Often times I like to write about an event or someone else’s article because of the importance to the overall picture. Today I will do something a little different. Below is an e-mail I received last Thursday from a friend. I have the utmost respect for his thought process and his knowledge. The writer is “plugged in” if you will, he has very high and powerful contacts in both China and London while he operates out of North America. The following is chilling to say the least because it comes from someone who “knows”, it is not a speculation on his part because he is seeing it real time! I will add my comments afterward.
“I have been pounding the drum for some time about shrinking liquidity and what the impact will be. Well, I can tell you that we are almost there and a real crisis is developing far faster than what I envisioned that is impacting the 75 Trillion Shadow Banking sector which is on the verge of implosion. Focus on Europe as the real crunch will spread like a wildfire from there seizing up all credit markets.
We will ignore China and the BRIC for the time being as to impact and focus on the European Ponzi that the bankers have brought to the table.
The specific area we should keep an eye on is the U.S./bund 10yr yield spread, currently quoted at 155bp. This spread will start taking its lead from the euro, so when that starts to lose favor keep sharp eye out for the next shoe to drop.
Asian shares were very volatile today, Shanghai in particular, trading with a 10% variation (daily low to high) today as PBOC were active again. In Europe we did see small gains intraday in DAX and CAC but neither could hold on and actually closed well into negative territory both down over 1%. UK FTSE never got into the green all day and closed -1.5%. Even seasoned Traders are scared now about intra day swings and being caught in a downdraft at closing. Banks are tightening the leash on trading lines to reduce exposure which is sure to castrate liquidity of bonds.
Credit markets are almost closed, I am being told! I REPEAT again the CREDIT markets are almost closed! Trades are happening by appointment and to even move 1MM EM bonds (at an opening price) is almost impossible. It is not uncommon to hear an indication only to trade and a 2% trade away from from opening, assuming you are able to trade, and desire to trade is no guarantee of a sale. NO ONE is standing up to market prices and to liquidate even a small portfolio can take weeks. It is important that you cannot any longer trade the basis as value is dropping and there no point to partially selling specific bonds unless you can clear a given position! Because once there is a traded price ALL holders of same or similar will have to remark the book. That is unless you are a bank where the Balance Sheet is not a Mark-to-Market approach on a daily basis for the book being held. Think holding government debt at par for the likes of Italy or Spain knowing they can never clear the debt, and knowing that no one will buy at market. So what is the true value of a large portfolio? Do you hang on getting interest while it is still being paid or do you attempt to go to cash? And if you do who is going to step into your shoes ? Especially since the banks are all trying to save cash and want no exposure of any kind. We maybe approaching the point where central banks are losing credibility and their ability to contain the fallout, when governments are so badly in debt they are powerless and rudderless in a sea of chaos.
We are coming very close to complete chaos that will make 2008 look like a walk in the park! We will be fortunate if we make fall without a real financial disaster!
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Following up from yesterday let’s ponder the upcoming Crisis that we are facing that specifically involves bonds, which are the bedrock of the financial system and what the fallout maybe.
Every asset class in the world trades based on the pricing of bonds. So the fact that bonds are in a bubble (perhaps the biggest bubble in financial history), means that EVERY asset class is in a bubble. Everything from real estate to stocks to the buying of cars. Ever wonder why car loans in America exceed the value of the cars in question.
Depending on who you speak with globally there are $75-$100 trillion in bonds in existence today.
A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.
So whatever the real trillion it is, the size of the bond bubble alone should be enough to give pause. Even to the most aggressive or optimistic folks.
However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to something like $500TRILLION. This affects both banks and the shadow banking industry. No wonder the Bank of England is perplexed as to the shrinking liquidity, it is a problem to which they have no solution.
To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
And this was at a time when there was QE and other means to throw at the problem which are now spent. So what will be used this round?
This is why the shrinking liquidity in bond sales is even to give real pause and wonder what will come to be as confidence in government wanes, and the shrinking liquidity affects all markets at the same time in different degrees but with a universal discount of value and liquidity, egged on by collapsing derivative trades.”
So there you have it. This is something I have been saying for quite some time, we are living in the greatest credit bubble of all time…and it is bursting. It is bursting because liquidity is drying up. The point made regarding the inability to offload bonds speaks to just how small the “exit door” really is in the most crowded trade in all of history! I hope you did not miss what was said about “marking to market”. The sale of a measly $1 million worth of bonds at any discount affects the pricing of BILLIONS which then acts as a further liquidity restriction on bank balance sheets.
To this point we have not seen much weakness in U.S. markets BUT we are witnessing the “volume” dry up drastically. This lack of volume also speaks to the size of the exit door. Without volume, how does one sell if they want to? Better yet, without sufficient volume, how does one sell if they HAVE TO or are FORCED TO? In Asia, China’s stock market has collapsed over 20% in just three weeks. They are living a real life margin call! What is most humorous to me is China has now instituted rules where stock market margin calls can be met by posting real estate as collateral! Meeting margin with an already margined asset is the recipe for disaster!
Please understand this, “policy” and central banks are doing whatever they can to keep investors away from the exit door because they know there isn’t one. Central banks all over the world are “buyers” of nearly all things paper, do we really have “markets”? Anywhere? Let me finish with this, it is written in the Bible “and on the third day He rose again”. Here on Earth I believe we will soon find out after credit breaks, “and on the third day …nothing opened”. I truly believe this is possible. I do not believe the Earth can spin more than twice after a true break in the credit markets before a COMPLETE SHUTDOWN will occur. Nothing “paper” will be spared!
Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome! [email protected]
Hi Bill,
Following presentation by China Gold Association was posted at LBMA website in London on June 25.
http://www.lbma.org.uk/assets/events/BMF2015/Zhang%20Bingnan_EN1.pdf
In it, on Page 2 Mr. Zhang Bingnan nonchalantly states that at the end of 2014 China’s gold reserves were 9816.03 tons.
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Since 2009, Chinese gold reserves keep increasing. Successfully breakthrough 7000 ton, 8000 ton, 9000 ton. Till the end of 2014, the gold reserves reach 9816.03 ton, the world’s second.
NOT from an “official” source. Likely a low true number.
Bill,
Thanks for another article.
Most still believe in the fairy tale and won’t be able to exit. Sad!
they will figure it out when nothing further can be done.
Fascinating, insightful observations and commentary from your insider, Bill. Thank you for sharing it!
I trust him completely, a straight shooter and on target when he contacts me.
Is friend of yours called “Voice” ?
No, I personally trust him and would not have printed his note to me if I did not fully believe it.
Bill,
Thanks for your excellent research and analysis as always.
I see a clear downward trend across most commodities. Copper, Platinum, Palladium, Gold, Silver, Oil, Bonds, etc. are heading to new lows. I realize that many of these are manipulated by SIFIs and CBs but they all are used for collateral for various derivative contracts. This is most likely exacerbating the liquidity drought as you point out with the bond repricings.
Is the end game to buy up all of the physical assets at fire sale prices while the CB Ponzi music continues to play? And when the music stops will they be able to hold onto those assets in the face of insolvency and broken trust?
very well could be.
What of mining shares? The sector is so hated & beat up. If you have a little gambling fiat after all other priorities have been covered? A flood of capital must finds its way into this sector at some point no?
I believe shares are a steal now …after you have physical.
Bill:
I know that you are not an investment advisor and I completely assume the risk of taking your advice to my question: which miners would you, personally, invest in?
Sorry GB, I cannot say nor publish them.
As always, Bill, thanks for your research.
Many of my friends are still asleep at the switch. I don’t know what it will take to wake them up…and it may be too late anyway.
I have a talent of being able to forecast the future when given only a very few data points; currently all indicators point to an epic shit-storm in our future…I think no goes unscathed when it hits.
welcome BPIU
Auction prices for most anything with a perceived high, lasting value, have become very high and going higher.
A GM Futureliner recently sold at auction for 4+ million dollars, while a 1956 Mercedes Gull Wing sold for 2+ million dollars!
Whether its vehicles, airplanes, jewels, art, real estate, or antiques, the high net worth individuals are unloading their fiat wealth as fast as possible.
This is just one more clue as to the loss of credibility, of ANY fiat currency. Once the denizen’s of Main street “get it” there will be that “come to Jesus” moment of clarity and ALL faith in ANY paper fiat currency will be gone. If you have a chance Bill, check out Jim Kuntsler’s article that he put up this morning. Very interesting.
thanks.
Bill,
I have read your blog and followed you on USA WDog for sometime.
I am firmly in your camp. WHat happens when this does explode.
Do we still have a viable govenrment ( I am hearing no and I also hear trrops will be sent in to quell us).
I know this is a intricate question but generally what can we as Americans expect to happen to Fed-state-local govts?
Thanks
unfortunately with a full fledged financial breakdown, the odds of anarchy go higher. This is becoming a real probability because the perceptions have been so carefully blinded.
The Shemitah ends on Elul 29, and on the last TWO Elul 29’s (September 17, 2001 & September 29th, 2008), we had the biggest crashes in the Stock Market (685 points and 777.7 [God’s number of completion] points, respectively). This year, Elul 29 is on September 13th, which is a Sunday. I would watch around that 4 day period from 9/11 to 9/14. Your friend’s prediction that “We are coming very close to complete chaos that will make 2008 look like a walk in the park! We will be fortunate if we make fall without a real financial disaster!” is a very likely scenario.
I’m afraid so.
Everyone will finally understand this stuff when there are no other options, but most will still have no clue of how it all could have happened “with no one knowing about it beforehand!” I guess we on this blog are all “no one”!
who could have known?
I have a question. “No one is standing up to market prices”? I thought the Fed was buying everything to keep bond prices jacked up?
this is global, he was talking about Britain and Europe mainly.
Thanks. I love your commentary and read it every day now on Sinclair’s site. But I miss all the reader’s comments; you have a pretty intelligent following.
thanks WW
No exit for Greece.
I was sad to see that Yanis Varoufakis has resigned as Greece’s finance minister. He cited unbearable pressure from the creditors. Actually I think Alexis Tsipras and Yanis have had a “parting” of the ways.
Now the Greek government are attempting to open another line of negotiations with the EU, ECB and IMF. This is a foolish move and one I’m sure that Yanis was against, hence the resignation. He wants no part in any austerity deal and will not have his name attached to one.
Such a shame, to waste such a powerful mandate handed to them by the people of Greece. These so-called negotiations will result in nothing more than a “wash, rinse, repeat” cycle for Greece. This could lead to serious social upheaval, which the power elite’s in Brussels are maybe secretly hoping for?
http://www.hangthebankers.com/how-greece-was-robbed-by-the-bankers/
we will see, he was pushed out from somewhere.
Bill
You mentioned
” The specific area we should keep an eye on is the U.S./bund 10yr yield spread, currently quoted at 155bp. This spread will start taking its lead from the euro, so when that starts to lose favor…. ”
Pardon my ignorance, would a higher or lower number indicate losing favor?
thx
a lower number means the spread narrows, in this case it would mean higher bund rates.
As always, Bill, clear and concise!
But I’d like to see analysts start discussing not just what is really happening, but how the world can get out of the crisis.
I don’t mean an escape that will keep the conmen and speculators whole (not likely), but one which will protect 7 billion other people.
only fix is a re set and putting audited gold holdings on the table.
Bill,
Question: Doesn’t Greece have another 3 billion dollar payment due on July 20th (just 13 days from now)?
They could not pay the 1.2 billion dollar debt due on June 30th.
Why hasn’t a “debt default” been called by now on the June 30th payment? Will a “debt default” be called if the July 20th payment is not made?
My guess is that no “debt default” will be called because they do not want the credit swaps going into play.
I guess the winners of the “debt default” will win nothing after all.
Wow, what a casino, in that the losers do not have to pay and the winners win nothing !!!!!
What a SCAM !!!
yes, another payment July 26 I believe.
Haha, I fell out of my chair seeing what the fascists did to silver price today! They want to burn this entire planet into the ground.
Even Hitler couldn’t have come up with something so egregious. Bring it on I said, “buying MOAR”!!!
yes, now it is stupid.
Has Jim Sinclair’s site been shut down. I had to search for this published tome elsewhere.
his site is up and the article is there.
Bill….your previous article comment “I believe the neocons know the bottom of our “gold barrel” is close at hand, they have decided to go all in on price suppression knowing full well “contracts were made to be broken” (defaulted on).”
If the gold futures contracts are defaulted upon, what is your expectation that it will have on the COMEX price of gold? The COMEX price of gold goes $5,000/oz or more, nothing happens to the current gold price since the contracts are/will be cash settled or something else?
maybe not, maybe it gets force majeuered at a low level prior to physical being marked up?
Evil silver crushed, Gold contained, benevolent US equity markets now in the green, as Greece now appears to have been fully priced in, and our In-God-We-Trust US Dollar has climbed to 96.94. Do not fear comrades, all is well and everything is as it should be. Once again, Amerika’s economic strength continues to prove to be impenetrable, especially with our dear leader, BO, along with the assistance of the Federal Reserve and Exchange Stabilization Fund at the helm. Good shall triumph over evil!
Bill;
this from a running conversation, Paul M. or PFI, writes to me on e mail;
The vicious cycle: Political corruption in the form of vote-buying via social spending and dependence creation make the system accessible to those seeking influence. The payback to the politicians from those seeking influence comes in the form of kickbacks, lobbying (bribery) and self-created/legislated perks, thereby incentivizing the politicians to buy more votes and create more dependence, all achieved via massive taxation and deficit spending (nearly 19 trillion ACKNOWLEDGED). It doesn’t go on forever. Not even the resilient, semi-capitalist and heavily regulated US economy can take it. It collapses at some point. (Seen money velocity stat recently?)
As far as “waking up” goes, it won’t happen. It can’t. Do the math. Literally. Pull the plug on this one and the lights go out on everybody. Best always. PM
and….
Germany saw the EU and the Euro monetary unit as a means to dominate Europe economically, and therefore politically, without resorting to war, as it had tried to do previously on 3 attempts since 1870. They are close to achieving this goal and now see the thing getting away via the Greece misstep. Default is not really what’s bothering the Germans. In fact, if all the suspect debtor nations (as listed in Al’s note) of Europe default, and the Euro goes to pieces, Germany reestablishes the Mark and the only competition is the Swiss Frank, and Switzerland is politically neutral since the Middle Ages. But that creates massive instability, and we all know what happens in massive instability–lots of stuff we don’t foresee. Much better to maintain the status quo, if possible.
The irony here is that Germany herself was in Greece’s position back after WWI, and the French were determined to punish Germany with reparations (today it would be sanctions) which the German economy could not withstand. The inalterable and uncompromising position of France (today’s imposed austerity) caused the German economy to falter, people to lose jobs and depend on government, which responded by hyperinflating the Reichsmark. This caused the Weimar government to fail and ushered in Hitler. The consequences in, of, and for Greece in world context are not as grave, but the parallel here is so obvious as to be unmissable. Cratering Greece could set off a daisy chain of stuff nobody wants. Writing off the debt WILL create a daisy chain of stuff nobody wants. I say they will find a way/gimmick to maintain the status quo, and if not, get ready for a daisy chain of stuff nobody wants. Best always. PM
Bill…..the Western Banksters have pumped up the Chinese markets over years, sucked in even the average Chinese housewives and now are selling out and cashing in big. Another bankster setup to steal….when is the Chinese Gov’t going to fight back, publicly come out with 10 tons of gold to screw the Western Banksters and sell U.S. Bonds en masse?…..Chinese need to throw out some Financial Nuclear bombs..it’s time.
it will happen but China seemed to officially bless the ramp up in the first place.