Posted: 20 Nov 2017 Michael Snyder THE ECONOMIC COLLAPSE BLOG
Is the stock market bubble about to burst? I know that I have been touching on this theme over and over and over again in recent weeks, but I can’t help it. Red flags are popping up all over the place, and the last time so many respected experts were warning about an imminent stock market crash was just before the last major financial crisis. Of course nobody can guarantee that global central banks won’t find a way to prolong this bubble just a little bit longer, but at this point they are all removing the artificial support from the markets in coordinated fashion. Without that artificial support, it is inevitable that financial markets will experience a correction, and the only real question is what the exact timing will be. For example, Bank of America’s Michael Hartnett originally thought that the coming correction would come a bit sooner, but now he is warning of a “flash crash” during the first half of 2018… Having predicted back in July that the “most dangerous moment for markets will come in 3 or 4 months“, i.e., now, BofA’s Michael Hartnett was – in retrospect – wrong (unless of course the S&P plunges in the next few days). However, having stuck to his underlying logic – which was as sound then as it is now – Hartnett has not given up on his “bad cop” forecast (not to be mistaken with the S&P target to be unveiled shortly by BofA’s equity team and which will probably be around 2,800), and in a note released overnight, the Chief Investment Strategist not only once again dares to time his market peak forecast, which he now thinks will take place in the first half of 2018, but goes so far as to predict that there will be a flash crash “a la 1987/1994/1998” in just a few months.That certainly sounds quite ominous. Just so that there is no confusion, let me give you his exact quote… “A flash crash (à la ’87/’94/’98) in H1 2018 seems quite likely, in our view, as the major sedative of volatility, the central banks, start to withdraw liquidity.”Hartnett is making the same point that I have made repeatedly in recent weeks. As the central banks withdraw the artificial support that has been propping up the markets ever since the last financial crisis, we will see if the markets can really maintain these absolutely ridiculous price levels on their own. And we are not just talking about stock prices either. In fact, Bill Blain believes that the coming crash will actually originate in the bond market… The 2008 crisis, which was about consumer debt, was triggered by mortgages. We still have consumer debt crisis problems ahead, warns Blain, adding the next financial crisis is likely to be in corporate debt.Asset prices of all classes have been pushed to absolutely absurd levels by the central banks. If it wasn’t for central bank manipulation, stock prices would have never gotten this high, and the bond market would have never been pushed to such irrational extremes. And it isn’t just the Federal Reserve that has been intervening directly in U.S. markets. For example, did you know that the Swiss National Bank is now the eighth largest public holder of U.S. stocks in the entire world? According to John Mauldin, the Swiss central bank has poured 17 billion dollars into our stock market so far this year, and overall they now own approximately 80 billion dollars worth of our stocks… The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).They have made these purchases with money that they have literally created out of thin air. If that sounds like “cheating” to you, that is because that is exactly what it is. How in the world can stock prices possibly fall when global central banks are creating colossal mountains of money out of thin air and are using that money to buy stocks? The central banks created this ridiculous stock market bubble, and they can also burst the bubble by pulling back on the level of artificial support, and that is precisely what we see happening right now. So don’t buy into the hype. All that really matters is what the central banks choose to do, and if they wanted to continue to pump enormous amounts of money into the financial markets they could continue to pump up this absurd financial bubble that we are currently witnessing. But at the moment they appear to be pulling back, and that makes a very “interesting” 2018 for the financial markets much more likely. Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.      |
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Posted: 20 Nov 2017 05:23 PM PST
 Once upon a time preppers would hoard gold and silver in anticipation of the meltdown of society, but now Bitcoin is becoming the alternative currency of choice for many in the prepping community. On Monday, Bitcoin hit an all-time record high as it surged past $8,200, and it has now gone up nearly 50 percent in just the last eight days. As I have admitted previously, one of my great regrets is not investing in Bitcoin when it first started, because we have never seen a meteoric rise quite like this. Bitcoin hit the $5,000 mark for the very first time just over a month ago, it is up more than 700 percentso far this year, and it is up almost 40,000 percent over the past five years. At this point Bitcoin has a market cap of over 130 billion dollars, and many believe that this is just the beginning. At one time many preppers were quite skeptical of cryptocurrencies such as Bitcoin, but now that is starting to change in a major way. The following comes from a Bloomberg article entitled “These Doomsday Preppers Are Starting to Switch From Gold to Bitcoin”… “Not too long ago, people in the prepper community were actively warning against crypto, and now they’re all investing in it,” said Tom Martin, a truck driver from Washington who runs a social-media website for people interested in learning skills to survive disaster. “As long as the grid stays up, people will keep using bitcoin.”At the end of the day, cryptocurrencies only have value because people believe that they have value. If the global financial system completely collapses, will there still be demand for Bitcoin and other cryptocurrencies? And will they be accepted for food, medicine and other basic emergency supplies when everything falls apart? These are legitimate questions for preppers to consider, because cryptocurrencies do not actually have any intrinsic value. At the end of the day these cryptocurrencies only exist in cyberspace, and some of the biggest names in the financial world continue to be skeptics… J.P. Morgan CEO Jamie Dimon thinks bitcoin is a “fraud.” Investor Mark Cuban called it “a bubble.” Goldman Sachs CEO Lloyd Blankfein is still undecided. But whether or not executives believe in the potential of bitcoin, ethereum or blockchain technology, they and their companies can’t avoid talking about cryptocurrencies.And there is a very real possibility that the marketplace could soon become absolutely saturated with “cryptocurrencies”. At this point it seems like a new crytpocurrency is being started on almost a daily basis. Here is more from CNN… Dragonchain, a crytpocurrency startup originally backed by Disney (DIS), has held an ICO. Filecoin, a cloud storage company, raised more than $250 million earlier this year from an ICO — the biggest ever.For now, we will probably continue to see wild up and down swings in the price of Bitcoin. Those that were able to buy low and are able to sell high will make an extraordinary amount of money, but those that hold on to the bitter end may ultimately lose everything. As is the case with so many things in life, timing is everything. And for all of the preppers that are getting into Bitcoin, even Bloomberg is skeptical that the cryptocurrency will be of much use in an apocalyptic situation… Still, it’s hard to envision people walking around spending digital coins to buy Spam, canned beans or bottled water at a local supermarket when they don’t have electricity at home to charge their smart phones, let alone a working internet connection to access their digital wallets.Of course up to this point those with the last laugh have been those that invested in Bitcoin despite what the skeptics were saying. Countless numbers of “Bitcoin millionaires” have already been created, and many believe that this is just the start of the cryptocurrency revolution. But will this revolution end up resulting in heartbreak for those that don’t get out before the bubble bursts? Only time will tell… Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com. |
Warren Buffett once referred to derivatives as "financial weapons of mass destruction," and it was inevitable that they would begin to wreak havoc on our financial system at some point. While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface.
Something happened in mid-September that required an unprecedented $405 billion surge of Treasury collateral into the repo market. I know—that sounds very complicated, so I will try to break it down more simply for you. It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting they have been doing.
This is something I have warned would happen over and over again. In fact, I have written about it so much that my regular readers are probably sick of hearing about it. But this is what is going to cause the meltdown of our financial system.
Many out there get upset when I compare derivatives trading to gambling, and perhaps it would be more accurate to describe most derivatives as a form of insurance. The big financial institutions assure us that they have passed off most of the risk on these contracts to others and so there is no reason to worry according to them.
Well, personally I don't buy their explanations, and a lot of others don't either. On a very basic, primitive level, derivatives trading is gambling. This is a point that Jeff Nielson made very eloquently in a piece he recently published:
No one "understands" derivatives. How many times have readers heard that thought expressed (please round-off to the nearest thousand)? Why does no one understand derivatives? For many, the answer to that question is that they have simply been thinking too hard. For others; the answer is that they don't "think" at all.Derivatives are bets. This is not a metaphor, or analogy, or generalization. Derivatives are bets. Period. That's all they ever were. That's all they ever can be.
One very large financial institution that appears to be in serious trouble with these financial weapons of mass destruction is Glencore. At one time, Glencore was considered to be the 10th-largest company on the entire planet, but now it appears to be coming apart at the seams, and a great deal of their trouble seems to be tied to derivatives. The following comes from Zero Hedge:
Of particular concern, they said, was Glencore's use of financial instruments such as derivatives to hedge its trading of physical goods against price swings. The company had $9.8 billion in gross derivatives in June 2015, down from $19 billion in such positions at the end of 2014, causing investors to query the company about the swing.Glencore told investors the number went down so drastically because of changes in market volatility this year, according to people briefed by Glencore. When prices vary significantly, it can increase the value of hedging positions.Last year, there were extreme price moves, particularly in the crude-oil market, which slid from about $114 a barrel in June to less than $60 a barrel by the end of December.That response wasn't satisfying, said Michael Leithead, a bond fund portfolio manager at EFG Asset Management, which managed $12 billion as of the end of March and has invested in Glencore's debt.
According to Bank of America, the global financial system has about $100 billion of exposure overall to Glencore. So if Glencore goes bankrupt, it will be a major event. At this point, Glencore is probably the most likely candidate to be "the next Lehman Brothers."
And it isn't just Glencore that is in trouble. Other financial giants, such as Trafigura, are in deep distress as well. Collectively, the global financial system has approximately a half-trillion dollars of exposure to these firms:
Worse, since it is not just Glencore that the banks are exposed to but very likely the rest of the commodity trading space, their gross exposure blows up to a simply stunning number:For the banks, of course, Glencore may not be their only exposure in the commodity trading space. We consider that other vehicles such as Trafigura, Vitol and Gunvor may feature on bank balance sheets as well ($100 bn x 4?)Call it a half-trillion dollars in very highly levered exposure to commodities: an asset class that has been crushed in the past year.
The mainstream media are not talking much about any of this yet, and that is probably a good thing. But behind the scenes, unprecedented moves are already taking place.
When I came across the information I am about to share with you, I was absolutely stunned. It comes from Investment Research Dynamics, and it shows clearly that everything is not "OK" in the financial world:
Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest-ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate.
However, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis—the obvious one being the de facto collapse of the financial system in 2008:
What in the world could possibly cause a spike of that magnitude?
Well, that same article that I just quoted links the troubles at Glencore with this unprecedented intervention:
What's even more interesting is that the spike-up in reverse repos occurred at the same time—Sept. 16—that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6 percent in that time period. You'll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the "Lehman moment" that triggered the 2008 collapse.The blame on the general stock market plunge was cast on the Fed's inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out sight in the general liquidity functions of the global banking system.
Back in 2008, Lehman Brothers was not "perfectly fine" one day and then suddenly collapsed the next. There were problems brewing under the surface well in advance.
Well, the same thing is happening now at banking giants such as Deutsche Bank, and at commodity trading firms such as Glencore, Trafigura and The Noble Group.
And of course a lot of smaller fish are starting to implode as well. I found this example posted on Business Insider recently:
On Sept. 11, Spruce Alpha, a small hedge fund which is part of a bigger investment group, sent a short report to investors.The letter said that the $80 million fund had lost 48 percent in a month, according the performance report seen by Business Insider.There was no commentary included in the note. No explanation. Just cold hard numbers.
Wow—how do you possibly lose 48 percent in a single month?
It would be hard to do that, even if you were actually trying to lose money on purpose.
Sadly, this kind of scenario is going to be repeated over and over as we get even deeper into this crisis.
Meanwhile, our "leaders" continue to tell us that there is nothing to worry about. For example, just consider what former Fed Chairman Ben Bernanke said:
Former Federal Reserve chairman Ben Bernanke doesn't see any bubbles forming in global markets right now.But he doesn't think you should take his word for it.And even if you did, that isn't the right question to ask anyway.Speaking at a Wall Street Journal event on Wednesday morning, Bernanke said, "I don't see any obvious major mispricings. Nothing that looks like the housing bubble before the crisis, for example. But you shouldn't trust me."
I certainly agree with that last sentence. Bernanke was the one telling us that there was not going to be a recession back in 2008, even after one had already started. He was clueless back then and he is clueless today.
Most of our "leaders" either don't understand what is happening or they are not willing to tell us.
So that means that we have to try to figure things out for ourselves the best that we can. And right now there are signs all around us that another 2008-style crisis has begun.
Personally, I am hoping there will be a lot more days like today, when the markets were relatively quiet and not much major news happened around the world.
Unfortunately for all of us, these days of relative peace and tranquility are about to come to a very abrupt end.
Michael T. Snyder is the publisher of The Economic Collapse Blog and author of The Beginning of the End.
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