Pundit's Perspectives – Mon 11 Jan, 2016

Bill Holter discussing a potential upcoming “margin call”

Dear CIGAs,

Those who have been reading my work for any length of time know I have been adamant we would someday face a “global margin call”.  I believe this call was issued last week!  No matter how you look at the world, whether financially, geopolitically, macro, micro or whatever …what underlies everything in our world today is “credit”.  Credit is used to build, wage war, to produce and deliver, to consume or to trade, EVERYTHING runs on credit.  As a side note, in order for credit to be extended, the borrower must have some sort of “collateral”.  This collateral can be physical, financial, or simply “faith”, meaning a good credit rating or at least trust by the lender.

We’ve now arrived at a point very similar to where we were in the fall of 2008 with several very grave exceptions.  The world is facing a global margin call again, only this time there are no sovereign entities left with a clean balance sheet that can be levered up further.  There are also no tools left available to the various central banks to administer monetary policy.  They have already printed, monetized debt and lowered rates to zero.  Richard Fisher has even admitted they have no ammunition left!  As a side note, rates were cut to zero to make the higher debt balances serviceable but now even zero percent rates are not enough.  From a macro standpoint, real economic activity is not generating enough cash flow (profits and tax revenues) to support this current debt.  Lastly, there is no more “collateral” left to borrow against.  Whether it be stocks, bonds, real estate, commodities or even “faith”, we are at the end of the road in the collateral department.

We have recently found out (not that we did not already know) through admission that many statistics have been wrong, and wrong for many years.  What was reported and paraded as fantastic employment news on Friday turned out to really be a stinker as the truth turned out to be a whopping 11,000 job gain http://davidstockmanscontracorner.com/newsflash-from-the-december-jobs-report-the-us-economy-is-dead-in-the-water/!  What would have been considered heresy just 10 years ago is now “normal”, the Swiss National Bank has become a huge global hedge fund http://www.zerohedge.com/news/2016-01-08/hedge-fund-known-swiss-national-bank-posts-record-23-billion-loss-down-4-eur-aapl-vr along with the PBOC http://www.zerohedge.com/news/2016-01-10/chinas-plunge-protection-team-bought-%C2%A518-trillion-stocks-2015 and Bank of Japan.  Does anyone doubt the Fed is not deeply in U.S. equity markets also?  What kind of monetary policy is this?  Sovereign “money” (currency) is foundationed on stock markets?  Please keep in mind that global trade is crashing with the Baltic Dry Index making all time lows this past week and reports of tankers (non oil) all over the world being docked and empty.  As for oil, there is such a global glut there are now fears of lack of storage space.  All of this points toward a collapsing real global (depression) economy …which must service the most financial debt in the history of history!

This past week, markets all around the globe convulsed greatly with almost nothing left unscathed.  There was a different excuse each day for the drops.  We first heard about the Saudi/Iran disconnect of diplomatic ties, then, everything was down because of the yuan devaluation and their market hitting the 7% circuit breakers.  I even heard someone say that everyone has such great profits they wanted out …but not until the 2016 tax year which is why they waited until the first week.

I do not believe any of it and would instead say we are simply receiving a global margin call.  This had to come sooner or later as the world sits upon the greatest credit build in all of history.  We are simply at the end of a “credit cycle” …unfortunately the largest credit cycle EVER!  Everyone “knew” this day would come yet no one paid attention to it in their daily lives as “life just went on” as if nothing was wrong!  I am sure we will hear reason after reason in the future …the real reason being too much debt with not enough collateral left nor enough economic activity to support it.  Simple!

Now, the margin call comes.  Now comes the great unwind!  “Collateral” of all sorts will be questioned.  The questions will be of the “strength, liquidity, ownership and even whether the collateral even exists”.  Everything will be questioned and nothing taken for granted or even at face value.  The issue of “trust” and even “who” can you trust will come forward.  Institutions who have traded with each other for decades will suddenly be looking at each other with different eyes.  Questions like “will I get paid” or “will I receive what I paid for” will be an everyday exercise.

There will surely be “blame” but what will it be?  Several years into the future it will be understood for what it really is, too much debt, leverage and financially modified products such as derivatives.  In the immediate, the blame might go on anything or anyone.  We could see a banking collapse  http://www.zerohedge.com/news/2016-01-08/35-trillion-neutron-bomb-keeps-kyle-bass-night in China, Europe or start somewhere insignificant like “Pottersville”.  It could be some sort of military action.  Maybe in the Middle East, Eastern Europe, China South Sea.  It could involve any number of characters from the US/China/Russia or Saudis/Israelis/Iran/Syria/Iraq?  Who knows?  It could begin with oil.  It could begin with gold.  It could begin with “truth” coming out in the form of a “truth bomb” and finger pointing.  We might see a global trade war or outright currency war.  Do the Chinese/Russians/and Saudis have enough Treasury securities to dump and cause an interest rate spike?  Are the Saudis still U.S. allis or do they view us now as pro Iran and they switch alliances?  Will, and which treaties will be honored when push comes to shove?  If I had to guess, whatever happens will certainly not be “petro dollar” friendly!

All of these questions and many more will be asked.  The most important of course being whether or not “you” can meet the margin call or whether you do business with a cross partner who cannot meet the call.  When I write “you” I mean to say everyone, every entity, and every sovereign government.  This is how we will get the long awaited reset, the markets will close and accounts will be settled and liquidated if necessary, only upon the reopenings will you understand what you really have.  The great global unwind is here and now with the most dreaded of all phrases about to be announced “MARGIN CALL GENTLEMEN”!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com


Featuring:
Bill Holter

Comments:
  1. On January 11, 2016 at 9:54 am,
    Mark says:

    Please Al………get Holter on as a guest! Everybody is talking about this article!

    • On January 11, 2016 at 10:52 am,
      Agatha says:

      Holter repeats the same over & over & over..
      As Bob M says they all get paid…

      • On January 11, 2016 at 1:36 pm,
        Big Al says:

        Yes,they all do get paid!

  2. On January 11, 2016 at 9:54 am,
    Mark says:

    2016…………………we’re done!

    • On January 11, 2016 at 11:04 am,
      Frank from moscow CCF says:

      we have be done for a long time……well before 2016…………

  3. On January 11, 2016 at 9:54 am,
    Robert J Moriarty says:

    All debts get paid. Either by the borrower or by the lender. But they all get paid.

    • On January 11, 2016 at 11:12 am,
      Dragonite says:

      Bob, you redefined the word “pay”. It should be called defaulted or forgiven if lender pays.

  4. On January 11, 2016 at 10:09 am,
    bb says:

    I thought Rickards was saying the next bailout would be by the IMF, then the sdr.

  5. On January 11, 2016 at 10:28 am,
    bb says:

    I found it on sgt report
    Rickards on Helicopter Money and Ariely on Confabulation
    from Boom Bust:

  6. On January 11, 2016 at 10:32 am,
    Robert J Moriarty says:

    bb:

    Another name for bailout is “shell game” where all they are doing is hide the pea under another walnut shell. But at the end all debts get paid.

  7. On January 11, 2016 at 11:44 am,
    bb says:

    Yes, but I think Rickards was talking about delaying, saying they are not out of options yet.
    If not that interview another one.

    Isnt revaluing gold an option? If all it would take is a revaluation to say…2500, I cant see that causing too many difficulties.

    I just cant see a complete societal collapse.
    The world has gone thru a change in the world reserve currency before.

  8. On January 11, 2016 at 12:44 pm,
    Robert J Moriarty says:

    With $500 trillion in interest rate derivatives and another $200 trillion in other derivatives, the wheels are going to spin off the wagon. For certain there will be financial chaos. The US is utterly unprepared.

    I like Jim Rickards a lot but he lost his fortune in LTCM and it was easy to see the fatal flaw in that. 51% of those in any market have to lose because of transaction friction. So when you become over 51% you are guaranteed to lose no matter what the bet or your position, fundamentals or technicals.

    The SDR is nothing but another walnut shell aimed at hiding the pea. Has anyone ever seen anyone actually win a shell game other than the guy moving the pea around?

    • On January 11, 2016 at 1:18 pm,
      Big Al says:

      Of course not, Robert!

  9. On January 11, 2016 at 1:24 pm,
    bb says:

    Thats true Bob, but without going to barter, the people need a currency, and as far as I can tell, the only thing needed is a “faith” in it, as you know anything will work, so convenience becomes a priority.

    So, where does the faith come from becomes a question,(its own discussion) I think, as faith is lost in one, another takes its place.
    We lose faith in the U.S. dollar, the yuan?sdr? will take its place,(being prepared now) and people not having a clue will accept the change, just as they have many times before.
    Sure, we go thru turmoil, but it shouldnt be the end of the world.
    At least thats how I see it.

    But yes, your right, I just dont see people catching on, and even the majority that do, wont care.

    We will overcome the turmoil, how is the question.

    Of course my optimism could be unwarranted, what do I know?

  10. On January 12, 2016 at 5:25 am,
    Evin says:

    Perhaps we should consider the solutions offered by new ideas for global commerce.
    If the problem arising is a matter of trust, “will I get paid” , “will I recieve what I paid for”
    lets examine the premise of Blockchain Technology vs the system of centralized banks and how currency units get created, who controls them once created and transparency.

    All commerce is just math, trading property, time, some for, of money. The “trust” issue can be resolved if we all play by a rule we agree to and agree to resolve disagreements according to agreed methods.

    If that doesn’t occur we have a problem that is resolved in other ways often less desirable.

    If you can’t wrap your head around bitcoin or the blockchain, imagine a block of clay.
    A sculpter is akin to a software programmer, and can make anything out of the block of clay. Same goes for blockchain as a instrument of creating solutions within a medium of rather than clay, its code, math, rules of alogorithms.

    Every civilization builds on its past. My view is the currency units which we call fiat, are about to,be canabalized and yet they each have some merit in exchange for a digital currency which is the future method of transacting.

    We have say 200 Trillion units of currency. We have many new ideas like Ripple, Ethereum, Bitcoin, Blockchain, SmartContracts. These are layers of infrastructure that will create new industries and innovate old ones.

    As one system is falling down and questionable. Another system is growing up around the demise of the one that is falling. As ideas compete, best solutions move to the front and get adopted quickly, then iterate and evolve.

    Ask yourself have you ever looked at the mechanics of a typewriter from the 60’s and admired the design of the IBM minds that innovated from 26 shaped metal bars with letters on them to evolve then to a single sphere or ball with ever character graphed out on a co-ordinate… it was quite a leap. Perhaps boring until the teletype, the fax machine, the dot matrix to the laser, and now text msg and wireless everything.

    The point is. Money is now able to be something it’s never been… a math protocol with global consensus where humans need not trust the counterparty because the technology solves the trust issue and does so without intermediary who adds no value to the transactions.

    All the shenanigans with gold, oil, dollar they all are bringing us to a place where we want to lock up the crooks and get back to honesty and transparency. This new technology has a better shot at achieving that than the antiquated systems in place now.

    Here me loudly on this, Blockchain is the precursor to something much more economically huge than the discovery of oil. The internet is big. Oil was bigger, Blockchain trumps both.

    The current banks are “fax machines” and soon every person will carry a central bank around with them. They will not others to create currency for them, and tell them what value it is or isn’t.

    When I say that you are thinking I mean bigger as in big, we
    well you are wrong. I mean bigger as in small. Very very small.

    Smaller means more precise. More precise means efficiency on a scale never thought possible. Every industry is about to get “blockchained” and that means efficiently run to the smallest numbers possible. This will save money, earnings will improve, but more important the money will be actually in demand and desired for its new attributes and benefits that fiat never had.

    Made possible by new technology the size of a nano particle that can be sent wirelessly anywhere to anywhere. It can measure any transaction, any asset any service or product and any activity in business to the 0.000000001 decimal place at a cost so low, it’s going t create value unseen in our time. When you go big by going small, you create enormous value for all. Things that were not economic on the Internet are now very possible.

    So much velocity of money is going to be unleashed that value will be unlocked in ways never imagined. It’s going to be the 200 trillion on one side of a dam, unloaded to flow into a limited river of commerce one the other side of the dam. It will have such force and effect it will cut new channels and rivers of commerce on land never to have seen such a medium before.

    Everyday for every corner of the globe I see ‘block chain’ white papers, conferences, startups, finance deals…. it was a trickle in 2013, a steady drip in 2014, and by the end of 2015 it was a flood. The flood gates are now open. 5 years to implement.

    We are about to witness the most epic changes of a lifetime. Perhaps in all lifetimes. Humanity is about to be liberated from darkness and be permitted a freedom of sorts unimaginable… and the folks trying to hold back this dam have lost and they are about to be drowned. No one will throw them a life preserver. They are done. It’s over. Arrests. Disclosure. Renewal of principles. Our future is what we make of the ashes.

    That is my view. I don’t have answers to ‘why’ but my observations are we are at the inflection point. Every soul has a role to play and if you are here now, it’s game on for you and if you don’t think you can make a difference then make a memory of being a mosquito in a camping tent. if you are that mosquito, you are making a difference.

    That really annoying pesky mosquito in the blockchain world is a 1/100,000,000 th in size.
    Its just that you can’t kill it. It is going to disrupt every facet of global commerce internally externally and internationally.

    By 2025 what you get rich in, is trapped in the mind of a 15 year old and will come to you through a technology not here yet, through a medium not possible for you to imagine yet in an industry that doesn’t exist yet for a product that solves a problem that hasn’t been created yet.

    So stop worrying.
    The blockchain has your back and they have shot the Fed in the back.
    The Fed is a typewriter in a world of cars that fly as drones like Elang in china.
    Its onto something better. A whole new better idea. Adopt early. Be happy,

    • On January 12, 2016 at 6:50 am,
      confused says:

      Yes but you need an open system like Bitcoin to really take on the global banking cartels. This will happen as it is not controlled by one centralized scamming elite. Western Union is going to be destroyed by this new tech. It might take another 15 years, but that is the future. The 9% they charge to migrant labour to send money back home will be slashed to less than .005%. This is a game-changing technology. Pay systems like the one from Apple will eventually die off as 90% of the world does NOT have an i-phone and more importantly, it is a closed centralized payment system.

      • On January 12, 2016 at 7:50 am,
        Big Al says:

        Appreciate your opinion Confused.