The “Thin” Liquidity in the Sovereign Bond Market in recent weeks and the ensuing Panic, are only two of Several Harbingers of The Coming Crisis.
Below we summarize here Key Crisis Signals, Triggers and consequent Opportunities.
Submitted by Deepcaster:
“Liquidity Loss Flashes are Harbingers of Crashes.”
“There’s not a lot of depth in the Market right now.”
Jim Combias, Treasuries Trading Manager,
Mizuho Securities, 06/19/15
Reminds Deepcaster of The Old Saying “Liquidity dries up just when you need it Most.”
Yes, the “Thin” Liquidity in that Sovereign Bond Market in recent weeks and the ensuing Panic, are only two of Several Harbingers of The Coming Crisis. (See “Maximizing Gains & Wealth Protection from The Coming Crisis,” in Articles at Deepcaster.com.)
So we summarize here Key Crisis Signals, Triggers and consequent Opportunities.
The Fundamental Problem has been caused mainly by The Private, For-Profit Fed and other Mega-Central Banks themselves. They have kept Rates artificially so low and thus (with the help of QE) Equities etc. artificially High that the World is awash both in Excess Debt and in Bubbles.
And now the Debts can not be repaid (and the Bubbles will Burst) and Greece is only the First of many Casualties to come. Consider Puerto Rico, Portugal, Spain, Italy… and Chicago!!
Consider a few of the Major Signals, several of which will also likely serve as actual Triggers and/or Timing Indicators for the onset of The Crisis, and indeed of several Crises to come.
- One Key Signal/Trigger is the aforementioned Sudden loss of liquidity in one or more Key Sectors, such as we saw in The Sovereign Bond Market recently. Sudden Liquidity Loss is a characteristic Harbinger of, or (Worse Case) Trigger of crashes. Profitable positions turn suddenly unprofitable, or, often worse, can not be exited at any price. In sum, Liquidity loss flashes are Harbingers of Crashes. And they are Harbingers of Potential Counterparty Failure as well.
- Fundamental Economic Indicators — The Real Ones (see Note 1 Shadowstats), not the Bogus Official Ones, indicate today, we are still in Recession, and that it is worsening despite Massive Central Banks Stimulus. Of course, The Primary Aim of that Stimulus is to support the Mega-Banks (some of whom, by the way, are Shareholders of the Private, For-Profit Fed) — not the Economy, or the Citizenry.
- The Cartel (Note 2) Interventions increasingly obviously are seen to Keep Many Markets (e.g., Equities) artificially elevated as well as suppressing Gold and Silver (Paper) Prices. But The Cartel is finding Precious Metals (Paper) Price Suppression increasingly difficult, since China, India and Russia are Taking so much Delivery of Physical! Deepcaster thus forecasts the Prospects/Timing of the Relief from this Price Suppression.
- And we note four recently reported Fundamentals (among several Key Indicators) which help explain why the prospects for Equities are not positive:
1) U.S. Retail Sales slowed to 0.9% Year On Year in April;
2) U.S. Durable Goods slowed to –2.3% Year On Year in April;
3) Chicago PMI tanked in May to 46.2 from 52.3 in April.
4) The U.S. Labor Force Participation Rate continues its Declining Trend and is at its lowest level in 38 years.
- Key Technicals are signaling “Crises Coming”. Indeed, Crises are coming closer and closer, and that means that Key Sectors are closer to crashing.
Consider the following:
- We now have a confirmed Hindenberg Omen signaling an Equities Market Downleg or two and then a full-blown Crash.
- The NYSE Advance/Decline line has diverged bearishly versus Stock Prices
- A Jaws of Death (Multi-Year Expanding Bearish Megaphone) signals a Major Crash.
- A Shorter Term Pattern, a Rising Bearish Wedge, signals an Equities Crash soon, becoming full-blown in a few weeks or very few months.
- The VIX has closed back above the bottom Boundary of its 2 Standard Deviation Bollinger Bands.
Of course, an Equities Crash will affect different Sectors differently, for example, short-term to medium-term (During and immediately after The Crash), U.S. Treasuries should Strengthen (Yields Down) as an Ostensible Safe Haven. But, Longer Term, U.S. Sovereign Bonds, and probably Eurozone and Japanese Bonds, also will Crash.
And predictably, the Crude (and Copper) Prices are likely to Crash again when Equities do, since an Equities Crash would confirm that Economic Growth in the USA, Eurozone, and China has been slowing or contracting.
[For Deepcaster’s Forecasts re which Sectors The Crisis is likely to affect First and Buy Recommendations for Profit and Protection, read our latest Letter and recent Alerts.]
Regarding Greece, even if a deal is done in the next couple of weeks, it should provide only a very brief, temporary boost to the Markets. But whatever the outcome, Greece cannot pay and therefore there will be an Eventual default or Haircut Deal. If a Haircut Deal, then other Heavily Indebted Nations will want the same Deal, and Chaos ensues.
In other words, Important to consider is that the significance of Greece extends far beyond Greece. Consider that whatever happens in Greece could be template for what happens re the Debts/Economies participation in the Euro and Eurozone of the far larger Spain and Italy.
And Spain and Italy have €1.78 Trillion and €1.87 Trillion in external Debt respectively and far larger Economies than Greece!
And there is also the “Wild Card” — the Distinct Possibility that Greece has the (as yet unseen) Financial Backing of Russia/China, if a Deal with the Eurozone fails.
And If a Greek Deal Fails at any Point, then a Debt Default Domino effect could begin which could Explode the $505 Trillion of Interest Rate Based Derivatives Monster (see bis.org for stats).
Do we have intimations of that already, with the recent Departure of the Deutsche Bank (with $Trillions of Derivative Exposure) Co-CEOs? Could these have been because of a recent Hidden Derivative Event??
Whatever the case, we will likely see more Derivatives-related Negative “Events” because the aforementioned Derivatives are highly levered and thus vulnerable to Untoward Events — “Weapons of Mass Destruction” Warren Buffet rightly called them.
This prospect plus the prospect of More Fed QE (as the “smart money” already knows) has already caused Bond Yields to spike this month. In other words, the aforementioned have caused Big Investors to increasingly doubt the ability of Central Banks to continue to Control the Bond Market. And we doubt it too.
In sum, any more Growth-Negative Reports from Major Economies will likely cause Major Equities Dips and Volatility Spikes. But we expect more Growth-Negative Reports.
Longer term, we agree with Shadowstats’ John Williams who says
“Significant upside Inflation pressures are building, … a process that should accelerate rapidly with the eventual sharp downturn in the Exchange Rate Value of the $US.”
Indeed, the Central Banks’ reckless Monetary Inflation will increasingly turn to visible Price Inflation.
Longer term, the Euro and Yen too will likely weaken along with the $US vis à vis the stronger Currencies (CHF and Canadian and Aussie $s and the Gold-backed [de facto] Chinese Yuan) and the Precious Metals.
Thus, Opportunities for Profit and Wealth Protection NOW(!) present themselves in Gold, Silver, quality miners, agriculture, and in carefully selected inverse ETFs.
July 2, 2015
Note 1: Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported June 18, 2015
-0.04% / 7.55%
U.S. Unemployment reported June 5, 2015
5.51% / 23.1%
U.S. GDP Annual Growth/Decline reported May 29, 2015
2.73% / -1.31%
U.S. M3 reported June 6, 2015 (Month of May, Y.O.Y.)
No Official Report / 5.05% (i.e., total M3 Now at $16.668 Trillion!)
Note 2: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s July, 2014 Letter entitled “Profit, Protection, Despite Cartel Intervention” in the ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation, and manipulation in other Markets. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.