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If everything is fine, then why have US banks borrowed $153 billion at a punitive 4.75% against collateral at the discount window, a larger amount than in 2008/9?

Financial crashes like revolutions are impossible until they are inevitable. They typically proceed in stages. Since central banks began to increase interest rates in response to rising inflation, financial markets have been under pressure.

In 2022, there was the crypto meltdown (approximately $2 trillion of losses).

The S&P500 index fell about 20 percent. The largest US technology companies, which include Apple, Microsoft, Alphabet and Amazon, lost around $4.6 trillion in market value The September 2022 UK gilt crisis may have cost $500 billion. 30 percent of emerging market countries and 60 percent of low-income nations face a debt crisis. The problems have now reached the financial system, with US, European and Japanese banks losing around $460 billion in market value in March 2023.

While it is too early to say whether a full-fledged financial crisis is imminent, the trajectory is unpromising.

***

The affected US regional banks had specific failings. The collapse of Silicon Valley Bank (“SVB”) highlighted the interest rate risk of financing holdings of long-term fixed-rate securities with short-term deposits. SVB and First Republic Bank (“FRB”) also illustrate the problem of the $250,000 limit on Federal Deposit Insurance Corporation (“FDIC”) coverage. Over 90 percent of failed SVB and Signature Bank as well as two-thirds of FRB deposits were uninsured, creating a predisposition to a liquidity run in periods of financial uncertainty.

The crisis is not exclusively American. Credit Suisse has been, to date, the highest-profile European institution affected. The venerable Swiss bank — which critics dubbed ‘Debit Suisse’ — has a troubled history of banking dictators, money laundering, sanctions breaches, tax evasion and fraud, shredding documents sought by regulators and poor risk management evidenced most recently by high-profile losses associated with hedge fund Archegos and fintech firm Greensill.

…click on the above link to read the rest…

2023: Expect a financial crash followed by major energy-related changes

January 10, 2023

2023: Expect a financial crash followed by major energy-related changes

Why is the economy headed for a financial crash? It appears to me that the world economy hit Limits to Growth about 2018 because of a combination of diminishing returns in resource extraction together with rising population. The Covid-19 pandemic and the accompanying financial manipulations hid these problems for a few years, but now, as the world economy tries to reopen, the problems are back with a vengeance.

Figure 1. World primary energy consumption per capita based on BP’s *2022 Statistical Review of World Energy*. Same chart shown in post, *Today’s Energy Crisis Is Very Different from the Energy Crisis of 2005*.

In the period between 1981 and 2022, the economy was lubricated by a combination of ever-rising debt, falling interest rates, and the growing use of Quantitative Easing. These financial manipulations helped to hide the rising cost of fossil fuel extraction after 1970. Even more money supply was added in 2020. Now central bankers are trying to squeeze the excesses out of the system using a combination of higher interest rates and Quantitative Tightening.

After central bankers brought about recessions in the past, the world economy was able to recover by adding more energy supply. However, this time we are dealing with a situation of true depletion; there is no good way to recover by adding more energy supplies to the system. Instead, the only way the world economy can recover, at least partially, is by squeezing some non-essential energy uses out of the system. Hopefully, this can be done in such a way that a substantial part of the world economy can continue to operate in a manner close to that in the past.

One approach to making the economy more efficient in its energy use is by greater regionalization. If countries can start trading almost entirely with nearby neighbors, this will reduce the world’s energy consumption…

…click on the above link to read the rest…

The Unavoidable Crash

December 3, 2022

roubini171_Spencer PlattGetty Images_recession looming

The Unavoidable Crash

After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public- and private-sector debt. The mother of all economic crises looms, and there will be little that policymakers can do about it.

NEW YORK – The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing, and leverage in recent decades.

In the private sector, the mountain of debt includes that of households (such as mortgages, credit cards, auto loans, student loans, personal loans), businesses and corporations (bank loans, bond debt, and private debt), and the financial sector (liabilities of bank and nonbank institutions). In the public sector, it includes central, provincial, and local government bonds and other formal liabilities, as well as implicit debts such as unfunded liabilities from pay-as-you-go pension schemes and health-care systems – all of which will continue to grow as societies age.

Just looking at explicit debts, the figures are staggering. Globally, total private- and public-sector debt as a share of GDP rose from 200% in 1999 to 350% in 2021. The ratio is now 420% across advanced economies, and 330% in China. In the United States, it is 420%, which is higher than during the Great Depression and after World War II.

Of course, debt can boost economic activity if borrowers invest in new capital (machinery, homes, public infrastructure) that yields returns higher than the cost of borrowing. But much borrowing goes simply to finance consumption spending above one’s income on a persistent basis – and that is a recipe for bankruptcy..

…click on the above link to read the rest…

Should we have predicted Black Swan events like COVID and the war in Ukraine? Where is the next crisis coming from?

October 30, 2022

Should we have predicted Black Swan events like COVID and the war in Ukraine? Where is the next crisis coming from?

A Ukrainian serviceman looks out from inside a tank and as the war with Russian rages it’s not unthinkable that Vladimir Putin will unleash nuclear weapons.(Reuters)

Who predicted the 2008 global financial crash? COVID? The war in Ukraine?

Of course, some did. Hollywood gave us a taste of a global respiratory pandemic in the 2011 film, Contagion.

Some economists saw the unravelling of the financial markets and the ensuing recession long before it happened.

And we should all have seen Vladimir Putin’s war coming. He had already annexed Crimea, he massed troops on the border for months and kept warning he would strike.

But even if we should know, we often don’t want to know. We certainly don’t prepare.

These events are what statistician Nassim Taleb popularised as “Black Swans”. Why? Because they are outliers. They have extreme impact. What’s more, we are all wiser after the event, concocting explanations that make it all seem so predictable.

Russian President Vladimir Putin listens to members of his military. — Vladimir Putin had warned for months he intended to strike Ukraine yet when he did few were prepared.(Reuters: Russian Defence Ministry)

Another pandemic was always going to happen. We had trial runs with SARS and Swine Flu. How we had erased the history of the so-called “Spanish Flu” pandemic that killed more people than World War I.

Financial crash? Well, Asia’s markets collapsed a decade before the GFC.

Let’s not forget the Great Depression.

War? When has the world not been at war?

‘Black Swan’ events are not so rare

But these recent Black Swan events reshaped our world. The best laid plans were reduced to dust. People die. Businesses are ruined. Livelihoods and homes are lost.

…click on the above link to read the rest…

Get in Crash Positions

December 13, 2021

Get in Crash Positions

When the market goes bidless, it’s too late to preserve capital, never mind all those life-changing gains.

Everyone with some gray in their ponytails knows the stock market has ticked every box for a bubble top, so everybody get in crash positions:

Let’s run through the requirements for a bubble top:

1. Retail investors (i.e. dumb money) are all in and buying the dip with absolute confidence. As the gray-ponytail traders know, there are many moving parts to the retail dumb money going all in:

— The pain of the last bubble bursting has finally faded and been replaced by greed as retail punters watch everyone else mint fortunes by buying the dip and gambling with abandon at the casino’s trendy tables: crypto, NFTs, Mega-Tech, EVs, uranium, etc.

— Prudence and caution (i.e. holding cash in low-risk accounts) are thrown to the wind as the more money you put into the bet, the bigger the rewards.

— Punters realize the key to the really big gains is maxing out margin and leverage, preferably by foregoing owning the underlying equity in favor of options and futures contracts.

— Confidence in the Federal Reserve’s god-like powers and determination to never let stocks decline more than a few percentage points over a few hours or days is off the charts.

— Confidence that this is a new era and so old rules no longer apply is in the stratosphere. Retail punters believe that cryptos, NFTs and blockchain are can’t-lose bets as these are A) unstoppable and B) revolutionizing finance and the economy. As for stocks, retail traders have discovered the power of the herd: if the herd all buys call options by the thousands, this forces market makers to buy the underlying stocks, pushing the price higher in a self-reinforcing feedback loop that is guaranteed to succeed.

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

Is A Global Crash Just Around The Corner? Central Banks Are Cutting At The Fastest Rate Since The Financial Crisis

December 8, 2019

Is A Global Crash Just Around The Corner? Central Banks Are Cutting At The Fastest Rate Since The Financial Crisis

There is something very fishy about the world’s economic situation. On one hand, US president Trump keeps repeating that the US economy is the strongest it has ever been, with global strategists, economists and officials parroting as much they can, repeating that the world economy is also set to rebound sharply any minute now. And yet, two things stand out.

As we pointed out first last month, and as Convoy Investments echoed last week, with the US economy allegedly doing very well, the Fed’s balance sheet is now expanding at a rate matched only briefly by QE1, and faster than QE2 or QE3, in the aftermath of September’s repo fiasco which provided Powell with an extremely convenient scapegoat on which to hang the return of “NOT QE” (which, we now know, is in fact QE.)

The Fed’s unprecedented balance sheet expansion in a time of alleged economic stability and solid growth is a handy explanation why the S&P has been soaring in the past two months, and as we pointed out, a remarkable correlation has emerged whereby the S&P is up every week the Fed’s balance sheet is higher, and down whenever the balance sheet has declined.

And so, while helping us understand what has been the fuel for the market’s recent blow-off top meltup, the Fed’s emergency intervention does beg the question: is there something amiss more than just the repo market, and is Powell telegraphing that a far more serious crisis may be looming.

It’s not just Powell, however. It’s everyone.

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

“Big Short” Investor Michael Burry Explains How Index Funds Will Trigger The Next Crash

September 4, 2019

“Big Short” Investor Michael Burry Explains How Index Funds Will Trigger The Next Crash

After years of radio silence, Dr. Michael Burry – the small-time stockpicker who rose to fame for his bets against subprime mortgage bonds featured in the book (and later film) “the Big Short” – is once again doing the media rounds, talking about his latest equity plays and sharing his thoughts about the next big market blowups.

And in an interview with Bloomberg, Burry doesn’t disappoint. At one point, he shares his skepticism about passive investing, and the flood of money that has poured into index funds since the financial crisis. Burry sees similarities between these funds and the CDOs that nearly brought down the financial system in the run-up to the crisis.

Burry, who made a fortune betting against the CDOs, argued that these passive flows are distorting prices for stocks and bonds in much the same way that CDOs did for subprime mortgages. Eventually, the flows will reverse at some point, and when they do, “it will be ugly.”

“Like most bubbles, the longer it goes on, the worse the crash will be,” Burry, who oversees about $340 million AUM at Scion Asset Management in Cupertino, said.

That’s one reason he likes small-cap value stocks: they tend to be underrepresented in index funds, or left out entirely.

Here’s what Burry had to say on a number of topics:

Index funds and price discovery:

Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets.
The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies – these do not require the security- level analysis that is required for true price discovery.

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

Precious Metals Are Setting Up For A Major Rally While The Broader Markets Are Primed For A Crash

May 13, 2019

Precious Metals Are Setting Up For A Major Rally While The Broader Markets Are Primed For A Crash

While many precious metals investors are concerned about the current low prices, I believe gold and silver are setting up for a major rally while the market is primed for a crash. Why? Because the broader market technical indicators versus the precious metal have been pushed to opposite extremes. Thus, when one goes down, the other will rise. And, we also must remember, gold and silver act as a FEAR TRADE when the conditions get ugly in the market.

And if you don’t think the markets are getting ugly, you should see the intra-day volatile price action of some of the more well-known stocks. I continue to be amazed at the INSANE price movements taking place in the various stocks in the market. While the fundamentals haven’t played much of a role in determining the “PRICE” of stocks for a while, it seems to me that there is no rhyme or reason for the way the stocks are trading today.

So, before I compare the analysis of the overall markets versus the precious metals, I wanted to provide two examples of company stock price movements over the past two days and why investors today are TOTALLY INSANE and IRRATIONAL.

ROKU Stock Jumps 28% In One Day On Lousy Financials

Those who aren’t familiar with the company called ROKU, they are one of the new streaming content providers to compete with Cable and Satellite. It seems as if many cable and satellite customers are growing tired of the high costs of $150-$200 a month for their TV entertainment, so they are replacing them with ROKU via YouTube TV, Hulu, Netflix, etc.

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

The Global Economic Reset Begins With An Engineered Crash

March 13, 2019

The Global Economic Reset Begins With An Engineered Crash

For a few years now, since at least 2014, the phrase “global economic reset” has been circulating in the financial world. This phrase is used primarily by globalist institutions like the International Monetary Fund (IMF) to describe an event in which the current system as we know it will either die out or evolve into a new system where “multilateralism” will become the norm. The reset is often described in an ambiguous way. IMF banking elites will usually mention the end results of the shift, but they say little about the process to get there.

What we do know is that the intent of the globalists is to use this reset to create a more centralized monetary system and micro-managed global economy. At the core of this new structure would be the IMF along with perhaps the BIS and World Bank. It is a plan that has been supported openly by both western and eastern governments, including Russia and China.

As noted, the details are few and far between, but the IMF describes the use of open borders and human migrations during the reset as a means to transfer capital from various parts of the world. It is a novel if not utterly insane way to transfer wealth that only makes sense if you understand that the globalist goal is to deliberately conjure a geopolitical catastrophe.

The IMF also asserts that blockchain technology will make capital transfer easier and more efficient in this future environment, which explains the enthusiastic globalist support for developments in blockchain technology and cryptocurrencies despite the notion in cryptocurrency circles that blockchain would somehow make the bankers “obsolete”.

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

A Global People’s Bailout for the Coming Crash

October 18, 2018

A Global People’s Bailout for the Coming Crash

When the global financial crisis resurfaces, we the people will have to fill the vacuum in political leadership. It will call for a monumental mobilisation of citizens from below, focused on a single and unifying demand for a people’s bailout across the world.

***

A full decade since the great crash of 2008, many progressive thinkers have recently reflected on the consequences of that fateful day when the investment bank Lehman Brothers collapsed, foreshadowing the worst international financial crisis of the post-war period. What seems obvious to everyone is that lessons have not been learnt, the financial sector is now larger and more dominant than ever, and an even greater crisis is set to happen anytime soon. But the real question is when it strikes, what are the chances of achieving a bailout for ordinary people and the planet this time?

In the aftermath of the last global financial meltdown, there was a constant stream of analysis about its proximate causes. This centred on the bursting of the US housing bubble, fuelled in large part by reckless sub-prime lending and an under-regulated shadow banking system. Media commentaries fixated on the implosion of collateralised debt obligations, credit default swaps and other financial innovations—all evidence of the speculative greed and lax government oversight which led to the housing and credit booms.

The term ‘financialisation’ has become a buzzword to explain the factors which precipitated these events, referring to the vastly expanded role of financial markets in the operation of domestic and global economies. It is not only about the growth of big banks and hedge funds, but the radical transformation of our entire society that has taken place as a result of the increasing dominance of the financial sector with its short-termist, profitmaking logic.

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

World economy at risk of another financial crash, says IMF

October 4, 2018

World economy at risk of another financial crash, says IMF

Debt is above 2008 level and failure to reform banking system could trigger crisis

The floor of the New York stock exchange in September 2008. Photograph: Richard Drew/AP

The world economy is at risk of another financial meltdown, following the failure of governments and regulators to push through all the reformsneeded to protect the system from reckless behaviour, the International Monetary Fund has warned.

With global debt levels well above those at the time of the last crash in 2008, the risk remains that unregulated parts of the financial system could trigger a global panic, the Washington-based lender of last resort said.

Much has been done to shore up the reserves of banks in the last 10 years and to put in place more rigorous oversight of the financial sector, but “risks tend to rise during good times, such as the current period of low interest rates and subdued volatility, and those risks can always migrate to new areas”, the IMF said, adding, “supervisors must remain vigilant to these unfolding events”.

A dramatic rise in lending by the so-called shadow banks in China and the failure to impose tough restrictions on insurance companies and asset managers, which handle trillions of dollars of funds, are highlighted by the IMF as causes for concern.

The growth of global banks such as JP Morgan and the Industrial and Commercial Bank of China to a scale beyond that seen in 2008, leading to fears that they remain “too big fail”, also registers on the IMF’s radar.

The warning from the IMF Global Financial Stability report echoes similar concerns that complacency among regulators and a backlash against international agreements, especially from Donald Trump’s US administration, has undermined efforts to prepare for another downturn.

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

Virtually Everyone Agrees That Current Stock Market Valuations Are Not Sustainable And That A Great Crash Is Coming

February 23, 2017

Virtually Everyone Agrees That Current Stock Market Valuations Are Not Sustainable And That A Great Crash Is Coming

Current stock market valuations are not sustainable. If there is one thing that I want you to remember from this article, it is that cold, hard fact. In 1929, 2000 and 2008, stock prices soared to absolutely absurd levels just before horrible stock market crashes. What goes up must eventually come down, and the stock market bubble of today will be no exception. In fact, virtually everyone in the financial community acknowledges that stock prices are irrationally high right now. Some are suggesting that there is still time to jump in and make money before the crash comes, while others are recommending a much more cautious approach. But what almost everyone agrees on is the fact that stocks cannot go up like this forever.

On Tuesday, the Dow, the S&P 500 and the Nasdaq all set brand new record highs once again. Overall, U.S. stocks are now up more than 10 percent since the election, and this is probably the greatest post-election stock market rally in our entire history.

But stocks were already tremendously overvalued before the election, and at this point stock prices have reached a level of ridiculousness only matched a couple of times before in the past 100 years.

Only the most extreme optimists will try to tell you that stock prices can stay this disconnected from economic reality indefinitely. We are in the midst of one of the most outrageous stock market bubbles of all time, and as MarketWatch has noted, all stock market bubbles eventually burst…

The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.

If corporations were making tremendous amounts of money, rapidly rising stock prices would make logical sense.

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

Global Elites Are Getting Ready To Blame You For The Coming Financial Crash

October 16, 2016

Global Elites Are Getting Ready To Blame You For The Coming Financial Crash

Those people that have any doubts about where the narrative is headed for global economic stability simply have not been paying attention lately.

As I pointed out in my pre-Brexit referendum article, Brexit: Global Trigger Event, Fake Out Or Something Else?, the story being scripted by the globalists is one of the “failures and crimes” of conservative movements. I predicted that the Brexit would pass based on this language used by international financiers and elites leading up to the vote.

The vast majority of analysts in the mainstream and in the alternative media refused to acknowledge the possibility that a successful Brexit actually works in FAVOR of the globalists, because it provides them a perfect scapegoat for a financial crisis that has been broiling for years and is now ready to burst into flames. I find still that many people will not dare to consider the idea that a successful conservative resurgence is actually part of the plan for globalist institutions. Many argue that the elites just don’t have that kind of pervasive control over the system, or that I am attributing “too much power and ability” to them.

I find this argument rather naive but also interesting, because many of the people that claim the elites do not have such influence were also the same people that argued before the Brexit that the elites would “never allow” the U.K. referendum to pass. So, do they have extensive influence, or don’t they? This kind of selective blindness to the game being played prevents a whole host of otherwise intelligent people from grasping reality.

These folks need to finally admit to themselves that they were half right; the globalists would not allow the passage of the Brexit, UNLESS, a successful Brexit actually works in their favor.

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

Stock Market Crash 2015: The Dow Has Already Plummeted 2200 Points From The Peak

September 5, 2015

Stock Market Crash 2015: The Dow Has Already Plummeted 2200 Points From The Peak

Those that watched their stocks steadily increase in value for years are now seeing all of that “wealth” disappear at a staggering pace. The only way you actually make money in the stock market is if you get out in time, and many Americans are discovering that all or most of their gains have already been wiped out. At this point, the Dow Jones Industrial Average has dipped below where it was at the end of the 2013 calendar year. That means that nearly two years of gains have already been obliterated. On Friday, the Dow was down another 272 points, and it is now down more than 2200 points from the peak of the market back in May. For months, I have been detailing how things were setting up for this kind of financial crash in textbook fashion, and now events are playing out just as I warned. But this is just the beginning – what is coming next is going to shock the world.

We have already seen the 8th largest and 10th largest single day stock market crashes in all of U.S. history happen within the past few weeks. In fact, it was actually the very first time that we have ever seen the Dow fall by more than 500 points on consecutive trading days.

On August 25th, I warned that there would be some huge rebound days where we would see lots of “panic buying”, and on August 26th we witnessed the 3rd largest single day stock market increase in all of U.S. history.

Headlines all over America trumpeted the “fact” that the stock market had “recovered”, but the mainstream media failed to mention that the only two better days for the stock market were right in the middle of the stock market crash of 2008.

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

What Happens After A Crash?

September 4, 2015

What Happens After A Crash?

Our posts this week have dealt with analyzing the aftermath of the recent historic events that have unfolded in the stock market. However, of all the worthy topics that we have addressed, we have not directly addressed the most important one: the “post-crash” environment. Seeing as though the dramatic market decline in the latter half of August was the tremor from which all other price action has resulted, it stands to reason that we take a good look at it directly. In other words, how has the market historically behaved following similar “crashes”.

We put quotation marks around the word crash as the term is obviously open for interpretation. Certainly anyone who experienced the October 1987 events would be hard pressed to call anything since then a “crash”. However, for the sake of this study we are going to call the recent decline, and any similar such historical selloff, a “crash”. Specifically, we looked at all times in the S&P 500 since 1950 in which the index dropped at least 10% within 10 days (credit to fellow advisor and friend, Paul Schatz [@Paul_Schatz on Twitter] for the concept).

As it turns out, we identified 11 prior unique crash occurrences. By unique, I mean we eliminated any successive crashes and any crashes that were within the confines of a retest of a prior crash. Among the 11, 2 of them – July 1974 and September 2008 – continued to cascade lower, nearly unabated, for several more months. The other 9 resulted in an initial low in relatively short order. By initial low, we mean the first step within a market bottoming process. Those 9 are the subject of today’s Chart Of The Day, and this post. These are the months containing the 9 dates:

May 1962
May 1970
October 1987
August 1998
April 2000
March 2001
September 2001
July 2002
August 2011

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

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