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By Phoenix Capital Research

Sometimes it’s critical to look clearly at the big picture.

The big picture is that the financial world has allocated capital… trillions of dollars of capital, based on Central Banks trying to corner the bond market.

In the current debt-based monetary system, sovereign bonds are the bedrock of finance.

Every other asset under the sun trades based on where sovereign bonds (like US Treasuries or German bunds) are trading.

So if Central Banks are manipulating bonds via QE purchases and ZIRP/NIRP, the entire financial system begins to misprice risk.

Consider Switzerland today.

Swiss sovereign bonds are currently posting negative yields as far out as 30 years.

Put another way, the bond market is priced in such a way that investors are willing to pay the government of Switzerland through 2046 for the right to own their bonds.

They are doing this for two reasons:

1) The ECB has announced it will be buying bonds for months to come. So investors are simply front-running the ECB’s purchases.

2) Capital is aware that the whole system is a bubble and so is fleeing into safe havens like Swiss bonds.

There is simply no way this situation ends well. Yes, it might make some sense based on the current risk profile of the world. But if that profile changes at all, Swiss bonds, like all negative yielding bonds, will adjust accordingly.

That adjustment would not simply affect bonds… it would affect everything.

Now, forget Switzerland and apply this to the entire financial system.

Corporates have been issuing debt at a record pace based on where yields (sovereign bonds) are trading. Currently the average corporate bond rating in the US is junk. This is a bubble looking for a needle.

US corporates are not alone. Emerging market companies have borrowed over $3 trillion in debt, most of it denominated in US Dollars. If the US Dollar begins to rally hard again, this too will be a bubble that will burst.

Then there are the big banks.

The big banks have over $555 trillion (with a “T”) in derivatives trading based on bond yields. We are told repeatedly that this is not a problem because the people trading these things are the smartest people in the world. But for perspective, the credit default swap market which nearly imploded the entire financial system in 2008 was 1/10^th of this size.

Everywhere you look there are massive misallocations of capital or bubbles… all of them based on the fact bonds are mispricing risk because of Central Bank intervention.

Indeed, perhaps the single biggest bubble today is the Central Bank bubble= the bubble of belief that Central Banks can somehow manage this situation.

They’ve lost control before. They will do so again. Only this time they will have already used up most of their ammunition when it hits.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out …read more

Source: The Greatest Misallocation of Capital (BUBBLE) in Financial History

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By Capitalist Exploits

By Chris at www.CapitalistExploits.at

I’ve been inundated with questions from many of you following the recent events. Brexit, that is, not Justin Timbertrouser’s latest antics. While I can’t publish all of them, I’ve selected what I think are some of the most important ones.

A lot of questions were related to positioning during and post Brexit. I hate to mention it as I may choose to trade out of whatever I mention at any given moment so please bare that in mind.

• Sold a bit of GLD on Thursday and will look to buy back after the shock/euphoria subsides.
• Long GBP/EUR and USD/EUR.
• Net short equities.
• Lightened up by 25% on short Spanish 10-year and long US 10-year. (hint: you get paid to do it and are synthetically short EUR which I’m OK with).

Ok, onto the questions…

“By the way, your latest article ” World out of whack” was great. I believe the next crisis country will be Italy with their massive banking problems. The Euro is simply too strong for them and in the old days they were able to compete against Germany by constantly depreciating the Lira.

Best,

H.”

Excellent points on the historical situation with Germany and Italy, and pinpointing the currency aspect.

Not everyone agreed with Italy as it came in a close second to France, as you can see below from the poll I ran in the recent World Out Of Whack.

We’re actually dealing with two drifferent problems here – the EU and the currency. Let’s take a closer look at both.

The EU was originally designed to stop Europeans killing each other (something they’ve been doing for centuries) and to foster closer ties between European countries by eliminating barriers to trade. As the old adage goes, “When goods don’t flow, bullets do.” And this was at the core of the EU idea.

Giuseppe always loved BMWs, didn’t care for sauerkraut (I don’t blame him), and – while being infuriated with Hans who is as punctual as Big Ben – saw no reason not to make the buying of his BMW any easier.

Hans, on the other hand, still believed that all Italian woman were smoking hot, all Italian men were plumbers, and though he couldn’t understand how pasta could be eaten everyday without causing some sort of digestive problem, he welcomed the idea of shooting down to Puglia for a weekend’s sun – sans silly visa requirements.

So why not allow Hans and Giuseppe to manage all this with less friction?

Increasingly though, the EU has become a barrier to trade rather than an enabler. Today there are restrictions and laws governing how bendy a banana must be. Not bendy enough and it doesn’t meet regulation. Cucumbers can’t be too bendy, on the other hand. Not straight enough and they too are in the tip.

Then there is the famous case of the EU directive stating that water does in fact NOT hydrate you. Retailers of water were banned from suggesting water would in fact hydrate you.

Prunes are not laxatives (contrary to …read more

Source: Answer This!

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There were no jackpot winners in Friday’s Mega Millions drawing, pushing the payout to $449 million. …read more

Source: Mega Millions jackpot climbs to $449 million

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By SRSrocco

By the SRSrocco Report,

The collapse of the U.S. economic and financial system accelerated this year, thus pushing the country closer to a third-world status. Most Americans are unaware of the dire consequences facing the nation, so they continue to believe business as usual will continue indefinitely.

Unfortunately, lousy reporting by the Mainstream media along with the public’s denial and delusional thinking is a recipe for disaster for most Americans over the next several years.

The U.S. economy is being propped up by a great deal of monetary printing, Fed stock and bond purchases and extreme leverage in all areas of the market. While these policies have given the “ILLUSION” of continued prosperity, or at best a sustainable slow growing economy, the debt now in the system is unsustainable.

Still to this day, most investors (including precious metals investors) do not understand the real reason for the massive increase in U.S. Federal debt. They believe the debt was either increased to enslave Americans or to fund continued economic growth. While the second reason is more accurate, they still fail to understand the “ROOT CAUSE” of the debt increase.

The Massive Increase In U.S. Debt Tied To Falling U.S. Oil Production & Rising Oil Prices

This chart puts the huge increase in total U.S. debt in perspective:

The annual increase in U.S. debt was very small up until the 1970’s. This was due to the peak of cheap U.S. domestic oil production. U.S. oil production peaked in 1970 at about 10 million barrels per day (mbd). That year, total U.S. debt was $370 billion. That’s hilarious, because the annual deficits today are larger than the entire U.S. debt in 1970.

As the oil price increased in the 1980’s and as U.S. oil production declined, total U.S. debt continued to increase. However, in the late 1990’s, the U.S. debt leveled off. This was due to the price of oil declining below $20, reaching $14 in 1998 and $19 in 1999. In 1999, U.S. debt had increased to $5.4 trillion.

Then as the price of oil increased from $30 in 2000 to nearly $100 in 2008, total U.S. debt nearly doubled to $10.5 trillion. In addition, U.S. domestic oil production declined nearly 4 million barrels per day from 1985 to 2008. This also had a negative impact on U.S. debt levels.

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While it’s true that the cost of energy is only a small part of U.S. GDP, its impact is multiplied when the U.S. economy and government try to provide the same standard of living as it did prior …read more

Source: Why The Collapse Of The U.S. Economic & FInancial System Has Accelerated

    

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