Phoenix Capital Research's blog

The markets have entered a new round of deflation. The only asset class that has yet to realize this is stocks.

To put US household debt levels into a historical perspective, in order for US households to return to their long-term average for leverage ratios and their historic relationship to GDP growth we’d need to write off between $4-4.5 TRILLION in household debt (an amount equal to about 30% of total household debt outstanding).

It’s now been two weeks since the Federal Reserve lead a coordinated effort to lower the cost of borrowing Dollars worldwide. While the markets initially hailed this move as a “solution” we’ve since seen that it was in fact an act of desperation/ cushioning of the coming European banking collapse.

I expect emerging markets to underperform US indexes going forward. One chart I use to view how these two assets perform relative to one another is to price the Emerging Markets ETF (EEM) via the S&P 500. When this chart rallies, Emerging Markets outperform the S&P 500. When this chart falls, the S&P 500 outperforms Emerging Markets.

Folks, if you’re not considering the possibility that the current EU is going to be broken up…  you need to start doing so now.  They’re all out of options over there which means… you guess it… it’s default/ systemic risk rime.

It’s time we admit the truth, the EU and its banking system are literally on the edge of collapse. Think 2008… for an entire region. And politicians are going to solve this mess with a March 2012 meeting!?!

EU leaders just decided to impose stricter budgetary requirements from EU members. Only in La La Land could this be viewed as progress. The EU already had budgetary requirements… which the PIIGS countries all ignored. So how will these NEW budgetary requirements change anything? And who or what is going to enforce them?

German banks post some of the highest leverage rations in Europe: higher that Italy, higher than Ireland, even higher than Greece. In fact, German banks are actually sporting leverage EQUAL to that of Lehman Brothers when it went bust

Germany is interested in the EU as a political entity, NOT the Euro as a currency. With that in mind, consider the following story which received almost NO attention from the media:

This is a man who just a year or two ago was so arrogant of his power that he committed blatant perjury in front of Congress (the famed “debt monetization” lie)… NOW writing a letter to politicians whining about how unfair the media has been regarding his monetary actions. This is a massive and I mean MASSIVE shift for Bernanke.

We know that the Fed and other Central Banks have a tendency to leak information to certain friends in advance, so I cannot help but wonder if stocks are showing this strength based on someone knowing something we don’t.

Truly, the only reason to buy into a stock rally here is based on the belief that the Fed or someone else is going to be providing more juice in the near future. 

The whole thing smells fishy to me. Aside from the fact that the Fed clearly leaked its intentions as early as Monday night (hence the reason stocks rallied while credit markets weakened), there’s something peculiar about the fact the Fed chose to do this at the end of November.

You cannot build a financial system on lies. It simply doesn’t work. All it does is breed distrust and resentment. And as any businessperson can tell you, without trust business cannot work.

With the European End Game now in sight, the primary question that needs to be addressed is whether Europe will opt for a period of massive deflation, massive inflation, or deflation followed by inflation.