Phoenix Capital Research's blog

Worldwide, there is a shortage of capital. Leverage levels exceed those of the Tech Bubble. Even Central Banks, such as the Fed are leveraged to the hilt (with $50 billion in capital and $2.8 trillion in assets, the Fed is leveraged at 56 to 1. Lehman was at 30 to 1 prior to its collapse).

I fully believe that we may in fact be on the verge of a Crash in the markets. All the Red Flags are there. Europe’s entire banking system is on the verge of systemic collapse. Take a look at European banks and you’ll see what I mean.

This move reeks of desperation. The fact it occurred during options expiration further illustrates one of our long-held views: the Central Banks intervene during options expiration week whenever possible to permit the largest upside move (See the Fed’s juicing of the market post-QE 1 in 2010).

The primary problem is that the world Central Banks continue to intervene to prop the markets up. We had a global intervention earlier today… forcing the US Dollar to collapse while the Euro soared.This is an act of desperation. It is essentially an admission on the part of the Central Banks that Europe is in a full-scale liquidity crisis a la pre-Lehman.

The market has become dominated by rumors. The primary rumor is of China supporting Europe. We saw similar rumors in 2008 for Wall Street banks. Those purchases all resulted in massive losses for the funds in question. And yet we are seeing similar rumors inciting large rallies in stocks today, this time the rumors pertaining to China and Japan buying Europe.

The similarities between 2008 and today are growing even more eerily similar. We’ve seen a mega-bailout similar to Hank Paulson’s “Bazooka,” we’ve also seen short-selling bans and sovereign bailout rumors (China and Middle East for Wall Street in 2008 vs. China for Europe today).

Let’s be honest here. Neither China, nor the ECB, nor the Federal Reserve can stave off the collapse that’s coming. Indeed, the Fed spent $900 billion and nearly one year to prop the markets up… and we’ve wiped out ALL of those gains in just one month.

Folks, this is the hard truth: the US is broke and our leaders have no clue how to solve any of the structural issues our economy and markets are facing. They’ve spent TRILLIONS propping up the stock market but haven’t created new jobs nor have they improved Americans’ quality of life in the last two years.

In order for a move of that caliber to occur in the US Dollar, we’ll need to see a full-scale crisis to hit the markets (the last two US Dollar rallies occurred during the 2008 collapse and the 2010 Euro Crisis). So expect greater downside risk in stocks in the near future.

We’re heading into the END GAME for the markets. What’s coming will see debt defaults in Europe and the US, a stock market Crash that makes 2008 look like a picnic, civil unrest and more.

I fully believe that the financial system is now more in danger of systemic collapse than at any point in history (including 2008). Do NOT be fooled by the rally of the last few days. We saw rallies of 8%, 11%, even 17% during 2008. Those investors who bought into them got taken to the cleaners.

I’ve said many times before that QE 3 won’t be coming any time soon unless the market Crashes or a major bank goes under. The reason is that QE (and Ben Bernanke for that matter) have been politically toxic: we’ve already seen that the Fed will be a major political issue in the 2012 Presidential election.

We have now wiped out almost all of the gains of the last week and a half and it looks as though we are heading rapidly into the 2008-type Collapse I've been warning about for weeks.

I will be blunt here. Systemic risk is higher today than it was in 2008. Anyone who claims that the financial system is stable can look at either Treasuries or the credit markets. Look at Europe where the entire banking system is collapsing. 

Note that the Fed is now suing its favorite firm, Goldman Sachs. This move is not without context. Bernanke and pals are aware of the political tide turning in the US. They’re also aware of what’s happening in Greece and Europe. And they’re going to try to pin the blame on Goldman and others.