Is the Next Crisis Upon Us?

Phoenix Capital Research's picture

The Fed played a big game with the markets from 2009 until today.


That game was engaging in reckless policy until something “breaks.”


The problem with “breakage” in the capital markets; is that when something breaks it has a tendency to be swift. Consider Italy. It was considered one of the pillars of the EU since it adopted the Euro in 1999. Because of this, the markets were happy to allow Italy to borrow at stable rates with the yield on the ten year Italy government bond well below 5% for most of the last decade.



Then, in the span of a few weeks, everything came unhinged and the yields on Italy government bonds spiked, rising over 7%: the dreaded level at which a country is considered to be insolvent and set for default. It was only through extraordinary lending mechanisms from the European Central bank (the LTRO 1 and LTRO 2 programs to the tune of hundreds of billions of Euros… for an economy that is €2 trillion in size) that Italy was saved from potential systemic collapse.


My point with this is that when the capital markets “break” due to a loss in credibility, the shift tends to be both swift and violent. I noted before that the yield on the ten-year Treasury is the basis for the pricing of all risk in the capital markets. With this yield being manipulated by the US Federal Reserve to the tune of $45 billion per month, the entire landscape for risk has become distorted.


In this context, what happened in Italy can be extrapolated to risk assets in general: when the adjustment finally does happen (when something finally “breaks” as a result of the Fed’s interventions) it will be a very rough period for the capital markets. And with the Fed having already used the vast majority of the tools in its arsenal creating this environment, it is not clear that the Fed will be able to step in and hold things together as the ECB did for Italy.


With that in mind, we ask, IS the next Crisis at Upon us?


For a FREE Special Report on how to prepare your portfolio for a bear market collapse, visit us at:


Best Regards


Phoenix Capital Research



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Sufiy's picture

Arthur Cutten: NYSE Margin Debt - Take It to the Limit, One More Time 

 Arthur reports on the latest development with the leverage in the system, as we have noted before - the NYSE margin debt tops are preceding the markets tops.Talking Heads on the Bubble Vision are still talking about the minor correction and that underlying economy is strong. We will see very soon how long Taper can go in this environment.

AdvancingTime's picture

Most investors think that even if things go downhill fast that they will be smart enough to get out of the markets. After the debacle in 2008 where they saw the market do nasty and violent swings they learned a few things, this time they figure they will make the right moves before it is to late. But what if it hits like the flash crash on steroids?

We know that the market can't just drop away because circuit breakers have been put in place to arrest panic style moves, but imagine a market that falls, trade is halted, and the market simply does not reopen for days, or even weeks. More on why and how this would be possible in the post below,

10mm's picture

MyRa is a test case.  They want the real loot. 401's and Ira's. Also pension funds.

dontgoforit's picture

I think you're on to something 10mm.  If they 'borrowed' all of it, they could pay off the national debt.  Everyone should be very careful where their stash is stashed.

disabledvet's picture

the crisis is in China.
We have flooded their market with dollars via QE creating a truly spectacular they are "QE'ing" even bigger over there.

This type of "overload" once broken doesn't just get "fired up again."

The Federal Government has already lowered the boom on Chinese IPO's (something I think was a mistake actually.)

They might be lowering the boom on recovery itself now via "taper."

It is ironic that just when I was getting to really like QE "they took it away."

I do not think there is any going back now either.

(note to self...never tell the Fed Chairman to "get to work.")

RaceToTheBottom's picture

The FED just was getting nervous about the dollar/dinar.  They wanted to make sure it got a pop, to remind people that it is the cleanest of the dirtiest shirts in the laundry.

icanhasbailout's picture

An "insolvent country ready to default" still gets a pretty nice interest rate, apparently. If it were, instead, an insolvent individual ready to default, what would be the average interest rate for that borrower?

lordbyroniv's picture

While the music is playing...gotta Dance Dance !!