The Mega BUBBLE, which is made up of
several interpenetrating bubbles,
is now bursting in real time
never to blow up again
2016 will go down in history as
the year of the Crash & Burn
Mathematical Certainty that the Markets — All Of Them — Will Collapse
Confessions of a Stock Broker
State of the Nation
Back during the 1980s, also known as the “decade of greed”, the many penny stock brokerage companies came and went like fireflies. They were here and gone — with everyone else’s money — so fast you knew they were already 10 addresses ahead of you. Yes, it was that larcenous 35 years ago. That was the decade when America’s legendary highway robbery showed up as Wall Street robbery.
At the time all of us knew that the status quo of the stock brokerage industry was completely unsustainable and totally kleptocratic. The penny stock scams and shams jumping off on every downtown street corner and in every uptown skyscraper became a running joke in the industry, and way beyond. In retrospect, this exceedingly expensive ‘joke’ served to foreshadow a much bigger ‘joke’ that the investment banking industry would pull not only on the gullible American public, they ran it on the entire planetary civilization.
Yeah, those guys were good—very good. They could, and would, sell their own mother down the river for a dime. No, that ain’t good. That’s bad … real bad! And yet the game was set up so that they didn’t even think about it. The losses. The ensuing bankruptcies. The foreclosures. The loss of retirement accounts. The destitution of families. The impoverishment of whole communities. The fiscal collapse of cities and counties that you never heard about.
What’s the point?
Every poor man’s loss is a rich man’s gain. That’s the way it’s always been; that’s the way it’ll always be—until now, that is.
The rich men who created this game have played themselves into the proverbial corner. They have used the BUBBLE game trick one too many times.
Now, remember, that they played this very same game of BUBBLES back in the ’80. It was called the “Decade of Greed” for very good reason, you know. And how they did it is they systematically inflated the bubble up just before it reached its real breaking point, and then deflated it like a controlled demolition.
Everyone remembers the stock market crash of October in 1987. It’s known as Black Monday, just like the Black Monday of October 28, 1929.
In finance, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) fell exactly 508 points to 1,738.74 (22.61%). In Australia and New Zealand, the 1987 crash is also referred to as “Black Tuesday” because of the time zone difference.
All of these Black Mondays and Black Tuesdays are nothing but fastidiously engineered bubbles. Each bubble is explicitly designed to lure all the stupid money into the market so that the smart money can steal it. It’s really that simple, and yet the people fall for the same trick again and again. It’s like the masses love to be known as investors who then readily lose their investments. They usually lose them in the sucker’s rally(ies) that cleans them out, once and for all.
Back to the true state of affairs during the mid ’80s, all of us thought that the coming stock market crash — THEN — would be the last. That’s how completely fake and phony the numbers were then. The markets were so fictitious and fraudulent that we all expected the Crash and Burn of 1987 to be the final one. Little did we know in October of 1987 — almost 30 freakin’ years ago — that these money magicians would see the trick going for three more decades!
You talk about the fraud of the century, or rather the MILLENNIUM. The real fraud was that they convinced the worldwide community that the whole criminal enterprise was somehow legitimate. In fact, Wall Street turned into the biggest gambling operation on the planet complete with drug dealing and prostitution to keep the dealers happy and crooked. There was more loansharking and extortion going on with the investment banksters than anywhere else on Earth.
In hindsight that Black Monday only wiped out a quarter of the world’s market value. Then the markets proceeded their stratospheric upward rise to heights that only Led Zeppelin could attain. However, as destiny would dictate, the same soaring zeppelin would eventually morph into the Hindenburg. All of us really expected that the Crash and Burn of ’87 was going to be the BIG ONE, as in the last and final one. Do you believe they kept this bogus charade going for another 30 years?!?!?!
The Perpetual Bubble Machine Always Worked Until Now
Just why is that? Why did the BUBBLE Machine always work so well, but won’t work from this point forward?
Why have the Bubbles always inflated and deflated according to plan? To a great degree the financial wizards behind the curtain took advantage of the pervasive ignorance of the average investor. The market controllers exploited every form of stupidity and degree of naiveté that they could ‘legally’ get away with.
However, in 2016, with the internet running at full tilt, the whole game has changed in a big way LIKE NEVER BEFORE. Everyone, and their brother, and their sister, and their mother, and their father knows that the game is rigged. That it was always totally rigged. And that it will always be rigged Now that that little cat is out of the bag, there’s no putting its back in.
Consequently, given the level of awareness which now pervades the marketplace — wherever investors are digitally connected, that is — the “Financial Wizards” can no longer get away with their financial smoke and mirrors, fiscal sleight of hand, and monetary legerdemain. In other words, it’s GAME OVER— forever! ! !
There is a well-known statistical law that says when a certain percentage of people are hip to the con, the confidence game will no longer make money for the con men. Truly, there has never been a generation(s) so populated with so many con men as the present. They have succeeded, in the aggregate, at pulling off the single greatest CON in human history. However, everyone knows who they are and how they did it. In other words the 100th monkey actually got it back in the ’80s.
Goldman Sachs and Morgan Stanley, JP Morgan Chase and Citigroup, Bank of America and Wells Fargo, Credit Suisse and Barclays, HSBC and Deutsche Bank are among the biggest operators in the business. These are the commercial banks and investment banks that are simply too big to fail (TBTF). They are also the institutional financial entities which are responsible for manufacturing and sustaining the fictitious bubble economy.
Because these ‘venerable’ banking institutions were too big to fail, their manipulated continuance ensured that many small businesses, families and individuals would eventually lose everything. Even some municipalities and counties, states and territories have been quite badly hurt such as Detroit and Puerto Rico. Their (TBTF) only hope for longevity always came at the expense of the little guy (and gals). Now, however, there are no more little guys and gals to steal from because there is hardly anyone left in the game except the few institutional investors left standing.
They Inflate, They Interpenetrate,
They Aggregate, And Then They Deflate
That, right there, is the way that the whole BUBBLE game works. With each cycle of boom and bust the financial engineers and economic hitmen make sure that they maximize the bubbles during the booms that will surely deflate during the bust. Every cycle has its own unique mix of bubbles so that the buying public buys into the new BUBBLE scheme. As long as the new and improved bubble follows a somewhat new pattern, they can be sure to capture a whole lot of suckers.
This BUBBLE technique has really worked swell for them. They’ve never lost a dime and only made few trillions every time they’ve geared up the BUBBLE machine. As long as the bubble(s) dramatically inflates for all to see, they are guaranteed that millions will help inflate the bubble to keep it expanding until it is time to pop it. Greed is the primary fuel for this BUBBLE machine by the way… nothing but pure unadulterated greed.
In 2007 and 2008 it was the real estate market and then the stock market, respectively, that were coordinated precisely to pop at the perfect times. There were other markets like insurance and derivatives which were also involved in order to carry out that controlled demolition with utter precision.
Fast forward to 2016 and now we have all the markets, to varying degrees, conspiring to create an unprecedented BUBBLE of truly epic proportions. How so? There has been very little real economic year-over-year growth to support the meteoric rise in the markets since ’08. In other words, it’s all air. Hot air! Which is why they are able to fabricate such large bubbles that stay afloat for all to see and be impressed with. The more hot air, the bigger the bubbles. The hot air emanating from Wall Street was enough to float a full-blown Mothership … with a motherlode of worthless paper and bad debts and overpriced stocks and valueless bonds and dead derivatives and fiat currencies and counterfeit instruments and useless investments of every sort and kind.
In this current scenario, there is a particular phenomenon in which the bubbles have grown so large for so little reason that they were forced to interpenetrate each other like never before. Now this has certainly happened before, but not nearly on this HUGE scale. This time ALL the markets have had to interpenetrate each other in order to keep each other afloat. This was the only way they could keep up the appearance of a 7 year recovery that never happened. Not only did it not happen, but the opposite has been transpiring; yes, ALL the mainstream pundits and experts, economists and financial advisors are in on the shakedown.
Now that the dirty deeds are done, Janet Yellen and the Federal Reserve are left with nothing but paper. They have a LOT of worthless paper that is essentially forged debt after trillions of dollars of quantitative easing. “A printing press doth not an economy maketh”, so the old saying goes. And the FED has been nothing but a printing press of counterfeit currency for many decades now.
The essential point here is that the GE&FS (Global Economic & Financial System) is now approaching a critical moment … quickly, as in very quickly. All the individual market bubbles are maxed out. They have interpenetrated each other to stay afloat, but now as they deflate and pop they will take each other down in a massive burst, followed by a colossal bust. That’s where the GE&FS is at this very moment.
You see, when all the markets are intertwined in order to support each other they cannot help but suffer each other’s losses. Stocks and bonds, currencies and commodities, real estate and insurance/annuities, derivatives and carbon trades are inextricably intertwined with each other like never before out of absolute necessity. The ever-evolving institutional arrangements have ensured that Peter will rob Paul and vice versa whenever necessary to maintain the illusion of prosperity and success. Hence, the integrity of each of these bubble markets has been eroded considerably, and irreparably, and will all go the same way when the popping starts in earnest. The inexorable asset deflation has already begun at the fringes.
Clearly, 2016 has already gotten off to a very bad start; in fact, the worst since the Great Depression of 1929. The stock market crash that should have occurred during the Fall of 2015 was somehow postponed. To delay a major market correction as they did during the past September and October has put the whole System (GE&FS) under extreme pressure.
Truly, the whole BUBBLE machine is about to blow all 8 gaskets. It simply cannot be sustained anymore. Even if it could, it will now take so much time and energy, money and personnel, crisis management and emergency response to maintain the status quo that it’s become thoroughly unsustainable. Isn’t that their key word—UNSUSTAINABLE?! While preaching the necessity of migrating over to sustainable development and living, TPTB are locked into a fundamental paradigm that is literally ready to Crash and Burn … for good.
The real irony is that the GE&FS undergirds all the other paradigms on the planet. What happens to all their ambitious New World Order (NWO) plans when the final Crash and Burn actually happens in 2016? Oh, yeah, more NWO chaos out of the manufactured disorder.
State of the Nation
January 17, 2016
Now, here’s an article that explains exactly what the former stock broker just wrote above.
Cracks At The Core Of The Core
January 15 – Bloomberg (Matthew Boesler): “The U.S. economy should continue to grow faster than its potential this year, supporting further interest-rate increases by the Federal Reserve, New York Fed President William C. Dudley said. ‘In terms of the economic outlook, the situation does not appear to have changed much” since the Fed’s Dec. 15-16 meeting, Dudley said, in remarks prepared for a speech Friday… He added that he continues ‘to expect that the economy will expand at a pace slightly above its long-term trend in 2016,’ and said future rate increases would depend on incoming economic data.”
January 15 – Reuters (Ann Saphir): “The stock market’s swoon does not change the economic outlook and is merely market participants trying to make sense of global developments, San Francisco Federal Reserve Bank President John Williams told reporters… ‘As the Fed is moving gradually through a process of normalization it’s not surprising that we are not going to be at the peak stock prices’ of last year, Williams said. So far swings in stock market prices have not fundamentally changed his expectation for moderate economic growth, he said.”
The world has changed significantly – perhaps profoundly – over recent weeks. The Shanghai Composite has dropped 17.4% over the past month (Shenzhen down 21%). Hong Kong’s Hang Seng Index was down 8.2% over the past month, with Hang Seng Financials sinking 11.9%. WTI crude is down 26% since December 15th. Over this period, the GSCI Commodities Index sank 12.2%. The Mexican peso has declined almost 7% in a month, the Russian ruble 10% and the South African rand 12%. A Friday headline from the Financial Times: “Emerging market stocks retreat to lowest since 09.”
Trouble at the “Periphery” has definitely taken a troubling turn for the worse. Hope that things were on an uptrend has confronted the reality that things are rapidly getting much worse. This week saw the Shanghai Composite sink 9.0%. Major equities indexes were hit 8.0% in Russia and 5.0% in Brazil (Petrobras down 9%). Financial stocks and levered corporations have been under pressure round the globe. The Russian ruble sank 4.0% this week, increasing y-t-d losses versus the dollar to 7.1%. The Mexican peso declined another 1.8% this week. The Polish zloty slid 2.8% on an S&P downgrade (“Tumbles Most Since 2011”). The South African rand declined 3.0% (down 7.9% y-t-d). The yen added 0.2% this week, increasing 2016 gains to 3.0%. With the yen up almost 4% versus the dollar over the past month, so-called yen “carry trades” are turning increasingly problematic.
Importantly, the past month has seen contagion effects from the collapsing Bubble at the Periphery penetrate the Fragile Core. Japan’s Nikkei 225 index was down 7.6% over the past month. While bubbling securities markets have worked to underpin European economic recovery, now prepare for the downside. The German DAX is off 11% in the first two weeks of 2016, with stocks in Spain and Italy also sporting double-digit declines. France’s CAC 40 has fallen 9.2% y-t-d. And highlighting a key Issue 2016, European bonds have provided little offsetting protection against major equities market losses. So far in 2016, German bund yields are down only eight bps. Yields are little changed in Spain and Italy. Sovereign yields are up 20 bps in Portugal and 130 bps in Greece. European corporate debt has posted small negative returns so far in 2016.
Recent weeks point to decisive cracks at the “Core” of the U.S. financial Bubble. The S&P500 has been hit with an 8.0% two-week decline. Notably, favored stocks and sectors have performed poorly. Indicative of rapidly deteriorating economic prospects, the Dow Transports were down 10.9% to begin 2016. The banks (KBW) sank 12.9%, with the broker/dealers (XBD) down 14.1% y-t-d. The Nasdaq100 (NDX) fell 10%. The Biotechs were down 16.0% in two weeks. The small cap Russell 2000 was hit 11.3%.
Bubbles tend to be varied and complex. In their most basic form, I define a Bubble as a self-reinforcing but inevitably unsustainable inflation. This inflation can be in a wide range of price levels – securities and asset prices, incomes, spending, corporate profits, investment and speculation. Such inflations are always fueled by some type of underlying monetary expansion – typically monetary disorder. Bubbles are always and everywhere a Credit phenomenon, although the underlying source of monetary fuel often goes largely unrecognized.
I’ll posit another key Bubble Dynamic: De-risking/de-leveraging at the Periphery is problematic, with a propensity for risk aversion and associated liquidity constraints to spur contagion effects. At the Core, de-risking/de-leveraging becomes highly destabilizing. Indeed, I would strongly argue that de-leveraging at the “Core of the Core” is tantamount to financial crisis.
It is the “Core of the Core” that now concerns me the most. That is where Federal Reserve (and global central bank) policies have left their greatest mark. It is at the “Core of the Core” where momentous misperceptions and market mispricing have become deeply entrenched. It’s the “Core of the Core” that has attracted enormous amounts of “money” over recent years. It’s also here where I believe leverage has quietly been used most aggressively.Over recent years it became one massive Crowded Trade. Now the sophisticated players must contemplate beating the unsuspecting public to the exits.
I’ll return to “Core of the Core” analysis after a brief diversion to the “Core of the Periphery.”
At $275 billion, Chinese Credit growth surged in December to the strongest pace since June. While growth in new bank loans slowed (15% below estimates), equity and bond issuance jumped. China’s total social financing expanded an enormous $2.2 TN in 2015, down slightly from booming 2014. Such rampant Credit growth was (barely) sufficient to sustain China’s economic expansion.At the same time, I would argue that Chinese stocks, global commodities and developing securities markets in particular have been under intense pressure due to rapidly waning confidence in the sustainability of China’s Credit Bubble.
A similar dynamic is now unfolding in U.S. and other “Core” equities markets: Sustainability in the (U.S. and global) Credit Bubble – the monetary fuel underpinning the boom – is suddenly in doubt. The bulls, Fed officials and most others see the economy as basically sound, similar to how most conventional analysts argued about the Chinese economy over the past year. Inherent fragility and unsustainability are the key issues now driving securities markets – in China, in the U.S, and globally. And, importantly, sentiment has shifted to the view that policy tools have been largely depleted.
January 15 – Reuters (Trevor Hunnicutt): “Fund investors continued to sour on U.S. stocks and corporate debt during the weekly period that ended Jan 13, Lipper data showed…, as risk appetite waned in the wake of global market turmoil. U.S.-based stock mutual funds and exchange-traded funds lost $9.0 billion to withdrawals during a week that saw U.S. stocks continue one of their worst starts to a new year… The outflows also included $5 billion pulled from one ETF alone: SPDR S&P 500 ETF… Before last week, ETF investors had been bullish on U.S. stocks, pumping money in for twelve weeks straight… Corporate bond funds suffered too. Investment-grade bond funds, widely held by retail investors, extended to eight straight weeks their streak of outflows after posting $740 million in outflows during the week. The two-month run of outflows now totals $15.4 billion, about 1.8% of the assets those funds held when the trend started…”
January 15 – Barron’s (Chris Dieterich): “Money hemorrhaged from of mutual and exchange-traded funds for the second week in a row, EPFR Global data show… Global investors pulled $12 billion out of U.S equity funds and a combined $4.5 billion from high-yield bond, bank loan and total return funds in the week ended Jan. 23. Emerging-market funds shed cash for the 11th week in a row. Over the past two weeks, some $21 billion has come out of equity funds, still shy of the $36 billion during the August 2015 selloff.”
January 15 – Bloomberg (Aleksandra Gjorgievska and Fion Li): “Exchange-traded funds that hold U.S. junk bonds dropped to their lowest levels since 2009 as the global growth fears that clobbered stock markets also raised doubts about whether companies’ would continue to generate as much cash to pay their debt obligations.”
This week saw the Bank of America Merrill Lynch High Yield Energy Bond Index trade to a record17.43% yield, surpassing the December 2008 high (from Barron’s Amey Stone). “Triple C” bond yields jumped to 18.8%, the high since 2009 (FT’s Joe Rennison). The yield on the Markit iBoxx Liquid High Yield index jumped this week to the highest level since 2012.
Returning to “Core of the Core” analysis, investment-grade corporate debt has rather abruptly joined the market turmoil. After a rocky first week of 2016, investment-grade debt spreads widened again this week to a three-year high, as investment-grade funds suffered their eighth straight week of outflows.
“Triple A” MBS occupied the mortgage finance Bubble’s “Core of the Core”. GSE securities were perceived as “money”-like (“Moneyness of Credit”), with implied backings from the Treasury and Fed seemingly guaranteeing safety and liquidity. Throughout the global government finance Bubble period, I have often invoked the concept “Moneyness of Risk Assets.” With the Federal Reserve and global central banks determined to do just about anything to uphold booming securities markets, the marketplace perceived that safety and liquidity were virtually ensured. Trillions flowed into global stock and bond mutual funds, the majority into perceived low-risk U.S. equities indexes and investment-grade corporate debt products.
It is worth recalling that my tally of Total U.S. Securities (Treasuries, Agencies, Corp Bonds, Munis and Equities) ended Q2 2015 at a record $76.924 TN, or 429% of GDP. This was up $30.90 TN (77%) from 2008’s $46.034 TN (313% of GDP) – and greatly exceeded 2007’s $53.279 TN (368% of GDP).
As securities market inflation inflated Household Net Worth, spending increases bolstered corporate profits and income growth. Booming markets, especially ultra-easy financial conditions throughout the corporate Credit market, spurred stock buybacks and incited record M&A activity. As noted above, Bubbles are self-reinforcing but inevitably unsustainable. Especially with faltering Bubbles at the “Core of the Core,” wealth effects will now operate in reverse. Spending (household and corporate) will slow, with domestic issues joining international to pummel corporate profits. Significant tightening in corporate Credit will weigh heavily on both stock repurchases and M&A. And as economic prospects darken at home and abroad, there will be reinforcing downward pressure on U.S. equities and investment-grade corporate debt.
Back in 2000, Dallas Fed president Robert McTeer suggested that our economy’s ills would be rectified “if everyone would hold hands and buy an SUV.” And for the next 15 years Fed policies did the unimaginable in the name of (indiscriminately) stimulating growth of any kind possible. And if epic mortgage finance Bubble financial and economic maladjustment was not enough, the past seven years have seen the type of financial folly and egregious wealth redistribution that tear societies apart.
The bottom line is that Bubbles destroy and redistribute wealth, though the true effects are masked for a while by inflated securities and asset markets – along with resulting unsustainable spending patterns and economic activity. Regrettably, years of policy mismanagement, gross financial excess, deep structural maladjustment and the most imbalanced economy in our nation’s history will now come home to roost. At this point, I cannot confidently forecast how quickly the bust will unfold. I do, however, believe this process has begun as Bubbles falter at the “Core of the Core.”