Ignore the Bounce, the Financial System is in Serious Trouble

The financial system is in trouble.

Indeed, by the look of things, we are about to experience a wave of deflation… in years.

Let’s first talk about the $USD.

The $USD has broken above initial resistance (bottom red line) and currently sits just below 95. This is a MAJOR problem for risk assets.

Now, some of you are no doubt asking “the $USD was at this exact same level in late 2017 and it wasn’t a problem… what’s changed?”

What’s changed is that at that time the Fed was only withdrawing $USD to the tune of $10 billion per month or $120 billion per year. Today it is withdrawing liquidity at a rate of $30 billion per month of $360 per month… and it intends to raise this to $50 billion per month or $600 billion per year within the coming months.

Put simply, the Fed is NOW pulling US dollars out of the financial system at a rapid clip. And it is doing this at a time when the ECB is PUMPING €30 billion into the system per month. Between this and the fact the Fed is on track to raise rates SEVEN times within 24 months (2016-2018)… while the ECB is STILL keeping rates in negative rate territory, the $USD being at 94 is a MAJOR problem for the financial system.

Remember, globally the financial system has over $9 TRILLION in $USD denominated debt. Some $6 trillion of this is in the Emerging Market space. So with each tick higher in the $USD… and with each liquidity drain by the Fed, the system is  “drying up” from a $USD perspective.

You can see this in the Emerging Market space where countries like Brazil, Turkey, and South Africa are in literal FREE FALL.

Brazil’s stock market is DOWN 20% YTD. South Africa is down 17% YTD. And Turkey is down 32% YTD. If we were in December (meaning a full 12 months had passed) and the year ended this month, it would be one of the WORST years for Emerging Markets on record. And we’re at those levels only SIX months in.

This issue is now spreading to Asia. China, Singapore, and South Korea’s stock markets have all recently rolled over and are now at their lows for the year.

Put simply, DEFLATION is now rising and it is rising fast. And the Fed is 100% to blame for this. And unless the $USD rolls over SOON,this mess is going to spread into the US markets.

The time to prepare for this is NOW before the carnage hits.

On that note, we are already preparing our clients with a 21-page investment report that shows them FOUR investment strategies that will protect their capital when and if a stock market crash hits.

It's called The Stock Market Crash Survival Guide...and it is available exclusivelyto our clients.

To pick up one of the 100 copies...use the link below.

https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Comments

GoFuqYourself Janet smeller Tue, 07/03/2018 - 12:34 Permalink

Central banks are buying the Feds garbage. This house of cards is about to be caught in a hurricane.

 

Anyone who can't see is blind, or wishful thinking- or both. With Fed tightening and the loss of global confidence in the USA covering it's debt  (while china migrates to a gold standard) , add to that the world's disgust of USA warmongering policy- and top it off with dissent on who controls the funny money...well.. shits about to get real.

In reply to by Janet smeller

GARDENZ SoDamnMad Wed, 07/04/2018 - 19:01 Permalink

Has everyone forgotten how easily the Fed officially printed and distributed nearly $4 trillion from 11/2008 - 10/2014. I say officially because to my knowledge no one, other than the real Fed bookkeepers, have counted the additional billions printed as "reinvestment" of fed interest income revenues in the printing press helicopter drop total.  

The ONLY thing that kept the dollar from dropping off the end of the earth was the fact that the other major CBs matched monetary expansion tranche by tranche to maintain cross-currency valuations. 

The U.S. economy has been in a severe anemic "recovery" since technically emerging from recession in June '09 but has never reached, much less exceeded the 3% mark since then.  Now that the new less regulation, non-directed, market friendly administration under implementation the economy is poised for meaningful growth and the risk of inflation rather than deflation is the case to be feared if the goal of raising real living standards is to be achieved.

In order to have expansion without pernicious inflation the liquidity with which the system had been persistently engorged by the Obama administration must be effectively drained off to trend the system back to a state of proper monetary balance with growth. 

In essence then; this is absolutely nothing about which to get one's underwear up over the ears.

In reply to by SoDamnMad

shizzledizzle Tue, 07/03/2018 - 12:31 Permalink

"we are about to experience a wave of deflation" <- I'm seeing the opposite on all fronts for the past two weeks. Substantial jump across the board at the grocery store.  

Truth_Hoits j0nx Wed, 07/04/2018 - 08:16 Permalink

You're saying that being against the fed pre 2008 wasn't a fool's errand, or are you saying you didn't monitor it pre 2008?

Because you NEVER fight the fed. 

That's why there is a RULE in trading and investing that says, "DO NOT FIGHT THE FED".

The bull market is finally going to die. 

There are only two things that can happen. Chop sideways with a negative bias, or falls and pops--instead of buying the dip, you short the pop.

This is it, folks. You've been primed by ZH for 10 years... Better late than never. 

Without a Black swan event, there will not be a total crash of the markets.

Do not over extend yourself. Slow and steady wins the race. 

Good luck to everyone. 

 

 

In reply to by j0nx

Al Huxley Tue, 07/03/2018 - 13:12 Permalink

The broken clock strikes again.   I guess if you start forecasting winter in April you'll be right eventually.  Phoenix Capital - successfully forecasting 20 out of the last 0 market collapses.

Let it Go Wed, 07/04/2018 - 14:38 Permalink

A stronger dollar acts like a magnet pulling wealth towards America and away from countries already having problems. If this turns into a self-feeding loop the dollar may soon get much stronger. This could be a real problem for countries that are mired in debt if that debt is tied or pegged to the dollar.  This will translate into a lot of economic pain if the dollar grows stronger and many will find themselves under a great deal of pressure just to survive. More on this subject in the article below.

 http://Stronger Dollar Is A Problem For Global Growth.html

Herdee Wed, 07/04/2018 - 19:34 Permalink

The ESF  or Exchange Stabilization Fund uses Ireland, Belgium and other countries to buy the American Bonds. You can't find out about the manipulation of the American debt by the Exchange Stabilization Fund because it's a nation security operation run out of Treasury. They can keep the ponzi going for quite some time but they'll eventually lose control when the yield curve inverts and it becomes obvious that they've failed. Markets will collapse and they'll have to monetize deficits in multi-trillion dollar numbers. It'll be QE fiat paper printing with all the stops pulled out. Trump will be the designated sucker to reap the punishment.