Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied. And the Dollar is rallying HARD.
To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
Stripped of accounting gimmicks, earnings are overstated by 86%. This means the S&P 500 is sporting a REAL P/E of over 30. So much for the argument that stocks are cheap.
Most of the “recovery” of the last five years has been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more “risk assets” (read: projects or investments fueled by borrowed Dollars) blow up.
The financial media is euphoric because stocks are rallying. But stocks are ALWAYS the last to “GET IT.” The currency markets (which trade $5 trillion per day) realize that something MASSIVE is underway. And it’s only just beginning.
Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $191 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.
The bond bubble today is over $100 trillion. When you include the derivatives that trade based on bonds it’s more like $500 TRILLION. And it’s growing by trillions of dollars every month (the US issued $1 trillion in new debt in the last 8 weeks alone).
The story here is not Oil; it’s about a massive bubble in risk assets fueled by borrowed Dollars blowing up. The last time around it was a housing bubble. This time it’s an EVERYTHING bubble. And Oil is just the canary in the coalmine.
This is a MAJOR warning signal that the great “recovery” in risk assets was ending. The Fed spent over $4 trillion and managed to create another stock market bubble, but that bubble is ending.
So… the prices of assets are fraudulent, the value of balance sheets is fraudulent, and earnings are fraudulent. This means that stock market caps, balance sheets, and income statements are all inaccurate representations of reality.
