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3 Signs We've Reached 'The Top' In The Financial System

Tyler Durden's picture




 

Submitted by Simon Black via SovereignMan.com,

It was 1720, and Paris was completely mad.

The city’s brand new stock exchange, located at the ultra-swanky Hotel de Soissons, swarmed with citizens of all stripes looking to get rich.

Stocks were still a novel concept back then, and the allure of getting rich overnight was so appealing that people lined up for hours to buy shares.

The most popular was the ill-fated Mississippi Company, whose share price frequently rose up to 20% in the course of a single morning.

It was said fortunes changed so quickly that people often woke up poor and went to bed rich.

Newfound wealth was visible everywhere. Luxury home construction boomed. Lucky speculators erected statues of themselves. The jewelry market surged.

Of course, it didn’t last. Within a few years, the market crashed, and the Mississippi Company went down in history as one of the greatest bubbles of all times.

Looking back it should have been obvious.

In fact, all great financial bubbles often have watershed moments that in many ways signify the height of lunacy.

Joseph Kennedy, for example, famously sold all of his stocks right before the great crash in 1929 after a shoeshine boy started giving him investment advice.

Pets.com, a symbol of the 1990s tech bubble, IPO’d just two years after it was founded with a $300 million market capitalization.

They were so flush with capital that they spent $2 million on a tacky Superbowl ad, only to go bust 268 days later.

Duh. It’s so obvious looking back.

I’ve long believed our entire financial system is in a similar position.

Western banking systems are dangerously illiquid and in many cases undercapitalized.

Meanwhile the central banks and governments meant to support them are nearly insolvent and bankrupt themselves.

There are a lot of flashing warning signs right now that the system is quickly running out of steam.

China’s vast, multi-trillion dollar stockpile of foreign reserves is dropping rapidly, down by $87 billion in November, the third highest decline on record.

A whopping $1.2 trillion worth of corporate bonds in the United States has just been downgraded by rating agencies.

Median home prices in over a third of major American cities have once again surpassed all-time highs from the last bubble.

US government debt is at an all-time high after rising an astounding $674 billion just in the month of November.

It’s pretty clear there’s an incredible amount of risk in the system.

And in the future when we look back and say, “It should have been so obvious,” here are a few events that may become famous watershed moments:

1) The $75 billion loan

 

AB InBev just secured an astonishing $75 BILLION loan to buy rival SABMiller.

 

This is the biggest commercial loan in the history of the world, roughly equivalent to the GDP of Azerbaijan.

 

It’s incredible that anyone is able to borrow an amount like this, let alone at the low rate of just 1.1% above LIBOR.

 

It’s not a stretch to think that we may look back at this and say, ‘that was the top… what an obvious example of how much money central bankers have printed.’

 

2) The junk bond collapse

 

Back in 2013, the yield on ‘high yield corporate bonds’ aka junk bonds dipped below 5% for the first time in history.

 

It shouldn’t have taken a rocket scientist to figure out how absurd that was, but now that the trend is reversing and the junk bond market is stalling investors are losing their shirts.

 

One hedge fund that had invested heavily in junk bonds just suspended redemptions for its investors, something only really done in times of crisis.

 

This could be the historical watershed moment that signals the beginning of the end of our massive financial bubble.

 

3) The POPPY Loan [my favorite]

 

San Francisco Federal Credit Union wants to help its customers buy unaffordable homes in the astonishingly overpriced region of northern California.

 

So they just rolled out a new loan program called the Proud Ownership Purchase Program for You, or POPPY for short.

 

POPPY loans allow customers to borrow up to $2 MILLION with absolutely no money down.

 

And no, I am not making this up.

 

$0 down. $2 million. At 4% interest.

 

Oh, and you don’t have to take out private mortgage insurance (PMI) either.

 

If you’re not familiar, PMI is something that banks typically require when borrowers don’t contribute a sufficient down payment; it insures the bank against loss in case the borrower defaults.

 

So here the bank is taking 100% of the financial risk lending against property in an overpriced market that’s near its all-time high.

 

And they’re doing it with your money.

 

This is a story so familiar it’s as if they ripped it from the playbook of the 2006 housing bubble.

 

We know what happened. We know how that bubble ended.

Central banks have printed so many trillions of dollars that there’s hardly anything that makes sense in the financial system anymore.

This is not a consequence-free environment… it’s time to find safety.

Gold and silver are traditionally great hedges against systemic risk.

Physical cash, as we’ll discuss next week, may also be a good option. Especially given that there’s minimal downside in doing so.

Private equity investments in productive, undervalued companies are also traditionally safe bets in both good times and bad.

Most of all, don’t ignore the risks or assume everything’s going to be OK because our politicians and central bankers are so smart that they can solve anything.

They’re not.

And they’ve obviously missed the message that 2006 called: he wants his bubble back.

 

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Fri, 12/11/2015 - 20:01 | 6912640 Linglishboy
Linglishboy's picture

Timber.

Fri, 12/11/2015 - 20:04 | 6912652 HedgeAccordingly
HedgeAccordingly's picture

Cycles are fun while inflation is on the run.

Rolls-Royce: Avoid Us Until 2020

http://hedgeaccordingly.com/2015/12/rolls-royce-avoid-until-2020.html

Fri, 12/11/2015 - 20:12 | 6912687 The Pope
The Pope's picture

Have no fear Simon! Your Rochefoucauld will still be worth fifty bucks in Philly!

Fri, 12/11/2015 - 23:45 | 6913339 Stuck on Zero
Stuck on Zero's picture

The POPPY load could be a smart play for the bank.  Just the announcement alone will drive up property prices immediately. That allows the bank to get out from under a number of unperforming assets. Finally, don't actually make any POPPY loans.

Sat, 12/12/2015 - 10:43 | 6914189 stitch-rock
stitch-rock's picture

Lumber stocks will not help much when this all goes down...

Fri, 12/11/2015 - 20:04 | 6912651 NoDebt
NoDebt's picture

There's always QE4 to look forward to.  And 5, 6, 7, 8.....  Japan's done what?  11 of them since the mid 90s?

 

Fri, 12/11/2015 - 20:26 | 6912742 Soul Glow
Soul Glow's picture

Including QE Lite and QE twist, and including TARP I and TARP II we are entering QE 8.

Fri, 12/11/2015 - 21:59 | 6912801 NotApplicable
NotApplicable's picture

I believe the "temporary" open market operation currently known as reverse repo qualifies as QE8.

Fri, 12/11/2015 - 21:27 | 6912930 Not My Real Name
Not My Real Name's picture

The next crisis will be a currency crisis: QE can't fix that.

Fri, 12/11/2015 - 20:05 | 6912658 HedgeAccordingly
HedgeAccordingly's picture

Indeed sire

Fri, 12/11/2015 - 20:18 | 6912709 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

Wall Street knows the message of March 10th 2008, but Wall Street thinks it has a plan to bug out. Clearly, all the Corporatists have sold as much stock as they could possibly pawn off onto Muppetts, but they also know that the peak debt has leveled their chances to squeeze more blood from stones that are no longer producing like they used to. The top calls the bottom, and it is certain that everything is now going to bottom out BIG time. The new year will usher in the contagion we are all expecting, and the Coporatists will start bugging out en masse from this point on. Moreover, BIG Law is prepping to bug out with them so the signs of bug out should start showing up fairly soon IMHO.

Fri, 12/11/2015 - 20:22 | 6912726 Bossman1967
Bossman1967's picture

This sounds like August 2015 to me btfd and call me next year. Same shit different year crash crash crash sure and I am a monkeys uncle. Why the fuck do my metals keep crashing if metals are a flight to safety. These rich fucks know whats going on and my pops friends living it up without a care while my dumb ass has prepared for a collapse.

Sat, 12/12/2015 - 13:14 | 6914632 Kobe Beef
Kobe Beef's picture

Long NASDAQ calls. It's not over til it's over

Fri, 12/11/2015 - 20:24 | 6912731 Salsipuedes
Salsipuedes's picture

The top is when $850K gets you a 650 sq. ft. shack in Baghdad by the Bay. View of an alley. No matter. QE4 shall take us to wondrous places!

Queeny´s a mighty ship... mighty full of shit.

Fri, 12/11/2015 - 20:24 | 6912734 Mark Mywords
Mark Mywords's picture

It's over. This is *it*.

The Federal Reserve will be rendered irrelevant and have zero credibility remaining no matter what it does on 16 December.

What luck that it will have two three-day (bank) holiday weekends in its favor during the last half of the month

Fri, 12/11/2015 - 20:24 | 6912735 ToSoft4Truth
ToSoft4Truth's picture

Better upgrade the .223’s to .308’s right away. 

Fri, 12/11/2015 - 20:29 | 6912753 buzzsaw99
buzzsaw99's picture

you're living in the past man. you're hung up on some clown from the sixties man. [/some clown]

Fri, 12/11/2015 - 20:43 | 6912791 Peter Pan
Peter Pan's picture

In the eyes of the younger generation things have already collapsed given the cost of owning a home, massive education debt and lousier jobs than ever. The rest of us refuse to see the collapse because we are still beholden to our overpriced real estate and because banks will still lend so as to keep the facade standing.

Fri, 12/11/2015 - 20:45 | 6912800 ToSoft4Truth
ToSoft4Truth's picture

You can have a paid off house in three years.  Prioritize ‘n focus.

Everyone thought ‘this is it’ back there and we’re up here. 

Fri, 12/11/2015 - 20:51 | 6912822 Mark Mywords
Mark Mywords's picture

Bullshit.

Fri, 12/11/2015 - 20:54 | 6912831 Peter Pan
Peter Pan's picture

There is no doubt that the younger generation need to better prioritize and focus. However the system these days, in my eyes, is stacked against them much more so. But perhaps you have not noticed the number of barmen jobs that have replaced higher paying manufacturing jobs. Or perhaps you haven't noticed the number of young people living in the basement. I am not sure what you mean by your second sentence.

Fri, 12/11/2015 - 21:12 | 6912891 ToSoft4Truth
ToSoft4Truth's picture

I don’t think we should distract ourselves by what the others are doing.    People stand in their own way most of the time. 

You just pointed out, people are waiting around for some high paying manufacturing job to fall in their lap.  Good luck. 

The system has always been ‘stacked against us’.  Everyone thought the economy would implode back in the ‘70’s….  the economy survived then and rolled through the 2008 debacle. 

“Hard times” was being an Oki during the ‘30’s. 

If a person is making minimum right now, it’s up to them to make a change.  

Fri, 12/11/2015 - 21:03 | 6912856 blindman
blindman's picture

oh well, screw this.
i'm selling all my gold
and getting in on this junk
bond thing while the getting is good.

Fri, 12/11/2015 - 21:04 | 6912860 CHoward
CHoward's picture

I haven't contributed one damn thing to this situation - just like millions and millions of other people...BUT we're the ones that will get completely fucked when this shit storm hits the damn fan.  Anyone - everyone - who has contributed to this financial meltdown - FUCK YOU!!

Fri, 12/11/2015 - 21:07 | 6912871 DontWorry
DontWorry's picture

No , cause the middle class still has some wealth to plunder, so its not over yet.

Fri, 12/11/2015 - 21:55 | 6913015 Soul Glow
Soul Glow's picture

The middle class bought into the American Dream.  Work 40 hours a week for a coprporation, take out a loan for a house and car, and smile.  Now they are over indebted, and any savings they have is in 401ks they can't touch until they are 65.  Stocks and bonds crash the middle class goes with it.

Fri, 12/11/2015 - 21:33 | 6912943 CitizenPete
CitizenPete's picture

I stopped reading at: "Meanwhile the central banks and governments meant to support them are nearly insolvent and bankrupt themselves."

Western Central banks by definition are the lenders of last resort with full autonomous authority from government wielding a book of unlimited blank checks. Greenspan informed Congress that their will always be enough credit, it just might not have any value.

What's in your wallet?

Fri, 12/11/2015 - 22:09 | 6913054 Ms No
Ms No's picture

The constant push for gun legislation is a tell also.  They know what's going to happen when the EBT cards run out, peoples pensions and 401Ks evaporate, unemployment, bail-ins and possibly even hyperinflation and empty stores. 

Peoples gonna be pizzzzzed.

Sat, 12/12/2015 - 04:47 | 6913812 DIGrif
DIGrif's picture

Then the 3B plan swings into full operation. Beans, Bullion, and Bullets.......learn it, live it, love it.    There will be a test.

Fri, 12/11/2015 - 22:22 | 6913093 earleflorida
earleflorida's picture

BTFD     ;-)

 

Fri, 12/11/2015 - 22:28 | 6913114 roddy6667
roddy6667's picture

Everybody should read Mackay's "Extraordinary Delusions and the Madness Of Crowds". It is so easy to write new chapters.


Fri, 12/11/2015 - 23:22 | 6913264 SweetDoug
SweetDoug's picture

'
'
'
Shake Shack…

"Nuff said.

•?•
V-V

Sat, 12/12/2015 - 01:05 | 6913553 gregga777
gregga777's picture

I wouldn't even give AB InBev a $0.75 loan for any reason nor would I waste $0.75 on one of their products. All of their products are crap. Just like all of SABMiller's products are crap. With every acquisition their products are made crappier because they have to substitute even crappier ingredients due to even greater debt service. AB InBev has to be one of the greatest long term SHORTS in history! I can't understand why anyone buys Anheuser Busch, Miller, Coors, etc. There are so many great small microbrewery products available.

Sat, 12/12/2015 - 11:20 | 6914308 Help Is Not Coming
Help Is Not Coming's picture

Had to login to give you an up vote.

I too try to stick with the local micro brews. The problem is that both of these corporate beverage monsters are so over on their brewing capacity that they brew most of the micro brews under contract. And when they aren't doing that they are creating their own branded micro-brews to blend in with the rest of them to stem the tide of people switching to micro brews. I guess they hope that you will not read the fine print on the label and figure out that that micro brew you are drinking is actually brewed by them.

Besides, the best tasting beer is the one that you brew yourself.

Sat, 12/12/2015 - 13:13 | 6914639 Kobe Beef
Kobe Beef's picture

As long as Chilean Red Wine is cheap, who needs HFCSyrup beer?

Sat, 12/12/2015 - 01:07 | 6913555 gregga777
gregga777's picture

By definition, every bank in the Western world is inherently BANKRUPT! That's what fractional-reserve banking means—bankrupt at inception.

Sat, 12/12/2015 - 11:20 | 6914303 PrimalScream
PrimalScream's picture

True.

15 years from now ... the majority of peoples' worries TODAY - including 95% of the concerns voiced here on ZH - will seem trivial by comparison.

FIND SAFETY NOW!!!

Sat, 12/12/2015 - 11:20 | 6914306 Yiha
Yiha's picture

The time of materialism is almost over. Prepare yourself spiritually. 

Do NOT follow this link or you will be banned from the site!