New post from Gary Christenson
The Titanic Sinks At Dawn
What Titanic? The RMS Titanic, or any of the following:
- A titanic quantity of derivatives – say 1,000 Trillion dollars. A derivative crash was at the center of the 2008 market meltdown. It could happen again since there is now more debt, leverage, and risk than in 2008.
- A titanic accumulation of debt – global debt is approximately $200 Trillion. Global population is about 7,000,000,000 so there is about $28,000 in debt per living human being. If global debt were backed by all the gold mined in the history of the world, an ounce of gold would back $36,000 in debt. Gold currently sells for less than $1,200. Gold is undervalued and there is an excess of debt.
- A titanic increase in debt in the past decade. Official US debt increased by over $10,000,000,000,000 in the past ten years. What did the US gain from the increase of $10 Trillion in debt? Are debt accumulation and expense policies materially different in Europe or Japan? Was the debt used to create productive assets or was it just flushed down the toilet into non-productive expenditures? THE BENEFIT IS GONE, BUT THE DEBT REMAINS. This debt accumulation policy is neither good business nor sustainable.
- A titanic bond bubble. Since interest rates are currently at multi-generational lows, or 700 year lows in Europe, or perhaps all-time lows, that strongly suggests a bubble in bonds. Would you buy a bond from an insolvent government knowing the government will pay you next to nothing in interest over the next ten years? Further, the government is guaranteeing a devalued currency so any dollars, euros, or yen you eventually receive will be worth much less in purchasing power than today.
- A titanic currency bubble in the US dollar, which just hit a 12 year high after a parabolic rise since May last year. Experience with parabolic rises suggests extreme caution.
- A titanic collapse in the crude oil market. Supply is strong, demand is weak, and prices have fallen to about $45 from about $105 last June. The last time crude oil prices fell was from July to October 2008, a most difficult time.
The titanic creation of paper assets such as bonds, currencies, and stocks has created substantial risk. That risk has spilled over into the crude oil, gold and silver markets since they are strongly influenced by the paper derivative markets – paper contracts for crude oil, paper gold, and paper silver. Leverage and derivatives magnify risk. The instability will eventually create a second version of the 2008 recession/depression.
MORE SPECIFICS:
Business Inventories to Sales Ratio looks like 2008: This ratio is discussed here. When people and businesses are buying less inventories increase and that affects businesses down the chain including manufacturing, retail, and transportation.
More Crazy Stuff Coming: Read David Stockman’s article.
Margin Debt on US stock exchange: Margin debt peaks along with S&P 500 index. See discussion here.
Ten Year Yields: Yields are low in the United States and Europe. German five year yields went negative this week and ten year yields are less than 0.3%. Such negative yields would have been unthinkable a few years ago. I think a titanic disappointment is coming. Martin Armstrong discussed negative interest rates in his article, “Negative Interest Rates – Brain-dead Thinking that Will Implode the World.”
S&P Earnings per Share versus price: Graham Summers discusses in his article, “This Divergence is Worse Than That of The 2007 Top.”
S&P Prices up 200% in Six Years: The S&P 500 Index has been levitated by central banks “printing” money. In March of 2009 the S&P was below 680 and today it is above 2,000. See this article for discussion and warning.
Examine this monthly chart of the S&P 500 for a 20 year perspective. The chart shows three massive tops in 2000, 2007, and 2015. I have circled the “over-bought” conditions shown in three technical indicators at the bottom. Note that all three have “rolled over” as they did in 1999-2000, and 2007. Perhaps the final peak has occurred or perhaps it is still a few months away, but regardless it is a time for caution.
Bill Bonner has written about crash conditions and specifics surrounding the 2008 crash, here and here. Regarding September 15, 2008 he quoted Representative Paul Kanjorski of the 11th congressional district of Pennsylvania:
“The Treasury opened up its window to help and pumped $105 billion into the system. And it quickly realized it could not stem the tide.
We were having an electronic run on the banks. They decided to close down the operation… to close down the money accounts. […]
If they had not done so, in their estimation, by 2 p.m. that day $5.5 trillion would have been withdrawn. That would have collapsed the US economy. Within 24 hours, the world economy would have collapsed.
We talked at that time about what would have happened. It would have been the end of our economic and political system as we know it.
People who say we would have gone back to the 16th century were being optimistic.”
CONCLUSIONS:
Our financial system has titanic problems, leverage and debt worse than 2008, and is vulnerable to a crash. Large icebergs lie ahead and I suspect that our financial ship has already been struck by several – crude oil price collapse, dollar parabolic rally, Greek exit from the Euro, and escalating war in the Ukraine. Ten minutes after the RMS Titanic struck the iceberg and began filling with water, the “party was still on” for almost all of the passengers on the Titanic. Less than three hours later the “unsinkable” Titanic was gone.
Over 100 years later some items have been recovered from the Titanic. Three items that survived the icy depths were diamonds, gold, and silver.
Repeat: Lives were lost, paper stock certificates were gone, bonds did not survive, dollar bills were destroyed, but gold and silver endured the sinking of the Titanic over a century ago.
Are you prepared for the possibility of a titanic failure in our financial system?
More reading:
Chris Martenson Is It Time To Prepare for War?
James Rickards: Three Catalysts for the Price of Gold
Alasdair Macleod: An Austrian Take on Inflation
Gary Christenson
The Deviant Investor
Bird thinks he is an alpha dog, but his wife knows better.
more like alpha bet soup……………..
just kidding birdie…………
Question…….WORLD DEBT…$200 TRILL…..seems low………any comments, I am to lazy to look it up………………………j…..
This number must be recorded debt,,,,because Kotlikoff said there is $210 trill in unfunded liabilities in US alone.
intraday price swings are very strong. My preferred stocks are up slightly , my Dr. Pepper stock has not moved much , but i hope for a modest move when spring breaks. best to you all S
R scott, I read today that a woman who was over 100 years old was asked “what’s the secret”, she claimed she drank three bottles of Dr. Pepper every day and that her doctors had told her this would kill her, she said these doctors aren’t here anymore but she is. Maybe Dr. Pepper is an anti aging drink, the experts are rarely right just ask Bird. DT
Jobless CLAIMS UP……….FOUR WEEK AVER..304,000 …..2.4 MILLION not working and receiving ………………
Don’t worry only FAKE MONEY TO EAT FARE FOOD !
Watch the unemployment rate move lower. Ha!
The canary in the coal mine was the utility sector leading the S&P last year.
Whitehouse is going solar………..per Obama………I think he said the staff, all members will be driving electric cars……and since there are 600,000 employees in the federal govt. and the largest single user of electricity….that alone could SHOCK the system………..
The riots in Frankfurt, Germany will mark the end of free movement of workers in Europe.
Maybe not tomorrow, but by negotiation soon.
This will be followed by repatriation of economic immigration from Africa and Islamic terrorist subversive immigration, not soon enough perhaps but countable in years by the fingers on one’s hands. Or war will come first and all immigration will then stop.
If YOU come from an ISLAMIC STATE,where they cop off your hand for stealing,,, you might have to count on your toes………………
We know all this already. It hasn’t made any difference. Tell us something new.
Agree Dave. It put me to sleep. It’s the same tired out stuff that previously ruined the fortunes of a lot of gold bugs. Nobody believes it anymore. In fact you are the only guy who even commented on it so far.
Wow, it seems all the guru’s are asleep at the wheel these days.
1. How is low oil prices going to hurt anything but the fracking industry? Low fuel prices helps the economy.
2. The bond bubble will be corporate bonds, not countries bonds.
3. The derivatives ( for the most part ) are going to be offset or unwound, as they are only fiat paper. The debt is all BS.
4. How would the fed raise rates if we were not going to have a liquidity creating event? Answer: they couldn’t !
5. The stocks must crash one day to wash the system, to bring in the new.
6. Why is the dollar soon to top ( if not already happened ) and commodities just weeks from a bottom? Answer: Because money is going to be chancing commodities. Because a liquidity event is coming. Because a new financial system is coming! Because bonds and currencies are going to be asset backed.
And that is what saves the system. But not the stock market.
Chartster:
How are low oil prices going to hurt anything but the fracking industry?
92% of Alaska’s unrestricted revenue comes from oil,not fracking.
Another consideration is the quality of the job lost.ie 1 oilfield job equals 4 retail jobs, so you can multiply every oilfield job lost x 4.
The ratio of civilian employees verses the government employees becomes a factor with every job lost.
The fracking miracle has been leading the recovery of the economy pure and simple.
The domino effect from these lost jobs is yet to be felt, not to mention the reduced earnings of every company associated with the oil industry.
At some point,depending on how long companies have hedged themselves,these hedges will have to be renegotiated.
We are the slaves of Saudi Arabia and Opec.
Although I agree with most of what has been said, I have a couple of points.
1. Increased US oil production over the past years have been a major driver for the US economy. Low oil prices on the whole are not good for the US.
Low oil prices ( and other commodities) are a catastrophe for most third world countries whose main revenue comes from oil (or commodities).
2. Hydraulic fracturing is not an industry, its a process to enhance oil or gas recovery and is mostly carried out by one of the big three energy service companies (Halliburton, Schlumberger or Baker). The fracking fluid pumped is derived from the food industry (was not always that way). Its been around since the forties with more wells fracked overseas than in the US. Shale gas and oil reservoirs utilize fracking services more than conventional oil and gas wells.
I see some posters have not lived in an oil dependent region,state,province or country.
$42 oil does not help all economies.
It does help America’s political agenda which is what they are all about with all commodities they control in Fed linen.
The world is ditching the dollar. Nobody has to explain why that is.
The oil companies and industry surrounding petroleum were making plenty of money before oil went to 100 dollars a barrel. The boys in west Texas still make big profits at 30 bucks a barrel.
The speculation or derivatives was the driver of price when they deregulated in late 08.
They were making more money on the speculation than they were the physical delivery.
Oil was only above 50 bucks for five years. There was life before then. The world was turning before 5 years ago ( believe it or not )
Sorry Chartster, the kool-aid tastes funny.
High Energy costs are a necessity for the advancement of alternative Energy.
I agree with that statement.
And the cool aid does taste really weir when everyone knows that all markets are manipulated by fiat money and derivatives. Yet when oil drops, and cnbc reports it’s about supply and demand, everyone bites that lie hook line and sinker.
CNBC is pouring the kool-aid.
Oh birdie………….GOLD IS UP…….
They are just sucking them in JLong….
It looks to like the banksters might be the only BULLS left right now. So team Shorty Pants is probably the one getting sucked in right now.
I wonder if anyone reading this has the nerve to short this rally (I mean NET short, btw).
Chartster……I think you are correct…..
BIRD YOUR BOAT IS BACK……………