I Bet You Didn’t Even Notice It?
by Bill Holter, Miles Franklin
All hell broke out in the credit markets during the overnight hours last Thursday morning, I’ll bet you didn’t even notice it. Before getting into the meat of this piece, it is important to understand “what’s important”. The press constantly harps on the “Dow Jones this or the S+P that”. People come home from work and turn on their TV’s to see what “the market” did. Others have their smart phones or computers at work set to display the stock markets to keep themselves informed.
I am going to tell you, the stock market(s) are merely a side show to the grand Big Top circus of the credit markets. This is true in the U.S., all of Europe and Asia, it is true everywhere. This is the case because the credit (bond) markets are so much larger than the equity markets. The world revolves around credit. Everything revolves around credit. Our daily lives will be turned upside down when the credit markets seize up, and yes, I said “when”, not “if”.
Without a fully functioning credit market, distribution will break down, real estate markets will cease to exist except for cash purchases or barters. Companies will cease to exist because their access to money to run their companies will be nonexistent. Amongst many other “effects”, cash or currencies themselves will also be affected. All currencies everywhere on the planet are a function of, backed or supported by, and actually exist solely as a result of functioning credit markets. The saying goes, “money makes the world go ’round”, this is not true today. Today, “credit makes the world go ’round”!
With the above as an understanding, what happened last Wednesday night/Thursday morning in the wee hours was terrifying. Globally the credit markets began to melt down! This was a global event and almost ALL credits were being sold. To put this in perspective, German bond yields went from .59% to over .76%, this was nearly a 30% rise in yields …within hours. Remember, Germany is considered THE safest credit in Europe. The 10 year bund was yielding under .05% just two weeks ago, the yield had risen more than 15 fold!
Within hours of the U.S. market opening, the central banks of the world had stepped in and brought yields back to mostly unchanged. Can you imagine how much capital had to be deployed? Of course, much of this was done via derivatives but what was the end result? More derivatives outstanding and the central banks have again levered their balance sheets further to save the day. The intraday losses on both credit and their derivatives must have been staggering, had yields not returned to unchanged, this could have torpedoed the entire system.
What is my point here? First, the movements in terms of capital were huge. Intraday, literally trillions were won and lost. If the central banks had not stepped in and yields ended the day at their highs, many losers would have been more insolvent than they probably already are. As I have been saying for several months, I believe there are dead bodies out there, only the financial coroners will not issue death certificates. In other words, …insolvencies are being hidden!
Secondly, the derivatives market (Euronext) conveniently “broke” and was closed down , this gave the central banks a chance to step in and restore order. What if the market didn’t “break” (or was broken)? Could the central banks have worked their magic against a market in panic or did the “break” allow them to push a market where the momentum had been stopped?
Now for the most important question, did you even know this was happening in the wee hours of Thursday morning? Did you know about it when you woke up Thursday morning? Or during trading on Thursday? Did you go through Friday and into the weekend unaware that the credit markets melted down, actually broke and were rescued? I have one more question for you, do you understand why this is even important?
Let me finish by answering the last question first, then you should decide for yourself whether you need to rethink your outlook. What happened last week is important because it IS going to happen. It is only a matter of time before the global credit markets break down. This is a mathematical certainty because there is too much debt for the global economy to support. And this at a time when there is less than ZERO premium (interest) to compensate for risk!
I have said all along that this will be an overnight event and will take less than 48 hours to circle the globe fully. It may take less than 24 hours. Had the central banks not stepped in, the panic could have spread to the U.S. and into the close. Another round on Thursday night/Friday morning may have put forth a situation where U.S. markets did not open.
Now ask yourself this, were you prepared for the markets to not open Friday morning? Do you own what you want to own should the markets close and not reopen for a couple of days, weeks or even months? Are you listening to Edelson or being scared by Dent into not owning gold or silver? You do realize gold and silver are THE only monies out there that are not “credit based” or derive their values via the credit markets …which ultimately will be closed?
Something very serious is happening behind the scenes, what exactly we cannot know. We can however do math and know that if something “bad” happens with the amounts of debt, financial leverage and derivatives outstanding, the result will not be “good”. Please, do whatever it is you think you must to prepare. This one episode alone should be enough to show you, “you didn’t even notice it was happening”. To save you the time of commenting and telling me this will continue as “business as usual”, the central banks cannot save the world forever as their own balance sheets are rotten to the core! They have done this to themselves…