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What's Coming Will Be Much Much Worse Than 2008
Last week we touched upon the “white elephant” in the room: that the biggest, most important bubble investors should worry about is in bonds, NOT stocks.
Consider the following…
The financial system is based on debt. US Treasuries, the benchmark for an allegedly “risk free” rate of return, is the asset against which all other assets are priced based on their relative riskiness.
This “risk free” rate has been falling steadily for over 25 years.
The Wall Street Journal estimates that a third of traders have never witness a rate hike. However, the real problem is far greater than this.
Bonds have been in a bull market for over 30 years. Forget rate hikes… an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper.
This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital.
The ultimate example of this is the derivatives market, which is now over $700 trillion in size. This entire mess is backstopped by about $100 trillion (at most) in bonds posted as collateral.
This formula of ever increasing leverage works relatively well when the underlying asset backstopping a trade is rising in value (think of the housing bubble, which worked fine as long as housing prices rose). However, if the asset ever loses value, you very quickly run into trouble because you need to post more as collateral to backstop your trade. If you can’t do this easily, the margin calls start coming and you can find yourself having to unwind a massive position in a hurry.
This is how crashes occur. This is what caused 2008. And it’s what will cause the next crisis as well.
Despite all of the rhetoric, the world has not deleveraged in any meaningful way. The only industrialized country to deleverage since 2008 is Germany.
This is not unique to sovereign nations either. As McKinsey recently noted, there has been no meaningful deleveraging in any sector of the global economy (the best we’ve got is households and financial firms which have basically flat-lined since 2008).
In the simplest of terms, the 2008 collapse occurred because of too much leverage fueled by cheap debt. This worked fine until the assets backstopping the leveraged trades fell in value, which brought about margin calls and a selling panic.
The big problem however is that NO ONE got the message that leverage was a problem. Instead, everyone has become even MORE leveraged than they were in 2008. And they did this against an ever-smaller pool of quality assets (the Fed and other Central Banks’ QE programs have actually removed high grade collateral from the financial markets).
Thus, we now have a financial system that is even more leveraged than in 2007… backstopped by even less high quality collateral. And this time around, most industrialized sovereign nations themselves are bankrupt, meaning that when the bond bubble pops, the selling panic and liquidations will be even more extreme.
The next round of the crisis is coming, and it’s going to make 2008 look like a picnic.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Graham Summers
Phoenix Capital Research
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When QE was released. It was a boon to Banks which wanted to transfer all the Bad assets to the Government Accounts. There is no quality collateral out there anymore.
The final question is how this ends. Can Government be forced to take the losses from bad colateral?
Can losses be transfered to the poor people as it has always happened in all the third world countries.
I don't think so. Hundred million gun trotting people cannot be forced to accept hard work. Most of this guys are being given food stamps and government handouts among other benefits to sustain a semblance of their normal life.
Just like Saudi Arabia, where 90% Arabs are working for the Government, Americans are being paid for voting for the Government. How long can Government afford that? Just like Ukraine Government is sending its people to die in eastern part of Ukriane. US is also getting ready to push people to die in some war far away or from Nuclear Bomb launched from far far away. The push to war is relentless. Look at all the media war mongering and ignoring that it is war crime.
Yes, What is going to happen is even worst then 2008.
All I see around me is a large flock of birds with their heads buried so deep in the sand... O...s...t...rich in debt. The view really is not pretty!
POTUS - black muslim - LMAO
Graham Summers is an idiot. Hes been sending a message every day on this site since 2009 to sell, at 700, 710, 720, .... now 2050...
whoever listened to him is broke. He's looking for new fools.
beware to the shorts. With the printing press at full pace, the risk is not Dow 666 but Dow 666,666,666
2008 saw a bubble of serious proportion for sure, but the next bursting will set in motion a chain reaction that can not be stopped... a bubble of such proportion that the entire world will affected.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Graham should team up with Gartman. Two total knobs,
I think they should change the name from Phoenix Capital research to Chicken Little Inc.
Chicken Little Click Bait?
Hey I like picnics
All this is easy-peasy, it's like saying the end of the world will come. The real question that no one wants to answer or is able to answer is........ When?
<<<< 800 lb Gorilla
<<<< White Elephant
The term White Elephant is intriguing in its use:
A white elephant is a possession which its owner cannot dispose of and whose cost, particularly that of maintenance, is out of proportion to its usefulness. The term derives from the story that the kings of Siam, now Thailand, were accustomed to make a present of one of these animals to courtiers who had rendered themselves obnoxious in order to ruin the recipient by the cost of its maintenance. In modern usage, it is an object, scheme, business venture, facility, etc., considered without use or value.[1]
I am not sure that is was properly used, but I never would have read the definition if it was not used.
So Payne, what you are saying is that lawyers are white elephants in natty suits???
;-D
Edit: Some effing overly large white lawyer downvoted me. Damn!!!
bad money drives out good
At clowns ---
the problem is--the perception of wealth based on price and not value -- for example---the price paid in the counties for public education is around 50% of budget --thats the price,but what is its value??
Yo g speed - I thought my comment was obvious sarc ... I guess not. Perception of wealth based on price and not value .... is one of the least immoral aspects of Fed printing, but it is definitely one of them.
Whats the problem.? ... The Fed is just going to print more $$ and everything will be Ok. Obama said it is so, thus it is true.
Black swan this White Elephant that. Our governments, financial systems, societies, and families are a complete clusterfuck. I say bring the reset.
Gas Can Rage https://www.youtube.com/watch?v=dg6bBfMKu0E
And the Seventh Seal will be opened.
https://www.youtube.com/watch?v=awhT2SoxA_Y
If people understood the illusory nature of this kind of "wealth", they'd WELCOME the popping of the bubble! They'd be demanding that Yellen DO something to make it happen!
They don't understand though, and don't realize that by protecting that illusion of wealth, they are actually destroying what real wealth they have. The spike in certain asset prices ought to have been viewed as an anomaly that should obviously be corrected. Like an ATM machine that starts spitting 20's at you...you aren't suddenly "rich"! You can photograph yourself rolling around in them and post it on Facebook, but you KNOW you have to give it back, it doesn't become "yours".
I'm deleveraged, mostly. :)
Just BTFD, Sheesh.
dupe
I don't think 'white elephant' is the metaphor you seek.
Preferential treatment for white elephants? That be racis...
Multicultural elephant.
black Swans are so passe, what about pink giraffes? Flying elephants? Pink elephants on parade?
https://www.youtube.com/watch?v=RoysQe-2HS4
the tide has gone out and the white elephant is wearing the emperor's new clothes
I agree, lasvegaspersona, not 'white elephant'. Perhaps a graceful long-necked bird, only in a color atypical to that species. Yes, I see it now - a very dark specimen of this creature. Quite apropos, as something very dark is most certainly headed our way.....
Emu?
Hey Prefan, what? A black grackle event??? These, and false flag events are definitely on the menu...and I see 2015 or 2016 as the year that is remembered as the pivot point.
;-D
LOL. Yes, a black grackle or a black dodo or a black hummingbird. Something like that. Definitely black, though. (That's raciss !)
Picking on birds that are black is rayciss. How about a white crow event? There does seem to be a murder of them circling right now.