Margin Debt over 2.25% of GDP Signals Stock Market Crash

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Another signal that the stock market is over inflated and heading for a major correction is margin debt greater than 2.25% of GDP. Levels in April already show that this level has been hit. Previous stock market crashes have in common high margin debt greater than 2.25%. Will we be lucky this time around, unlikely.

What do 1929, 2000 and 2007 all have in common?  Those were all years in which we saw a dramatic spike in margin debt.  In all three instances, investors became highly leveraged in order to “take advantage” of a soaring stock market.  But of course we all know what happened each time.  The spike in margin debt was rapidly followed by a horrifying stock market crash.  Well guess what?  It is happening again.  In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars.  The previous high was 381 billion dollars which occurred back in July 2007.  Margin debt is about 29 percent higher than it was a year ago, and the S&P 500 has risen by more than 20 percent since last fall.  The stock market just continues to rise even though the underlying economic fundamentals continue to get worse.  So should we be alarmed?  Is the stock market bubble going to burst at some point?  Well, if history is any indication we are in big trouble.  In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed.  That certainly does not mean that the market is going to crash this week, but it is a major red flag. The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world.  Some believe that a high level of margin debt is a sign that “investor confidence” is high and that the rally will continue. 

“The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.”

Others, however, consider the spike in margin debt to be a very ominous sign.  Margin debt has now risen to about 2.4 percent of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed…

“The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.”

Posted below is a chart of the performance of the S&P 500 over the last several decades.  After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here.  There is a very strong correlation between these charts.  You can find some more charts that directly compare the level of margin debt and the performance of the S&P 500 right here.  Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed.  Will we escape a similar fate this time?

S&P 500

What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again.  For much more on this, please see my previous article entitled “12 Clear Signals That The U.S. Economy Is About To Really Slow Down“.

At some point the stock market will catch up with the economy.  When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.

And there are certainly a lot of prominent voices out there that are warning about what is coming.  For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year

If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.”

Source: theeconomiccollapseblog.com

87% Chance of Stock Market Crash By End Of Year

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George Soros dumping 80% of his stock holdings might give a clue towards a stock market crash this year. The article below from Market Watch estimates a 87% probability with 10 predictions, but never underestimate Bernanke and the Fed to keep the show going. One thing is for sure its just a matter of time and will far worse than anything experience in 2008. You were warned.

In “Stocks for the Long Run,” economist Jeremy Siegel researched all the “big market moves” between 1801 and 2001. Bottom line: 75% of the time, there is no rationale for “big moves.” No one can predict them. Maybe technicians and traders can pick short-term moves the next second. Maybe tomorrow. But the long-term “big market moves?” No way.

So why predict an “87%” chance of another meltdown in 2013? Because in the real world of statistical probabilities, historical facts and expert opinions danger signals are flashing wild. In mid-2008 we summarized the predictions of 20 experts over several years. Predicted a meltdown in a few years — markets crashed two months later. Fast.

In retrospect, it was inevitable, thanks in part to the hype, arrogance and incompetence of Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson who failed to prepare America.

The warnings are again accelerating. And so is the happy talk from Wall Street casino insiders, about rallies, housing recoveries, perpetual cheap money. Don’t listen. The next crash will happen by year-end.

Yes, there’s a 13% chance the next Fed chairman will keep printing cheap money into 2014. But on New Years Eve our aging bull will be 4½ years old, well past Bill O’Neill’s “average” 3.75 years for putting this bull out to pasture.

So unless you’re shorting, all bets on Wall Street casinos for 2014 are megarisk, like 2008. Like a Stephen King horror film, you feel it coming. Could happen anytime, even tomorrow, says Siegel’s research, or the unpredictable logic in Nassim Taleb’s “Black Swan.”

Here are 10 other predictions adding credibility to a crash by the end of 2013:

1. Warren Buffett ‘guaranteed’ new bubble, new recession four years ago

Actually he saw it coming early. Shortly after the 2008 crash Warren Buffett was asked: “Do you think there will be another bubble leading to a huge recession?” Yes, “I can guarantee it.” Cycles happen.

Next question: “Why can’t we learn the lessons of the last recession? Look where greed has gotten us.” Then with the impish grin of a Zen master, Uncle Warren replied, “Greed is fun for a while. People can’t resist it.” But “however far human beings have come, we haven’t grown up emotionally at all. We remain the same.”

Yes, one of world’s richest men was personally guaranteeing another bubble, another “huge recession.” Now, four years later, that time bomb is ticking louder, closer.

2. Federal Reserve’s Council: ‘Unsustainable bubble in stocks, bonds’

The International Business Times just reported on the minutes of the Federal Reserve Board Advisory Council’s mid-May meeting. Members expressed “strong concerns over the Fed’s low-interest-rate policies and its bond-purchase program, which they say could trigger unmanageable inflation and an ‘unsustainable bubble’ in the stock and bond markets.” Some “pointed out that near-zero interest rates could not be sustained in the long run.”

Why? “A spike in inflation could force the Fed to hike interest rates, hurting business confidence and consumer spending, and prove disastrous to the U.S. economy, which is still clawing its way back from the debilitating effects of the 2008 financial crisis.”

Get it? The Fed and Wall Street insiders hear something’s dead ahead.

3. Peter Schiff is ‘doubling down’ on his ‘doomsday’ prediction

Euro Pacific Capital CEO Peter Schiff, author of “The Real Crash: America’s Coming Bankruptcy,” is “not backing away from doomsday predictions about the U.S. economy,” wrote MarketWatch’s Greg Robb last week. He sees the no-win scenario: “Either the Fed stops QE and starts selling the Treasurys and mortgage-related assets on its balance sheet, thus triggering a recession, or else faces an inevitable, even-worse, currency crisis.”

The “idea that the U.S. economy is in recovery is based entirely on rising asset prices … Asset prices are only rising because rates are low. As soon as rates go back up, asset prices will” fall.

Last year on Fox Business Schiff warned: “We’ve got a much bigger collapse coming.” Then last week: “I am 100% confident the crisis that we’re going to have will be much worse than the one we had in 2008.” His 100% beats our 87%.

4. Bill Gross: ‘Credit supernova’ turning 2013 bull into big bad bear

Yes, Gross sees a ‘credit supernova’ dead ahead. His firm has $2 trillion at risk when the Federal Reserve cheap money finally explodes in America’s face, brings down the economy, again. Gross warns: “Investment banking, which only a decade ago promoted small-business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance.”

Bernanke’s Ponzi finance is self-destructive, lethal and massive. Endless cheap money upsets the balance between credit expansion and real economic growth, resulting in diminishing returns. Very bad news.

5. Gary Shilling predicts the ‘grand disconnect’ will trigger ‘shocker’

Yes, economist Gary Shilling predicts a “shocker” before the end of the year. Worse because investors are “paying little attention to weak and declining economies around the world, and concentrating on the flood of money being created by central banks.”

The “grand disconnect” is driving up stocks “while the zeal for yield, amidst low interest rates, benefited junk bonds and other low-quality debt.” Wall Street’s blowing a nasty new bubble, repeating the run-up to the 2008 crash.

6. ‘Kaboom ahead,’ an ‘ominous third phase’ of 2008 Meltdown

“Bond guru buying stocks. Sees ‘Kaboom’ Ahead,” shouted the Bloomberg Market headline about Jeffrey Gundlach, CEO of Doubleline Capital. Earlier he predicted the 2008 meltdown. But now he says the real damage is yet to come.

“The first phase of the coming debacle consisted of a 27-year buildup of corporate, personal and sovereign debt. That lasted until 2008.” Then cheap money “finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth.” Next, an “ominous third phase,” a bigger crash, whose impact will far exceed the damage of 2008.

What’s he buying? Hard assets. Plus “sitting on cash,” waiting to scoop up more at “fire-sale” prices, “it’s worth waiting.”

7. ‘Tick, tick … boom!’ InvestmentNews sees bond crash dead ahead

A few months ago InvestmentNews front page is so powerful you can hear sirens on a flashing, warning in huge bold type: “Tick, tick … boom!” Their readers: 90,000 professional advisers who trust INews forecasts.

This was the biggest warning since 2008: “What will your clients’ portfolios look like when the bond bomb goes off?” Not “if” but “when.” Yes, they expect the bond bomb to explode soon.

Wake up, INews sees extreme dangers for millions of Americans who have “no idea what’s about to happen to them … Tick, tick … boom!”

8. Reagan’s budget director sees an ‘apocalypse … get out now’

Recently David Stockman warned of an economic “apocalypse” dead ahead, “arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices … get out of the markets and hide out in cash.”

Stockman’s not merely warning of a crash ending the bull rally since 2009. This “grand bubble” has been building for 32 years since the Reagan revolution. He’s atoning for a generation of politicians with no moral compass: “Capitalism has morphed into a monopoly ruled by politicians who are serving a wealthy elite. Competition is a joke.”

9. Nouriel Roubini: ‘Prepare for the perfect storm’ in an unstable world

Yes, prepare, prepare, prepare. Roubini told Slate.com: Our world is a game of dominos, any one of which could put in motion a global collapse: “Sooner or later, another ugly fight” over debt, markets will “become spooked” with “a significant amount of drag … on an economy that has grown at barely a 2% rate.”

Scanning the world’s hot-button triggers in the euro zone, China, BRICs, Iran, Middle East, Pakistan, oil markets, Dr. Doom warns, the “drums of actual war will beat harder.” Any one of these trends “alone would be enough to stall the global economy and tip it into recession.”

10. Jeremy Grantham: America’s growth and prosperity ‘gone forever’

Grantham’s GMO firm manages $100 billion. He focused on Richard Gordon’s disturbing research: “Is U.S. Economic Growth Over?” Yes, says Grantham, “the U.S. GDP growth rate … is gone forever.”

For centuries before the Industrial Revolution growth was under 1%. Then the growth trend till “1980 was remarkable: 3.4% a year for a full hundred years,” driving the American dream. “But after 1980 the trend began to slip,” says Grantham,“ by over 1.5% from its peak in the 1960s and nearly 1% from the average of the last 30 years.” By 2100, America’s GDP growth will fall back to where it started before the Industrial Revolution, to an annual rate less than 1%.

Buffett guarantees … Schiff doubles down … Gross sees supernova … Shilling’s grand disconnect … Gundlach’s ominous third phase … Stockman’s apocalypse … InvestmentNews tick, tick, boom … Roubini’s perfect storm … Grantham’s growth gone forever … place your bets at Wall Street’s casinos … the risk’s only 87% … or is it 100%?

Source: MarketWatch

British Economy Now Worse Than When In The Great Depression

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A few days ago Max Keiser on the BBC’s flagship Daily Politics show explained why in his opinion the UK economy is “screwed”. The Washington’s Blog has put forward its reasons for why the UK is in a worse position now than it was in the Great Depression. As usual, a chart can say it best and the velocity of money graph below does just that.

Royal Bank of Scotland Says Worst Economy Since Before Queen Victoria Was Crowned

Leading British newspaper the Telegraph reports today:

Ministers today admitted Britain is facing “very, very grave difficulties” after figures showed the economy did not grow at all in 2012.

***

Economists from the Royal Bank of Scotland said the last four years have produced the worst economic performance in a non post-war period since records started being collected in the 1830s.

***

It’s the worst economic performance since at least 1830, outside of post-war demobilisations,” he told The Daily Telegraph. “It’s worse than the 1920s, it’s worse than the Great Depression.”

He said the economy has been “heading this way for a long time” because of the scale of the problems that came to a head in the 2008 financial crash.

***

The top economist at RBS, which is mostly owned by the Government, said it is difficult to recover when much of the world is facing similar problems.

“It’s the scale of what happened in 2008 but also the build-up to that,” he said. “Compared with other recessions [like in the 1980s and 1990s], this is happening all over the world. There’s not a quick and easy way to export your way out of this.”

(In a separate article, the Telegraph notes that the UK is heading for an unprecedented triple dip, as its economy shrunk .3 percent in the fourth quarter of 2012).

We’ve repeatedly warned that this is worse than the Great Depression …

What Do Economic Indicators Say?

We’ve repeatedly pointed out that there are many indicators which show that the last 5 years have been worse than the Great Depression of the 1930s, including:

Mark McHugh reports:

Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what ”this” is and whether or not anybody should be using the word “recovery” with a straight face:

 British Economy Is WORSE than During the Great Depression

In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression.

(As we’ve previously explained, the Fed has intentionally squashed money multipliers and money velocity as a way to battle inflation. And see this)

Indeed, the number of Americans relying on government assistance to obtain basic food may be higher now that during the Great Depression. The only reason we don’t see “soup lines” like we did in the 30s is because of the massive food stamp program.

And while apologists for government and bank policy point to unemployment as being better than during the 1930s, even that claim is debatable.

What Do Economists Say?

Indeed, many economists agree that this could be worse than the Great Depression, including:

Bad Policy Has Us Stuck

We are stuck in a depression because the government has done all of the wrong things, and has failed to address the core problems.

Instead of bringing in new legs, we keep on recycling the same old re-treads who caused the problem in the first place.

For example:

  • The government is doing everything else wrong, as well. See this and this

This isn’t an issue of left versus right … it’s corruption and bad policies which help the super-elite but are causing a depression for the vast majority of the people.

Source: Washinton’s Blog

Canada’s Housing Bubble Bigger Than US – But Dont Worry, Its Different This Time

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Every bubble bursts, but when the danger signs are telling you that you have a large housing bubble on your hands you don’t turn around and say

don’t worry there is room to go even higher“.

That’s what CIBC is telling Canadians despite the fact that Canada’s debt to income ratio is now higher than the US experienced in 2006.

Then there is always the “soft landing” mantra that’s trotted out, much like Ireland heard from its bankers before the property crash made it the world’s largest debtor nation. The amazing fact about the Canadian banks is the amount of money in the banks vaults is only $4 billion yet they managed to loan out over $1.5 trillion.  Everyone is else has been taken out by the bankers, its soon to be Canada’s turn.

According to this article, CIBC thinks the huge amount of household debt in Canada and the beginning cracks in the housing bubble are nothing to worry about. The main reason for this benign assessment seems to be that there have been a few other credit and real estate bubbles in the world that have grown even bigger than the US one before it burst. What a relief.

“The news out of Canada’s real estate market isn’t good, but the country will avoid a U.S.-style real estate meltdown, CIBC said Tuesday.

Economist Benjamin Tal said in a report that even recently released data about high levels of Canadian consumer debt isn’t proof that there will be a sudden, big drop in home prices.

“To be sure, house prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding of the credit landscapes of the pre-crash environment in the U.S. and today’s Canadian market,” he wrote.

Tal noted that Canada’s debt-to-income ratio has just broken the U.S. record set in 2006, but said other countries have had even higher levels without a crash.

[…]

Tal said home prices in large cities like Vancouver and Toronto are overshooting their fundamentals and will likely slip as sales fall.

“But the Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned,” he wrote.

“Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself.”

“This time its different!”

It is actually fairly typical to find this type of thinking near the top of a bubble. The people living inside it cannot believe that it could possibly crash. Of course Canada’s economic situation is in many respects ‘different’ from the US economic situation, but that is the case with every slice of economic history. Not one of them can possibly be exactly the same. Nevertheless, one can come to some general conclusions about credit expansion-induced bubbles. Economic laws will be operative whether or not the precise historical circumstances are similar. When Japan reached the height of its bubble in the late 1980’s, it was also widely argued that the overvaluation of stocks and real estate was no reason to worry because Japan was allegedly ‘different’.

The government has taken steps to curb prices but this will only hasten the fall.

Canada’s housing market has begun to cool markedly. As is usually the case, the first sign of trouble is a sharp drop-off in transaction volumes. Existing home sales in Canada were down by 15.1% in September year-on-year. This seems to be the result measures recently introduced by the government that are aimed at slowing down or reversing house price increases. Prices will no doubt eventually follow transaction volumes.

50% or $500 billion of the housing market is at high risk. It doesn’t help that the Government owned CMHC has insured most of the mortgages against default which leaves the taxpayer on the hook.

It is generally held that Canada’s banking system is in ruddy health and not in danger from the extended credit and real estate bubble, mainly because a government-owned organization, Canadian Mortgage Housing Corp. (CMHC)  insures most of the mortgages with down payments of 20% or less. The company also helps fund mortgages by issuing debt and buying mortgage backed securities with the proceeds. 

This kind of thinking has things exactly the wrong way around. It is precisely because such a state-owned guarantor of mortgages exists that the vaunted lending standards of Canada’s banks have increasingly gone out of the window as the bubble has grown. Today some $500 billion, or 50% of Canada’s outstanding mortgages are considered ‘high risk’ according to the Financial Post. Moreover, HELOCs (‘home equity lines of credit’, i.e., the use of homes as ATMs) have grown like wildfire, at loan-to-value rates of up to 80%.

Through CMHC and government guarantees for privately held mortgage insurers Genworth Capital and Canada Guarantee, Canadian tax payers are on the hook for more than C$1 trillion in mortgages.

Source: ZeroHedge

21 Signs Of Global Crisis To Worsen

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The following are 21 signs that the global economic crisis is about to go to a whole new level….

#1 Bank of Israel Governor Stanley Fischer says that the global economy is “awfully close” to recession.

#2 It was announced last week that the unemployment rate in Greece has reached an all-time high of 25.1 percent.  Unemployment among those 24 years old or younger is now more than 54 percent.  Back in April 2010, the unemployment rate in Greece was only sitting at 11.8 percent.

#3 The IMF is warning that Greek debt may have to be “restructured” yet again.

#4 Swedish Finance Minister Anders Borg says that it is “probable” that Greece will leave the euro, and that it might happen within the next six months.

#5 An angry crowd of approximately 40,000 angry Greeks recently descended on Athens to protest a visit by German Chancellor Angela Merkel…

From high-school students to pensioners, tens of thousands of Greek demonstrators swarmed into Athens yesterday to show the visiting German Chancellor, Angela Merkel, their indignation at their country’s continued austerity measures.

Flouting the government’s ban on protests, an estimated 40,000 people – many carrying posters depicting Ms Merkel as a Nazi – descended on Syntagma Square near the parliament building. Masked youths pelted riot police with rocks as the officers responded with tear gas.

The authorities had deployed 7,000 police, water cannon and a helicopter. Snipers were placed on rooftops to ensure the German leader’s safety.

#6 The debt crisis is Argentina is becoming increasingly troublesome.

#7 The government debt to GDP ratio in Italy is expected to hit 126 percent this year.  In Greece, it is expected to hit 198 percent.  In Japan, it is expected to hit a whopping 237 percent.

#8 Standard & Poor’s has slashed the credit rating on Spanish government debt to BBB-, which is just one level above junk status.

#9 Back in the year 2000, the ratio of total debt to GDP in Spain was 192 percent.  By 2011, it had reached 363 percent.

#10 Record amounts of money are being pulled out of Spanish banks, and many large Spanish banks are rapidly heading toward insolvency.

#11 Manufacturing activity in Spain has contracted for 17 months in a row.

#12 It is being projected that home prices in Spain will fall by another 15 percent by the end of 2013.

#13 The unemployment rate in France is now above 10 percent, and it has risen for 16 months in a row.

#14 There are signs that Switzerland may be preparing for “major civil unrest” throughout Europe.

#15 The former top economist at the European Central Bank says that the ECB has fallen into a state of “panic” as it desperately tries to solve the European debt crisis.

#16 According to a recent IMF report, European banks may need to sell off 4.5 trillion dollars in assets over the next 14 months in order to meet strict new capital requirements.

#17 In August, U.S. exports dropped to the lowest level that we have seen since last February.

#18 Economics Professor Barry Eichengreen is very concerned about what is coming next for stocks in the United States…

“I’m worried that stock markets in the United States in particular have gotten ahead of economic growth”

#19 During the week ending October 3rd, investors pulled more than 10 billion dollars out of U.S. mutual funds.  Overall, a total of more than 100 billion dollars has been pulled out of U.S. mutual funds so far this year.

#20 As I wrote about the other day, the IMF is warning that there is an “alarmingly high” risk of a deeper global economic slowdown.

#21 When shipping companies start laying off workers, that is one of the best signs that economic activity is slowing down.  That is why it was so troubling when it was announced that FedEx is planning to get rid of “several thousand” workers over the coming months.  According to AFP, “its business is being hit by the global economic slowdown”.

Source: theeconomiccollapseblog.com

October Is The Month For Stock Market Crashes

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Stock market crashes have a habit of happening in October something I’m sure Obama does not want to happen so close to the election. But even if nothing happens the fundamentals are examined in an article from theeconomiccollapseblog which takes a closer look.

In the financial world, the month of October is synonymous with stock market crashes.  So will a massive stock market crash happen this year?  You never know. The truth is that our financial system is even more vulnerable than it was back in 2008, and financial experts such as Doug Short, Peter Schiff, Robert Wiedemer and Harry Dent are all warning that the next crash is rapidly approaching.

We are living in the greatest debt bubble in the history of the world and Wall Street has been transformed into a giant casino that is based on a massive web of debt, risk and leverage.  When that web breaks we are going to see a stock market crash that is going to make 2008 look like a Sunday picnic.  Yes, the Federal Reserve has tried to prevent any problems from erupting in the financial markets by initiating another round of quantitative easing, but 40 billion dollars a month will not be nearly enough to stop the massive collapse that is coming.  This will be explained in detail toward the end of the article.  Hopefully we will get through October (and the rest of this year) without seeing a stock market collapse, but without a doubt one is coming at some point.  Those on the wrong end of the coming crash are going to be absolutely wiped out.

A lot of people focus on the month of October because of the history of stock market crashes in this month.  This history was detailed in a recent USA Today article….

When it comes to wealth suddenly disappearing, October can be diabolically frightful. The stock market crash of 1929 that led to the Great Depression occurred in October. So did the 22.6% plunge suffered by the Dow Jones industrial average in 1987 on “Black Monday.”

The scariest 19-day span during the 2008 financial crisis also went down in October, when the Dow plunged 2,675 points after investors fearing a financial collapse went on a panic-driven stock-selling spree that resulted in five of the 10 biggest daily point drops in the iconic Dow’s 123-year history.

So what will we see this year?

Only time will tell.

If a stock market crash does not happen this month or by the end of this year, that does not mean that the experts that are predicting a stock market crash are wrong.

It just means that they were early.

As I have said so many times, there are thousands upon thousands of moving parts in the global financial system.  So that makes it nearly impossible to predict the timing of events with perfect precision.  Financial conditions are constantly shifting and changing.

But without a doubt another major financial collapse similar to what happened back in 2008 (or even worse) is on the way.  Let’s take a look at some of the financial experts that are predicting really bad things for our financial markets in the months ahead….

Doug Short

According to Doug Short, the vice president of research at Advisor Perspectives, the stock market is somewhere between 33% and 51% overvalued at this point.  In a recent article he offered the following evidence to support his position….

● The Crestmont Research P/E Ratio (more)

● The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)

● The Q Ratio, which is the total price of the market divided by its replacement cost (more)

● The relationship of the S&P Composite price to a regression trendline (more)

Peter Schiff

Peter Schiff, the CEO of Euro Pacific Capital, has been one of the leading voices in the financial community warning people about the crisis that is coming.

During a recent interview with Fox Business, Schiff stated that the massive financial collapse that we witnessed back in 2008 “wasn’t the real crash” and he boldly declared that the “real crash is coming”.

So is Schiff right?

We shall see.

Robert Wiedemer

Economist Robert Wiedemer warned people what was coming before the crash of 2008, and now he is warning that what is coming next is going to be even worse….

“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”

Harry Dent

Financial author Harry Dent believes that the stock market could fall by as much as 60 percent in the coming months.  He is convinced that stocks are hugely overvalued right now….

“We have the greatest debt bubble in history. We will see a worldwide downturn. And when you are in this type of recessionary environment stocks should be trading at five to seven times earnings.”

So are these guys right?

We shall see.

But I do find it interesting that some of the biggest names in the financial world are currently making moves as if they also believe that a massive financial crisis is coming.

For example, as I have written about previously, George Soros has dumped all of his holdings in banking giants JP Morgan, Citigroup and Goldman Sachs.

Infamous billionaire hedge fund manager John Paulson, the man who made somewhere around 20 billion dollars betting against the U.S. housing market during the last financial crisis, is making massive bets against the euro right now.

So where are these financial titans putting their money?

According to the Telegraph, both of these men are pouring enormous amounts of money into gold….

There was also news last week in an SEC filing that both George Soros and John Paulson had increased their investment in SPDR Gold Trust, the world’s largest publicly traded physical gold exchange traded fund (ETF).

Mr Soros upped his stake in the ETF to 884,400 shares from 319,550 and Mr Paulson bought 4.53m shares, bringing his stake to 21.3m.

At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.

So why would they do this?

Why would they pour millions upon millions of dollars into gold?

Well, it would make perfect sense to put so much money into gold if a massive financial crisis was coming.

So is the next financial crisis imminent?

We will see.

Most “financial analysts” that appear in the mainstream media would laugh at the notion that a stock market crash is imminent.

Most of them would insist that everything is going to be perfectly fine for the foreseeable future.

In fact, most of them are convinced that quantitative easing is going to cause stocks to go even higher.

After all, isn’t quantitative easing supposed to be good for stocks?

Didn’t I write an article just last month that detailed how quantitative easing drives up stock prices?

Yes I did.

So how can I be writing now about the possibility of a stock market crash?

Aren’t I contradicting myself?

Not at all.

Let me explain.

The first two rounds of quantitative easing did indeed drive up stock prices.  The same thing will happen under QE3, unless the effects of QE3 are overwhelmed by a major crisis.

For example, if we were to see a total collapse of the derivatives market it would render QE3 totally meaningless.

Estimates of the notional value of the worldwide derivatives market range from 600 trillion dollars all the way up to 1.5 quadrillion dollars.  Nobody knows for sure how large the market for derivatives is, but everyone agrees that it is absolutely massive.

When we are talking about amounts that large, the $40 billion being pumped into the financial system each month by the Federal Reserve during QE3 would essentially be the equivalent of spitting into Niagara Falls.  It would make no difference at all.

Most Americans do not understand what “derivatives” are, so they kind of tune out when people start talking about them.

But they are very important to understand.

Essentially, derivatives are “side bets”.  When you buy a derivative, you are not investing in anything.  You are just gambling that something will or will not happen.

I explained this more completely in a previous article entitled “The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System“….

A derivative has no underlying value of its own.  A derivative is essentially a side bet.  Usually these side bets are highly leveraged.

At this point, making side bets has totally gotten out of control in the financial world.  Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it.  This system is almost entirely unregulated and it is totally dominated by the big international banks.

Over the past couple of decades, the derivatives market has multiplied in size.  Everything is going to be fine as long as the system stays in balance.  But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.

Five very large U.S. banks (including Goldman Sachs, JP Morgan and Bank of America) have combined exposure to derivatives in excess of 250 trillion dollars.

Keep in mind that U.S. GDP for 2011 was only about 15 trillion dollars.

So we are talking about an amount of money that is almost inconceivable.

That is why I cannot talk about derivatives enough.  In fact, I apologize to my readers for not writing about them more.

If you want to understand the coming financial collapse, one of the keys is to understand derivatives.  Our entire financial system has been transformed into a giant casino, and at some point all of this gambling is going to cause a horrible crash.

Do you remember the billions of dollars that JP Morgan announced that they lost a while back?  Well, that was caused by derivatives trades gone bad.  In fact, they are still not totally out of those trades and they are going to end up losing a whole lot more money than they originally anticipated.

Sadly, that was just the tip of the iceberg.  Much, much worse is coming.  When you hear of a major “derivatives crisis” in the news, you better run for cover because it is likely that the entire house of cards is about to start falling.

And don’t get too caught up in the exact timing of predictions.

If a stock market crash does not happen this month, don’t think that the storm has passed.

A major financial crisis is coming.  It might not happen this week, this month or even this year, but without a doubt it is approaching.

And when it arrives it is going to be immensely painful and it is going to change all of our lives.

I hope you are ready for that.

Wall St Rumor: Major Financial Institution To Crash. Could It Be Morgan Stanley?

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Its beginning to sound like 2008, with Bear Sterns and Lehman Brothers all over again. The signs all there, and a report from Beacon Equity Research suggests that Morgan Stanley could be the one to watch.

Recently we had the following reports.

Big money flows out of financial stocks by key financiers like George Soros and John Paulson were reported just last week and tens of billions of dollars have been withdrawn from the European banking system since Spring. The government for its part, has taken steps to lock down the banking system so that not only can customers no longer withdraw funds from money market accounts in the middle of a panic, but a recent federal court case set a new precedent that has essentially given the go ahead for banks and investment firms to use segregated customer deposit accounts to engage in highly risky trading strategies without the threat of ever being prosecuted.

..but Beacon Equity Research which analyises Wall Street chatter has pointed the figure at Morgan Stanley as possibly being on the verge of pulling a Bear Sterns.

Now, a report from analysis firm Beacon Equity Research suggests that there is an unusually high amount of chatter on Wall Street surrounding the possibility of another major financial collapse in the making. When the Department of Homeland Security or other intelligence services hear chatter they often raise the terror alert level, deploy federal SWAT teams and go on complete lock-down.

Thus, we should consider this latest piece of intel from those with their fingers on the pulse of Wall Street as a potential game changer:

Here is a piece from Beacon’s report:

With the stock price of Morgan Stanley (NYSE: MS) inches from its Armageddon lows of Oct. 2008, whispers of the imminent overnight collapse of this U.S. broker-dealer begin to surface.  Client funds, again, are at risk.

“I’m hearing rumors that another major financial house is going to implode,” says TruNews host Rick Wiles.  In fact, the name I’ve been given is Morgan Stanley . . .

“It’s going to be put on the sacrificial alter by the financial elite.”

Beyond the evidence of a teetering stock price—Morgan Stanley’s troubles may never go away—leading to bankruptcy, if traders can glean anything from the financial activities of front-running insider George Soros, the man who warned in Jun. 2010 that the global financial crisis has entered “act II.”

Adding to the speculation of a Morgan Stanley collapse, Bloomberg coincidentally pens an article on Aug. 23—the following day of the TruNews broadcast—in which the author Bradley Keoun recounts the dark days of Morgan Stanley at the height of act I of the financial crisis in 2008.

“At the peak of Morgan Stanley’s Fed borrowings, on Sept. 29, 2008, the firm reported that liquidity was ‘strong,’ without mentioning how dependent its cash stores had become on the government lifeline. . .” states Keoun.

But here’s where strong advice from Trends Research Institute founder Gerald Celente and former commodities broker Ann Barnhardt should be heeded.  Both consumer-friendly analysts implore investors and savers, alike, to withdraw from the financial system, warning that allocated brokerage accounts are not truly allocated.

Regulators were asleep at the switch in the cases of MF Global and PFG Best, both filing bankruptcy post 2008, taking customer funds with them to the financial grave.  Why not Morgan Stanley?

“They don’t give you the information to be able to decipher whether they have changed anything,” adds Hurwich.

Why an establishment cheerleader such as Michael Bloomberg would allow an article which serves to remind investors of Morgan Stanley’s financial problems at this time may lend some credence to Rick Wile’s sources, who hear chatter about the impending doom of Morgan Stanley.

The timing of the Bloomberg article is no coincidence.  Michael Bloomberg is only doing his part for the global banking cartel by tipping off that Morgan Stanley is ready for the “sacrificial alter.”  Get your money out.

Source: Beacon Equity
Via: Woodpile Report, Steve Quayle 

The following point is well made. Although rumours can be damaging and irresponsible, you also need to protect yourselves as the people you have charged to do this role have constantly disappointed.

We can make predictions or forecasts based on rumors and news, and often times we’ll be berated for acting to protect ourselves based on this information. Often, even rumors and chatter have been responsible for driving a particular stock or market up or down, so the very news itself, whether true or not, may set the ball in motion.

But, the fact of the matter is that neither the SEC nor Ben Bernanke nor Tim Geithner nor the White House nor mainstream financial pundits nor Wall Street insiders will ever tell us ahead of time that billions of dollars of our wealth is about to be wiped out.

We will only find out after the fact.

You’ve now heard the rumor. You’ve been following the news. The decision is in your hands.

Source: shftplan.com

Related Post: Jim Willie – Morgan Stanley Faces IMMINENT FAILURE & RUIN, May See 1st Private Stock Account Thefts

Insiders Preparing For Something Big

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The signs are appearing more frequently that a massive financial collapse is a very distinct possibility. One big clue is to follow what the “insiders” are doing.

 Time is running out !

If you want to figure out what is going to happen next in the financial markets, carefully watch what the insiders are doing.  Those that are “connected” have access to far better sources of information than the rest of us have, and if they hear that something big is coming up they will often make very significant moves with their money in anticipation of what is about to happen.  Right now, Wall Street insiders and central banks all around the globe are making some very unusual moves.  In fact, they appear to be rapidly preparing for something really big.  So exactly what are they up to?  In a previous article entitled “Are The Government And The Big Banks Quietly Preparing For An Imminent Financial Collapse?“, I speculated that they may be preparing for a financial meltdown of some sort.  As I noted in that article, more than 600 banking executives have resigned from their positions over the past 12 months, and I have been personally told that a substantial number of Wall Street bankers have been shopping for “prepper properties” this summer.  But now even more evidence has emerged that quiet preparations are being made for an imminent financial collapse.  That doesn’t guarantee that something will happen or won’t happen.  Like any good detective, we are gathering clues and trying to figure out what the evidence is telling us.

Why Is George Soros Selling So Much Stock And Buying So Much Gold?

I am certainly not a fan of George Soros.  He has funneled millions upon millions of dollars into organizations that are trying to take America in the exact wrong direction.

However, I do recognize that he is extremely well connected in the financial world.  Soros is almost always ahead of the curve on financial matters, and if something big is going to go down George Soros is probably going to know about it ahead of time.

That is why it is very alarming that he has dumped all of his banking stocks and that he is massively hoarding gold.  The following is from shtfplan.com….

In a harbinger of what may be coming our way in the Fall of 2012, billionaire financier George Soros has sold all of his equity positions in major financial stocks according to a 13-F report filed with the SEC for the quarter ending June 30, 2012.

Soros, who manages funds through various accounts in the US and the Cayman Islands, has reportedly unloaded over one million shares of stock in financial companies and banks that include Citigroup (420,000 shares), JP Morgan (701,400 shares) and Goldman Sachs (120,000 shares). The total value of the stock sales amounts to nearly $50 million.

What’s equally as interesting as his sale of major financials is where Soros has shifted his money. At the same time he was selling bank stocks, he was acquiring some 884,000 shares (approx. $130 million) of Gold via the SPDR Gold Trust.

Why would you dump over a million shares of stock in major banks and purchase more than 100 million dollars worth of gold?

Well, it would make perfect sense if you believed that a collapse of the financial system was about to happen.

Earlier this year, George Soros told the following to Newsweek….

“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”

It looks like he is putting his money where his mouth is.

Perhaps even more disturbing is what he believes is coming after the financial collapse….

As anger rises, riots on the streets of American cities are inevitable. “Yes, yes, yes,” he says, almost gleefully. The response to the unrest could be more damaging than the violence itself. “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.”

That doesn’t sound good.

George Soros has told us what he believes is going to happen, and now he is making moves with his money that indicate that he is convinced that it is actually about to start happening.

But he is not the only one that has been busy accumulating gold.

Billionaire John Paulson (the one that made 20 billion dollars on the subprime mortgage meltdown) has been buying gold like crazy and his company now “has 44 percent of its $24 billion fund exposed to bullion.

So why are Soros and Paulson buying up so much gold?

Central Banks Are Also Hoarding Gold

According to the World Gold Council, the amount of gold bought by the central banks of the world absolutely soared during the second quarter of 2012.  The 157.5 metric tons of gold bought by the central banks of the world last quarter was an increase of 62.9 percent from the first quarter of 2012 and a 137.9 percent increase from the second quarter of 2011.

Prior to 2009, the central banks of the world had been net sellers of gold for about two decades.  But now that has totally changed, and last quarter central banks stocked up on gold in quantities that we have not seen before….

At 157.5 metric tons, gold buying among central banks came in at its highest quarterly level since the sector became a net buyer of the precious metal in the second quarter of 2009, data in the organization’s quarterly Gold Demand Trends report show.

So why have the central banks of the world become such gold bugs?

Is there something they aren’t telling us?

Rampant Insider Selling

Wall Street insiders have been dumping a whole lot of stock this year.

In my previous article, I linked to a CNN article from back in April….

First quarter earnings have been decent, if not spectacular. And many corporate executives are issuing cautiously optimistic guidance for the rest of the year.

But while insiders’ lips are saying one thing, their wallets are saying another. The level of insider selling among S&P 500 (SPX) companies is the highest in nearly 10 years. That is not good.

A lot of insiders appear to be getting out at the top of the market while the getting is still good.

Other insiders appear to be bailing out before the bottom falls out from beneath them.

Just check out what has been happening to Facebook stock.  It hit another new record low on Thursday as insiders dumped stock.  The following is from a CNN article….

Facebook’s life as a public company has been a nightmare from day one, and the pain continued on Thursday as some company insiders got their first chance to dump shares.

Facebook stock hit a new intra-day low of $19.69 Thursday morning, and ended the day 6.3% lower at $19.87.

Sadly, Facebook has now lost close to half of its value since the IPO.

Will Facebook end up being the poster child for the irrational stock market bubble that we have seen over the past couple of years?

Overall, retail investors have been very busy pulling money out of stocks in recent weeks.

The following are the net inflows to equity funds over the past five weeks (in millions of dollars) according to ICI….

7/11/2012: -537

7/18/2012: 637

7/25/2012: -2,999

8/1/2012: -6,866

8/8/2012: -3,684

According to the figures above, more than 10 billion dollars has been pulled out of equity funds over the past two weeks alone.

So does this mean anything?

Maybe.

Maybe not.

But it is very interesting and it bears watching.

Why Does The U.S. Government Need So Much Ammunition?

In my previous article, I also noted that the U.S. government appears to be very rapidly making preparations for something really big.

This week, it was revealed that the Social Security Administration plans to buy 174,000 hollow point bullets which will be delivered to 41 different locations all over America.

Now why in the world does the Social Security Administration need 174,000 bullets?

And why do they need hollow point bullets?  Those bullets are designed to cause as much damage to internal organs as possible.

But of course this is only the latest in a series of very large purchases of ammunition by U.S. government agencies.  The following is from a recent article by Paul Joseph Watson….

Back in March, Homeland Security purchased 450 million rounds of .40-caliber hollow point bullets that are designed to expand upon entry and cause maximum organ damage, prompting questions as to why the DHS needed such a large amount of powerful bullets merely for training purposes.

This was followed by another DHS solicitation asking for a further 750 million rounds of assorted bullets, including 357 mag rounds that are able to penetrate walls.

Now why in the world would the government need over a billion rounds of ammunition?

If it was the U.S. military I could understand this.  You can burn through a whole lot of ammunition fighting wars.

But this makes no sense – unless they believe that big trouble is coming.

Personally, I wouldn’t blame them for getting prepared.  Our economy continues to fall apart and there are signs of social decay everywhere around us.

The American people are more frustrated and more angry than at any other time in modern history.  This upcoming election is only going to cause Americans to become even more angry and even more divided.

All it would take is just the right “spark” to cause this country to erupt.

It could be the upcoming election.

It could be the collapse of the financial system.

Or it might be something else.

But the conditions are definitely there for it to happen.

Unfortunately, the American public is never told to prepare because authorities never want “to panic” the general population.

We are always the last to know, and that stinks.

So don’t wait for someone to come on the television and announce that a crisis is happening.

If you wait that long, it will be too late.

Instead, open up your eyes and think for yourself.

We all need to work hard to get prepared for the coming crisis while we still can.

As you can see, Wall Street insiders, the U.S. government and the central banks of the world are busy getting prepared.

Don’t put your head in the sand.

The warning signs are there and time is running out.

Source: http://theeconomiccollapseblog.com

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Economic Collapse For Dummies

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Highly recommend viewing.

Spain: Close To the Edge And Soon To Be Eating Manure

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As reported in ZeroHedge, Spanish bond yields went over 7% and the Budget Minister in the Spanish Parliament this morning came out with the line 

“There’s no money in the public coffers.”

What a start to the day but it got even worse than that from the Minister

The Budget Minister went on in Parliament, this morning, to proclaim that “There is no money to pay for public services” which is quite a statement to make after the Prime Minister had told everyone that Spain was fine and that only the banks were having some issues. Of course this same Prime Minister said bailing out the Spanish banks was a “Great victory for Europe” so we already know that he is suffering from some serious psychological deficiencies and needs some help. Poor Mr. Rajoy; where is Sigmund Freud when you need him?

“The European Central Bank intervened in the secondary market to buy public debt to avoid the European monetary system collapsing. Spain would have collapsed without this intervention.”

                  -Budget Minister Montoro in Parliament this morning in Madrid.

Economists are not noted for their humour but this story is a classic.

Recently two noted Spanish economists were interviewed. One was always an optimist and one was always a pessimist. The optimist droned on and on about how bad things were in Spain, the dire situation with the regional debt, the huge problems overtaking the Spanish banks and the imminent collapse of the Spanish economy. In the end he said that the situation was so bad that the Spanish people were going to have to eat manure. The pessimist was shocked by the comments of his colleague who had never heard him speak in such a manner. When it was the pessimist’s turn to speak he said that he agreed with the optimist with one exception; the manure would soon run out.

 

Deutsche Bank Calls For Big Bang Solution From ECB

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At this stage very few people have any faith in the EUSSR sorting out the crisis in the eurozone. After agreeing a bank bailout for Spain, there has been a series of downgrades from Spain itself to Dutch banks etc. Coupled with the outcome of the Greece elections the markets are beginning the to see the naked emperor. Just look at Spain and Italy’s bond yields this week.

Deutsche Bank’s is not satisfied with the situation in Spain and have no faith in the recapitalization of its banks. It sees the only solution at this stage as a controlled market crash with a large role to be played by the ECB.

we were somewhat disturbed to read Gilles Moec’s summary this morning, which points out the patently obvious: “Spain recapitalization: it’s not working.” Whether it is that Europe’s brightest minds forgot about the threat of subordination (promptly reminded by Zero Hedge hours after the formal announcement), and that the scars of the Greek cramdown are still fresh in the private sector’s mind, it does not matter: as DB says: “Unfortunately, the market reaction was clearly negative, with Spanish 10 year rate brushing past 7% for the first time since 1996. Two main elements probably explain the market reaction: first, the increase in public debt triggered by the recapitalization whose cost will stay on the sovereign’s balance sheet under the current rules); second the seniority attached to ESM loans, if this scheme is used as the final channel for the EU loan instead of the EFSF.”

Yes, it is “unfortunate” that Spain’s bailout plan was poorly planned, organized and executed. It is not unfortunate that some are still left who can do simple math and call out Europe’s failed plans. Which brings us to the present, where we find that even Deutsche Bank has given up hope for interim solutions, having realized that the market will no longer accept transitory, feeble arrangements. Instead DB is now formally calling for a big bang resolution, one coming from the ECB. Here is the punchline: “ECB has room for manoeuvre, but needs political cover for a ‘big’ policy” or said otherwise, “A shock is required to get a liquidity response.” In other words: Europe’s only real hope for even a stop gap solution… is a wholesale market crash, not surprisingly the very same conclusion that Citi reached on May 19 when they warned that only Crossover (XO) at 1000 bps or wider could push Europe into acting…

So in the case of a market crash, the ECB will loan directly to the banks via vLTRO.

It is possible in the context of more disorderly market scenarios that the ECB pre-empts the BLS to reengage the vLTRO policy which has, in Draghi’s view, already ‘broadly’ worked in similar market conditions.

 

Source: ZeroHedge

 

Who Is Crashing The System

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Its long been the solution in the current global financial system that instead of letting it collapse to sort out the debt, the printing press is turned on and another bubble created until the next crisis. On and on it goes creating a bigger bubble of debt. Now we are  at a point that the debt bubble is just to big. Robert Fitzwilson wrote this exclusive piece for King World News outlining his view that rather than kick the can further down the road the PTB are about to finally collapse it.

“We know that the world’s debt-based, fiat money system can only be revived and sustained by the combination of more debt creation and consumption.  We have arrived at a critical point in history.”

“It has been a common belief, ours included, that there are two alternatives, print more fiat money or risk a catastrophic global depression.  A sane person will only choose the ‘print’ option that leads to the avoidance of an economic Armageddon, even if the effect is just temporary.

But, what if this is a flawed scenario and set of assumptions?  What if there is another path, and that path is to effectively crash the system?  We all know that the accumulated and accrued obligations cannot be repaid and paid, respectively. 

We are in a destructive feedback loop in which new fiat money is created to pay for current and growing expenses, effectively creating even more obligations for future taxpayers.  Individuals are told that other people will be taxed to pay for their entitlements when the reality is that they are creating future obligations for themselves.

While not a prediction, it is wise to consider another alternative….

Collapse it now rather than money printing.

Any thinking person with a calculator knows that the current global monetary system is going to fail given enough time.  Rather than going through the charade of more quantitative easing, what if the central banks, the collaborating Western governments, and the financial elites decide to let the system fail now?

We know that the stock market has risen on the supportive hands of the U.S. Federal Reserve.  This has been a publicly stated policy designed to engender a ‘wealth effect’ making consumers more likely to ramp up their spending.  We know that Treasury bonds have also benefitted from the Fed’s largesse.

We also suspect that the markets for paper gold and silver have been ‘massaged’ by the same institutions.  Not wanting to see high gas prices for the coming election, we also suspect that the recent decline in the price of oil and the jawboning from Saudi Arabia are not coincidental.

….

 We also found out last week that cracks were appearing for the players in the derivatives game.  Greece is threatening to renege on their outstanding obligations to European banks.

New dollar to preempt other countries attempt to undermine the dollar’s reserve status.

Investors need to consider the possibility that people in control are not simply trying to scare the public as they have done during the last 8 trading days, but a larger plan might be afoot.  That plan could be to accelerate the emergence of a new dollar.

Other countries are taking actions that are designed to dethrone the dollar’s dominance.  Some of these actions are making headway, perhaps too much headway.  If the threat of success becomes too great, a preemptive strike to bring down the financial and commodity markets before strong rivals emerge is a possibility to consider.

It would not be the end of the dollar as the king of currencies, just the end of the current dollar as we know it.  The new dollar could be realigned not only against other currencies, but would allow for the effective repudiation of the massive piles of debt and derivatives.  Interest rates would be allowed to return to more normal levels and all assets would be re-priced in terms of the new dollar.

It might seem crazy to sane people, but to insane people running global government and finance, it might seem rational to them.  Their constituencies will not care.  They vote for a living and will not care about the colors and digits on their checks.  It will sound Utopian, a return to fixing the problems of the past and restoring functioning markets at the same time.  Debts go away as does the dreaded austerity.  Wealth will be destroyed, but the vast majority of people have no wealth to preserve.

Precedence to crashing the system.

There is precedence for crashing the system as a technique.  It was the leaking of information about the financial condition of AIG in 2008 that sent markets into a tailspin.

We will see.  Portfolio allocations should continue to over-emphasize assets where the prices have been suppressed and avoid assets where prices have been manipulated higher.  The latter could prove quite dangerous until the question of whether the original path of more QE or the hypothetical situation above is known to investors.”

Marc Faber Sees 1987 Style Crash Ahead

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Marc Faber gave an excellent interview on Bloomberg regarding Europe, US, QE3, stock markets and state of global financial economy. Source of article is from ZeroHedge, but video of interview can be see on Bloomberg.

Faber reflects on the US (slowing of revenue growth and the real linkages to European stress) noting that unless we get a huge QE3, there will be “a crash, like in 1987 noting he believes we have seen the highs for the year; on the likelihood of QE3 (agreeing with us that the Fed won’t act unless asset markets plunge first); on Greece’s exit of the Euro and whether policy-makers can manage the exit properly “bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone“; on the difference between investment markets and economic reality (thanks to financial repression); and on the global race-to-debase “I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries“.

On whether the Fed will issue QE3:

I think that QE3 will come, but it depends on asset markets. If the S&P dropped  here another 100-150 points, I think that QE3 will occur.  But if the S&P bounces back and we are above 1400, I think the Fed will essentially be waiting to see how the economy develops. The economy in the U.S. consists of different economies, some of it is very strong. I was in southern California and there the economy is doing fine. In other places, it is not doing fine. It is not universally bad. Compared to other countries, it is actually doing relatively well.”

On whether Greece will exit the euro:

 “There is a very good chance they will exit the euro and it would have been desirable if the euro countries had kicked out Greece three years ago. It would have saved a lot of agony. As a result of the bailout, the problem has become bigger and bigger and bigger”.

On whether policymakers can manage the exit properly:

“I think it would be much better for Greece and the entire euro area if Greece were kicked out. Spain kicked out. Italy out and even France should be out. At the end you just have Germany with the euro. The other countries can have their own currencies and still trade and use the euro as an international currency.”

 “The bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone and that the countries would go back to their own currencies and still use the euro as an international currency the way you travel through Latin America and with a dollar you can pay anywhere you with. In my view, that would be the best. These countries that have financial difficulties, you will have to write off their debts and make it difficult for them to access the capital market in the future. Just to keep bailing them out will increase the problem. It will not solve the problem.”

On how economic catastrophe can be avoided if the euro is dissolved:

“Explain to me why there would be an economic catastrophe. Many countries have pegged currencies have given up the peg to another currency and it was not a catastrophe. The public has been brainwashed that the breakup of the euro would be a complete disaster when in fact, it may be the solution.

On whether there will be a race to the bottom among various countries to devalue their own currencies if the euro is dissolved:

 “I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries and they want to maintain their power. They always talk about austerity being bad but if you look at the government expenditures of the EU, in 2000, it was 44% of GDP. Since then, it has grown by 76% under the influence of the Keynesian clowns and now it is 49% of GDP. That is the problem of Europe — too much government spending and lack of fiscal discipline.”

On whether it’s a mistake to short the euro:

“I want to make this very clear — the investment markets may move in different directions than the economic reality because if you print money. That’s why in the Bloomberg poll, Mr. Bernanke is viewed so favorably because fund managers and analysts and strategists, they are only interested in having stocks up so their earnings increase and their bonus pool increases. But in reality, the economy can go downhill and stocks can go up just because of money printing and in Europe, the ECB has proven now that they are very good money printers.”

On where to invest in Europe:

“Actually, usually when socialists come in or there is a crisis such as we have in Greece, it occurs usually near market lows. If someone really wanted to take speculative positions, he should look at quality non- financial stocks in countries like Spain, Italy, France, and Greece. I think rebound is coming. The market on a short-term basis is oversold. But if you look at the market action — first of all, we made a low on the S&P last October at 1074. We went to 1422. The market is down from 1422 to less than 1360. The whole world is screaming we’re in a bear market. This is a minor correction. I think it may become a more serious correction as the technical picture of the market has deteriorated very badly and as the S&P made a new high this year on April 2nd, all the European markets are lower than they were a year ago.”

Faber on whether he still thinks that profit margins will shrink and record profits seen will be no more for U.S. corporations:

 “Yes, if you look at the statements by corporations, it is very clear. Earlier on, you had a commentator who said the exports to Europe from the U.S. are irrelevant. I agree with that. What is relevant are the businesses of American corporations in Europe and the earnings they derive from these businesses. That is definitely slowing down. The revenue growth is slowing down and, in my view, you will have more and more corporations that report earnings that are actually good but they do not exceed expectations…The bottom line is I think the market will have difficulty moving up strongly on less we have a massive QE3 and if it moves here and makes the high above 1422, the second half of the year could witness a crash.”

“A crash, like in 1987…because the market would become technically very weak. I would expect the market making a new high. If it happens, it would be a new high with very few stocks pushing up and the majority of stocks have already rolled over. The earnings outlook is not particularly good because most economies in the world are slowing down. People focus on Greece but Greece is completely irrelevant. What is relevant are two countries — China and India — 2.5 billion people combined. They are a huge market for goods and these economies are slowing down massively at the present time”

Video source: Bloomberg

Spain Heading For Full Collapse Of Economy (ZeroHedge)

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The Spanish economy reads like a disaster zone. The IBEX has fallen hugely. Check out the analysis from ZeroHedge.

Spain is about to enter a full-scale Crisis.

A few facts about Spain:

•    Total Spanish banking loans are equal to 170% of Spanish GDP.

•    Troubled loans at Spanish Banks just hit an 18-year high.

•    Spanish Banks are drawing a record €316.3 billion from the ECB

      (up from €169.2 billion in February).

Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.

As bad as they are, even these data points don’t do justice to the toxic sewer that is the Spanish banking system.

Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.

How bad a state are the cajas in?

Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.

So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.

Stock Market (IBEX)

If you don’t want to take my word for it, have a look at the Spanish stock market. It’s been in a free fall for over a month as Spain’s banking system teeters on the brink of collapse (remember they’re drawing over €300 BILLION in emergency loans from the ECB.

 

ZeroHedge reckon Spain has one month left before it takes everything with it.

With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.

Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?

Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.

 

FOAT Used To Speculate Against France

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On april 16th a new futures-bond market called FOAT is to be created. Much speculation exists about it as the timing of the launch is suspicious, i.e. just before the new presidential election and the fact that it can be leveraged 20 fold to potentially bet against the French economy.

Rue89 carried the following suspicion:

The most alarmist talk of a “financial attack”. Wednesday, the Left Front candidate Jean-Luc Melenchon denounced “a new coup finance against our country”, the day before, another candidate, Jacques Cheminade warnedagainst an “offensive is underway throughout the world “against France.

What they worry all of a sudden? The launch of the Eurex (one of the largest derivatives markets), a new futures contract on French government bonds. Announced March 21, this contract will be launched April 16 and will allow buy or sell bonds equivalent to Treasury (OAT) of France at a price fixed in advance for an effective regulation at a later date. Eurex code of this contract: Foat.

Jacques Cheminade considers that the arrival of such an instrument on the eve of the presidential election is no accident: it will allow to speculate with “leverage than twenty times” (“twenty times you can make your put “) and threatens to destabilize the next president.

But The Slog took the theme further and ran with an interesting theory based upon the global elite not being too happy if Francois Hollande wins the presidential election instead of their man Sarkozy. The FOAT (run by Morgan Stanley) could be used in that case to bet against the french economy. Ultimately a unity government would be needed with Lagarde riding to the rescue as the technocrat in charge. Time will tell but lets see how The Slog teases this one out. Read full article to get a proper view, I am just adding the part I found most interesting.

What Morgan Stanley hopes to create after April 16th is the perfect hedge for itself: squillions of money betting on French collapse playing off similar squillions exposed to that collapse. So those French politicians publicly suspicious of the danger to France are right on the money: this is classic Wall Street double-dealing at its worst…the sort of client conflict that made Goldman Sachs infamous.

This feels to me like the biggest and best-evidenced motive I’ve yet seen in this affair. But remember: everything today is a weapon with which to carry out l’attentat. Picture the scenario:

Hollande wins the election…still the most likely result, despite Sarko’s choreographed execution of a Toulouse Islamist the week before last. He immediately starts unpicking Merkel’s FiskalUnion, slowing down its progress, and denouncing the Troika strategy of ClubMed austerity as obviously flawed.

This is a potential disaster for American debt, for American business, and for Barack Obama’s re-election ‘certainty’. So there is no shortage of motive here: “we can’t let Hollande keep the crown”.

But suppose, the second Francois le Terrible is elected, the brand new FOAT futures market takes the news badly….with Fed help. As in, starts betting heavily on Hollande making a mess of things and leading Europe into further chaos. Nice work for Morgan Stanley, and bad news for Le Parti Socialiste.

The wave ripples outwards, and a couple of French banks get desperate. French bond yields treble. France is turning into a ClubMed….zut alors, quelle horreur et Dieu en ciel! It is a catastrophe. Sauve qui peut! What can we do?

Well….why not appoint Christine Lagarde as Minister of Economic Finances: the acceptable French face of the IMF? OK, she’s in America’s pocket – but the upside is, she’s never worked at Goldman Sachs. What a relief: it is a government of National Unity – just like in Greece. We are saved. It is a miracle.

That’s the theory, now lets see some of the circumstantial evidence.

Sound far-fetched? Perhaps. But let’s apply a few classic Maigret detection techniques:

The accused Troika has form: Greek Goldman implant in Athens, abandoned referendum, delayed elections; Italian Goldman implant in Rome; Italian Goldman implant in the ECB; Geithner mouthing off about bazookas and foaming at the mouth in Poland; openly admitted attack on the Iranian Rial.

The Troika – really, Germany + America – has motive: eurobanking contagion would sink the USA, and the last thing Americans want is a Frog Commie screwing up all those excellent critical path analysis fantasies handed out by the IMF.

Sarkozy has form and motive: remaining enigmas in the obliteration of DSK as an opponent, his role with the Fed  in getting Lagarde the job as his replacement, the guy’s track-record as a wannabe moneterist supporting globalist pre-eminence: all of these suggest that Nico may well be something of a con…in both the English and French senses of the word.

The surveillance data: the problems facing Morgan Stanley after September 2011, a visit from Blankfein to the Elysee in November, the FOATs announcement in March, its launch just as we get to the election, the creation of a Get out of Jail Free card for MS.

Far, far crazier things than this have turned out to be true. For the moment, the geopolitical element remains in the realm of informed speculation….although to the questions – would they and could they? – the answer is a resounding “Yes”.

Looks like we could be hearing a lot more from France after the presidential election. Interesting theory nonetheless.

So why hasn’t Europe crashed already?

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On the theeconomiccollapseblog website is an article on 27 statistics about the European Economic crisis that are too crazy to believe but at the end is the part I find most interesting. It poses the question as to why Europe hasn’t crashed yet. For 3 or 4 years Europe has dodged the bullet and the crisis has gotten deeper but eventually the piper has to be paid. Below the question is answered.


So why hasn’t Europe crashed already?

Well, the powers that be are pulling out all their tricks.

For example, the European Central Bank decided to start loaning gigantic mountains of money to European banks.  That accomplished two things….

1) It kept those European banks from collapsing.

2) European banks used that money to buy up sovereign bonds and that kept interest rates down.

Unfortunately, all of this game playing has also put the European Central Bank in a very vulnerable position.

The balance sheet of the European Central Bank has expanded by more than 1 trillion dollars over the past nine months.  The balance sheet of the European Central Bank is now larger than the entire GDP of Germany and the ECB is now leveraged 36 to 1.

So just how far can you stretch the rubberband before it snaps?

Perhaps we are about to find out.

The European financial system is leveraged like crazy right now.  Even banking systems in countries that you think of as “stable” are leveraged to extremes.

For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt.

When Lehman Brothers finally collapsed, it was only leveraged 30 to 1.

You can’t solve a debt crisis with more debt.  But the European Central Bank has been able to use more debt to kick the can down the road a few more months.

At some point the sovereign debt bubble is going to burst.

All financial bubbles eventually burst.

What goes up must come down.

Right now, the major industrialized nations of the world are approximately 55 trillion dollars in debt.

It has been a fun ride, but this fraudulent pyramid of risk, debt and leverage is going to come crashing down at some point.

It is only a matter of time.

Already, there are a whole bunch of signs that some very serious economic trouble is on the horizon.

Hopefully we still have a few more months until it hits.

But in this day and age nothing is guaranteed.

What does seem abundantly clear is that the current global financial system is inevitably going to fail.

When it does, what “solutions” will our leaders try to impose upon us?

That is something to think about.

UK Housing Market Due Serious Correction

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The Mail today ran a story on the serious state of the UK housing market. Although there was a correction in 2008, some areas of the country are back up  at pre 2008 levels and are selling way above the normally safe level of 3.5 average yearly earnings.

Since 2008, prices have fallen back, but only a little. In those areas of the country least affected by recession – yes, London, I’m looking at you – house prices are already back to their peak. In the hottest areas of town, prices have almost certainly exceeded previous peak levels. The changes to stamp duty introduced in the budget may shave a prices of the most expensive homes by a fraction, but only by a fraction. The simple fact is that, while our real economy stagnates or falters, we live with a property market almost as hot as it was in the burning heat of 2007. That heat wasn’t justified then and it isn’t justified now. The sombre truth is that we were due a property crash in 2008-09 and got little more than a splutter and pause.

The cause of the property bubble has been easy cheap credit similar to Global property bubble elsewhere that have popped spectaclorily in the last few years, i.e Ireland, Spain, US etc. The cheap money pumped into the economy by the BOE has only created more dangerous bubbles and has not helped the economy. What happens when they finally go bust?

Prices are high because money is still being pumped relentlessly into the economy by the Bank of England. That money hasn’t had much impact on the jobs market: I guess you’ve noticed that. It hasn’t had much impact on business investment or wages or productivity or innovation or infrastructure or business creation or any of the other things which might actually make a long term difference to the economy. Instead, it’s affected three markets to an unhealthy degree. Those markets are the stock market, the bond market and the property market.

You’ll already have noticed the buoyancy of the stockmarket. You’ve probably thought how come the market is trading at four-year highs when the economy is deep into its second recession in the space of four years.

You’ll already have noticed the strength of the bond market. You’ll have wondered how come the government can borrow money at little more than 2% when its deficit is gaping and the economy is getting smaller, not bigger.

Unfortunately a correction must take place eventually and when it does it also needs to make up for the minor correction that took place in 2008/2009.The injection of cash from the BOE stalled the property market from crashing that time by inevitably it can’t hold it off forever.

The sad fact, however, is that market is every bit as warped as the other two. And when a market has lost touch with reality, reality has a nasty habit of biting back. That doesn’t just mean a return to long-run sustainable levels. It means a dip below those levels, before a sustainable level can be found.

That dip will be protracted, bloody – and furiously resisted by the banks who will demand further bailouts to protect their business models.

 

Osbourne’s Budget Affects London Property Market Dramatically

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Always think through the consequences, is the lesson to be learned by George Osbourne. As a result of tinkering with stamp duty a lot of urgent deals have been negotiated in the London property market.

The London property market plunged into meltdown yesterday.
The effects were seen in the rapid wake of the Chancellor’s bombshell announcement that purchasers using companies as the buying vehicles of £2m-plus properties would be stung by 15% Stamp Duty as from midnight. In London, buying via company vehicles is extremely common.
Within hours, London agents were reporting chaos, as deal after deal fell through. First to warn was Ben Everest, partner at LDG in the West End.
He said that there had been a ‘dramatic’ effect, with deals in the region of £2m-£2.5m being urgently re-negotiated downwards.

Source: housepricecrash.co.uk

How To Crush a Nation and Then Rob It !

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John Perkins explains how to economically crush a country and then rape it. Does it sound familiar? think of Greece and where do they stop. Might explain why there is no debt forgiveness which normally makes sense to do. Might explain why bankrupt bank debts are being passed onto the sovereign.

Skills that were developed and honed in Africa and Southern America, now coming to Europe and the US. Further info from John Perkins can be found on his website.

China Heading For A Hard Landing

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China’s property bubble looks to be bursting as Homelink property website reports that Bejing new home prices have  dropped a whopping 35% from the previous month. On the other hand the growth of money supply has reduced dramatically along with the Shanghai index falling compounding its problems.

The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains.

The question is whether the People’s Bank can do any better than the US Federal Reserve or Bank of Japan at deflating a credit bubble.

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.

China’s $3.2 trillion foreign reserves have been falling for three months despite the trade surplus. Hot money is flowing out of the country. “One-way capital inflow or one-way bets on a yuan rise have become history. Our foreign reserves are basically falling every day,” said Li Yang, a former central bank rate-setter.

So with massive reserves China can use them help with its banking system right?

The reserves cannot be tapped to prop up China’s internal banking system. To do so would mean repatriating the money – now in US Treasuries and European bonds – pushing up the yuan at the worst moment.

As for consumption and investment

The economy is badly out of kilter. Consumption has fallen from 48pc to 36pc of GDP since the late 1990s. Investment has risen to 50pc of GDP. This is off the charts, even by the standards of Japan, Korea or Tawian during their catch-up spurts. Nothing like it has been seen before in modern times.

Why is the property market doing so badly now?

Investors had thought China was immune to a property crash because mortgage finance is just 19pc of GDP. Wealthy Chinese often buy two, three or more flats with cash to park money because they cannot invest overseas and bank deposit rates have been minus 3pc in real terms this year.

But with price to income levels reaching nosebleed levels of 18 in East coast cities, it is clear that appartments – often left empty – have themselves become a momentum trade.

A fire-sale is under way in coastal cities, with Shanghai developers slashing prices 25pc in November – much to the fury of earlier buyers, who expect refunds. This is spreading. Property sales have fallen 70pc in the inland city of Changsa. Prices have reportedly dropped 70pc in the “ghost city” of Ordos in Inner Mongolia. China Real Estate Index reports that prices dropped by just 0.3pc in the top 100 cities last month, but this looks like a lagging indicator. Meanwhile, the slowdown is creeping into core industries. Steel output has buckled.

The next few weeks are likely to reveal how little progress has been made. China may ride out the storm over the next few months, but the dangers of over-capacity and bad debt will only intensify”.

In truth, China faces an epic deleveraging hangover, like the rest of us.

Source: Ambrose Evans-Pritchard

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