Tag Archives: bonds

Fed Experts Call for NIRP… is a Physical Cash Ban Next?

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More and more “experts” are calling for Negative Interest Rate Policy or NIRP.

The US Federal Reserve is obsessed with market reactions to its policies. Because of this, anytime the Fed plans to announce a major change in policy, it preps the markets via numerous leaks and hints… oftentimes for months in advance.

An excellent example of this concerns the Fed’s decision to taper QE back in 2013.

At that time, the Fed had been engaging in two open ended-QE programs… programs that had been running for over six months.

Rather than simply beginning to taper the programs, then-Fed Chairman Ben Bernanke, hinted that the Fed was contemplating a taper in June.

The markets reacted sharply with bond yields rising.

The Fed then spent six months allowing the market to get used to the idea of a taper, before the actual taper finally began in December 2013.

Put another way, the Fed gave the markets a full six months to adjust to a change in policy, before actually implementing said change. This only highlights just how focused the Fed is on market reactions to its policies.

In the simplest of terms: the Fed will NEVER surprise the market. This is particularly true now that the Fed is in the political cross hairs due to ample evidence showing its policies have increased wealth inequality.

If the Fed is planning on something new, particularly something that might have political repercussions, we’ll see numerous hints and suggestions well before the actual policy is unveiled.

With that in mind, we need to consider the number of Fed officials who have recently been hinting at Negative Interest Rate Policy or NIRP.

  1. First we find that a Fed official hinted at NIRP during the Fed’s September 2015 meeting.
  2. Then, on October 9th, Fed President Bill Dudley stating that negative rates were “an option” though not a “relevant conversation” right now.
  3. This statement was followed up by Minneapolis Fed President Narayana Kocherlakota stating point blank that the Fed should “consider negative rates.”

The Fed has never once hinted at or discussed NIRP during its policy meetings. Then, in the span of three weeks, we’ve not only had an anonymous Fed official state that he or she believes NIRP is coming to the US, but two highly visible Presidents have called to NIRP consideration.

This is simply part of the Fed’s larger War on Cash.

For six years straight, the Fed has been trying to “trash” cash.

First it cut interest rates to zero… making it so that savings deposits produced almost nothing in the way of interest income. Consider that at current rates, a retiree with $1 million in savings earns a measly $2,500 per year in interest income.

The Fed’s hope was that by making it painful for savers to sit in cash, said savers would move into risk assets such as bonds and stocks. This has worked in that stocks are now in one of, if not THE biggest bubbles in history… while bonds are trading at yields never before seen outside of wartime.

However, the Fed overlooked two outlets for investors who didn’t want to be forced into risk. They are: Gold bullion and physical cash.

The Fed has been dealing with bullion via clear manipulation of prices for years (that’s an article for another time). And now it is moving to make physical cash obsolete.

This is just the beginning. Indeed… we’ve uncovered a secret document outlining how the US Federal Reserve plans to incinerate savings in the coming months through NIRP, and possibly even by outlawing physical cash.

We detail this paper and outline three investment strategies you can implement

right now to protect your capital from the Fed’s sinister plan in our Special Report

Survive the Fed’s War on Cash.

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

To pick up yours, swing by….

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

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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

 

It’s Official: Central Banks Are Losing Control

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For six years, the world has operated based on faith and hope that Central Banks somehow fixed the issues that caused the 2008 Crisis.

All of the arguments supporting this defied common sense. A 5th grader knows that you cannot solve a debt problem by issuing more debt. If the below chart was a problem BEFORE 2008… there is no way that things are better now. After all, we’ve just added another $10 trillion in debt to the US system.

Similarly, anyone with a functioning brain could tell you that a bunch of academics with no real-world experience, none of whom have ever started a business or created a single job can’t “save” the economy. Indeed, few if any of the Fed Presidents have even run a bank before. And yet they’re in charge of the banking system.

The Elite Have a Vested Interest in Maintaining the Illusion

However, there is an AWFUL lot of money at stake in maintaining the illusion of Central Banking omniscience. So the media and the banks and the politicians were happy to promote them. Indeed, one could very easily argue that nearly all of the wealth and power held by those at the top of the economy stem from this fiction.

So it’s little surprise that no one would admit the facts: that the Fed and other Central Banks not only don’t have a clue how to fix the problem, but that they actually have almost no incentive to do so.

So here are the facts:

  • The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.
  • The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.
  • Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.
  • Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.
  • The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.
  • The Central Banks have no idea how to exit their strategies. Fed minutes released from 2009 show Janet Yellen was worried about how to exit when the Fed’s balance sheet was $1.3 trillion (back in 2009). Today it’s over $4.5 trillion.

Lies, Fraud, and Deceit: the Building Blocks of the Financial System

We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work. They haven’t. All they’ve done is set the stage for an even worse crisis in which entire countries will go bankrupt.

This process has already begun abroad.

Switzerland, China… Who’s Next?

In January 2015, the Swiss National Bank (SNB), backed into a corner by the ECB’s QE program, had a choice: print an obscene amount of money to defend the Franc’s peg or break the peg.

The SNB chose to break the peg. In a single day, the bank lost an amount of money equal to somewhere between 10% and 15% of Swiss GDP. More than that, it let the Franc appreciate… in a country in which 54% of the GDP is based on exports.

The next bank to lose its grip is the Central Bank of China.

With an economy in free-fall (GDP is growing by 3% at best), a dual house and stock bubbles bursting simultaneously, China’s regulators went on the offensive: freezing the markets, banning short-selling, arresting short-sellers, and pumping tens of billions of Dollars into the market per day.

Despite this, Chinese stocks continue to crater. And the economy hasn’t budged.

The fact of the matter is that despite public opinion, there are problems that are so big that the Central Banks cannot fix them. We’ve seen this in Switzerland and China. It will be spreading to other countries in the near future.

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

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

To pick up yours, swing by….

Click Here Now!!!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Our FREE daily e-letter: www.gainspainscapital.com

 

 

Why What’s About to Begin Will Dwarf 2008

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

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

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

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

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

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

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

The Structure of the Financial System

Consider the following:

  • Total currency (actual cash in the form of bills and coins) in the US financial system is little over $1.2 trillion.
  • If you want to include money sitting in short-term accounts and long-term accounts the amount of “Money” in the system is about $10 trillion.
  • In contrast, the US bond market is well over $38 trillion.
  • If you include derivatives based on these bonds, the financial system is north of $191 trillion.

Bear in mind, this is just for the US.

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

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

The Bond Bubble is Exponentially Larger Than Stocks

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

  • The bubble is not confined to one country (globally, the bond bubble is over $100 trillion in size).
  • The bubble is not confined to one asset class (all “risk” assets are priced based on the perceived “risk free” valuation of sovereign bonds… so every asset class will have to adjust when bonds finally implode).
  • The Central Banks will do everything they can to stop this from happening (think of what the ECB has been doing in Europe for the last three years)
  • When the bubble bursts, there will very serious political consequences for both the political elites and voters as the system is rearranged.

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

A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.

The size of the bond bubble alone should be enough to give pause.

However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to $555 TRILLION.

To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).

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

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

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

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

Most Western Nations Are Bankrupt

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

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

  • Central banks cut interest rates to make these gargantuan debts more serviceable.
  • Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.
  • Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was economically positive) because it would burst the bond bubble and bankrupt sovereign nations.

So how will all of this play out?

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

GPC 9-16-15When this hits, capital will fly to high quality bonds particularly US treasuries. However as the bond market crisis accelerates eventually it will envelope even safe haven bonds (including Treasuries).

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

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

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

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

To pick up yours…

Click Here Now!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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

Is the Treasury Preparing For a Systemic Event?

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

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

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

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

The quick timeline for Cyprus is as follows:

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

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

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

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

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

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

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

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

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

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

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

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

To pick up yours…

Click Here Now!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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