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Guest Post: Everything Is Being Sold
Submitted by Chris Martenson of Peak Prosperity,
Global financial markets are now in a very perilous state, and there is a much higher than normal chance of a crash. Bernanke's recent statement revealed just how large a role speculation had played in the prices of nearly everything, and now there is a mad dash for cash taking place all over the world.
After years of cramming liquidity into the markets, creating massive imbalances such as stock markets hitting new highs even as economic fundamentals deteriorated (Germany) or were lackluster (U.S.), junk bonds hitting all-time-record highs, and sovereign bond yields steadily falling even as the macro economics of various countries worsened markedly (Spain, Italy, Greece, and Portugal), all of this was steadily building up pressures that were going to be relieved someday. Just over a month ago, Japan lit the fuse by destabilizing its domestic market, which sent ripples throughout the world.
[ZH: Must-watch clarifying few minutes with Chris - grab a glass of Absynth, forward to 1:40 in the following clip and listen]
The Dash for Cash
The early stage of any liquidity crisis is a mad dash for cash, especially by all of the leveraged speculators. Anything that can be sold is sold. As I scan the various markets, all I can find is selling. Stocks, commodities, and equities are all being shed at a rapid pace, and that's the first clue that we are not experiencing sector rotation or other artful portfolio-dodging designed to move out of one asset class into another (say, from equities into bonds).
Here's the data. Let's begin with the place that the most trouble potentially lurks – bonds – and here we have to start with the U.S. Treasury 10-year note, as that is the benchmark for so many other interest-rate-sensitive items, such as mortgage bonds.
Here there's been a very interesting story that predates the recent Fed announcement by nearly two months. This chart of the price of 10-year Treasurys tells us much (remember, price and yield are exact opposites for bonds; as one moves up, the other moves down):
The first take-away is that the current price of 10-year Treasurys is now lower that at any time since late 2011. The second take-away is that this has happened despite both Operation Twist and QE3.
That is, after all the hundreds and hundreds of billions of dollars of thin-air money-printing and bond-buying, Treasurys are now lower in price than when the Fed initiated Operation Twist and QE3.
And it's not just 10-year rates; the entire yield curve from 5-year to 30-year debt is now higher than it was a month ago:
This is very, very important. On the one hand, it tells us that the Fed may not be omnipotent after all, because you can bet your bottom dollar that the Fed simply does not want long rates to rise and that this was an unplanned and unwelcome move. On the other hand, rising rates will do much to a fragile economy and over-leveraged speculators and institutions.
I may need more hands here, because there are other undesirable effects of rising rates, including falling equities (we'll get to that in a minute), fiscal difficulties for heavy borrowers (many sovereign entities belong to this club), and mortgages becoming increasingly expensive.
An early casualty of rising U.S. interest rates, of course, was mortgage rates, which have climbed approximately 40 basis points (0.40%) over the past month:
Obviously, anything that will impact the housing market at this point is entirely unwelcome by the Fed, which has openly stated that it wants people buying homes – and for a variety of reasons, people tend to take out fewer mortgages when rates rise. This is especially true for refinancing mortgages, an important source of revenue for financial institutions.
If it were just U.S. rates that were rising, that would be one thing, but rates have been on the move in Europe and Japan. In this next table, you can see two things: (1) much of the one-month rise in rates can be attributed to the past 24 hours (red arrows), and (2) quite a number of the most problematic nations have bond yields that are below their recent highs (as seen in the green circle).
(Source)
What I gather from this is that countries like Spain, Portugal, Greece, and Italy do not deserve the ridiculously low rates they now enjoy, and that those old highs in yield will be revisited.
Where the U.S. had a change in yield trend in mid-May 2013, Spain was leading the charge by reversing course in early May:
Who was buying all that junky sovereign debt at inflated prices as Spanish yields fell? Institutions and speculators. The institutions were entities like Spanish banks and the Spain pension system, buying Spanish debt for reasons that seem far more political than financially prudent. For a while, that strategy worked, as rising bond prices delivered both nice yields and capital gains, but now pretty much anybody who bought those bonds in 2013 is (at best) roughly even for the year, leaving plenty who are nursing losses.
The speculators in this story represented the hottest of the hot money, involving hedge funds jumping on any trades that seemed to be headed in the right direction and/or offered useful yields for spread trades, both of which conditions were met by southern European sovereign debt. But that hot money is best described by the phrase easy come, easy go. It arrives fast and leaves even faster.
Okay, so what we can say at this point is that bonds are being sold off around the world. This is very bad for equities, because there's a connection between falling yields and rising equities. As yields fall, the risk-appetite of investors climbs because they need returns, and so they put more money into equities and real estate. This is especially true when interest rates are negative, meaning that they yield less than the rate of inflation, and that is precisely what the Fed engineered. On purpose.
However, this coin has two sides, and the less virtuous face combines rising bond yields with falling equities. It is simply the reverse of the Fed's desired and manufactured outcome of the prior several years.
If we look at the U.S. stock market, as typified by the S&P 500, we see that it peaked in May (to no one's surprise, I hope) and has been steadily falling over the same period that interest rates have been rising.
1600 is now the magic 'round number' for the market to break through if it is heading lower, which I think it is. We'll also note that the 50-day moving average (the rising blue line) has been critical support for the S&P 500 throughout the entire advance (green circles), and that it has been soundly violated on this drop.
Commodities have been heading down, too, but seemingly as a part of a larger move that's been underway for a couple of years:
Note that commodities are now beneath their 200-week moving average, which is a very bearish indicator (green circle).
Collectively, the move away from commodities, bonds, and equities in all markets globally tells us that there's nowhere to hide and that this is a 2008-style dash for cash. Everything is being sold, as it must, to meet margin calls, pay down leverage, and get out of positions; all are signs of the end of a speculative phase.
I know it's a lot to claim that we are at that turning point, but the evidence that we are there is now more than a month old, and it's time to consider that we are entering the next phase of our date with destiny.
What's Coming Next
In Part II: The Ride Down from Here, we look at the increasing number of flashing indicators warning that a 2008-style – but worse – sell-off is arriving. We say "worse" because this time it looks like it will be accompanied by a vicious cycle of rising interest rates. Plus, governments and central banks have used up all of their major options already. There are no more white knights to hope for.
We examine the likeliest course from here for asset prices and what to expect from the central planners as desperation increasingly drives the decision-making. We also look at what defensive steps individual investors should be considering. Because, as we've been advising for months, now is a time for safety.
Buckle up. It's going to be a bumpy summer.
Click here to read Part II of this report (free executive summary; enrollment required for full access).
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It's about effin time and still stashing silver.
So if speculators are piling into cash where will that cash sit? In a bank? What will they do with it, bail ins? Real Estate? The money has to go somewhere until it is deleted with a key stroke.
In a perfect world.....it would go back to our grandkids.
Forget Wall Street for a minute. When it gets really ugly on Main Street, every local, state, and federal employee that makes up "the corporation" had better learn the low crawl real fast because millions of partiotic, highly motivated American gun owners are going to have something to say about this mess.
What do you you suppose the 100 + million folks who are fed, housed, and maintianed by .gov will be saying at the same unpleasant time?
hooper drives the boat chief
Those losers on main street are NOT better than the Banksters so fuck them, they have NO opinion!
Again: The fed isnt buying treasuries and mortgage debt to help the economy or the government, and you can be sure that they will get paid back in real value for the benny bucks they are using to buy.
I can't wait until Silver is down to $7 again. Back up the truck.
May not have to wait past next week....
When Stocks dumped in 2008 Bonds ended up 100 bp lower. So if this IS a repeat of 2008 you want to own Govie bonds, up to a point.
Bonds would have done even better but when equity valuations got low enough, people who had bought Treasuries (and US$) during flight to safety went back the other way.
If Stocks do get pummeled to the previous lows or even lower I don't see why bonds can't get to previous yield lows or even lower.
Just because the Fed will be selling Treasuries doesn't mean there won't be buyers on the other side.
At least until the dollar gets high enough to attract Ben's attention. Still see Gold a major buy at $1200.
The man who knew too much:
December 5, 2000
Mr. Speaker, America's trade deficit for September hit $35 billion for one month, $35 billion. America is heading for a $420 billion, 1-year trade deficit. Unbelievable.
If this continues, America will have a crash that will make 1929 look like a fender-bender.
What is even worse, China is now taking $100 billion of cash out of our economy, buying missiles, and pointing them at us.
Beam us up, all of us!
We must be stupid. Ronald Reagan almost destroyed Communism, and the Clinton administration has reinvented it, is now subsidizing it, and is now stabilizing it.
I yield back any common sense left and any patriotism left in this Congress.
http://www.jim-traficant.com/
ronald reagan was a fucking puppet.
Everything is free now
That's what they say
Everything I've ever done, gonna give it away
Someone hit the big score,
they figured it out
That we're gonna do it anyway
even if it doesn't pay
"Obviously, anything that will impact the housing market at this point is entirely unwelcome by the Fed, which has openly stated that it wants people buying homes"
SO WHY DID THE FED CREATE A HOUSING BUBBLE THEN CRASH THE HOUSING MARKET, if they want people to buy homes?
Since the central banks of the world will soon panic and go full retard, I think you position yourself into the most beaten down, i.e., PMs and emerging markets. The US markets got a ways to go...down.
And now ZH features articles that are sales pitches. WTF
One of the things which I find both tragic and misleading about most of the so-called alternative economic media, and I include Martenson in this category, is that they regard the central bank managers as inept fools, and this is based on the meme that the goals of the central bank managers have anything to do with their publicly stated goals. Since they create money from thin air, they can hire the most left brain brilliant psychopaths on the planet. The have created the biggest bubble in known history, because the bigger the bubble, the bigger the crash. And yes, the coming crash will, like WTC 7, be a planned demolition. Why? Because these globalists want to put the useless eaters of the world in such a position of material despair, that we will jump at any possibility of relief, even if that entails a horrible neo-feudal Stasi-state of the 0.0000001%. They create the problem which causes the victims to cry out in reaction, and then they supply a solution which further consolidates their power and control, which then leads to a new and usually worse problem. Rinse and repeat. A black Hegelian dialectic of epic proportions. On a global scale it is very similar to a 1920's urban protection racket. "Youse got a nice place here, Pop. Be a shame if sumpin happened to it." Then they take out their baseball bats, and after turning the place to shambles, they politely ask for a donation to their security fund (DHS/TSA).
While Martenson (whom I sometimes allude to as Ned Flanders of The Simpsons) doesn't have a clue regarding the biggest picture, I find his immediate analysis rather accurate, other than he apparently doesn't realize just how nuclear the "crash" will be when TPTB pull the pin on the grenade, which will simply be to withdraw significant liquidity of phoney debt money from the system. My best guess is that that may well occur within a matter of months, and may coincide with the global proxy conflict in Syria escalating into an even larger and not so proxy conflict.
If you have doubts that nothing is as it seems, and all is shrouded in bullshit, I suggest that after you watch the RT interview (linked in the article above) with Martenson, you leave it running for 5 minutes after the break, when economic historian Adam Lebor describes in irrefutable terms, just how the Bank for International Settlements in Basle funneled huge interest payments on Nazi Reichsbank debt in 1943 (the height of WW II for the historically challenged) to the Bank of England. And since two of the directors of the BIS were also managers of the Nazi Reichsbank, no legitimate argument can be made that these transfers were hidden from the Nazi financial elite. Indeed we sheeple are being played for fools.
Yup, everything you said and maybe one thing more .
Something new . Not a Black Swan, exactly , more of a " no more White swans " sort of thing . If this flash mob type social unrest like we're seeing in Turkey and Brazil keeps spreading . . . (and what could stop it ? ) . . . we're going to have a brand new situation . One where there is , literally , no remaining place considered safe enough for foreign money to run to .
Where do you put trillions when there are no "hot money" bubbles going on anywhere other than domestic intelligence security contracting ?
Then what ? I dunno . Neither does anyone else , because it would be such a genuinely new thing not in the world .