|
Sometimes it’s critical to look clearly at the big picture.
The big picture is that the financial world has allocated capital… trillions
of dollars of capital, based on Central Banks trying to corner the bond
market.
In the current debt-based monetary system, sovereign bonds are the bedrock
of finance.
Every other asset under the sun trades based on where sovereign
bonds (like US Treasuries or German bunds) are trading.
So if Central Banks are manipulating bonds via QE purchases and ZIRP/NIRP,
the entire financial system begins to misprice risk.
Consider Switzerland today.
Swiss sovereign bonds are currently posting negative yields as
far out as 30 years.
Put another way, the bond market is priced in such a way that investors
are willing to pay the government of
Switzerland through 2046 for the right to own their bonds.
They are doing this for two reasons:
1) The ECB has announced it will be buying bonds for months to
come. So investors are simply front-running the ECB’s purchases.
2) Capital is aware that the whole system is a bubble and so
is fleeing into safe havens like Swiss bonds.
There is simply no way this situation ends well. Yes, it might make some
sense based on the current risk profile of the world. But if that profile
changes at all, Swiss bonds, like all negative yielding bonds, will adjust
accordingly.
That adjustment would not simply affect bonds… it would affect everything.
Now, forget Switzerland and apply this to the entire financial system.
Corporates have been issuing debt at a record pace based on where yields
(sovereign bonds) are trading. Currently the average corporate bond rating in
the US is junk. This is a bubble looking for a
needle.
US corporates are not alone. Emerging market companies have borrowed over
$3 trillion in debt, most of it denominated in US Dollars. If the US Dollar
begins to rally hard again, this too will be a bubble that will burst.
Then there are the big banks.
The big banks have over $555 trillion (with a “T”) in derivatives trading
based on bond yields. We are told repeatedly that this is not a problem
because the people trading these things are the smartest people in the world.
But for perspective, the credit default swap market which nearly imploded the
entire financial system in 2008 was 1/10th of this size.
Everywhere you look there are massive misallocations of capital or
bubbles… all of them based on the fact bonds are mispricing risk because of
Central Bank intervention.
Indeed, perhaps the single biggest bubble today is the Central Bank
bubble= the bubble of belief that Central Banks can somehow manage this
situation.
They’ve lost control before. They will do so
again. Only this time they will have already used up most of their ammunition
when it hits.
On that note, we are already preparing our clients for this with a 21-page
investment report titled the Stock Market Crash Survival Guide.
In it, we outline the coming crash will unfold…which investments will
perform best… and how to take out “crash” insurance trades that will pay out
huge returns during a market collapse.
We are giving away just 1,000 copies of this report for FREE to the
public.
To pick up yours, swing by:
https://www.phoenixcapitalmarketing.com/stock...arketcrash.html
|
