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What Happens When the Great Attempt to Hold Things Together Fails?

Phoenix Capital Research's picture




 

 

Now that Obama has been re-elected, the BLS and other Government entities have begun to revise all of the positive data from before the November election downward. New jobless claims are back over 400,000. The amazing new home sales of 389,00 from October has been revised back down to 369,000. And a new record has been set for food stamp usage.

 

Things are only going to get worse for the following reasons:

 

  1. Increased taxes
  2. Increased regulation

 

Both of these items will result in people parking their cash rather than investing in the economy. Case in point, as ZeroHedge noted a few weeks ago, $132 BILLION was suddenly parked in bank savings accounts. That’s $132 billion (nearly 1% of US GDP) leaving the US economy and plunking into savings accounts

 

To put this number into perspective, this is more than the amount of money that fled to the safety of savings accounts when LEHMAN FAILED.

 

In simple terms capital is going into hibernation. Without the investment of capital, the US economy will continue to weaken. Between this, the fiscal cliff, the earnings disaster for corporations and more, the market is set for a truly horrendous 2013.

Economic bell-weathers such as Caterpillar (green), Fed EX (red) and McDonalds (purple) are already discounting this in a big way.

 

 

However, we’re not quite there yet. Unless things come unhinged sooner due to some event in Europe, it will probably be the end of December (when the fiscal cliff will be hitting) before things really get messy in the markets.

 

I want to alert you to all of this in advance because I believe 2013 will be the year in which the real reset happens. As I’ve explained in earlier articles, it almost hit last summer. It was only through the ECB and Fed promising to buy everything that the system held together. But now even the Fed has stated outright that it cannot contain the impact of the fiscal cliff.

 

We get additional signs that those in charge are out of ideas in Europe. There the latest proposal for Greece is a debt buyback plan through which Greece would use €10 billion to buy some €30 billion worth of debt. Greece doesn’t have €10 billion lying around so it would likely tap a bailout fund (the EFSF or ESM) to do this. This means Greece would need (you guessed it) another bailout in order to buy its own debt.

 

It would also need to convince Greek bondholders to sell their stakes, which was a huge issue during the Second Greek bailout earlier this year.

 

So once again, we have yet another non-solution (the goal of this plan is to help Greece get its Debt to GDP to 120% by 2020) which will require a great deal of arm-twisting and political machinations to accomplish almost nothing.

 

The same idiocy is playing out in Spain. The latest plan there is for the country to cut the balance sheets of three nationalized banks by 50% sometime in the next five years. How will they do this? By dumping their toxic property assets into a “bad bank.”

 

The idea here is that somehow someone will want to buy this stuff. Spain already had to postpone the launch of the bad bank by a month because no one wanted to participate in it (despite the mainstream media claiming that the idea was popular which is untrue).

 

So, here we have Spain proposing that it can somehow unload a ton of garbage debts onto “someone” even though there is no “someone” to buy them. And the whole point of this exercise is to meet conditions so that Spain would qualify for another €40 billion in aid.

 

€40 billion in aid.

 

On an annualized basis, Spain has experienced portfolio and investment outflows of more than €700 billion. And the latest plan to address this situation (as well as the implosion of the Spanish banking system) is to dump toxic bank assets into a bad bank to free up €40 billion in aid.

 

Oh, and Spain needs to issue over €200 billion in debt next year.

 

Again, a non-solution that doesn’t fix anything.

 

 As I mentioned before, without a doubt 2013 will be a disastrous year for the global economy and for the financial markets. Things could get ugly before then due to any number of issues that are boiling just beneath the surface… but barring any sudden developments, most of the key players will try to hold things together into year end.

 

At that point, there’s really not anything to look forward to (compared to this year when many pinned their hopes on the US elections or on more intervention from the Central banks). And that’s when things will get really ugly.

 

On that note, we’ve recently prepared a Free Special Report outlining how to prepare for this as well as the coming economic collapse. It’s called: Preparing Your Portfolio For Obama’s Economic Nightmare and it outlines several investments that will profit from Obama’s misguided economic policies, including one targeted at potentially huge returns when the US Debt bubble bursts.

 

You can pick up your FREE copy here:

 

http://gainspainscapital.com/obama-nightmare/

 

Best Regards

 

Graham Summers

 

 

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Mon, 12/17/2012 - 13:55 | 3071486 silverserfer
silverserfer's picture

Graham your like the kid in the carseat in back screaming out "were going to crash and die" at every stoplight while your mom drives you both to the grocery store. 

Mon, 12/17/2012 - 13:41 | 3071450 etresoi
etresoi's picture

Every time I see a Phoenix Capital header on ZH I cringe.  What an incredible waste of screen space, or do you pay huge amounts to ZH?  A banner ad would be more honest and then we could use ad-block and never see the 'Reader's Digest' of finance.

Mon, 12/17/2012 - 13:53 | 3071468 KidHorn
KidHorn's picture

Phoenix seems to always be wrong with their predictions.

When i read about money being parked in banks, I rolled my eyes. Don't they realize the money deposited in banks gets invested by the bank. It doesn't pile up in a vault. It's like when people talk about money on the sidelines. There is no money on the sidelines. The money placed in a money market fund is invested by the money market fund. Do they think MM funds and banks just give money away in interest?

Mon, 12/17/2012 - 13:57 | 3071490 otto skorzeny
otto skorzeny's picture

how bout this-the "cash" is just that-people are getting physical cash from the bank and hiding/stashing it it. I have noticed lately that the cash I am taking from the ATM(alot of it) is suspiciously clean and crisp and seemingly uncirculated(and I mean ALL of it)-like it's cash that has been sitting in vaults for years all and of the sudden is having to be circulated to keep up with the demand for it. remember-he who panics first panics best.

Mon, 12/17/2012 - 13:14 | 3071384 boogerbently
boogerbently's picture

When I saw PhoenixCapital I made a mental bet. It would be pumping gold and have his SPAM at the end.

I was only half right.

Dude, giving out your e-mail is NOT free.

Mon, 12/17/2012 - 13:01 | 3071337 falak pema
falak pema's picture

capital is going into hibernation. All the Hollywood rich are selling their homes.

Every body feels the recession/depression is around the corner as the FED fiat pumps cavitates before it hits the asymptote.

So where do we go from here?

Its gonna be tough on those who have a lot to loose and tougher on those wo have nothing to lose; except their very livelyhood and health.

Hibernation blues and upcoming destitution pain and rage. 

AND, THE GOVT. who have no bullets left, apologise for analogy with the NRA racket, will not be able to do what FDR did. Unless they nationalise the shadow banking plus PD cabal banks and establish first world debt jubilee in some fashion that avoids WW. 

Some agenda! Especially with these shills running it! 

Mon, 12/17/2012 - 13:59 | 3071497 Spastica Rex
Spastica Rex's picture

If  the goal is to slowly manage expectations for the majority of Western citizens lower while maintaing an illusion that growth is the answer and a material-focused definition of "middle class" is still the only accepted definition, all the while strengthening the position and control of those already in power, I think they're doing a pretty good job.

I saw this and thought of a conversation with you the other day:

http://www.theoildrum.com/files/1.%20Fig%208%20Citigroup.png

Mon, 12/17/2012 - 17:07 | 3072569 falak pema
falak pema's picture

yes the energy conundrum is the big unknown. We in west have grown rich on cheap oil from east and made them surrogates, by living on borrowed/printed money and this has to end. Its being going on since 1965-70, so its one hellva long run.

If the energy freedom comes along with more financial discipline there is a way out, but we have limited time! As the momentum of past overprint is ominous and the mindset (accumulative effect of bad habits) awesome!

Keep ya chin up!

Mon, 12/17/2012 - 12:55 | 3071326 Estrella
Estrella's picture

Graham, I think you underestimate the desire of the people to keep this game going. Greeks, the French and in the States there are riots of people demanding, not justice, not freedom, not that the corrupt be punished, but more Government. The failure, if it comes at all, will have to come elsewhere in the system

Mon, 12/17/2012 - 12:47 | 3071302 the grateful un...
the grateful unemployed's picture

the dollar will hold up in a crisis, by that i mean the physical dollar, people will still trade. can't say the same thing for the euro, as faith in their union is less heartfelt. the american dollar is like apple pie and the flag. you're right that tax increases will cause a temporary downdraft in the investements and spending, but after we go off the fiscal cliff, new tax relief legislation will be passed (BTFD) i expect obama to come out this as a shell of his former presidency. people may be uncomfortable with a more powerful congress, and so guys like boehner and pelosi will have to get out of the way, but at least the pubic will start to respect the institution a bit more (whats after less than 10% approval, no where to go but up)

and the GOP really wants to save small business, while obama wants to throw them under the bus to help his wall street pals. so we hope he loses on that count, we hope the leadership swings around and people who look and act the part take over the peoples house, and you will know the congress is back when one of them runs for president, and actually wins. (that is the publics tarnished image of their business sense for mostly graft and corruption dissipates a little - yes obama is a racketeer, but tell that to these college punks who voted him in, and need help with their indentured servitude - read student loans - we need a good old fashioned military draft to put some common sense back into the americas future generation)

Mon, 12/17/2012 - 13:11 | 3071363 Ghordius
Ghordius's picture

"as faith in their union is less heartfelt" I disagree on that, the EUR very little to do with feelings and a lot with design

there is no "union" behind the EUR, no federal army or police or secret services -  the EU has very, very little to do with it anyway

note that the EUR has no faces, no real symbols or real buildings on it - by design

the EUR is the monetary product of the confederation of 17 central banks - mostly national banks, by the way, not private or pseudo-private

created after the old motto "Et Pluribus Unum" to reach a certain safety from speculative inroads of internal industrial supply lines (as currency grids previously) and to withstand currency wars by it's sheer size and a couple of other features, including mark-to-market gold asset treatment

the EUR is the product of one thought: WTF! and if King F. Dollar dies or gets into serious trouble?

should the fecal matter really hit the impeller for the EUR too, then you have the old 17 babyfaced rejuvenated heartfelt currencies coming back, and then we can talk about feelings

Mon, 12/17/2012 - 12:47 | 3071300 cynicalskeptic
cynicalskeptic's picture

Japan has been holding out for HOW LONG?

I'm astounded at the can kicking ability of TPTB..... the housing bubble lasted far longer than I thought possible so who knows?

Mon, 12/17/2012 - 13:51 | 3071472 KidHorn
KidHorn's picture

I agree. Things can only fall apart when it's not expected and in ways not foreseen.

Mon, 12/17/2012 - 12:44 | 3071292 Hedgetard55
Hedgetard55's picture

The "someone" that buys the toxic assets is the taxpayer.

Mon, 12/17/2012 - 12:33 | 3071250 ElvisDog
ElvisDog's picture

I don't know. One thing I've come to respect in an odd way is the power of the TPTB to hold things together. It might be 2013 or it might be 2023 before things spin apart. Who can say, but at the moment Obama and the rest of them are correct in that unlimited deficits don't matter.

Mon, 12/17/2012 - 13:04 | 3071357 XitSam
XitSam's picture

I would disagree. It seems to me that the economy as a whole has much more momentum than I ever imagined. This is in spite of actions of TPTB. They think they are driving a sports car with nimble steering, great brakes and motor that responds to their commands nearly instanly.  Instead, they are driving the cruise boat from Speed 2 and if anything they are in a tugboat pushing it faster toward the dock.

Mon, 12/17/2012 - 13:21 | 3071397 Ghordius
Ghordius's picture

+1 the real economy is more like one of those great sluggish diesel tractors where you can even piss in the tank and it just chugs along, particularly the "very real" part of the "real economy"

but for marketing purposes stock pushers like to sell the image of a nimble, powerful sports car with great drivers (CEOs) at the wheel

did the whole world economy ever grow more than 2% per year in real terms? if you factor in human pop growth? probably not

Mon, 12/17/2012 - 12:52 | 3071315 SafelyGraze
SafelyGraze's picture

what happens during a depression .. solve for xxx

Among xxx's more celebrated exploits was his pretending to be a sales representative for a company that sold bank alarm systems and then "testing" the bank's security by carrying out an actual robbery.

He reportedly entered a number of banks and used this ruse to assess security systems and bank vaults of prospective targets.

He arranged various 'exercises' and 'drills' where the military was standing down while the theft took place.

Another time the men pretended to be part of a film company that was scouting locations for a "bank robbery" scene.

He worked with movie studios to release films showing how the crimes would actually occur.

Bystanders stood and smiled as a real robbery ensued and his group fled.

The government demanded federal action, and the president developed a more sophisticated Federal agency as a weapon against these attacks and used xxx as his campaign platform to launch the new agency.

you guessed it

Mon, 12/17/2012 - 12:47 | 3071294 Ghordius
Ghordius's picture

to paraphrase Socrates the more you remind yourself that you don't know the more you hold to true knowledge

 

unlimited deficits don't matter at all

until they do, though you don't know when

this crisis started in 1968. at that time all dollars abroad were still redeemable for foreigners willing to send a (battle)ship for collection - one million, one metric ton of gold

just as a reminder about how long deficits can be irrelevant

Mon, 12/17/2012 - 13:03 | 3071348 falak pema
falak pema's picture

well if we have been in for 50 years we might as well be in for a 100! 

Mon, 12/17/2012 - 13:09 | 3071370 Ghordius
Ghordius's picture

right you are! ;-)        my grandfather used to say the same: "if I lived up to 90 than there is no reason why I can't reach 180". then he stopped smoking and drinking and...

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