Participants noted that the Committee would need to continue to assess whether large purchases were having adverse effects on market functioning and financial stability. They expressed a range of views on the appropriate pace of purchases, both now and as the outlook evolved. It was agreed that both the efficacy and the costs would need to be carefully monitored and taken into account in determining the size, pace, and composition of asset purchases.

Source: Fed FOMC minutes

Remember, the Fed only just announced QE 3 in September 2012 and QE 4 in December 2012. At the time of these announcements, the media heralded these moves as indicating that the Fed would act aggressively forever.

And yet, today we find that the Fed was actually conflicted about announcing QE 4 and was questioning the benefits of QE the very day that QE 4 was announced. As we noted in last issue The Great Global Rig of 2012 is Ending, the schemes and policies implemented to hold the system together (including QE) are beginning to lose their effect on the system.

On that note, let us turn our attention to the Fed’s actual activity.

Since September 2011, the US Federal Reserve has announced Operation Twist (extending this beyond its original deadline) as well as QE 3 and QE 4. And yet, in spite of these numerous programs, until January 10 2013 the Fed’s balance sheet was actually smaller than it was the year before (the blue line below).

Throughout this period, the S&P 500 (the red line below) began to disconnect from the Fed’s actual activity. Note how the market continued to rally even when the Fed’s balance sheet was contracting throughout most of 2012.

Why is this?

Because, starting in late 2011 and continuing to the present, the Fed has discovered that verbal intervention has the same impact as actual monetary intervention. Why actually spend the money when you can simply state on TV that you will act if needed and the markets react the same way as if you had announced a new program?

Between the end of QE 2 in June 2011 and the start of QE 3 in September 2012, the Fed resorted time and again to implying it stood ready to act at any time. Despite over eight FOMC meetings in which the Fed didn’t announce QE the markets continued to general push higher on hype and hope of more QE.

Between this, the Fed’s most recent FOMC minutes in which multiple Fed members expressed concern about the efficacy of QE, and the fact that the Fed balance sheet only just eclipsed its previous year levels on January 10 2013 (despite QE 3 and 4 being announced in the second half of 2012), we can draw some very strong conclusions:

1)   The Fed is growing splintered on how to proceed from a policy standpoint.

2)   This splintering will have political implications (Bernanke will likely step down at the end of his term in early 2014, if not before)

3)   This splintering will have major financial implications for every asset class  particularly stocks which have become completely disconnected from economic realities.

This is precisely the sort of “unquantifiable” investment analysis we specialize in with our Private Wealth Advisory newsletter.

With most of the markets dominated by computer programs and Wall Street sharks, the only way to make serious money is by focusing on the opportunities and risks that no computer or group-think Wall Streeter can come up with. If you can do this, you can still making a killing in the markets.

We’re speaking from experience here.

By focusing on investment ideas and portfolio risks that are “unquantifiable” we’ve shown  Private Wealth Advisory a success rate of OVER 80% on our investments.

Put another way, we’ve made money on more than eight out of ten investments. This includes a 74 trade-winning streak (from July 2011-July 2012 we didn’t close a single losing trade).

And this is not some flash in the pan either… Private Wealth Advisory has a history of beating the market and locking in serious gains when others are losing their shirts (we saw a 7% gain in 2008 when the markets fell over 30%)

Indeed, I’m so confident in this newsletter that it comes with a 30-day refund period. If you’re not totally satisfied with Private Wealth Advisory in the first month, simply drop us a line and we’ll refund every cent of your subscription.

You’ll have full access to the Private Wealth Advisory archives in that time. You’ll also receive two new hot off the press issues and very likely several trade signals (it’s getting close to time to close out our 7^th and 8^th  winners for the year).

To find out more about Private Wealth Advisory and how it can help you beat Wall Street and the market…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

The tension between Central Banks that we noted yesterday continues to worsen. This time it was China and the EU, not just Germany, that fired warning shots at the US Fed.

A senior Chinese official said on Friday that the United States should cut back on printing money to stimulate its economy if the world is to have confidence in the dollar.

Asked whether he was worried about the dollar, the chairman of China’s sovereign wealth fund, the China Investment Corporation, Jin Liqun, told the World Economic Forum in Davos: “I am a little bit worried.”

“There will be no winners in currency wars. But it is important for a central bank that the money goes to the right place,” Li said.

Speaking at the same session, French Finance Minister Pierre Moscovici voiced concern that the euro was becoming overvalued as a result of quantitative easing and other stimulus actions taken by other nations’ central banks.

“Certainly, the level of the euro is high and creates some problem,” he said, attributing the single currency’s recent gains partly to the return of confidence created by the European Central Bank and euro zone governments in starting to overcome Europe’s debt crisis.

http://www.reuters.com/article/2013/01/25/us-davos-currencies-idUSBRE90O10620130125

So first Germany begins pulling its Gold reserves from the US, and now China and the EU are saying publicly that the Fed’s policies are damaging confidence in the US Dollar.

This does not bode well for the financial system. The primary role of Central Banks is to maintain confidence in the system. If the Central Banks begin to turn on one another it is only a matter of time before the system breaks down.

Remember, every time the Fed debases the US Dollar it forces the Euro and other currencies higher, hurting those countries’ exports. The Fed has recently announced it will be printing $85 billion every month until employment reaches 6.5% (obviously the Fed is ignoring the mountains of data that indicate QE doesn’t create jobs).

How long will the other Central Banks tolerate this before they initiate a currency war? Both Germany and China have fired warning shots at the Fed. And we all know that just beneath the veneer of goodwill, tensions are building between the primary players of the global financial system. More importantly, how can investors profit from this? Remember, entire fortunes can be made during times of crises.

This is precisely the sort of “unquantifiable” investment analysis we specialize in with our Private Wealth Advisory newsletter.

With most of the markets dominated by computer programs and Wall Street sharks, the only way to make serious money is by focusing on the opportunities and risks that no computer or group-think Wall Streeter can come up with. If you can do this, you can still making a killing in the markets.

We’re speaking from experience here.

By focusing on investment ideas and portfolio risks that are “unquantifiable” we’ve shown  Private Wealth Advisory a success rate of OVER 80% on our investments.

Put another way, we’ve made money on more than eight out of ten investments. This includes a 74 trade-winning streak (from July 2011-July 2012 we didn’t close a single losing trade).

And this is not some flash in the pan either… Private Wealth Advisory has a history of beating the market and locking in serious gains when others are losing their shirts (we saw a 7% gain in 2008 when the markets fell over 30%)

Indeed, I’m so confident in this newsletter that it comes with a 30-day refund period. If you’re not totally satisfied with Private Wealth Advisory in the first month, simply drop us a line and we’ll refund every cent of your subscription.

You’ll have full access to the Private Wealth Advisory archives in that time. You’ll also receive two new hot off the press issues and very likely several trade signals (it’s getting close to time to close out our 7^th and 8^th straight winners).

To find out more about Private Wealth Advisory and how it can help you beat Wall Street and the market…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

 

 

Germany has the second largest Gold reserves in the world behind the US. Since the early ‘80s, it has stored the majority of these reserves with the NY Fed (45% vs. 13% in London, 11% in Paris and the remaining 31% in Frankfurt).

With that in mind, everyone needs to be aware that last Monday Germany’s Bundesbank announced it will be moving a major portion of its reserves from the US and all of its reserves from France back to Frankfurt.

Nearly half of Germany’s gold reserves are held in a vault at the Federal Reserve Bank of New York — billions of dollars worth of postwar geopolitical history squirreled away for safe keeping below the streets of Lower Manhattan.

Now the German central bank wants to make a big withdrawal — 300 tons in all.

On Wednesday, the Bundesbank said that it would begin moving some of the reserves, the second-largest stock in the world after that of the United States. The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said…

The new policy will include the complete withdrawal of 374 tons of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were quick to note that the decision was not a reflection of French trustworthiness. Rather, because France and Germany now share the euro, there is no need for reserves as insurance against currency crises

http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html

This announcement came with the usual political statements that the decision had nothing to do with a lack of trust between the Bundesbank and the US Fed or Bank of France, but the message is obvious: Germany sees the writing on the wall and is moving to secure its Gold reserves.

Remember, Germany has spent the better part of two years preparing for financial chaos. Since the autumn of 2011, it has:

1)   Implemented legislation that would permit Germany to leave the Euro but remain a part of the EU.

2)   Revived its Special Financial Market Stabilization Funds, or SoFFin for short, allocating 480 billion Euros to the fund (and also providing German banks with a place to dump their Euro-zone Government bonds if they need to).

3)   Implemented reforms that would allow it to close off its borders for as long as 30 days if it needed to (so individuals and capital couldn’t leave Germany)

4)   Created a working group to assess both the economic impact of a Greek exit from the Euro as well as how to manage the impact of a collapse in France.

5)   Pulling all of its Gold from France as well as a major portion of its Gold from the US.

All of these are verifiable facts that the Western Media has avoided talking about. It is very easy to connect the dots here: Germany is implementing a contingency plan to put a firewall around its financial system for when the EU finally breaks down.

A final note here: the tension between the world’s Central Banks just increased dramatically.

Since the Great Crisis began in 2008, the world’s Central Banks have collectively pumped $10 trillion into the global financial system. Every major Central Bank from Germany to the US and China wants to debase its currency to benefit exports and facilitate dealing with its debt load (even China sports a real Debt to GDP north fo 200%).

This competitive debasement has lead to increased tension between the world’s Central Banks. You will never hear their stated outright for the simple reason that the single most important responsibility of the Central Banks is to maintain confidence in the system.

However, underneath the veneer of goodwill and the occasional necessary coordinated intervention, tensions are rising between Central Banks. When the US debases the US Dollar it pushes the Euro higher. This hurts German exports which in turn angers the Bundesbank.

The Bundesbank fired a warning shot at the Fed last autumn when it announced it wanted to have its Gold reserves at the Fed audited. To be clear here: no one of major financial import has ever questioned the Fed’s trustworthiness before. However, at the time of this announcement Germany stated it had no intentions of actually moving its reserves.

Fast-forward to today and Germany has not only audited and checked its Gold reserves at the Fed but it is now moving them. In plain terms, Germany has told the world that A) it does not trust the Fed and B) it is through playing around.

This situation will likely be getting worse going forward. The fact that Germany will be removing all of its Gold reserves from France certainly doesn’t bode well for future German French relations if push ever comes to shove (it’s not as though Europe has a history of getting along well).

Remember, the only thing holding the financial system together is belief in the Central Banks. If the Central Banks (it was Germany’s Bundesbank that is behind the Gold move) stop trusting one another or grow openly antagonistic, then things will get very bad very quickly.

For months now we’ve been asserting that the “improvements” in the global economy and financial system were a mirage. Germany’s move has confirmed this. If the financial system was in fact safe and the global economy was improving, Germany would not feel the need to repatriate its Gold.

Which begs the question, what exactly do German Central Bankers know that we don’t?

This is precisely the sort of “unquantifiable” investment analysis we specialize in with our Private Wealth Advisory newsletter.

With most of the markets dominated by computer programs and Wall Street sharks, the only way to make serious money is by focusing on the opportunities and risks that no computer or group-think Wall Streeter can come up with. If you can do this, you can still making a killing in the markets.

We’re speaking from experience here.

By focusing on investment ideas and portfolio risks that are “unquantifiable” we’ve shown  Private Wealth Advisory a success rate of OVER 80% on our investments.

Put another way, we’ve made money on more than eight out of ten investments. This includes a 74 trade-winning streak (from July 2011-July 2012 we didn’t close a single losing trade).

And this is not some flash in the pan either: we’re currently beating the market handily with out closed trades in 2013. In fact, we just closed another winner last week.

Indeed, I’m so confident in this newsletter that it comes with a 30-day refund period. If you’re not totally satisfied with Private Wealth Advisory in the first month, simply drop us a line and we’ll refund every cent of your subscription.

You’ll have full access to the Private Wealth Advisory archives in that time. You’ll also receive two new hot off the press issues and very likely several trade signals (it’s getting close to time to close out our 7^th and 8^th straight winners).

To find out more about Private Wealth Advisory and how it can help you beat Wall Street and the market…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

We’ve received a number of emails regarding the long-term performance of The Perfect Trade.

Having already locked in a return on invested capital of 36% in 2013 so far, investors are curious how this newsletter has fared in the past.

The below table should help explain why this newsletter is so extraordinary.

As you can see, The Perfect Trade’s model portfolio has produced MASSIVE returns on invested capital three of the last four years.

The one year that we lost money was in 2012. And that loss was the result of just four trades that we let run for too long. Without them, The Perfect Trade would have once again doubled investors’ money in 2012.

Since this disappointing performance, we’re changed our stop loss policy to make sure this never happens again.

And yet, despite that one terrible year, this newsletter has produced an AVERAGE ANNUAL GAIN OF 46.25% since 2010.

This has crushed the performance of EVERY ASSET CLASS under the sun by MANY multiples.

Since 2010, the S&P 500 has returned an average annual gain of 10%. So The Perfect Trade has returned more than FOUR TIMES the S&P 500 over the same time period.

From 2010 until today, Gold has produced an average annual return of 12%. So The Perfect Trade has outperformed even the precious metal by more than THREE FOLD.

Even Apple, the most popular holding for Hedge Funds and individual investors, has returned an average annual gain of 26% since 2010. The Perfect Trade has nearly DOUBLED THIS.

So with just one trade, made once per week, you could have outperformed EVERY asset class on earth as well as 99% of investing legends and hedge funds.

This is why it’s called The Perfect Trade.

And if you’re an investor looking for the means of producing major income from your portfolio, this is it.

As you can imagine, as word gets out regarding this newsletter and its performance, investors are piling in. However, we cannot allow thousands and thousands of traders to follow these trades while maintaining our performance.

For that reason, we’re only allowing a limited number of slots before we close the doors on this newsletter and simple start a waiting list.

So if you’d like to be one of the investors to snag one of these remaining slots, you need to move quickly.

To take out a subscription to The Perfect Trade… and start seeing kind of investment income most investors can only dream of…

Click Here Now!

Phoenix Capital Research

 

A few months ago, we asked, “is China an economic miracle or one giant government sponsored fraud?” Our views were the latter with corruption as one of the key driving forces for wealth creation and economic growth in China.

Consider the following:

1)   In 2010 alone, 146,000 cases of corruption were launched in China (that’s 400 PER DAY).

2)   Of the 14 cases that were actually reported in the Chinese media, the average amount stolen was 18 MILLION RMB (for perspective, the average college graduate in China earns 2,500 RMB per year).

3)   Between 1991-2011, it’s estimated that between 16,000-18,000 Chinese officials fled China taking 800 BILLION RMB (roughly $125 BILLION) with them. Bear in mind China’s entire GDP was just 2.1 trillion RMB in 1991.

4)   It’s estimated that on average bribes comprise 5-10% of a given project’s costs in China today.

Indeed, things are so corrupt in China, that as soon as the new Government stated it would crack down on corruption, a fire sale of luxury properties began as corrupt officials sought to dump their illegal holdings.

Thousands of Chinese communist officials have been panicked into a fire sale of their illicit properties and billions of pounds have been smuggled overseas as the country’s new leaders intensify a campaign to root out corruption…

It said the volume of deals had intensified by “a hundred times” after Xi Jinping, the incoming Chinese president, warned that corruption could kill the party and put one of the country’s most vigorous and resolute politicians, Wang Qishan, in charge of stamping out graft…

The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxurious homes had been sold by officials in Guangzhou and Shanghai last year.... Li Chengyan, a professor at Peking University, suggested that about 10,000 officials had absconded from China with as much as pounds $US100 billion.

http://www.smh.com.au/world/the-great-china-corruption-fire-sale-20130122-2d3v5.html#ixzz2IobQB27X

These individuals fleeing China have been buying up luxury properties outside of the country. As you likely have noticed, the world has experienced a wave of Chinese buyers for high-end real estate. While some of them are indeed individuals who have made legitimate money from business, many are in fact corrupt officials who have fled the country with vast quantities of loot.

A new wave of buyers from China is snapping up luxury properties across the U.S., injecting billions of dollars into the country’s residential-real-estate market.

The industry is scrambling to court the new buyers. Some developers of new projects are installing wok kitchens, following feng shui principles and putting lucky numbers on choice units; others are packaging property sales with government programs designed to encourage foreign investment. Real-estate agencies are flying representatives to China, and hiring Mandarin-speaking agents.

In Los Angeles, New York and even Miami, buyers mostly from China—and some are from Hong Kong, Singapore and Korea—are radically altering the landscape. Last month, a Chinese couple paid $34.5 million for a Versailles-style mansion on Sunset Boulevard in Beverly Hills, Calif. A year earlier, a Hong Kong businessman paid around $28 million for a nearby estate. Over the last six months in New York, several full-floor apartments in a new Manhattan high-rise called One57, each with a price tag of roughly $50 million, have gone into contract with Chinese buyers, according to two people close to the situation.

http://online.wsj.com/article/SB10001424052702304765304577478573004173212.html

This sort of fraud and corruption is systemic in China but it doesn’t show up in the GDP or other economic figures the country posts. After all, if a poorly constructed bridge collapses China can always build another one and count it twice for GDP growth. And since the Government controls the media, no one is the wiser.

As a final example of how the China story will likely turn out, consider the following:

Caterpillar Inc. believed acquiring China’s Zhengzhou Siwei was a way for the U.S. company to boost its fortunes in a lucrative but challenging market.

Siwei’s sales and profit growth were surging. And the company offered access to China’s mining industry, where domestic companies were prospering.

Siwei, which sells mine-safety equipment, also boasted an American pedigree. Its controlling shareholders were James E. Thompson III, the scion of one of Asia’s most successful expatriate families, and Emory Williams, a former head of the American Chamber of Commerce in China. Caterpillar paid about $700 million in June for Siwei’s parent, ERA Mining Machinery Ltd.

Caterpillar, known for bulldozers, excavators and wheel loaders, will have to write off about $580 million over alleged accounting misconduct at a Chinese maker of mine-safety equipment it bought in June. The WSJ’s James T. Areddy talks about what this means for the big U.S. industrial company.

But now, the purchase has dealt a blow to Caterpillar’s already lackluster performance in China.

The Peoria, Ill., construction-machinery maker on Friday said it would write down ERA’s value by $580 million, blaming “deliberate, multiyear, coordinated accounting misconduct” that was designed to overstate profit at the unit before the deal. The accounting surprise contributed to the departure of a senior Caterpillar executive, a person familiar with the matter said.

http://online.wsj.com/article/SB10001424127887323301104578255740261180404.html

What are the odds that this is an isolated case?

If Caterpillar, one of the largest corporations in the world, with its army of accountants and consultants was duped by a Chinese company run by American executives no less… what are the odds that ordinary investors can accurately value Chinese businesses or the Chinese economy?

This is just one example of how a popular theme in the investment community (in this case that China is a superpower) can in fact turn out to be total bunk. Given how many investment professionals are banking on China leading the world to economic growth again, this trade is extremely crowded on one side.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

The markets are closed today in observance of Martin Luther King, Jr. day.

With that in mind, we’re stepping back from our usual daily analysis of the markets to address the big picture for the investment landscape in 2013.

The following is an excerpt from a recent issue of Private Wealth Advisory. In it, we outline three popular investment delusions pertaining to China, Japan and the US. As was the case in 2007, many investors are investing based on misguided theories. We outline three of the biggest here.

Private Wealth Advisory subscribers are already gearing up for the next round of the great crisis with several back-door trades that will profit enormously as the investment herd gets slaughtered. To find out their names, symbols, and how to buy them… Click Here Now!

Popular Delusion #1: The investment world believes China will engage in another massive round of stimulus.

This will not be the case. China’s new ruling party has stated point blank that the country will not be engaging in rampant stimulus (for the obvious reasons of rising inflation):

This may sound like an oxymoron, but China‘s new Communist government is turning away from financial stimulus to help its slow-moving economy.

During the party’s two-day Central Economic Work Conference this weekend, party leader Xi Jinping said the country would essentially not be pursuing high growth rates through stimulus. That doesn’t mean that Beijing has turned sour on fixed asset investments on things like roads, bridges and subways. They’re still going through with major urbanization projects. But whenever the economy is slowing, the new leaders say they will be less likely to prime the pump.

Source: Forbes

China’s market has rallied over 16% in the last month on the belief that China will engage in another large-scale stimulus plan… despite China’s leaders stating they will not. This has the makings of a very nasty correction.

Popular Delusion #2: Japan’s new leadership will be able to kick off an even more aggressive monetary intervention.

Truth be told, Japan is on the cusp of the mother of all debt implosions. Case in point, Japan’s Yen is thought to be a safe haven. With that in mind, it’s critical to note that when the EU Crisis hit in mid-2012, the Yen fell. Indeed, it has now taken out its trendline:

Indeed, it is interesting to note that political leaders Japan, like those in Europe and the US, have begun to use verbal intervention as a primary tool. Prime Minister Shinzo Abe took office urging the Bank of Japan to act even more aggressively, even threatening to strip the bank of its independence.

Since that time, the Nikkei has erupted higher. The Japanese Government got what it was looking for, and Japanese Economic Minister Amari announced that the Yen was correcting in line with fundamentals.

Take note, this series of events indicate that Japanese leaders will likely engage in verbal intervention to get what they want. It’s worked for the EU and US.

Popular Delusion #3: The US bond bubble will burst in 2013.

It’s become increasingly common to see calls for the US bond bubble to implode this year. To be clear, the US’s financial situation is terrible. But it is nothing compared to the financial situation in Europe, Japan, and China.

Europe has not recapitalized its banks. Many of its countries’ entire banking systems are insolvent. The EU banking system as a whole is leveraged at 26 to 1 (Lehman was at 30 to 1 when it went bust). Even Germany’s banking system is in worse shape than the US’s (the US recapitalized its banks following the 2008 crisis. Europe. including Germany, has not).

China’s true Debt to GDP is over 200%. Already in a hard landing, the country is now facing several major problems, namely looming water and agriculture crises, food inflation and accompanying civil unrest, and the potential of armed conflict with Japan.

Moreover, the belief that China will shift over to a consumer economy is misguided. Consumption has increased by 9% per year in China for 30 years now. The China consumer is not somehow dormant. And as more and more manufacturing firms leave China for more stable markets (Apple, Ford, GE, Bridgestone, have all announced they are moving facilities back to the US), China will be facing rising unemployment.

Finally, and most critically, financial institutions are desperate for high-grade collateral in the form of quality sovereign bonds. Say what you will about the US, it remains the most liquid market for debt in the world. And if you had a choice between lending money to the US, Japanese, any European, or the Chinese Government, the US is the obvious answer.

This is not to say the US is in great shape. Instead, we would argue that the US is the least ugly of the major debt markets. The US bond bubble will burst at some point. But it will likely not do so in 2013.

To conclude, the world Central Banks and EU politicians have done everything imaginable to postpone the EU crisis. They’re now out of options. The EU crisis will very likely erupt anew in the first half of 2013. Meanwhile Japan is waiting in the wings. And China has its own issues to contend with.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

Since the EU Crisis went into overdrive in 2010, EU politicians have largely resorted to political posturing rather than implementing any actual financial solutions to the EU’s debt and banking crisis.

To clarify that statement, we view a “real solution” as one that A) cleared bad debts from the system, B) brought debt levels down to manageable levels, and C) got the troubled country’s economy back on track.

By way of example, real solutions would involve outright debt defaults, bank failures, and very likely one or more countries leaving the Euro. However, no major EU leader ever seriously promotes any of these ideas because doing so would akin to committing political suicide as the rest of the political class would blame them for what followed.

As a result, EU politicians continue to kick the can down the road with half-measures such as austerity measures in exchange for bailouts. The end result is that nothing is ever solved as those in charge of the decisions that matter have no incentives to actually do anything beneficial for their countries’ economies.  See Greece whose economy has completely imploded to the point that children are being admitted to hospitals every week for malnutrition… and it will still have a Debt to GDP of 120% in 2022!

It is now obvious that US politicians have seen this work well for their European counterparts (nothing gets fixed, not tough choices have to be made and almost no one gets kicked out of office), and are now adopting this strategy on this side of the pond.

Consider the fiscal cliff issue, which our political leaders discussed endlessly for over a month, only to then pass a “deal” which both raised taxes AND failed to cut the deficit or debt.

Again, nothing solved, but plenty of posturing and blame.

Expect more of this. Today, the top story for the US is gun control even though we will officially breach the debt ceiling in roughly one month’s time. The last time we did this the US lost one of its AAA ratings from a credit agency and the markets imploded wiping out over a trillion dollars in household wealth in a matter of days.

This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.

As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.

Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating. A 100 basis point move higher in interest rates means the US paying another $100+ billion in interest payments on its debt. The US is slated to pay some $300+ billion in interest payments in 2013. This amount could explode higher if interest rates rose.

We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%. These are Greece type levels. And while the US has several advantages Greece does not (it produces the reserve currency of the world and is also the largest economy), the bond markets can be very unforgiving of fiscal profligacy.

But US politicians don’t care. They know that the US economy is a disaster and will be getting worse. The issue for them is not fixing this, but shifting the blame for what’s coming onto the other party.

Bottomline: the US debt situation is not going to be brought under control. We’ll either breach the debt ceiling or pass some hurried bill to raise it. Neither of these will help our credit rating or our fiscal issues.

Buckle up, 2013 is going to be an “interesting” year.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

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Phoenix Capital Research

 

 

The following is an excerpt from a recent issue of Private Wealth Advisory. In it, we outline the ongoing stress in the EU banking system, particularly the issues of Spain and Greece, both of which have large banks with negative values.

Private Wealth Advisory subscribers are already gearing up for the next round of the EU crisis with several back-door trades that will profit enormously as Europe falls. To find out their names, symbols, and how to buy them… Click Here Now!

Europe’s banking system has been on the ropes for years.

It’s a little known fact that  the largest recipients of US bailouts were in fact foreign banks based in Europe. Also bear in mind that the biggest beneficiaries of QE 2 were European banks. Things got so bad in mid-2012 that the whole system lurched towards collapse. The only thing that pulled the EU back from the brink was Mario Draghi’s promise of unlimited bond buying (a promise and nothing more as the EU has yet to do any of this).

However, these efforts, like all cover‐ups, will not last. Indeed, by the look of things, Europe’s banking system is breaking down again…

Greece’s four largest banks need to boost their capital by 27.5 billion euros ($36.3 billion) after taking losses from the country’s debt swap earlier this year, the largest sovereign restructuring in history.

National Bank of Greece SA, the country’s biggest lender, needs to raise 9.8 billion euros, according to an e-­‐mailed report by the Athens-­‐based Bank of Greece (TELL) today. Eurobank Ergasias SA (EUROB) needs 5.8 billion euros, Alpha Bank (ALPHA) needs 4.6 billion euros and Piraeus Bank SA (TPEIR) needs 7.3 billion euros, according to the report. Total recapitalization needs for the country’s banking sector amount to 40.5 billion euros, the report said.

source: bloomberg.

The above articles tell us point blank that Europe’s banking crisis is neither fixed nor even close to over. However, the numbers need some perspective: sure, €27.5 billion sounds like a lot of money, but just how big is it relative to Greece’s banks.

The entire capital base of the Greek banking system is only €22 billion.

By saying that Greek banks need €27.5 billion Greece is essentially admitting that is needs to recapitalize its entire banking system. Also, you should know that Greek banks are still sitting on €46.8 billion in bad loans.

There is a word for a banking system with a capital base of €22 billion and bad loans of €46.8. It’s INSOLVENT.

We get other signs that Europe is ready to fall back into the abyss from recent revelations concerning Spain’s sovereign bonds.

In July 2012, Spain’s ten year bond yield hit 8% even though Spain had already been granted a €100 billion bailout by the EU and the ECB had also promised to provide unlimited bond buying.

As a point of reference, remember that any yield over 7% is GAME OVER as far as funding your debt.

Then, starting in August 2012, Spain’s ten-­‐year bond yields magically began to fall. Since that time, they’ve plunged to just 5%.

The reason for this drop in yields?

It’s not that Spain’s finances improved (its Debt to GDP ratio hit 85% this year and is on track to reach 90% by the end of 2013). Nor is it that Spain’s economy is recovering (unemployment reached a new record in 3Q12).

It’s not also that investors are less worried about Spain and have decided to buy Spanish debt (Spain just staged a terrible bond rally in early December).

So why were Spanish yields falling?

Spain has been using up its Social Security fund to buy its own debt.

Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.

Source: Wall Street Journal

This is precisely what we mean when we say the system was rigged in the second half of 2012. Spain, a country that is totally bankrupt and likely heading for its own version of the Arab Spring (things are so bad that Spaniards have begun self-­‐ immolating just as they did in Tunisia right before that country suffered a societal breakdown) managed to fool the world into believing that things had improved by raiding its social security fund to buy its own debt.

As we said at the beginning of this issue, the rigging that occurred in the second half of 2012 was simply staggering. But it will end. Our view is that we have perhaps another month or so left at the most before things begin to get ugly again.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on the US debt ceiling talks that allow individual investors to profit when the stuff hits the fan there, and more.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

Ben Bernanke and the rest of the US Federal Reserve bet the farm that they could engage in countless monetary interventions, keep interest rates at zero, and print over $2 trillion in new money without damaging the US’s credibility.

They were wrong. Indeed, Germany just fired a major warning shot to the US Federal Reserve.

On Monday, Germany announced that it will be moving a significant portion of its Gold reserves out of storage with the New York Fed and moving them back to Germany.

A few background details.

• Germany has the second largest Gold reserves in the world behind the US.
• Since the early ‘80s, Germany has stored the largest portion of its Gold reserves with the New York Fed (45% vs. 13% in London, 11% in Paris and the remaining 31% in Frankfurt).
• In the fall of last year, German officials began raising the issue of auditing its reserves at the NY Fed.

Why would Germany suddenly decide that it wants to change a policy it has had in place for over 30 years?

More importantly, how did it go from wanting to audit its reserves to actually removing them from the NY Fed’s care?

In simple terms, Germany has just announced that it doesn’t trust the US Fed.

The world’s Central Banks have been staging a global currency way for several years now. Germany, China, Japan, and the US all want to keep their currencies weak to improve exports and minimize their debt loads.

In the case of Germany, it’s the second largest exporter of goods in the world behind China. More than anyone in the EU, Germany wants a weak Euro. However, every time the Fed announces a new policy, the US Dollar falls, the Euro rallies and German exports fall off a cliff.

Germany is now openly telling the Fed that it is done playing around. This will have severe consequences in the financial system.

Remember, the only thing holding the financial system together is belief in the Central Banks. If the Central Banks (it was Germany’s Bundesbank that is behind the Gold move) stop trusting one another or grow openly antagonistic, then things will get very bad very quickly.

For months now we’ve been asserting that the “improvements” in the global economy and financial system were a mirage. Germany’s move has confirmed this. If the financial system was in fact safe and the global economy was improving, Germany would not feel the need to repatriate its Gold.

Which begs the question, what exactly do German Central Bankers know that we don’t?

This is precisely the sort of “unquantifiable” investment analysis we specialize in with our Private Wealth Advisory newsletter.

With most of the markets dominated by computer programs and Wall Street sharks, the only way to make serious money is by focusing on the opportunities and risks that no computer or group-think Wall Streeter can come up with. If you can do this, you can still making a killing in the markets.

We’re speaking from experience here.

By focusing on investment ideas and portfolio risks that are “unquantifiable” we’ve shown  Private Wealth Advisory a success rate of OVER 80% on our investments.

Put another way, we’ve made money on more than eight out of ten investments. This includes a 74 trade-winning streak (from July 2011-July 2012 we didn’t close a single losing trade).

And this is not some flash in the pan either: we’re currently beating the market handily with out closed trades in 2013. In fact, we just closed another winner this morning.

Indeed, I’m so confident in this newsletter that it comes with a 30-day refund period. If you’re not totally satisfied with Private Wealth Advisory in the first month, simply drop us a line and we’ll refund every cent of your subscription.

You’ll have full access to the Private Wealth Advisory archives in that time. You’ll also receive two new hot off the press issues and very likely several trade signals (it’s getting close to time to close out our 7^th and 8^th straight winners).

To find out more about Private Wealth Advisory and how it can help you beat Wall Street and the market…

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Phoenix Capital Research

 

 

 

 

This week is options expiration week: the week in which various call and put positions will expire. Wall Street is notorious for using these weeks to gun the markets this way and that in order to insure that the greatest number of puts and calls expire worthless. So expect the market to be even more volatile than usual this week.

Outside of this, the investment world is slowly emerging from its Central Bank policy induced stupor to realize two of our long-standing themes:

1)   That European markets are highly overvalued based on their underlying fundamentals.

2)   China has an inflation problem and cannot print money non-stop to keep its economy on track.

Regarding #1, Bloomberg ran an article over the weekend expressing concerns that the European markets are overvalued. The truth of the matter is that the entire European banking system is insolvent. There is simply no other way to describe a banking system that is leveraged at 26 to 1 with net assets at nearly 300% of GDP (Europe’s GDP is $16 trillion and its banking system is $46 trillion).

However, the mainstream media can never tell the ugly truth here (doing so would trigger a panic). So instead we’re going to see concerns voiced that Europe is “overvalued” and that European economies need to pick up because the ECB is essentially tapped out.

This is about as close as we’ll get to the media admitting Europe is bust and out of solutions. The fact that this story is already showing up in the media should be a warning that the next round of the EU Crisis is likely around the corner. Both Spain and Greece have recently admitted their banks are at negative value. Expect the news to worsen out of Europe in the coming weeks. What happens if the markets call Mario Draghi’s bluff? We’ll find out this year.

Regarding #2, roughly 30% of China’s population lives off of $2 per year. Food inflation hits this country very hard. And the Government is now stuck between a rock (a slowdown in its economy) and a hard place (higher inflation that results in mass civil unrest).

As a result of this, the Government has to focus on managing expectations both inside and outside of the country. Inside of China this means making public displays of cracking down on corruption to keep the population calm (many Chinese area beginning to ask themselves, “why should I go along with a system in which I’m not getting wealthy but corrupt officials are?” The Government is also taking measures to control prices (see the ongoing rise in Chinese imports despite the economic slowdown) in an attempt to keep inflation at bay.

Outside of China, the Government needs to send signals to the rest of the world that it will not be engaging in massive stimulus without triggering a capital run. Notice that the language coming out of the new leadership is carefully crafted: new party leader Xi Jinping has openly stated that China will not be pursuing “high” growth rates through stimulus going forward.

The message here is that “we’ll engage in stimulus, but we won’t be pumping anywhere near the amount needed to hit double digit growth.” The investment world is totally convinced China is going to pump $1 trillion or more into its economy. Chinese officials are denying this. Take note… typically when the investment world finds out it’s wrong there are serious fireworks.

While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on the US debt ceiling talks that allow individual investors to profit when the stuff hits the fan there, as well as a major slowdown in China.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

 

The investment world is convinced that China is about to engage in another massive round of stimulus. After all, this is what China did in 2008 when its economy slowed, so surely this is what they’ll do now that the economy is slowing again.

The fact of the matter is that China cannot and will not do this. The reason is that the Chinese Government today is facing a very different set of circumstances than it was in 2008.

Since 2008, global Central Banks have printed $10 trillion in new money. Between this and the supply shock to natural resource companies created by credit drying up in the crash, the inflation genie is now officially out of the bottle.

This is most clear in China, where workers have begun demanding wage increases.

With nearly a third of its population living off less than $2 per day, any bump in food prices hits China much harder than the US or other developed nations.

Chinese workers are now demanding higher wages to survive. Indeed, this situation is so serious that many multinational manufacturing firms are in fact moving facilities to the US because of the greater stability there. Apple, Ford, GE, Bridgestone and many others have announced this.

Even China’s official data shows inflation is at a seven month high. Chilly weather is blamed in the official reports, but the truth is that China has a major problem with food inflation regardless of the weather.

The Chinese Government cannot suddenly print a massive amount of money without facing massive civil unrest. We already know that the Government is deeply concerned about losing its grip on society from the fact that it is making a very public display of cracking down on corruption.

This is meant to appease a population that has realized A) it’s no longer better off than before B) many government officials and their families are getting wealthy through corrupt means.

So China cannot and will not be engaging in massive stimulus for the simple reason that doing so would kick off a very dangerous wave of civil unrest. Indeed, China’s new party leader Xi Jinping has openly stated that China will not be pursuing high growth rates through stimulus going forward.

This is why, smart investors are already taking advantage of the lull in the markets today to position themselves for several key issues (including the misguided beliefs in China that we’ve analyzed above).

While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on the US debt ceiling talks that allow individual investors to profit when the stuff hits the fan there, as well as a major slowdown in China.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

Having gotten through the fiscal cliff debacle by the skin of its teeth (somehow passing a deal that both raises taxes AND the deficit), the US political class is now playing chicken with the debt ceiling.

The media, as it likes to do, continues to rave about social issues (gun control being the latest), ignoring the fact that the US would be in technical default already if Treasury Secretary Tim Geithner hadn’t already raided various funds for some $200 billion.

We’re not here to debate social issues, but it’s telling that a US default, something that would affect every American, gets less airtime than assault rifles, which affect less than 5% of the population.

The market, is already giving us hints of what the likely outcome will be. Despite start of the year buying and a seasonal bias, the rallies of the last few days have been very weak, usually peaking out mid-day and then retreating.

More telling however is the big picture view of the S&P 500 where it is tracing out virtually the exact same pattern as it staged going into the failed debt ceiling talks of 2011.

Here’s the S&P 500’s recent action:

Here’s the market action going into the 2011 debt ceiling debacle:

Here’s what followed:

History doesn’t necessarily repeat, but it often rhymes. And the fiscal cliff situation has made it clear that when it comes to issues such as cutting the deficit and debt, US politicians are totally clueless. Remember, Congress hasn’t passed a budget in four years, which incidentally goes a long ways towards explaining why we’re about to breach the debt ceiling again. The notion that these folks are somehow going to “get religion” about the debt situation will very likely prove to be as misguided as the hope that the fiscal cliff deal would do anything to help the economy.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on the US debt ceiling talks that allow individual investors to profit when the stuff hits the fan there, and more.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

 

 

 

 

 

We’ve now have just a little over 30 days until US breaches its debt ceiling.

We would have already done so, except Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached).

The “solutions” to the debt ceiling discussions range from outright insane ($1 trillion coins) to just staggeringly irresponsible (just get rid of any oversight and grow the debt without restriction).

Let us consider the facts.

The only reason the US is even having these discussions is because we’ve added $1+ trillion in debt to our balance sheet every year since 2008. The reason we were able to get away with this was because Congress hasn’t even implemented a budget since that time. Indeed, the last time a budget was even proposed (by President Obama in that case) it was rejected 97-0.

Let’s say a US family spent all of its savings and income and so began using credit cards to fund its purchases. Then, instead of implementing reforms and a budget, these folks decide to abandon any kind of tracking of their expenses and start spending even more. Eventually this family would begin to stop paying its bills.

What would you tell these folks if their proposed solution to this situation was to stop opening their mail?

At the core of this entire situation is a total lack of financial discipline. Indeed, at this point, the only thing the political class in the developed world seems to pay attention to is the bond markets: only when their bonds collapse and interest rates spike is there any sense of urgency to do anything (with massive debt loads, any increase in interest rates means hundreds of billions of dollars in more interest expenses).

On that note, the US 30-year Treasury appears to just have taken out its trendline:

Bear in mind, the US Federal Reserve has been the primary buyer of US debt. So if the US bond market begins to collapse at a time when the Fed is already buying this much, there isn’t a whole lot the Fed can do to fix the situation (other than just buy more… which inevitably leads to a debt implosion).

This situation has the potential to get very ugly. Remember the impact the failed debt ceiling talks had on the markets in July 2011?

At that time, the only thing that pulled the market back from the edge was the Fed’s announcement of QE 2. But the Fed has already just announced both QE 3 and QE 4. So this option wont be around to fix the fallout if the US breaches its debt ceiling again now.

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on the US debt ceiling talks that allow individual investors to profit when the stuff hits the fan there, and more.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

 

 

 

As the fiscal cliff euphoria and start of the year buying fade, investors are waking up to the fact that fundamentally nothing was fixed in 2012.

Indeed, once could easily argue that the fiscal cliff “deal” is a great metaphor for 2012 as a whole: an enormous charade played by political leaders that ultimately solved nothing and in fact left everyone worse off.

Case in point, the “deal” has somehow managed to both raise taxes and increase the deficit deficit (by $4 trillion, no less). Economically, accomplishing this should have been virtually impossible. Washington managed to do it. Many words come to mind concerning this. “Success” is not one of them.

Yet even this situation pales in comparison to that occurring in Europe today. There the political leaders are now not only proclaiming that the “worst” is over but that in fact the crisis as a whole is over.

To say this is political grandstanding would be understatement of the year so far: EU unemployment just hit a new record of 11.8%. Also, both Greece and Spain have issued reports revealing that their banks are massively undercapitalized and in fact have negative values.

The Crisis is over, but unemployment continues to grow and the banks are all insolvent. Only in Europe: a place where career politicians are caught on microphone admitting that they have no idea what the economic terms they used in a speech actually mean.

And these people are meant to not only tackle a banking crisis that makes 2008 look rosy in comparison, but somehow get 17 countries with hundreds of years of bloodshed between them to stick together as their respective economies implode?

By way of example, let’s consider Spain.

Throughout the first half of 2012, Prime Minister Rajoy denied that the country’s banks needed any aid, even going so far as to state that those who argued otherwise didn’t know what they were talking about.

Then, one of the largest Spanish banks revealed that both its balance sheet and its “profits” were total fabrications. Rajoy dealt with this situation by flying to the EU demanding a €100 billion bailout, then flying back to watch a soccer match. The next day, he then announced that Spain’s economy was in big trouble.

That is the sort of person that people are banking on saving Europe.

Good luck with that.

The only glue holding the entire financial system together is the belief that the Central Banks have this situation under control. The fact of the matter is that these institutions are largely out of ammunition and have begun resorting largely to verbal intervention as that is the only bullet left they have left.

The best example here is again Europe.

In September 2012, the ECB announced a program to engage in unlimited bond buying. This sounds convincing except that this “unlimited” quality comes only if a country formally requests a bailout from the EU.

Any country that does this will have to mean:

1)   Open its books to the EU (something NO EU country wants to do as it would reveal the books are cooked).

2)   Agree to austerity measures, which, even if they’re never implemented, will still result in mass protests and civil unrest.

3)   Hand over fiscal sovereignty to the EU.

NO EU member wants to do one of these, let alone all three of them.

So the ECB’s announcement is really nothing other than verbal intervention.  No money was spent. No new capital was raised for the banks. No national deficits or debt loads were reduced. The whole thing was just one big bluff.

Which means everything that has happened in the markets since September 2012 was based on a massive lie. Again, take a look at Spain: its bond yields fell indicating that perhaps its debt crisis was under control… except the only entity in the world buying Spanish debt was Spain itself which used up 90% of its social security fund to do this.

Spain used up 90% of its social security fund buying its own debt… and somehow things are “fixed.” What happens this year when Spain has to issue another €200+ billion in debt? Where will that money come from?

This is why, smart investors are already taking advantage of the lull in the markets to position themselves accordingly. While everyone else continues to believe the fairytale story spun by the political class and mainstream media, our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on Europe’s banking system that allow individual investors to profit when the stuff hits the fan there, and more.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

 

Having moved to the sidelines due to the uncertainty of the US Presidential election and the Fiscal Cliff negotiations (as well as the holidays), investors are beginning to creep back in the marketplace.

And they’re in for a surprise.

First and foremost, the commitment of traders report indicates that investors are more bullish now than at any point since 2007. This is truly extraordinary given the sheer magnitude of the issues the global economy is facing. The only clear reason for being that bullish at this point is belief that the Central Banks will continue to flood the system with liquidity pushing stocks to new all time highs.

The problem with this belief is that the Central Banks have reached the limits of their policies. The ECB promised unlimited bond buying under the conditions of a country formally requesting a bailout.

No country in Europe wants to do this because it would mean A) opening their books to EU officials (along with the realization that said books are cooked B) any formal EU bailout requires austerity measures which Greece has proven are a disaster for politicians.

On the other side of the pond, the US Fed publicly announced QE 3 and QE 4, giving the bulls the belief that the markets are primed to soar to new highs. However, privately, the Fed balance sheet is virtually unchanged year over year. And the latest Fed minutes reveal that dissent is growing at the Fed regarding the efficacy of QE. This, combined with discussions of spending cuts in the US, has kicked Gold and Silver down in the last few months.

So, we have rampant bullishness in the markets at the same time that Central Banks are finding political and professional limitations to their monetary tools. Moreover, globally the economy is contracting again. It never really recovered all that much, but when Central Banks pump $10 trillion into the system that money has to go somewhere.

Indeed, inflationary pressures are on the rise globally. We can see this with wage protests and civil unrest in the emerging market space, higher costs and lower profit margins at multinational corporations, and consumers paying higher prices or equal prices for less product at the supermarket.

How many times have you opened a new canister of coffee, a box of cereal, or some other item of produce to see that it’s only 75% full? That’s not chance. Inflation doesn’t just explode into a system… it creeps in at first. And corporations are already implementing strategies (small packages, higher prices, etc.) to deal with it.

One of the key items to remember as investors is that the market doesn’t always reflect reality. Oftentimes it reflects belief. And belief can prove to be delusion. Which is why investors today are super-bullish on stocks (which will suffer from inflation) and less enthusiastic about Gold and Silver (which inflation benefits far more).

As medical costs, food, energy, and other staples show, the inflation genie is already out of the bottle. And it will only be getting worse going forward. What Gold and Silver do in the short-term can have nothing to do with what’s coming down the pike in the intermediate and long-term.

With that in mind, the global markets have handed everyone a tremendous opportunity to begin positioning their portfolios now while things are still relatively calm. We’ve just had about two months of the world essentially being put on “hold” due to the US Presidential election, the elections in China, and the holidays.

That period is now ending and the issues that had already begun to unfold in 2012, namely, inflation worldwide, a debt crisis in Europe, and ongoing economic pain in much of the developed world, are already beginning to rear their heads again.

Smart investors are taking advantage of the lull in action to position themselves accordingly. Our Private Wealth Advisory newsletter subscribers have already been warned of these issues and are taking action (just as they did in early 2008 when others were bullish, or in 2010 when the EU crisis first began to take off).

Private Wealth Advisory outlined several critical investment strategies, designed to hedge our subscribers from the risks in the market while also alerting them to unique investment ideas that 99% of investors don’t know about.

This includes out of the way hard asset plays that are undervalued by as much as 70%, back-door investments on Europe’s banking system that allow individual investors to profit when the stuff hits the fan there, and more.

To find out about these investments and start positioning yourself for what we all know is coming, but no one wants to openly admit, all you need to do is take out a trial subscription to Private Wealth Advisory.

You’ll immediately be given full access to the subscribers’ only Private Wealth Advisory website where you can find the historical archives of this investment newsletter.

You’ll also begin receiving new, hot off the press, issues of Private Wealth Advisory to your inbox every other Wednesday. Running between 20 and 30 pages in length, these intensive newsletters outline an expert understanding of what’s happening in the world, in plain, easy to understand language so our subscribers have the best research presented in the clearest way possible.

In this manner, our clients are always informed about the economy, financial markets, and most importantly, their investments.

To find out more about Private Wealth Advisory and how it can help you and your investments…

Click Here Now!!!

Phoenix Capital Research

 

 

 

 

 

It’s common belief that Bernanke and the Fed are printing $85 billion per month ($40 billion to buy Mortgage Backed Securities and $45 billion to buy Treasuries). After all, these are the policies that the Fed announced in September and December 2012, respectively.

The only issue with this is that the Fed lied.

Today, the Fed’s balance sheet is $1.3 billion smaller than it was at this time last year. Last week it was $19 billion smaller. The largest year over year growth the Fed balance sheet has shown since QE 3 was announced occurred on November 23, 2012 when the Fed balance sheet was a mere $48 billion larger than it was at the same point in 2011.

Since that time the Fed balance sheet has shrunken year over year.

The implications of this are severe. If the Fed is indeed not employing the policies it announces but is simply engaging in verbal intervention (stating it will do something just so the markets react), then it has lost total credibility as a monetary authority and is nothing more than a market manipulator.

Consider the above chart… the S&P 500 today is 14% higher than it was this time last year. Over the same time period, the Fed’s balance sheet has shrunken. This is proof positive that stocks have not only disconnected from economic fundamentals… but are now disconnected from the Fed’s actual actions.

Put another way, stock investors are now bullish based on their belief that the Fed is pumping $85 billion in the system every month and nothing more.

Not every asset class is this mindless. Consider Gold’s recent action:

Considering that the Fed announced QE 3 in September and QE 4 in December, Gold should be soaring. Instead it peaked right around the time QE 3 was announced and has since fallen. Year over year it’s barely higher.

All of this adds yet more evidence that the Fed is in fact running out of ammo. We already knew that the Fed believed in verbal intervention as a tool for dealing with the markets. But now it’s clear that this is the primary tool for the Fed. This hardly bodes well for the financial system.

For detailed investment analysis on how to profit from this mess, I strongly urge you to consider a trial subscription to Private Wealth Advisory.

Private Wealth Advisory is a bi-weekly investment advisory newsletter in which we provide high level detailed interpretations of the global economy and financial markets to our subscribers.

By combining this analysis with independent investment ideas that grow our clients’ portfolios, Private Wealth Advisory has become a highly sought research tool for individual investors as well as strategists at some of the largest financial institutions in the world.

To find out more about Private Wealth Advisory and what makes it different from other investment newsletters…

Click Here Now!

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

 

 

While the US continues to digest the details of the US Fiscal Cliff Deal (the only important item is that it does nothing to address our debt or deficit problems), the EU continues to proclaim the worst to be over… while its financial system crumbles from within.

The latest EU official to sound the all clear is German Finance Minister Wolfgang Schauble. On Friday he told German newspaper Spiegel Online that he believes “we have the worst behind us” in the Euro Crisis.

It’s an odd statement given that in just October Schauble wasn’t sure that the worst was past. What’s changed since then? Not much aside from Greece finally getting another €57 billion that it’s been waiting for since June.

Indeed, Spain’s second largest bank, Bankia, (the bank which received nearly €24 billion in bailout funds in mid-2012) just announced that it needed another €18 billion on Friday. This came after Spain’s own Fund for Orderly Bank Restructuring announced that Bankia had a negative value of over €4 billion.

Again, the bank already received €24 billion in bailouts… and it’s worth negative €4.15 billion today. Given that this is the same bank that revised its 2011 €309 million profit to a €3 billion loss what are the odds that even this awful assessment is a bit too rosy?

Lest we think Bankia is a special case, consider that the entire Spanish banking system is on life support from the ECB, drawing over €300 billion (for a banking system with a total market cap of a little over €100 billion this is extraordinary).

Then of course there’s Greece where the four largest banks announced that they need another €27.4 billion (the entire banking system needs €50 billion). To give this number some perspective, the entire capital base of the Greek banking system is only €22 billion. Keep that €22 billion in mind when you consider that Greek banks are sitting on €46.8 billion in bad loans.

With this in mind, and considering that Wolfgang Schauble has historically been one of the more negative voices in the EU political sphere, I take his “the worst is over” proclamation to be extremely worrisome.

Indeed, when you consider that France’s Francois Hollande recently claimed that the EU Crisis is “over” you have to wonder just what exactly is going on behind the scenes that these folks feel the need to state everything is great?

My view is that they know the entire move in the equity and bond markets since June 2012 has been based on verbal intervention from the ECB (despite promising unlimited bond buying, it has yet to actually do anything) and are trying to milk this thing for all it’s worth.

After all, it’s clear at this point that the entire EU financial system is essentially held together via duct tape by the ECB. And with Spain and Greece’s banking systems once again in dire need of capital I’m very concerned that the next round of the EU Crisis is fast approaching and EU leaders are trying to start the damage control in advance.

On that note, we recently outlined a number of targeted trades to help our Private Wealth Advisory newsletter subscribers profit from the next round of the EU Crisis negotiations. These are the same  “back door” investments our clients have used multiple times to pocket gains whenever the EU starts to crumble.

Private Wealth Advisory is a bi-weekly investment advisory newsletter in which we provide high level detailed interpretations of the global economy and financial markets to our subscribers.

By combining this analysis with independent investment ideas that grow our clients’ portfolios, Private Wealth Advisory has become a highly sought research tool for individual investors as well as strategists at some of the largest financial institutions in the world.

To find out more about Private Wealth Advisory and what makes it different from other investment newsletters…

Click Here Now!

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

 

 

 

 

 

 

 

 

 

 

A month back I warned that the US political class was adopting the very same tactics employed by EU politicians in combating our growing economic/ financial problems.

Those tactics are as follows:

1)   Stage a meeting/ talk

2)   Spread rumors that a solution had been reached (verbal intervention to prop the markets up)

3)   Fail to address any real issues or provide solutions

4)   End the meeting with a PR campaign that much was accomplished without providing any details

5)   Wait for the markets to realize that nothing was fixed and fall

6)   Repeat the whole process over again

This strategy has allowed EU officials to drag out the Greek issue (a country whose economy comprises only 2% of the EU’s GDP) for over two years with little political consequences for the key players. Seeing this, the US political class is now employing these tactics in full force as revealed by the fiscal cliff debacle.

Regardless of one’s political affiliation or beliefs, from an economic and fiscal perspective, the cliff deal has accomplished nothing of import. The tax increases will raise $620 billion over the next ten years. So that’s roughly $62 billion in new tax revenue per year.

The US has run a $1+ trillion deficit for four years now. $62 billion is barely even 6% of this. When you combine this with the proposed $15 billion in spending cuts (less than even 2% of our deficit) presented in the “deal,” it’s clear that nothing of significance has been addressed or solved.

Regardless, the markets rallied on this news, just as they’ve rallied on countless rumors of a Greek solution and other announcements from EU leaders over the last two years. Verbal intervention is a key force for the political class. They will use it as much as they can.

In broad strokes, this is the official playbook for political leaders in the Western world. Facilitating this is the ongoing monetary easing by the global Central Banks who have collectively pumped $10 trillion into the system since the Great Crisis began. In simple terms, Central Banks provide the glue to hold the system together while politicians meet and negotiate without ever really solving anything.

This will work until the bond markets finally begin to crack. With Central Banks buying much of the bond issuance coming out of the Western world, once the bond markets really drop it’s game over for this scheme as the Central Banks won’t have the firepower to keep the system together.

On that note, the S&P 500 continues to trace out a large rising wedge pattern. We’re at a critical juncture: overbought in the middle of the pattern. Whichever way we move from here will outline the intermediate trend.

Meanwhile, the 30-year Treasury is once again testing its upward sloping trendline. Bernanke better hope this line continues to hold because he’s fast running out of ammunition.

On that note, we recently outlined a number of targeted trades to help our Private Wealth Advisory newsletter subscribers profit from the fiscal cliff negotiations. 

This morning, three of them are up 4%, 5%, and 6%.

Private Wealth Advisory is a bi-weekly investment advisory newsletter in which we provide high level detailed interpretations of the global economy and financial markets to our subscribers.

By combining this analysis with independent investment ideas that grow our clients’ portfolios, Private Wealth Advisory has become a highly sought research tool for individual investors as well as strategists at some of the largest financial institutions in the world.

To find out more about Private Wealth Advisory and what makes it different from other investment newsletters…

Click Here Now!

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

The following is an excerpt from the latest issue of Private Wealth Advisory. In it I outline the relationship between the Fed’s commitment to low interest rates, the scramble for high grade collateral driving the sovereign bond markets, and how the whole mess will eventually come crashing down.

Private Wealth Advisory is a bi-weekly market advisory service, providing its readers with expert insights into the global economy and the driving forces behind the financial markets’ moves. To learn more about Private Wealth Advisory… Click Here Now!

The US Fed is committed to keeping interest rates low for the simple fact that if interest rates were to rise then the payments on the debt would send the US into an EU-syle debt crisis along with the commensurate intense austerity measures being implemented.

Unfortunately for the Fed, the bond markets may indeed force this in spite of the Fed’s efforts.

Weimar Germany, like most historic episodes of hyperinflation, occurred when Germany’s Central Bank began monetizing its debts. This worked until the country lost credibility in the international bond markets at which point the Central Bank was forced to monetize everything resulting in a currency collapse and one of the worst episodes of hyperinflation in history.

The US has been moving increasingly down this path which each new QE program. The two reasons the US has not yet entered an inflationary death spiral are:

1)   The fact that the US continues to maintain its credibility in the bond markets (at least compared to Europe and Japan).

2)   Large financial institutions’ needs for high-grade sovereign bond collateral.

Regarding #1, the US has never defaulted on its debt. Compared to Germany (another safe haven), which has defaulted on its debts twice in the last 100 years, the US remains one of the most credible governments in the world, regardless of how bad the country’s finances are becoming (for now at least).

Regarding the collateral situation, as I’ve explained in recent articles one of the most critical issues in the financial system is the shortage of high grade collateral to backstop the $700 trillion derivatives market.

With France and the ESM bailout fund recently losing their AAA status this issue is only getting worse. The US, despite losing its AAA rated status is still consider high grade due to its having never defaulted on its debt. With that in mind, the Fed decision to take US Treasuries at a time when more and more countries are losing their AAA rated status means that even less high grade collateral will be in the system.

Indeed, as I’ve noted before, because so much of the US debt market is already held by government controlled entities, the Treasuries shortage is even worse than the below article indicates.

Clearinghouses, run by firms such as Chicago-based CME Group (CME) and London-based LCH.Clearnet Group, make traders provide collateral, including government bonds, that can be seized and easily converted into cash to cover defaults. Traders may need from $2 trillion to $4 trillion in extra collateral to meet the new requirements, according to Timothy Keaney, chief executive officer of BNY Mellon Asset Servicing.

The trouble is finding all that high-grade debt. The U.S. had $10.8 trillion in Treasuries outstanding at the end of August. Other countries, including Japan and European nations rated AAA or AA, had about $24 trillion of debt in the second quarter of 2011, according to an April report by the International Monetary Fund. Those government securities are already in heavy demand from central banks and investors.

The solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards, in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” The maneuver allows investors who don’t have assets that meet a clearinghouse’s standards to pledge corporate bonds or mortgage-linked securities to a bank in exchange for a loan of Treasuries. The investor then posts the Treasuries—the transformed collateral—to the clearinghouse. The bank earns fees plus interest, and the investor is obliged at some point to return the Treasuries. In effect, the collateral is being rented…

JPMorgan Chase (JPM) and Bank of America (BAC) are already marketing their new collateral-transformation desks, executives at the companies say. Other banks confirmed they’re planning to offer the service too, including Bank of New York Mellon (BK), Barclays (BCS), Deutsche Bank (DB), and State Street (STT).

http://www.businessweek.com/articles/2012-09-20/a-shortage-of-bonds-to-back-derivatives-bets

Here’s the actual amount of Treasuries available to the banks:

Total US Sovereign Debt	$16 trillion
Foreign Nation holdings	$5.4 trillion
Intergovernmental holdings	$4.8 trillion
US Federal Reserve	$1.5 trillion
Remaining	$4.3 trillion

Indeed, as the below article reveals, the search for high quality collateral is one of the primary items holding up the Treasury market. The Treasury’s latest information reveals that:

Foreign ownership of U.S. Treasury securities rose to a record level in October, a sign that overseas investors remain confident in U.S. debt despite a potential budget crisis.

Total foreign holdings of U.S. Treasurys rose to $5.48 trillion in October, the Treasury Department said Monday. That was up 0.1 percent from September. Still, the increase of $6 billion was the weakest since total holdings fell in December 2011.

China, the largest holder of U.S. government debt, increased its holdings slightly to $1.16 trillion. Japan, the second-largest holder, boosted its holdings by a smaller amount to $1.13 trillion. Brazil, the country with the third-largest holdings, increased its total to $255.2 billion.

http://hosted.ap.org/dynamic/stories/U/US_FOREIGN_HOLDINGS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-12-17-09-44-48

My point with all of this is that the search for collateral will drive yields lower… until the bond markets truly begin to spin out of control. In the meantime, the US Fed is playing a very dangerous game by purchasing as many Treasuries as it is. But that game can last much longer than anticipated.

How precisely these issues will finally play out is a mystery. But the consequences will be tremendous. And enormous fortunes will be made by those who get it right. The first key clues will be when Bunds and Treasuries begin to nose dive in a big way.

If you’re an individual investor looking for the means of profiting from all of this… particularly the US going over the fiscal cliff, then you NEED to check out  my Private Wealth Advisory newsletter.

Indeed, 78 out of our last 97 trades have made money for Private Wealth Advisory subscribers. That’s an incredible 84% success rate on our investments.

And we’re not getting complacent by any means. In fact, I’m just alerted Private Wealth Advisory subscribers to several trades that will all produce HUGE profits when the US debt implosion picks up steam in the coming weeks.

You’ll find out what they are the minute you subscribe to Private Wealth Advisory. You’ll also gain immediate access to my Protect Your Family, Protect Your Savings, and Protect Your Portfolio Special Reports outlining how to prepare these areas of your life for the coming Great Crisis.

These reports outline:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

And more…

To take out an annual subscription to Private Wealth Advisory  now… start profiting from the market’s gyrations (again we’ve made money on 78 out of 97 trades in the last 18 months)… and gain access to all my Special Reports…

Click Here Now!!!

Best Regards,

Graham Summers

 

 

 

 

 

 

 

On December 12, the US Federal Reserve surprised yet again by announcing QE 4: a program through which it would purchase $45 billion of US Treasuries every month.

Between this program and the Fed’s QE 3 Program announced in September, the Fed will be monetizing $85 billion worth of assets every month ($40 billion worth of Treasuries and $45 billion worth of Mortgage Backed Securities) ad infinitum.

Indeed, the Fed’s new policies are anchored to its goal of getting employment down to 6.5%. This means the Fed will buy these assets non-stop until employment gets down to 6.5%.

I’ve spoken to a number of people in the financial community as well as outside investors and no one seem to grasp the significance of this announcement.

First and foremost, QE does not create jobs. The UK has announced QE efforts equal to an amount greater than 20% of its GDP and has not seen any meaningful job growth. Similarly, Japan has announced nine rounds of QE for a combined effort equal to 20% of its GDP over the last 20 years and job growth remains dismal there.

Based on this, the Fed’s decision to anchor its QE efforts to employment is a bit hard to swallow. Indeed, I would argue that the Fed’s moves have very little to do with employment and instead are meant to address the following:

1)   The US economy is nose-diving again and the Fed is acting preemptively.

2)   The Fed is trying to provide increased liquidity going into the fiscal cliff.

3)   The Fed is funding the US’s Government massive deficits.

Regarding #1, the November ISM report indicates the US economy is again contracting. Looking at the chart, you can sense why Bernanke and the Fed are getting concerned: the similarities between the recent downturn of the last few years and that going from 2004- 2008 are striking. It’s obvious helicopter Ben doesn’t want us breaking into the mid’40s range.

Similarly, the ECRI, which has proven a far better judge of the onset of US recessions than the NBER, has stated that the US likely slipped back into recession in September. Bernanke and the Fed have close ties to the ECRI. I believe they’re moving preemptively based on this announcement.
We get additional indication of things worsening in the US economy from the NFIB’s Small Business Optimism Index. This measure has entered an absolute free-fall, posting its single largest drop in over 30 years. To put this into perspective, this indicates that Small Business Owners are becoming less optimistic about the future of the economy faster now than they were after Lehman failed.

In additional to this, small business earnings are have rolled over sharply since the beginning of 2012. Small businesses account for 70% of jobs. To see both small business owner optimism and as well as small business earnings cratering is a bad sign for the US economy.

Bernanke firmly believes that the single biggest reason the Great Depression lasted as long as it did was because the Federal Reserve didn’t do enough to fight it at the time. This is the driving thesis behind his life’s work and his tenure at the Fed.

With the above information making it clear that things started to get quite ugly in September, QE 4 should be seen as his attempt to act preemptively to stop another 2008-type economic plunge.

In addition to this, we know that Bernanke has stated point blank that the Fed does not have the tools to deal with the fiscal cliff.

The U.S. economy is already being hurt by the “fiscal cliff” standoff in Washington, Federal Reserve Chairman Ben Bernanke said Wednesday. But Bernanke said the Fed believes the crisis will be resolved without significant long-term damage.

The steep tax increases and spending cuts can be avoided with a successful budget deal, Bernanke said during a news conference after the Fed’s final meeting of the year. The Fed’s latest forecasts for stronger economic growth next year and slightly lower unemployment assume that happens…

Bernanke repeated his belief that if the scheduled tax hikes and spending cuts do take effect in January, they will have a significantly adverse effect on the economy, regardless of what the Fed might do.

“We cannot offset the full impact of the fiscal cliff. It’s just too big,” Bernanke said.

http://news.yahoo.com/bernanke-says-fiscal-cliff-already-hurting-economy-201018687–finance.html

Given Bernanke’s extensive connections on capital hill, the move to implement QE 4 should also be seen as a warning that we will very likely be going over the fiscal cliff; not having the tools to deal with the aftermath of this mess, the Fed is moving preemptively to prepare the system for what’s coming.

Finally, and most critically, the Fed’s implementation of QE 4 represents the Fed’s full commitment to finance the US’s deficits.

In 2011, the Fed bought over 70% of US debt issuance. Based on the projections for QE 4, the Fed will buy upwards of $480 billion of the $918 billion in new US debt to be issued next year: roughly 52% of all new debt issuance.

Between this and the Fed’s monthly monetization of $45 billion worth of Mortgage Backed Securities, the Fed will be soaking up 90% of all net new dollar-denominated fixed-income assets next year.

There are several implications to this.

1)   The US will be lurching ever closer to an EU-style debt crisis.

2)   There will be an even greater shortage of high quality collateral in the financial system going forward.

3)   Inflation will continue to rise.

Regarding #1, by soaking up so much of the US’s new debt issuance, the Fed is permitting the US Government to continue overspending at a time when the bond market would normally begin raising interest rates.

Last year the US paid $454 billion in interest payments on its debt. This was at a time when the average interest rate was only slightly above 2%.

During the same year, the US only took in about $2.3 trillion in tax revenue.  So, even with interest rates at historic lows, we’re spending about 20% of tax receipts on interest payments.

Now let’s suppose that interest rates rise to an average of 4%. At that rate, the US would owe nearly $900 billion in interest payments: enough to soak up nearly 40% of all US tax receipts. And this is assuming tax receipts don’t fall as the economy contracts (historically taxes do fall during times of contraction).

This is why the Fed is committed to keeping interest rates low: if interest rates were to rise then the payments on the debt would send the US into an EU-style debt crisis along with the commensurate intense austerity measures being implemented.

Having said that, the bond market may force the Fed’s hands, at which point it’s Checkmate for Bernanke.

If you’re an individual investor (not a day trader) looking for the means of profiting from all of this… particularly the US going over the fiscal cliff, then you NEED to check out  my Private Wealth Advisory newsletter.

Indeed, 78 out of our last 97 trades have made money for Private Wealth Advisory subscribers. That’s an incredible 84% success rate on our investments.

And we’re not getting complacent by any means. In fact, I’m just alerted Private Wealth Advisory subscribers to several trades that will all produce HUGE profits when the US debt implosion picks up steam in the coming weeks.

You’ll find out what they are the minute you subscribe to Private Wealth Advisory. You’ll also gain immediate access to my Protect Your Family, Protect Your Savings, and Protect Your Portfolio Special Reports outlining how to prepare these areas of your life for the coming Great Crisis.

These reports outline:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

And more…

To take out an annual subscription to Private Wealth Advisory  now… start profiting from the market’s gyrations (again we’ve made money on 78 out of 97 trades in the last 18 months)… and gain access to all my Special Reports…

Click Here Now!!!

Best Regards,

Graham Summers