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The Single Most Important Issue Facing Investors Today
The single most important item for investors to understand is collateral. Specifically, how there is a huge shortage of high grade collateral backstopping the trillions in derivatives trades owned by the TBTFs
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…
THE CENTRAL BANKS AREN’T TRYING TO GROW THE ECONOMY, THEY’RE TRYING TO PROP UP THE FINANCIAL INSTITUTIONS’ DERIVATIVE TRADES.
To return to our initial question (is this just a temporary top in stocks or THE top?), THE top is what we truly have to watch out for because it will indicated that:
1) The Grand Monetary experiment of the last five years is ending.
2) THE Crisis (the one to which 2008 was just a warm up) is beginning.
Indeed, the chart for the DJIA says it all:
This is an expanding wedge pattern. It predicts an eventual move in the Dow back down to 5,000 or even lower depending on the timing of things.
This will likely be accompanied by:
1) Rampant margins calls and demands for higher grade collateral
2) The yield on the 10-year note hitting 1% or lower.
3) Markets being closed
4) Banks being frozen (similar to what happened in Cyprus)
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Best Regards
Phoenix Capital Research
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BRING IT... I am ready.
I have an idea I have to solve Too Big To Fail, I explained it in one of my blogs. It might seem tough on TBTF CEOs but I challenge anyone to claim it wouldn't work...
http://incapp.org/blog/?p=1861
There aren't any investors. There are only dupees, dupers, and algos.
"SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?"
"2) The yield on the 10-year note hitting 1% or lower."
Does not compute.
A 1% yield when deflation is running 5% equals a 6% return.
It is not the most important issue. Just another risk vector that pierces the heart of TRUST in financial ssets and the whole rigged architecture (i.e. markets).
Little People should stay with physicals to survive in emerging underground economies. Good traders just nimbly dance with the lasers and raps and have long discarded the entertainments from all the economic prognosis.
Dow 5000? Lot of room for error in that spread.
Again "as the long end sells off you get huge carry in the treasury market which implies massive growth in the US economy." That puts a bid into equities and now the dollar.
"Cheap imports will suddenly flood the USA"? Who's gonna buy all that? Or more importantly "how do I collect sales tax revenues when everything suddenly costs ten cents?" We already have the internet so it's not like a national sales tax is in the offing. "Just how big can this Free Shit Army get?" is my question....
You are likely getting 'free shit' right now. There are likely 50% of us getting F/S now. Has that caused any major disruptions in our lives?
Get used to it.
More and more as the jobs, careers, and businesses shrink to nothing, eliminating any opportunities for jobs let alone advancement, the governments of the world will continue listing to the left, with the quadrillions that the FED has printed and given to GM, and most significantly to the most powerful sector of ours and the global economy encapsulated in those Trillions in Derivatives, the Financial sector (you can't really have collateral that will back up a derivative unless you can clone the original collateral dollar for dollar, so that was a stupid statement to begin with in the original post) acting as the harbinger of the future.
THAT's a prediction you can actually take to the bank.
If it is about contagion then it is about derivatives! The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy.
QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. In postponing this collapse the Fed has created a whole slew of new problems. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html
U bet, but it's not a house of cards anymore than believing in god is.
Organized religions have survived millennia.\
75% of human beans that's something like 6 billion of them actually believe there is some really Big Jefe out there in the cosmos running things, however poorly she is doing it.
So fret not.
Faith is a wondrous thing to behold. Look at hilary fans.
"This will likely be accompanied by:"
5) Pensions being plundered
6) All forms of government assistance being cut off, leading to riots and
7) Martial law in the United States and elsewhere
8) Massive wars all over the place, perhaps WWIII
9) Famine, plague
10) HOLOCAUST
uuuuhh.....no, it won't. We will muddle along until a White Swan event occurs that changes the pair o' dimes.
It (they) will be a discovery (ies) that the masses of us, the great unwashed know nothing about.
It is more likely that you will be mostly if not completely wrong and that in fact, government assistance is only going to continue, and increase to include more and more people. Work for the 7 billion of us, growing to 8 billion, will cease to be how we spend our time in order to survive. Plague is unpredictable, a black swan event if spread over the global population.
J B T MF D.
IMHO.
and Dogs sleeping with cats?
Markets will just close, trading will be suspended and the big reset button gets pushed.
There won't be one financial institution that will "fail" but there will be a couple that are criminally prosecuted.
The FED will "promise" not to repeat.
I agree, 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?
For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. Below you will find more on why this scenario could happen. We know that can't happen 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.
http://brucewilds.blogspot.com/2013/01/flash-crash-on-steroids.html
They ain't fooling me any. However they are making me work harder to hedge and trade around a core long tbond position. So far so good. They will pay me dearly for them some day. In the meantime I will collect my dividends and continue to profit from my hedges.
1% Ten Year?
From your keyboard to Gods computer.