Can the Markets Crash?

Phoenix Capital Research's picture




This is the trillion-dollar question. From a common sense perspective, the simple answer is “absolutely!”


Since 1998, the markets have been in serial bubbles and busts, each one bigger than the last. A long-term chart of the S&P 500 shows us just how obvious this is (and yet the Fed argues it cannot see bubbles in advance?).



Moreover, we’ve been moving up the food chain in terms of the assets involved in each respective bubble and bust.


The Tech bubble was a stock bubble.


The 2007 bust was a housing bubble.


This next bust will be the sovereign bond bubble.


Why does this matter?


Because of the dreaded “C word” COLLATERAL.


In 2008, the world got a taste of what happens when a major collateral shortage hits the derivatives market. In very simple terms, the mispricing of several trillion (if not more) dollars’ worth of illiquid securities suddenly became obvious to the financial system.


This induced a collateral shortfall in the Credit Default Swap market ($50-$60 trillion) as everyone went scrambling to raise capital or demanded new, higher quality collateral on trillions of trades that turned out to be garbage.


This is why US Treasuries posted such an enormous rally in the 2008 bust (US Treasuries are the highest grade collateral out there).


Please note that Treasuries actually spiked in OCTOBER-NOVEMBER 2008… well before stocks bottomed in March 2009.



The reason?


The scrambling for collateral, NOT the alleged “flight to safety trade” that CNBC proclaims.




The senior most assets backstopping the $600 trillion derivatives market are SOVEREIGN BONDS: US Treasuries, Japanese Government Bonds, German Bunds.


By keeping interest rates near zero, and pumping over $10 trillion into the financial system since 2007, the world’s Central Banks have forced investors to misprice the most prized collateral backstopping the entire derivatives system: SOVEREIGN BONDS.


SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?


Another collateral scramble begins… this time with a significant portion of the interest rate derivative market (over 80% of the $600 TRILLION derivative market) blowing up.


At that point, rising yields is the last thing we need to worry about. The assets backstopping a $600 trillion market themselves will be falling in value… which means that the real crisis… the crisis to which 2008 was the warm up, will be upon us.


This is why Central Banks are so committed to keeping rates low. This is also why all Central Bank policy has largely benefitted the large financial institutions (the Too Big To Fails) at the expense of Main Street…




They will fail eventually. When they do, the markets will experience yet another terrible collapse even worse than that of 2008.


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


Best Regards


Phoenix Capital Research



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Wed, 02/19/2014 - 19:31 | 4454820 MeelionDollerBogus
Tue, 02/18/2014 - 22:02 | 4450967 datapanik
datapanik's picture

Q. How do you wipe out 3 billion poor people without being labeled a mass murderer?

A. Become a central banker.

Tue, 02/18/2014 - 21:27 | 4450793 weburke
weburke's picture

Not till 2015 around sept. 

(according to jewish debt forgiveness theology)

Tue, 02/18/2014 - 20:52 | 4450633 AMGdesignnl
AMGdesignnl's picture

10 ................... 5 ... 4 ... 3 ... 2 ... <);o) you know it

Tue, 02/18/2014 - 16:03 | 4449347 ItsDanger
ItsDanger's picture

Of course they can crash.  But markets need trigger(s) to start any lasting downturn.  What will it be this time and can we see them before it happens (not 5 yr before either)?  I can see plenty of possible triggers but it could take 1-5 yrs before they play out.  In the meantime, you get crushed in your open positions.  Still a lot of time but I'm thinking anywhere from 3-20 months is likely.

Wed, 02/19/2014 - 19:32 | 4454833 MeelionDollerBogus
MeelionDollerBogus's picture

Same trigger as last time. When the sheep have nowhere else to run, it's time to cull the herd & break out the mint sauce.

Tue, 02/18/2014 - 17:17 | 4449224 Ewtman
Ewtman's picture

We are in the largest credit expansion in history. No saving ourselves from this one.


Tue, 02/18/2014 - 15:12 | 4449136 MFLTucson
MFLTucson's picture



Dah!  Really??

Tue, 02/18/2014 - 14:35 | 4448981 MGA_1
MGA_1's picture

And I listened to phoenix capital and lost all my money ?

Tue, 02/18/2014 - 14:16 | 4448883 TrumpXVI
TrumpXVI's picture

And let me guess, when the really serious collateral scramble begins........I guess gold won't be anywhere in that mix?

Tue, 02/18/2014 - 14:16 | 4448882 elwind45
elwind45's picture

Money is flooding into the central banking monarchy and your worried the money in the little leagues (stock market) is in trouble. Just keep buying because a "bitchin sailor iz a happy sailor"? The baker can continue adding eggs to your cake until YOU think your a chicken? Don't stop eating until wonka runs out of chocolate because it wont run out of eggs NEVER EVER EVER!!!

Tue, 02/18/2014 - 14:04 | 4448817 Rising Sun
Rising Sun's picture

Can markets crash?


Does a bear shit in the woods?

Wed, 02/19/2014 - 19:38 | 4454844 MeelionDollerBogus
Tue, 02/18/2014 - 13:40 | 4448715 LawsofPhysics
LawsofPhysics's picture



Tue, 02/18/2014 - 13:50 | 4448758 Winston Churchill
Winston Churchill's picture

If they did, would we even know ?
We are so far down the rabbit hole now. I'm not sure.

Tue, 02/18/2014 - 14:27 | 4448948 silverserfer
silverserfer's picture

Murkettes r fine. Still kickin high as evah!

Tue, 02/18/2014 - 13:21 | 4448598 Obchelli
Obchelli's picture

Can Markets Crash?


Absolutely not...



                           Jannet Yellen

Tue, 02/18/2014 - 12:51 | 4448447 economicmorphine
economicmorphine's picture

Been watching that top chart for five years now.  Goofiest looking chart I've ever seen in my life.  That's not natural.  Reversion through the mean, bitchez.

Wed, 02/19/2014 - 20:05 | 4454925 MeelionDollerBogus
MeelionDollerBogus's picture

wE DON'T nEed no FuNdaMEntalZ, bitchez

permanently higher plateaus for tha muthafuckin win!!

Tue, 02/18/2014 - 13:41 | 4448718 Emergency Ward
Emergency Ward's picture

CLINTON boombust BUSH boombust OBAMA boomBUST?

Tue, 02/18/2014 - 12:36 | 4448370 Comte d'herblay
Comte d&#039;herblay's picture

Wrong question, which sheds no light.  The better question is:  What is the PROBABILITY of a crash?  


An asteroid can wipe out all life on Earth.  But the probability is so low as to warrant no worry, even by astronomers who monitor this activity in the cosmos every second of the day. 

I can say with 99% certainty that there will be no crash today, tomorrow, or Friday.  How to play it as it lays though, is the tough call.  

Tue, 02/18/2014 - 12:47 | 4448436 Groundhog Day
Groundhog Day's picture

Looks like a triple top breakout with a target of 2150.  Just keep buying.  Listening to Phoenix Capital is hazardous to your portfolio.  Smoked on pecious metals last year and missing the 30% ride in spx.  All that matters is price action and staying on top of your investments daily so that when the "big one" ever shows up, your ready to cut your losses, even if means a 6-7% down day you'll still be ahead if you ride the wave

Tue, 02/18/2014 - 16:22 | 4449454 boogerbently
boogerbently's picture

Yeah, I switched from NUGT to DUST......just in time for this last weeks ride DOWN !

Tue, 02/18/2014 - 21:14 | 4450586 mccvilb
mccvilb's picture

Ah got that memo! It said play the miners not the metals... oops, wrong again.  Too late to buy a solar still and heirloom seeds?

Tue, 02/18/2014 - 12:36 | 4448368 SAT 800
SAT 800's picture

The emphasis on collateral is good too. A scramble to cover exposure on the part of large banks; a panic into collateral, so to speak; seems like one of the fairly likely outcomes. The important bank runs are not the public ones, with the photos of people standing in line outside the bank; but the inter-bank runs; when the banks start trying to pull out from their positions at other banks.

Tue, 02/18/2014 - 13:28 | 4448636 Winston Churchill
Winston Churchill's picture

Just what do you think that $1tn in reverse repo's
is about again ?

Tue, 02/18/2014 - 12:34 | 4448353 Obchelli
Obchelli's picture

Wer hear same thing for 5 years - yet market stubbbornly goes UP UP and away...

No crash in site at all... Just week ago mood was totaly different I thought we are finally crashing but today everything is so rosy I simply can not see what can stop this...


Feeleing helpless

Wed, 02/19/2014 - 20:39 | 4455037 MeelionDollerBogus
MeelionDollerBogus's picture

Looks clear as day to me.

Tue, 02/18/2014 - 12:40 | 4448389 SAT 800
SAT 800's picture

Timing, and probability of outcome, are two different subjects. If markets didn't take time to develop and react they couldn't suck in the masses of people they do; we all measure things by what we think of as a long time; 5 years, or whatever; but is it really a long time? When you read history it's like looking through the wrong end of a telescope; everything seems to have happened at once; but then you find out that twenty years went by between the significant cause and eventual effect.

Tue, 02/18/2014 - 12:33 | 4448343 SAT 800
SAT 800's picture

As far as I can understand; this is probably correct. The Central Banks need to keep interest rates around zero; indefinetly, but they won't be able to; and then very interesting things will occur.

Tue, 02/18/2014 - 15:26 | 4449200 Rafferty
Rafferty's picture

Central Banks need to keep interest rates around zero; indefinetly, but they won't be able to..


This has become something of a mantra but why can't they?  If they keep the printers going flat out there'll be money everywhere, ergo, low to zero rates.  I've yet to see it explained why this cannoy go on indefinitely.  It seems that's just what's been happening in fact.

Wed, 02/19/2014 - 20:40 | 4455044 MeelionDollerBogus
MeelionDollerBogus's picture

it's because that collapses the currency which is why it didn't work last time. Or any time before.

Tue, 02/18/2014 - 16:13 | 4449405 RMolineaux
RMolineaux's picture

There appear to be several possibilities regarding unlimited printing of dollars by the Fed.:

China has already stopped buying new US Treasuries.  Other buyers are slowing down, thereby forcing the Fed into faster printing.  But this latter operation is being limited by the taper.  "Normal" FOMC operations will be overwhelmed and short-term interest rates will climb.  The interest-rate derivatives market will collapse, depriving commercial banks of a major source of income.   Commercial blanks will have to lay off staff assigned to derivatives speculation while facing new liquidity crises.  Commercial banks will also have to draw down their reserve balances at the Fed, depriving themselves of another source of income.  Sensible regulatory action will - finally - force the banks back into the humdrum traditional banking activities of depositor servicing and lending.  This should have happened in 2009, but will now be forced.

Tue, 02/18/2014 - 21:26 | 4450790 Wahooo
Wahooo's picture

Reasonable scenario there. At what cost do you think the reserve draw down will occur? Thinking banks will be taken over and assets if any sold to the highest bidder. Lots of jobs lost in FIRE? Stagnation worldwide?

Mon, 02/24/2014 - 19:06 | 4472732 RMolineaux
RMolineaux's picture

A pre-condition to reserve draw down would have to be a restoration of trust among commercial banks and a greater willingness to lend to productive enterprises.   This may be a long time coming.  Instead, the banks are feeding Wall Street speculation and repeating the errors that caused the 2008 breakdown.  There needs to be a lot of "job losses" in FIRE as these have become enormous parasites in a zero-sum game.  Bright young people should be thinking about value added careers, not becoming Gordon Gekkoes.

Tue, 02/18/2014 - 18:57 | 4450118 Rafferty
Rafferty's picture

Thanks for this.....appreciated.  The scenario you depict beginning "Normal" FOMC operation.... does this scenario represent a post-taper or no taper assumption?

Mon, 02/24/2014 - 18:57 | 4472701 RMolineaux
RMolineaux's picture

Post taper.  The Fed is apparently beginning to realize the danger of becoming a monetary garbage dump.

Tue, 02/18/2014 - 12:44 | 4448412 Alpha Dog Food
Alpha Dog Food's picture


Eventually, all big projects go bad. Including this one where they are trying to ramp markets up to the roof and bail out at the top.

This is what generally happens when big projects go bad though:


Tue, 02/18/2014 - 16:20 | 4449444 boogerbently
boogerbently's picture

"SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?"


......"Promised" yields rising.....

I'll gladly pay you Tuesday, for a hamburger, today!

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