-- Published: Thursday, 1 October 2015 | Print | Disqus
My Two Cents
By Andy Sutton
It has been 7 years now since that fateful weekend when the story leaked out in bits and pieces about what was called a ‘problem’ at Lehman Brothers. It started on a Friday night and by the time Sunday night rolled around and I embarked on my weekly Blog Talk Radio podcast, it was very obvious there was something terribly wrong. I was getting calls from concerned clients about what the next day might bring – a rare oddity for a Sunday.
In typical fashion there was little in the way of information until after it was far too late for the average person to dodge the storm. We made moves the Monday after Lehman that turned out to be good ones, but there was a price to pay for being even a day late. The next six months would provide a theater of shock and awe with gyrations in financial markets that gave observers whiplash. Fear was through the roof, and the economy ground to a halt.
The point of this piece is not to chronicle those events but to hopefully in some small way answer the question a lot of people are asking again – is there going to be another wipeout in the markets? For those who pay attention to these matters, the fear of the bear of 2008 is still fresh in their minds. The entire system was rocked – shattered if you ask me, as I believe that our economic and financial position has never gotten close to regaining the ground lost during that 6 month period from September 2008 through March of 2009. There is a misnomer in that last sentence that I’ll address pretty directly. The crash of 2008 was different than any of the crashes since the great depression simply because not only were banks and other large financial institutions able to leverage themselves beyond repair, but they were given the ability by our leaders to leverage the economy at large as well. That reality still exists today.
Those of you who have been reading this publication since 2006 know that I flatly refuse to attach timelines to any financial or economic progression of events simply because I am not clairvoyant (and neither is anyone else). Anyone who chooses to analyze the economic data makes predictions based on the preponderance of the evidence. The cloak and dagger stories of ‘inside sources’ are, for the most part, fabricated for the purposes of generating website hits, exposure, and income. I am firmly in the camp that believes that the establishment, if you will, likes people to know what they are up to – to a certain degree. To that end, the establishment will allow the dissemination of certain pieces of information. Listen to any of these banking bigshots, policymakers, and moguls. They are by and large very arrogant concerning their ability to manipulate, massage, and morph reality into whatever they choose when it concerns the world of money. We’ve all known arrogant people and the one thing they love to do is brag, right? These folks are no different. So I do believe that they allow a certain amount of information to make it to the listening public. However, there is a limit. They’re not going to tell you their deep dark secrets such as timelines. We might get the ‘what’ and the ‘where’, and perhaps even the ‘how’ if we’re really lucky, but the ‘when’ is usually left to the rumor mill. So we have to look at the preponderance of the evidence, chart a course based on what is most likely given what we know, then take a reasoned and balanced approach.
So why spend a lot of time on this? Because it is a dangerous time of the year. It is the fall, the end of the cycle, if you will. Most of the really bad stuff that has happened in the financial world has happened in the last 4 months of the year. Maybe it is a coincidence, maybe not. Instead of making dire predictions of ‘when the market crashes this fall’, which we hear so often in the fright videos on the Internet at 2am after a fruitless attempt at sleep, I’m going to spend this time together talking about possible triggers – and also lay out the case why this year might not be the ‘big one’. It is my hope that readers will take a look at everything, and then make a better-informed decision about their own personal circumstances.
Tricks, Treats, and Triggers
This list will not be all-inclusive, but will focus on the likely triggers for another 2008. Understand first that I am of the opinion that 2008 was a purposeful event, not an accident. The powers that be knew exactly what they were doing. The erroneous statement made so often by the media that ‘X billion dollars were wiped out when the Dow tanked today’ is pure baloney. Much in the same way the misinformation flies when prices for something fall (like houses – remember that one?), a drop in the markets is painted as a deflationary event. It is anything but. Markets are a zero sum game. I used an example of how the drop in the value of housing is not deflation in a prior installment. The same applies to stocks, bonds, and so forth. The money doesn’t disappear; it changes hands. That is important to understand and I assert that the deception is intentional. It is a lot easier for the establishment if the investing public thinks their money disappeared instead going into someone else’s pocket when markets drop and they decide to liquidate positions.
So if engineering a market mini-crash causes money to flow from small investors to big ones, banks, or the establishment in general, then it seems pretty logical that we have a good place to start when assessing cui bono. Given that these same establishment parties also have the blessing of governments around the globe to conduct their business in a manner that is detrimental to the little guy while being beneficial to themselves, it quickly becomes apparent that the establishment has the motive, means, and opportunity to perpetrate these crashes. Considering also that there is (in America specifically) a Plunge Protection Team aka The President’s Working Group on Markets that exists for the sole purpose of mitigating these out of control crashes, one must wonder how the little guy got wiped out in 2008.
With all that said, let’s get to some likely triggers:
1) America’s Debt Addiction
This is an ‘old’ story but it is probably time for an update. Recent news has been focused on the shrinking federal budget deficit and the ‘fact’ that the deficit will likely be the lowest in the past 8 years. Even if that is honestly the case (which it probably isn’t), America continues to pile up debt. There is enough anecdotal evidence to conclude that there is a good deal of accounting chicanery at play here and that the deficit is likely not improving at all. There are even some analysts who will contend that the deficit is actually getting worse.
However, arguing out the actual numbers is not beneficial when it comes to looking at the financial system overall. What is more interesting is that China just dumped the largest amount of US Treasuries for any month EVER during August. The Chinese, who have been supporting the Dollar for most of the last 20 years as part of either an implied or express agreement where the Chinese were given access to the American consumer – the largest consumption market on Earth – in exchange for China buying American debt. In other words, America enabled the Chinese to go through their own modern day industrial revolution of sorts and develop themselves as a manufacturing power. What did America get? Access to cheap stuff, which served the establishment in this country because it allowed inflation to be hidden by lower prices on subpar quality goods.
This debt for growth and pricing power is very similar to the arrangement between the US and the OPEC nations. OPEC was giving access to the American market with pricing power in exchange for OPEC purchasing American debt. The game hasn’t changed – America is a nation in debt, addicted to debt, and in need of new and creative ways to ‘sell’ its debt all while making it look totally normal to the observer. It is becoming quite clear that there are more and more players who are tired of this game.
Remember back a few years when the markets went absolutely wild because Congress was arguing about the debt ceiling and there was a bluff by certain of the nation’s leaders to not raise it again? There were a few minor skirmishes after that, but when was the last time anyone even heard the term ‘debt ceiling’? It proved far easier to shelve that particular concept, perhaps for a rainy day when the establishment wants a little volatility to move some money around.
The bottom line here is that the issue of debt – at any level – can pop up at any time. I’ve often contended that the current state of ever-increasing debt will continue on its course – until it doesn’t. There is a brick wall out there somewhere. While I will readily admit that I don’t know at what point we’ll hit it, I know it’s there and I know that every day we continue this unsustainable and foolish trend of debt accumulation, we get closer to hitting that wall.
2) Chinese Handcuffs
The not-so-gentle August we witnessed in the financial markets was largely blamed on China. First on the revaluation of its currency, then secondly on the fact that the Chinese economy is slowing. We and many other analysts have remarked over and over that the 10+ percent growth levels China was seeing were not sustainable – if they were real to begin with. Much like their American counterparts, the Chinese leadership is very much into subterfuge and cooking the books. Why should they do any different? In an age where perception is reality and the ability and willingness to think critically has all but disappeared the environment is ripe for lies.
Regardless, it is interesting to note that China’s slowdown is blamed in part for the turmoil in the world’s financial markets right now, yet nobody is really saying too much about WHY China is slowing down to begin with. The truth behind door #2 is that the world is in a recession. Aggregate demand is down. Europe is a mess, and is now overrun with migrants from Turkey and elsewhere. Europe’s debt problems have been simmering for years now, which we’ll look at in a bit. America is convinced she can borrow her way to prosperity, and the Chinese leadership is still too communist to allow their lower classes to partake in the giant wealth the country has assumed. Doing so would make the country a bit more self-sufficient.
China says it doesn’t want a currency war and that triggering one wasn’t the reason for the devaluation of the Yuan. That is merely political rhetoric as there has been a quiet currency war going on for some time now. Now that the struggle has become too much to keep quiet, all the players are scrambling for position. There has been the undertone that the Chinese are somehow superior to the rest of the world. Perhaps strategically they are; after all, it’s a civilization that has been around a very long time. However, the Chinese are not immune to the same shortcomings that now have much of the West economically handcuffed – greed and avarice to name just two.
Still, the Chinese shouldn’t be provoked too much, especially by America. Imagine the shock if the steady flow of container ships into America’s west coast suddenly stopped. Most people think that’ll never happen because doing so would hurt China. This is true, but imagine how much more it would hurt America if Wal-Mart’s shelves went empty. Last month’s mass dumping of nearly a hundred billion in American bonds was likely a less-than-subtle message to the local intelligencia of the West – don’t mess with us because we hold the aces. If China were to dump USBonds, the prices would tank and yields would go through the roof. The not-so-USFed would be forced to either stand back and watch the debt-addicted USEconomy disintegrate or assume its role as buyer of last resort. We realize we’re talking about another outfit that keeps shoddy books, then refuses to even let those be audited, however, after some intent observation, it is becoming pretty clear that the not-so-USFed had to step in and buy up at least some of China’s mini bond dump. Not that the central bank wouldn’t mind owning an even bigger piece of America, but it makes us wonder if they’d like to see the charade go on a little longer. There is more of the carcass still to be picked.
3) Iran’s Nukes and Anti-American Rhetoric
We have not talked too much about Iran and it’s nukes or plutonium, or centrifuges, or whatever it is that the Iranians may or may not have. From time to time they’ve been accused of pretty much everything short of the Kennedy assassination. The accusations fly when the establishment wants to gin up some support for more troops or another war or more defense spending or more abuses of the Bill of Rights – all in the name of security and safety of course.
The rhetoric against other nations, including Israel and America has ramped up over the past few weeks. Another war anywhere would certainly be a logical trigger for a continued rout of global markets, especially one including a nation or nations with nuclear capability that have already been designated by the stuffed shirts in the media as being ‘fanatical’, ‘unstable’, or some other derogatory label.
Oil plays a role here too. The absolute slaughtering of the price of oil, while providing much needed relief for stretched Americans and other Westerners, has put the crunch to the big producing nations. Another seldom mentioned consequence of the oil price rout is the fate of American shale oil and gas. With all the money and resources poured into ramping up production of shale oil, the crash in price is going to leave the already broke USGovt with two choices – deal with the massive unemployment and further erosion of downstream aggregate demand concomitant with the collapse of any industry, or subsidize the industry as has happened so many times in the past.
Oil remains center stage and we’ve already fought plenty of wars over the stuff and the players are lining up once again. Oil is big money, and quite honestly is a currency in its own right. Think PetroDollar and another war over oil and the power it represents really isn’t that far-fetched. It really isn’t hard to conjure up what the likely consequences would be for financial markets in the wake of such an outcome.
4) The Eurozone and Capitulation of Germany
There have been roughly a half dozen mini-shocks to financial markets over the last half dozen years surrounding the Eurozone, mainly in the form of Greece and the rest of the PIIGS. Most of the bigger shocks have revolved around Greece, and it’s tendency towards thumbing its nose at the IMF and European Central Bank. They made their bed much like America has, aided by ever-benevolent bankers looking to create a second round of global Feudalism. But the Greeks are less willing to want to lie in that bed. The latest round featured a face off between Greek leaders and the IMF/ECB cabal with Greek leaders taking the issue to people, who voted to tell the cabal to take a really long walk off a short pier. At the eleventh hour, the leaders blinked and yet another bailout took place and the Greeks lost even more of their sovereignty as a nation and took another step towards total debt servitude.
The debt isn’t just an American or European problem though. Debt is a global issue. One thing never discussed is whom exactly all this money is owed to. Every time there is a flare of a debt crisis, markets go berserk for a few weeks and even more money changes hands and is consolidated into the hands of a few. This is the sort of ‘stacked deck’ capitalism or soft-communism the establishment of the world has embraced and We the People among many others have approved by our silence apathy.
At a time when it is becoming more and more likely that the top of the 2009 rally is in, any type of blowout in Europe, Greece, Cyprus, or elsewhere could easily turn into a catalyst that propels markets towards 2008-like declines.
The Case for Kicking the Can Down the Road
We’ve discussed some possible triggers for another 2008-style market plunge. Then there are the dozens of potential black swan type events as well. These are things that come out of nowhere and hit markets at a vulnerable time. With all that said, let’s look at the case for maintaining the status quo.
Personally, what we both believe is that we’ll end up with another Bear Market – which has already been confirmed by Dow Theory for those of you who follow more quantitative style analysis. The proportions of the Bear are going to be factor dependent. There is untold leverage at work here and has been since 2009. The bail-in is now another added level of danger that involves not only investors, but also anyone with a bank account. We see greed as the primary motivating factor – not a big surprise or any kind of revelation. Because of that, our collective opinion is that the establishment likes the idea of periodic blowouts to consolidate wealth. That’s a fancy term for stealing vis a vis legal means.
If the establishment’s goal is a form of neo-Feudalism where there are several classes, the biggest of which would essentially be debt slaves, then there is motivation to keep this whole charade going a while longer because there are still a lot of people who have not yet succumbed to the idea of being in debt, and working to make payments of one type or another. The idea of lower gas prices adds some relief for these folks on the margin and might encourage some to feel better about taking on new debt to purchase a well-deserved toy or go on a shopping binge. America as well as much of the Western world is a place where success is measured by the amount of possessions one has, especially in the middle to lower middle classes. It is our opinion that there is a decent amount of low-hanging fruit to be picked. Another rout in the financial markets will put more of those people into borrowing mode. There will always be the holdouts that would rather do without than go into debt. The establishment will deal with the holdouts in other ways.
If the goal is chaos, martial law, and a police state as many suggest, then there is still going to be the motivation to squeeze as much out of people as possible before throwing down the gauntlet on them. At this point, we feel that there is a good likelihood of another moderate to severe consolidation event, but that things will return to a state of pseudo-normalcy afterwards and the cycle will repeat and the timelines will continue to compress with major events happening with more frequency and with less of a refractory period before the next crisis. That has been the trend for nearly two decades now and we see no reason why that will change. If anything, it is a function of the leverage in the system and the deception involved to maintain it. We show a 100-year chart of the Dow Jones Industrial Average below to close this installment. Sometimes a picture is truly worth a thousand words.
The not-so-USFed’s much anticipated meeting this past week has come and gone without even a budge in the easy money policy that has been in place for nearly a decade now. It was nothing but a big bluff, very similar to what has taken place before. Oddly, markets didn’t react to the continuation of ‘easy money’ too kindly. US equities rose briefly, then sold off hard in to the close with strong follow through on Friday 9/18/15 on very high volume. This cause-effect display raises a significant question (or maybe many): Is the not-so-USFed going to have to do additional QE to stimulate markets? Is this going to be what we speculated about above and end up being another 2008-style consolidation event followed by additional ‘stimulus’? Did the central bank balk this week because of interbank risk (check out the TED Spread)? Or, did it balk because of encouragement from other central banks to do so? Maybe all of the above or some combination?
My point in raising all these questions – and you can probably think of a few more on your own – is not to confuse, but to point out that this, much more than 2008, is a global event. By comparison, 2008 pretty much originated in the US and spread elsewhere. This time around, the entire world is in trouble at the same time. Emerging markets are riddled with debt, asset bubbles, and market turmoil as is the developed world. Oh what a web we weave when we set out to deceive. The central banks have been playing their games for a long time now. David Stockman pointed out that more than an economic event, what we’re seeing now is a central banking event as he pointed out red flag after red flag.
That said, we stick by our thesis that there still could easily be plenty of time left in this cycle. There is still much fleecing to be done. Contrary to what quite a few analysts believe, the global banking cartel isn’t out of ammo yet. However, it is becoming clear that for the average person – especially one with savings, the best offense is going to start with a great defense and out of the box thinking. This doesn’t entail buying paper assets to protect oneself from a purported collapse of paper assets as many of the fear-mongering publications and shock videos will assert. That isn’t sound reasoning. It’s like buying gasoline to protect you from a fire. Ourselves along with many others have made suggestions regarding asset planning that don’t involve accounts, securities, or paper at all. Many don’t even involve precious metals, but are focused on day-to-day living and looking ahead along with rearranging needs and wants. If you want to run to the banksters and their various ‘products’ to protect yourself from the shenanigans of those same banksters, that is your right and prerogative. However, some open-minded and out of the box thinking is precisely what this country and world are going to need when the deeds are done and it is time to clean up the mess left by a century of central planning lies. Today probably isn’t a bad time to start doing so.
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton & Associates, LLC
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Interested in what is going on in the markets and the economy? Read Andy Sutton's weekly market and economic commentary 'My Two Cents' - go to www.my2centsonline.com
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-- Published: Thursday, 1 October 2015 | E-Mail | Print | Source: GoldSeek.com