Special guest Graham Summers is the Chief Market Strategist for Phoenix
Capital Research, an independent financial research firm based in Charlottesville,
VA. He writes Gain, Pains, and Capital, the firm's FREE daily e-letter
covering the equity, commodity, currency, and real estate markets. Graham also
writes Private Wealth Advisory, a weekly investment advisory devoted
to helping paying clients navigate the financial markets and produce outsized
returns from their investments. To whit, Graham called the 2008 Crash and was
one of the few newsletter writers to produce positive gains that year . Graham
Summers worked as a Senior Financial Analyst covering global markets for several
investment firms in the Mid-Atlantic region. He has made presentations on investment
ideas to high net worth clients in Dubai, Singapore, Zurich, Playa Del Carmen
and his research has been quoted by Crain's New York Business, Money Talk
Radio, Reuters, and RollingStone Magazine to name a few publications.
Financial Repression
"When I think of repression I think of the Psychological concept that repression
is the suppression (or pushing back) of something that is too painful to deal
with in sort of a conscious way. That is exactly what the central banks of
the world have been doing essentially since 2008. What we had in 2008 was the
beginning of a debt deleveraging cycle o the dreaded debt deflation. The economists
often like to argue that deflation is terrible but they are being overly general
because deflation is actually a wonderful thing (we all want to have things
we want to buy be cheaper) but the issue for the economists or Keynesian's
is 'debt deflation'".
When debt begins to deflate you run the risk of becoming insolvent particularly
in the bond market.
"Because we have been in this debt leveraging cycle for over 30 years ( a
bond bubble would be the simplest way of putting it) the central banks are
all terrified of a bond bear market because that means that almost instantly
all developed nations are bankrupt because the way they have papered over the
decline in living standard is by issuing more debt. It has gotten to the point
now where because we don't have the money to pay the debt back we are issuing
new debt to roll over the old debt (or pay back the old debt)."
"It sounds like a Ponzi scheme and it actually is! It works relatively
well while the bond or underlying asset is rising in value because the debt
is getting cheaper and the yield is falling
"When it reverses if you don't have the money to pay back the bond so you
start to enter a deflationary cycle which is what we had in 2008.
Watch What the FED Does - Not What it Says
"Most of what the central banks talk about is nonsense. If you watch their
actions it is about how do we stop the bond bubble from blowing up? They have
done that by three ways:
- They cut interest rates down to zero. By doing this they made it much easier
to finance debt.
- They began engaging in Quantitative Easing (QE). They essentially print
money and buy large assets from the banks. It started out as Mortgaged Backed
Securities (MBS) because they were the assets devaluing fastest. The second
and third rounds were just attempts to keep the whole thing afloat. By Buying
bonds you are basically broadcasting to the world I am going to be buying
this asset in the near future. The most obviously trade is then for you to
buy the bond before you and then turn around and sell it to you for a profit.
Globally investors have essentially been front running the central banks.
- They suspended accounting standard. This was so banks weren't forced to
sell devaluing products but could maintain using them as collateral at higher
required values.
"Essentially Repression was the Central Banks trying to repress the terror
of debt deflation!"
"All of this has manifested a sort of financial perversion where you seeing
capital doing all sorts of crazy things and flowing into areas it would have
never gone to before because risk has been so mis-priced by the market."
Troubling Issues
- $555T INTEREST SWAPS
- All Interest Swaps are trading "hinged" on Bond Collateral which is in
a massive bubble,
- Something may be up when the Plunge Protection Team takes up increasing
residence in Chicago where Bernanke is now consulting to Citadel (the largest
High Frequency Trading player in America) also in Chicago.
- $72T SHADOW BANKING
- The source of the 2008 Financial Crisis has mutated to new instruments
to borrow short to finance Student Loans and Car Loans. The Shadow Banking
Systems now "hinges" on Repos, Collateral Transformations and Rehypothecation.
- USD CARRY BLOWING UP
- The $9T US$ carry Trade is hinging on ~$5T in merging Markets which ar
now on the wrong side of the trade as the US dollar spikes,
"When it gets serious you can expect the central bankers to lie!"
Video: Financial Repression Authority with Graham Summers
Published 04-28-15
34 Minutes
