You have heard the phrase many times “it’s already in the market”, meaning if “something” or some sort of event happens it is already factored in to prices. I was overseas last week, travelled much of the week and stayed in a hotel that had only two English speaking channels …one of which was CNBC. I cannot tell you how many talking heads were paraded forth whom all parroted the same pabulum, “a Greek default is already factored in the market”. Really? REALLY?
For CNBC or any media outlet to downplay a Greek default is plain evil deceit at its core. We have looked at this many times and from many angles, Greece owes close to 350 billion euros and when the amount of written derivatives are included we are probably talking well over 3 trillion euros! Yes, the talking heads keep saying “much of the Greek debt is now off of the banks balance sheets and is now owned by the ECB itself”. Does this make it any better? Or could it make the situation even worse because now a central bank has its balance sheet in peril and exposed?
The other side of the coin is the derivatives situation. Please remember when a “default” occurs, the “notional value” becomes the true at risk amount. This was the problem caused by Lehman Brothers in 2008, derivatives which had been supported by margin alone (and very thin at that) saw margin calls explode and the demands of 100% notional payments began. This is why no one, ever, can be allowed to fail. Because then the triggers are pulled and notional settlements begin …with a minor problem. Derivatives simply cannot perform because they total more than the value of everything else added together on the planet. The “money” simply does not exist for everyone to be paid.
The purpose for writing this piece is not to discuss Greece, whether they pull an “Iceland” and leave the central banks holding the bag …or talk about the odds of their banks opening Monday morning …or to speculate as to “when” they default (“if” is already in the rear view window). A Greek exit from the Eurozone or a change in allegiance from NATO to Russia are both very real possibilities …but NONE OF THIS is “in the market”. Greece is but one of an absolute litany of potential events being ignored!
The list of potential events being ignored by the markets is very long. They include the geopolitics of Ukraine, Syria, Iraq, Yemen, the South Sea islands Iran, and we might as well throw Israel into this mix. Russia and China just announced trade to be done exclusively in yuan and rubles, is this factored in to the valuation of the dollar? The U.S. has moved missiles into Poland and elsewhere to ring fence Russia, Russia has responded by repositioning “EMP” weaponry. China’s economy is slowing while their margin debt and speculation in stock markets are at an all time high after doubling in value over 6 months. As for the U.S., bogus number after bogus number is being reported while the economy declines in recession…and the world moves further and further from the dollar. It’s all “business as usual” as long as markets can be controlled…
The biggest “factor” being ignored is the fact credit markets around the world have already seriously cracked http://www.zerohedge.com/news/2015-06-21/credit-market-warning. Interest rates are rising and bond prices falling. Please, never forget this, “credit” is THE FOUNDATION to the “value” of everything we know and believe to have value. “Credit” (debt) is THE foundation to every current currency on the planet. If the underlying debt is beginning to lose value, what will this mean for currencies? What will it mean for the “discount process” to be used to value stocks? Or real estate? Not to mention the fact current cash flows will have the capacity to carry LESS debt …which has been used to hold up current values? To finish this thought process out, the big picture is quite simple. Debt has continually expanded faster and faster than the underlying global GDP. Current GDP is simply not sufficient in size any longer to carry the global debt burden…
I am going to tell you, NOTHING “bad” is factored into today’s markets… even slightly. All markets, all assets, everything has been “priced to perfection”, FORCEFULLY “PRICED”. Do you understand what I am saying here? “Prices”, all prices are being “made”. They are being made to paint a picture of a perfect world. This picture is a must to portray “all is well and no worries”. Almost none of the potentials I wrote of above (and there are many more) have even seen the light of day in the Western mainstream press …because if they did then they might affect values and partly be “priced in”.
Let me finish by talking about “black swans”. A black swan by definition is a surprise event taking participants unaware. How can anything we already know about …and is supposedly priced in to the market be a black swan? Maybe because so few believe a systemic failure can happen? Maybe we should categorize the entire financial system or even our way of life as a “black swan” because almost no one believes “it” (the ride) can ever end? Americans in general know something is wrong but they just can’t put their finger on it. A recent poll taken by Gallup shows confidence in almost everything has dropped to previously unseen lows.
As I have mentioned many times before, the last piece of glue holding the system together is confidence. The confidence of a central bank in another central bank, the confidence of institutions in other institutions and of course the confidence of the general public. While on this topic of confidence, why do you believe four European central banks have requested their gold back? Or closer to home, why does Texas want to retrieve their gold from Yankee bankers?
Confidence is a peculiar thing, it takes a long time to build and may be retained by “reputation” for quite some time …but when it breaks it goes away like lightning!
None of the potential black swans have seemed to even move the dial because the puppeteers have used derivatives to collar, support and suppress various prices and thus “hide” any bad reaction. I have to believe the ultimate black swan is exactly this, the loss of control of everything including perception. After all, the most ingrained of thoughts are these; the government can never go broke, the government will never allow it or let it happen. Maybe THE black swan is the most obvious of all, the government is in fact broke and Mother Nature does still exist. We have gone so far down the rabbit hole where absolutely nothing is actually “in the market”, I believe the biggest shock of all will be what the world looks like the day markets try to reopen?
Regards, Bill Holter
Who call margin call ???
They, bankers, hence they will not do that, hence music will continue, hence there is no end to pm suppression.
We will not see the wrath of Mother Nature, because bankers are her children.
But I keep stacking, just because.
I love to read your articles, but it seems there are a lot of assumptions based upon economic normalcy. Yes, you’re absolutley right Greece is not factored in the market along with a million other issues rotating around economic mark to market fantacy land. It seems a lot of people are caught by surprise with the massive fascism, corruption, lies upon lies, etc. etc. that is rampent every where one looks. Those of us that know basic economics have already lost confidence! Everyone else will go back into slubber mode because MSM hit the snooze control. But the big picture I’m afraid most people miss including Jim Sinclair is what happens after this current fantacy ends. Yes, they either missed or simply forgot to tell you the “growth story is over”. So until that happens, those control freaks will pull out every wild card and then some more!
Hello Bill, Discovered you @ USA Watchdog and have
read a few of your pieces. Here is my take on all
this. It will keep going until TPTB don’t want the
system to continue. G. Edward Griffin was on “Watchdog”
this morning and I must admit made the entire situation
clear as day. I suggest you watch or read the interview
because I think the “fear of war” is more powerful for
control of the population then war itself. Very Machiavellian as explained by G Edward Griffin. So
owning gold is important to a point but, food water and a safe shelter is essential. I have attached the link to the interview.
Always great to get another article from you.
What’s “priced in” is the fall of the American Empire (currently in process) and our greatly reduce standard of living. Can you say “banana republic”?
Our kids, grand kids, and great grand kids have been screwed by this generations of bankers!
If Texas does not get their gold back soon, it may not be possible. They better drill those bars to verify they are 100% gold because I think the Fed is hold phony gold bars.
If Germany CAN NOT get their gold back (which they can’t), how in the world does Texas think they will get their gold ??????
Bill, So apparently you travelled to non-English speaking places last week. Let me guess, did you go to Greece? God forbid to Ukraine? (Even possibly to Russia and/or China?) 😉
Having to tune into CNBC because it’s a limited choice English language channel, that must have been pure torture. I would have rather walked on pin needles to watch that channel, especially if I was on vacation time. (Not sure if you were traveling on work trip or personal vacation.)
“In the market”??? IMHO very few actually still know the true value of something, therefore they buy according to what the other fellow in the break room paid.
Does anyone really figure the return on investment of a new truck or auto?
How many times have we seen a perfectly good building demolished only to be replaced by a “franchise” floor plan? To many decisions made based on taxes rather than economics.
I known the above examples are somewhat removed from the world economic system, but they speak to attitude, get the deal done, quantity over quality. Keep the ponzi going, but be sure to have a chair when the music stops.
I suspect many of the chairs have a bad leg and the only truth still “in the market” is hope and stupidity.
Good day Bill.
Everyone in-the-know already knows the ending to this Greek drama. As Jim Sinclair repeatedly says, “all that is required to infinity will be provided.” So we get yet another bailout.
On a different note, allow me to put forth the proposition that bond yields march to the beat of their own drummer. My proposition rests on a couple of principles. The first principle is that public pension funds are not proactive. The second principle is that coincidence is not correlation and correlation is not causation.
The dearth of public pension funds with precious metals argues that too many public pension fund managers are not the least bit proactive nor prudent when it comes to guarding the treasure of others. Such managers can only see a problem after, say, Detroit’s pension checking accounts get drawn down to zero. Meanwhile people with the least bit of financial aptitude know that when cash outflow exceeds cash inflow it’s only a matter of time before funds get drawn down to zero.
Coincidence is not correlation. And correlation is not causation. The “worm has turned” with the 10 Year yield. As the 10 year yield marches upwards towards infinity mass media imputes causation on whatever coincidence it can get its grubby little hands on. Last week the Greek crisis causes yields to sharply decline while this week that same Greek crisis causes yields to increase (more sharply).
There’s a silver lining to the powers-that-be’s endless manipulation of precious metals. It makes it easy for students of manipulation to spot the manipulation in other markets. Student’s can easily see Fed fingerprints all over last week’s mass media promotion of “Treasury yields end week sharply lower.” Naturally mass media now neglects to mention that Treasury yields begin week sharply higher.
Only the people who sell 10 year Treasuries in their possession know the reasons behind the sale. Should you ask them why, they will most likely inform you that it’s none of your business. It’s a good bet that they don’t sell due to any words spoken by the Fed, nor any statistics released by government, nor any financial crisis in another country.
Nearly a decade of zero-to-negative interest rates takes a toll on cash balances. Perhaps pension fund managers must sell Treasuries to keep monthly checks flowing out to retirees. Investors in 10 year Treasuries belong to an exclusive club. And retail investors are typically not members.
If one member of the Treasury investor club liquidates to cover retiree checks then we can probably bank on other members doing the exact same thing. And yields go up when too many members simultaneously liquidate. Regardless of the other financial events that simultaneously take place.
sorry for no posts, I have been locked out since last week.