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This Is How the “Everything Bubble” Will End

November 30, 2018

This Is How the “Everything Bubble” Will End

I think there’s a very high chance of a stock market crash of historic proportions before the end of Trump’s first term.

That’s because the Federal Reserve’s current rate-hiking cycle, which started in 2015, is set to pop “the everything bubble.”

I’ll explain how this could all play out in a moment. But first, you need to know how the Fed creates the boom-bust cycle…

To start, the Fed encourages malinvestment by suppressing interest rates lower than their natural levels. This leads companies to invest in plants, equipment, and other capital assets that only appear profitable because borrowing money is cheap.

This, in turn, leads to misallocated capital – and eventually, economic loss when interest rates rise, making previously economic investments uneconomic.

Think of this dynamic like a variable rate mortgage. Artificially low interest rates encourage individual home buyers to take out mortgages. If interest rates stay low, they can make the payments and maintain the illusion of solvency.

But once interest rates rise, the mortgage interest payments adjust higher, making them less and less affordable until, eventually, the borrower defaults.

In short, bubbles are inflated when easy money from low interest rates floods into a certain asset.

Rate hikes do the opposite. They suck money out of the economy and pop the bubbles created from low rates.

It Almost Always Ends in a Crisis

Almost every Fed rate-hiking cycle ends in a crisis. Sometimes it starts abroad, but it always filters back to U.S. markets.

Specifically, 16 of the last 19 times the Fed started a series of interest rate hikes, some sort of crisis that tanked the stock market followed. That’s around 84% of the time.

You can see some of the more prominent examples in the chart below.

…click on the above link to read the rest of the article…

Global Bloodbath: World Stocks Puke Over $8 Trillion As US Markets Collapse

October 27, 2018

Global Bloodbath: World Stocks Puke Over $8 Trillion As US Markets Collapse

Aaaaaand, it’s gone!

Global capital markets are down five weeks in a row, losing just under $9 trillion – the biggest, fastest drop since Lehman… (around $8.2 trillion from global equity markets)

Chinese stocks managed to end the week green thanks to numerous National Team interventions…

European stocks ended the week red (down 4 of the last 5 weeks) to the lowest since Dec 2016… with DAX worst of all (worse than Italy)…

European banks were ugly led by Deutsche…

US Equity markets closed the week in the red for the year (but the rest of the world also continued to collapse)…

Buy the dip and sell the rip…all major US equity indices red on the week…

Another ugly open, immediate ramp fest and puke…

…click on the above link to read the rest of the article…

The crash is coming

October 8, 2018

The crash is coming

Fred Hickey, editor of the influential investment newsletter «The High-Tech Strategist», compares today’s state of the stock market with the peak of the dotcom bubble in the year 2000 and spots bright opportunities in the gold sector.

  • (Bild: Charlotte Wilson/Getty Images)

Few investors have a deeper understanding of the tech sector than Fred Hickey. All the more concerning is his warning when it comes to the outlook for US equities. The renowned editor of the popular investment newsletter «The High-Tech Strategist» draws alarming parallels to the bursting of the dotcom bubble in the year 2000 and spots high risks in stock market darlings like Amazon (AMZN 1864.42 -1.34%) and Apple (AAPL 223.77 -0.23%). For the industry veteran, one important reason to be concerned are rich valuations. He also sees troubles ahead with respect to the rise in interest rates and the growing mountain of debt around the world. Against this background, the outspoken contrarian sees bright opportunities in gold and in attractively priced mining stocks.

…click on the above link to read the rest of the article…

How the Next Downturn Will Surprise Us

September 20, 2018

In their campaign to contain the risks that caused the Great Recession, central bankers may have planted the seeds for the next global economic crisis.

Image
CreditCreditJi Lee

After the fall of Lehman Brothers 10 years ago, there was a public debate about how the leading American banks had grown “too big to fail.” But that debate overlooked the larger story, about how the global markets where stocks, bonds and other financial assets are traded had grown worrisomely large.

By the eve of the 2008 crisis, global financial markets dwarfed the global economy. Those markets had tripled over the previous three decades to 347 percent of the world’s gross economic output, driven up by easy money pouring out of central banks. That is one major reason that the ripple effects of Lehman’s fall were large enough to cause the worst downturn since the Great Depression.

Today the markets are even larger, having grown to 360 percent of global G.D.P., a record high. And financial authorities — trained to focus more on how markets respond to economic risk than on the risks that markets pose to the economy — have been inadvertently fueling this new threat.

Over the past decade, the world’s largest central banks — in the United States, Europe, China and Japan — have expanded their balance sheets from less than $5 trillion to more than $17 trillion in an effort to promote the recovery. Much of that newly printed money has found its way into the financial markets, where it often follows the path of least regulation.

Central bankers and other regulators have largely succeeded in containing the practice that caused disaster in 2008: risky mortgage lending by big banks. But with so much easy money sloshing around in global markets, new threats were bound to emerge — in places the regulators aren’t watching as closely.

…click on the above link to read the rest of the article…

Investor’s Warning: ‘I’m Nervous. We’re Getting Closer To A MELTDOWN Scenario’

September 14, 2018

Investor’s Warning: ‘I’m Nervous. We’re Getting Closer To A MELTDOWN Scenario’

According to investor David Tice, who made a name for himself in running the Prudent Bear Fund before selling it to Federated Investors in 2008, the current market is dangerous.  Tice was quoted as saying he’s “nervous” because “we’re getting closer to a meltdown scenario.”

According to CNBC, Tice may be known as a “permabear”, but last December he said there was a 50 percent chance stocks would stage a 25 percent rally this year. So far in 2018, the S&P 500 and Dow are both up 8 and 5 percent, respectively. The Nasdaq has rallied about 15 percent.  But Tice did say: “Longer term, the market is going to suck.”

According to Tice, the struggling emerging markets could spark a contagion that could hit the United States. The MSCI Emerging Markets Index has lost more than 13 percent of its value this year as of Wednesday’s close. “You look at emerging markets. There’s a lot of trouble in emerging market currencies where we’ve broken to new lows,” Tice noted, as reported by CNBC.

“Everybody is into this market,” he said. “I’m worried about whether the economy could enter a recession faster than a lot of people think.” Tice also made a prediction about the inflation predicament based on the global picture. “Frankly, I think there’s fear of deflation picking up again,” he said. “I think that deflationary trend is likely to continue.” He also pointed to frothy sentiment in the market, which is often perceived as a warning signal to Wall Street.

Tice isn’t the only economic expert that sees trouble on the horizon. Peter Schiff has been warning of a financial bubble collapse for a few years now. And compounded with the nation’s rising debt and the American public’s problem with debt, the next “meltdown” could be disastrous.

…click on the above link to read the rest of the article…

Is Tunisia the next emerging market to implode?

August 29, 2018

Is Tunisia the next emerging market to implode?

Seems like every few days a new developing country discovers that it can’t pay back the dollars and/or euros it borrowed back when “external foreign currency debt” seemed like a good thing. Next up: Tunisia, apparently. From today’s Wall Street Journal:

Nation That Sparked Arab Spring Finds Itself a Springboard for Illegal Migration

AL ATAYA, Tunisia—More than seven years after Tunisians overthrew their country’s dictatorship in a revolution that spawned the Arab Spring, the country’s economy is in crisis and thousands of people are sneaking into Europe, as part of a new wave of clandestine migration from what had been a North African success story.

The recent Tunisian exodus began in 2017 as economic pressures mounted on the country’s working and middle classes. Tunisians have enjoyed greater political freedoms since the Arab Spring uprising and Mr. Ben Ali’s fall, but a series of post-revolutionary governments have failed to revive the economy and create jobs. Today, more than 35% of Tunisian young people are unemployed, and many don’t see a future in their own country.

“The state isn’t giving us anything,” a 24-year-old mechanic in Al Ataya said, adding he had considered leaving on a smuggler’s boat until a shipwreck killed more than 100 people offshore in June.

In recent years, Tunisia’s government has tried to correct course. The government chose to cut budgets at the urging of the International Monetary Fund, which extended Tunisia a $2.9 billion loan in 2016.

But the IMF-led overhaul has failed to trigger a turnaround. The economy is currently growing at 2.8%, a slower rate than in 2010 before the uprising. Tunisia’s currency, the dinar, shed 21% of its value against the euro in 2017. When the cuts the IMF had urged took effect in January, a wave of protests shook the country, raising questions about the future of its democratic transition.

…click on the above link to read the rest of the article…

“The Global Bond Curve Just Inverted”: Why JPM Thinks A Market Crash May Be Imminent

June 16, 2018

“The Global Bond Curve Just Inverted”: Why JPM Thinks A Market Crash May Be Imminent

At the beginning of April, JPMorgan’s Nikolaos Panigirtzoglou pointed out something unexpected: in a time when everyone was stressing out over the upcoming inversion in the Treasury yield curve, the JPM analyst showed that the forward curve for the 1-month US OIS rate, a proxy for the Fed policy rate, had already inverted after the two-year forward point. In other words, while cash instruments had yet to officially invert, the market had already priced this move in.

One way of visualizing this inversion was by charting the front end between the 2-year and 3-year forward points of the 1-month OIS. Here, as JPM showed two months ago, a curve inversion had arisen for the first time during the first week of January, but it only lasted for two days at the time and the curve re-steepened significantly in the beginning of April.

Fast forward to today when in a follow up note, Panigirtzoglou highlights that this inversion has gotten worse over the past week following Wednesday’s hawkish FOMC meeting. As shown in the chart below which updates the 1-month OIS rate, the difference between the 3-year and the 2-year forward points has worsened, falling to a new low for the year of -5bp.

 

But in an unexpected development – because as a reminder we already knew that the market had priced in an inversion in the short-end of the curve – something remarkable happened last week: the entire global bond curve just inverted for the first time since just before the financial crisis erupted.

As JPM notes, while the Fed’s hawkish move was sufficient to invert the short end further, it was not the only central bank inducing flattening this past week: the ECB also pressed lower on the curve via its “dovish QE end” policy meeting this week.

…click on the above link to read the rest of the article…

The Two Most Important Reasons To Invest In Gold & Silver

May 8, 2018

The Two Most Important Reasons To Invest In Gold & Silver

As the markets and financial system continue to be propped up by an ever-increasing amount of debt and leverage, precious metals investors need to understand the two most important reasons to invest in gold and silver.  While one of the reasons to own precious metals is understood by many in the alternative media community, the more important critical factor is not.

The motivation to write this article is due to the increasing amount of negative sentiment and comments in regards to precious metals analysis and investing.  There’s a very interesting notion put forth by many commenters that the precious metals analysts and dealers are the frauds and charlatans, not Wall Street or the Central Banks.  I imagine they believe this because gold and silver prices haven’t performed as forecasted or compared to the insanely inflated stock, real estate, and crypto markets.

Before I discuss the two important reasons to own precious metals, I would like to provide some information about the fraud and corruption taking place in the financial industry.

Now, it is true that a few precious metals dealers have defrauded investors, but this is true with all sectors and markets in the financial industry.  However, investors frustrated with the precious metals tend to forget the massive amount of fraud and losses that took place as a result of the 2008 Housing and Investment Banking collapse.

For example, according to the article, Financial Crisis Bank Fines Hit Record 10 Years After The Market Collapse:

$150 billion (127.6 billion euros) – that’s how much US authorities have collected in fines from financial institutions for shady dealings with subprime mortgages since the beginning of the credit crisis in 2007, according to research by the British business daily Financial Times (FT).

…click on the above link to read the rest of the article…

The imminent crash.

February 28, 2018

The imminent crash.

The world is in a credit bubble, the likes of which we have never seen before.

About 3 weeks ago, on my Facebook and Twitter, I indicated that that US stock market would crash soon, and that it would be a symptom of a larger problem. In the following days I also clarified my reasons for saying so. As it happens, the market has begun to crash before I even thought it would. It might recover for the time being, but in the longer term a crash is inevitable. The situation suggests that about $65 trillion of wealth will soon be disappearing from the global economy. The problem here is that we are in a credit bubble, quite possibly the worst ever in history. One that is even worse than the one we experienced during the Great Depression (1929).

Summary: Stock markets are propped up with borrowed money, making them a symptom, and not ‘the’ problem. The question that comes to mind here is whether the bubble is bursting right now. To answer this, we’ll need to put everything into context. If we consider the latest market conditions, the logical flow of a crash would go start with the crashing of the US Stock Markets, followed by the Asian Markets, and further followed by real estate, and other assets and in the short term by gold markets as well. After these have occurred, the final symptom would manifest with about half of the world’s banks going bankrupt­, at least the smaller ones and some of the medium-sized ones if we’re being optimistic — the great depression saw 9000 banks fail in just the US.

…click on the above link to read the rest of the article…

City of London financiers contemplate “imminent” 2018 US stock market crash of up to “50%”

February 14, 2018

City of London financiers contemplate “imminent” 2018 US stock market crash of up to “50%”

Coming dramatic decline of US stock prices would trigger global recession, finds grim forecast to be explored at roundtable hosted by British financial services think-tank

A new analysis published on the website of a London-based think-tank, funded by the world’s biggest banking and financial services institutions, warns that the US stock market is on the brink of an imminent crash that could trigger another global recession.

The document by a senior US economist and former Houblon-Norman Fellow at the Bank of England is published on the website of the Centre for the Study of Financial Innovation (CSFI), which runs around 100 roundtable events a year involving financial services insiders from the UK and beyond.

The document forecasts that in 2018, US stock prices are likely to plummet by as much as “forty to fifty percent” — compared to the less than five percent plunge in early February. The document was published weeks before the recent stock market volatility.

The warning of a forty to fifty percent drop points to the prospect of a global financial crash worse than the 2008 banking collapse.

It comes at a time when the Federal Reserve, Bank of England and other authorities are looking to tighten up their cheap money policies, as economic growth is at its highest levels since the 2008 slump.

The new analysis is an ‘open letter’ by US economist Robert Aliber, Professor Emeritus at the University of Chicago Booth School of Business, a world renowned authority in identifying the source of shocks behind over forty banking crises that have occurred since the 1970s.

The ‘open letter’, dated January 21st 2018, is published on CSFI’s website at this link http://www.csfi.org/s/QUARTERLYJAN12018.docx, and mentioned in an announcement of a forthcoming breakfast conversation with Professor Aliber in late February.

…click on the above link to read the rest of the article…

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“Worst Case Scenario” Emerging: Morgan Stanley Warns “Selling Has Shifted”

February 8, 2018

“Worst Case Scenario” Emerging: Morgan Stanley Warns “Selling Has Shifted”

Confirming JPMorgan’s “worst case scenario” that forced de-levering in vol-based strategies would lead to retail ETF outflows and create a vicious cycle downwards, Morgan Stanley’s Christopher Metli warns that today’s moves lower are likely not being driven by systematic supply – this appears to be more discretionary selling.

Risk-Parity funds are seeing some of the biggest losses in history…

But, as we previously detailed, JPMorgan offered hope that this vicious circle of de-leveraging could be stalled – and had been in the past – by dip-buyers from greater-fool retail inflows.

In the past, just as we have seen this year, these risk-parity-correlation tantrums have been cushioned by equity market inflows, and we note that, in particular, YTD equity ETF flows have surpassed the $100bn mark, a record high pace.

If these equity ETF flows, which JPMorgan believes are largely driven by retail investors, start reversing, not only would the equity market retrench, but the resultant rise in bond-equity correlation would likely induce de-risking by risk parity funds and balanced mutual funds, magnifying the eventual equity market sell-off.

Which could be a problem…

As ETF outflows are surging…

And as Morgan Stanley’s Christopher Metli – who previously explained what happens when VIX goes bananas – notes, today’s moves lower are likely not being driven by systematic supply – this appears to be more discretionary selling. 

Systematic supply from vol target strategies is largely out of the way now, while consensus trades are getting hit:  NDX is underperforming SPX, momentum is down 1%, and the Passive Factor is up, indicating actively held names are underperforming names better held by passive funds.

So why now, even though the systematic supply is largely out of the way?

…click on the above link to read the rest of the article…

It’s Looking A Lot Like 2008 Now…

February 3, 2018

It’s Looking A Lot Like 2008 Now…

Did today’s market plunge mark the start of the next crash?

Economic and market conditions are eerily like they were in late 2007/early 2008.

Remember back then? Everything was going great.

Home prices were soaring. Jobs were plentiful.

The great cultural marketing machine was busy proclaiming that a new era of permanent prosperity had dawned, thanks to the steady leadership of Alan Greenspan and later Ben Bernanke.

And only a small cadre of cranks, like me, was singing a different tune; warning instead that a painful reckoning in our financial system was approaching fast.

It’s fitting that I’m writing this on Groundhog Day, as to these veteran eyes, it sure has been looking a lot like late 2007/early 2008 lately…

The Fed’s ‘Reign Of Error’

Of course, the Great Financial Crisis arrived in late 2008, proving that the public’s faith in central bankers had been badly misplaced.

In reality, all Ben Bernanke did was to drop interest rates to 1%. This provided an unprecedented incentive for investors and institutions to borrow, igniting a massive housing bubble as well as outsized equity and bond gains.

It’s worth taking a moment to understand the mechanism the Federal Reserve used back then to lower interest rates (it’s different today). It did so by flooding the banking system with enough “liquidity” (i.e. electronically printed digital currency units) until all the banks felt comfortable lending or borrowing from each other at an average rate of 1%.

The knock-on effect of flooding the US banking system (and, really, the entire world) in this way created an echo bubble to replace the one created earlier during Alan Greenspan’s tenure (known as the Dot-Com Bubble, though ‘Sweep Account’ Bubble is more accurate in my opinion):

…click on the above link to read the rest of the article…

The Coming Market Crash Will Set Off The Biggest Gold Panic Buying In History

January 26, 2018

The Coming Market Crash Will Set Off The Biggest Gold Panic Buying In History

The leverage in the economic system has become so extreme; investors have no idea of the disaster that is going to take place during the next stock market crash.  The collapse of the U.S. Housing and Investment Banking Industry in 2008 and ensuing economic turmoil was a mere WARM-UP for STAGE 2 of the continued disintegration of the global financial and economic system.

While the U.S. and the global economy have seemingly continued business as usual since the Fed and Central Banks stepped in and propped up the collapsing markets in 2008, this was only a one-time GET OUT OF JAIL free card that can’t be used again.  What the Fed and Central Banks did to keep the system from falling off the cliff in 2008 was quite similar to a scene in a science fiction movie where the commander of the spaceship uses the last bit of rocket-fuel propulsion in just the nick of time to get them back to earth on the correct orbit.

Thus, the only way forward, according to the Central banks, was to increase the amount of money printing, leverage, asset values, and debt.  While this policy can work for a while, it doesn’t last forever.  And unfortunately, forever is now, here….or soon to be here.  So, it might be a good time to look around and see how good things are now because the future won’t be pretty.

To give you an idea the amount of leverage in the markets, let’s take a look at a chart posted in the article, A Market Valuation That Defies Comparison.  The article was written by Michael Lebowitz of RealInvestmentAdvice.com.  I like to give credit when credit is due, especially when someone puts out excellent analysis.  In the article, Lebowitz stated the following:

 

 

…click on the above link to read the rest of the article…

The Leveraged Economy BLOWS UP In 2018

January 5, 2018

The Leveraged Economy BLOWS UP In 2018

Enjoy the good times while you can because when the economy BLOWS UP this next time, there is no plan B.  Sure, we could see massive monetary printing by Central Banks to continue the madness a bit longer after the market crashes, but this won’t be a long-term solution.  Rather, the U.S. and global economies will contract to a level we have never experienced before.  We are most certainly in unchartered territory.

Before I get into my analysis and the reasons we are heading towards the Seneca Cliff, I wanted to share the following information.  I haven’t posted much material over the past week because I decided to spend a bit of quality time with family.  Furthermore, a good friend of mine past away which put me in a state of reflection.  This close friend was also very knowledgeable about our current economic predicament and was a big believer in owning gold and silver.  So, it was a quite a shame to lose someone close by who I could chat with about these issues.

While some of my family members know about my work, I don’t really discuss it with them.  If they ever have a question, I will try to answer it, but I found out years ago that it was a waste of time to try and impose my knowledge upon them.  Which is the very reason I started my SRSrocco Report website… LOL.  So, now I have a venue to get my analysis out to the public.  I don’t care about reaching everyone, but rather to provide important information to those who are OPEN to it.

…click on the above link to read the rest of the article…

Warning: ‘They Need The Markets To Implode’ To Usher In Cashless System

December 7, 2017

Warning: ‘They Need The Markets To Implode’ To Usher In Cashless System

stockmarketcrash

Market analyst Lynette Zang predicts in the next market meltdown, “real estate, stocks, and bonds will all crash.” When asked when this will happen, Zang says, “Enjoy your Christmas,” but in 2018, all bets are off.

Greg Hunter interviewed Lynette Zang, Chief Market Strategist at ITMtrading.com, and her assessment of the 2018 economy is dire.  Zang predicts, “In 2018, I don’t think they can hold these things together. I think we will see a major market correction in 2018. When that happens, that will cause the derivative implosion. We have to feel a lot of pain. . . . I think we are going to go into hyperinflation, and I think we will start to see that in 2018 because I think we will see these markets implode. I think we will see QE4 (money printing) for sure. . . . We have QE right now propping it up, according to the Fed’s own documents.”

Zang says ever since the 2008 meltdown, the elite have just been buying time to set up a debt reset.

“I am 100% certain we are in the middle of a money standard shift.  Ultimately, they need the markets to implode. . . . In 2008, the debt based system broke.  It died, it was done.  The central banks, globally, put it on life support, and they have to create a new system.  In my opinion, they want us cashless, and they want everything in digital form.  They want to dematerialize wealth at least for the masses.  I am 100% certain that this Bitcoin craze, and all of this, is about getting people used to digital currencies.  So, when they shift us from the debt based system to the digital system, we are more comfortable with it and more familiar with it.”

…click on the above link to read the rest of the article…

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