Tag Archives: bear market

Let’s Have Lunch With The Mad Hatter

I’m trying to free your mind.  But I can only show you the door.  You’re the one who has to walk through it.   – The Matrix

The overnight computerized stock market futures trading systems mysteriously “broke” once again as the futures were heading south (see this and this).   This  glaringly overt intervention reeks unmistakably of desperation.

Corners of the global economy – and specifically the U.S. – are collapsing behind the smoke and mirror cloak of ebullience emanating from a sharp bear market dead-cat stock market bounce and from absurdly manipulated data reports on employment and housing.

I was looking at a daily graph of AIG earlier today and comparing it to a couple other insurance company stock charts (Allstate and Progressive).   Contrary  to other insurance Untitledstocks, AIG has not participated at all in this stock market bounce.  In fact, it’s been hitting new 52-week lows almost everyday since early February.

The same problems that caused a temporary systemic collapse in 2008 are back in full force again.  Only they are much larger and much more insidious because rules were changed in a way that enabled the big financial firms to better disguise their Ponzi schemes.   AIG is the born-again poster-child of this evolving financialized nuclear melt-down.   I was chatting with a colleague earlier who told me that a  contact of his at the Company said that everyone who stayed on at AIG after 2008 are now being let go. Something ominous is going on there…

The Kansas City Fed survey reported today that its index has dropped to 7-year lows.  Yes, the Government reported today a bounce in durable goods, but it was driven by a huge order for aircraft parts from the Dept of Defense (great, we’re preparing for war in the Middle East).  Here’s what the real economy looks like:

Untitled While the Government insults our collective intelligence with tall tales of 5% unemployment and Janet Reno Yellen lobbies the public on the view the economy is improving, the actual numbers coming from Main Steet show an economy slipping into recession. Treasury yields continue to compress. This is not the signal that it’s time to take out a 100% mortgage from a private lender and overpay for a crappy house, it’s the unmistakable onset of economic collapse.

Today both Dominos Pizza (12%) up and Lending Tree (up 22%)  spiked up after “beating” their earnings.  Here’s what was missed in the reporting:  Dominos trades at 16x EBITDA and Lending Tree trades at 25x EBITDA.  This is sheer insanity.  Oh, by the way, TREE’s trailing EBIDTA is “adjusted,” which means EBITDA  after the financial Kreskins at the Company add back all of the recurring “non-recurring” expenses.

It’s incomprehensible the way the market can ignore the bad news piling up.  JP Morgan admitted earlier this week that it is woefully under-reserved against defaulting energy loans it was unable to unload onto the market.  Bloomberg News featured a story today which reports that “the biggest wave of oil defaults looms as the bust intensifies” – LINK.   I think this is already becoming a hidden problem in the financial system and it explains why we seeing financial firms like AIG (credit default swap issuer) and DB (lender to defaulting energy companies) not participating in this bear market bounce.

We know that the middle class is running out of money – “more subprime borrowers are falling behind on their auto loans”  and “Retail Apocalypse: Major US Chains Closing 6,000 Stores Nationwide” – but Restoration Hardware yesterday told us that upscale shoppers have stopped spending money now as well.

The “Minsky Moment” occurs when too much borrowed money has fueled too much asset valuation speculation.  The market will no longer absorb increasing levels of debt and the current borrowers can no longer support what’s already been borrowed.  A severe collapse in asset values ensues.

In early 2015 the Government allowed Fannie Mae and Freddie Mac to offer 3% down payment mortgages.  This is because the system had run out of borrowers capable of taking down a 5% mortgage.  Later in the year the Government began offering a zero-percent down payment program.   Private, non-Government pools of capital are offering  reconstituted versions of the type of mortgages which led the collapse in 2008.  The mortgage market is now searching for the last non-mortgaged stragglers who can still fog a mirror and are willing to overpay for a chance at the American dream.

Currently we are seeing the Minsky Moment swarm the energy market and begin to engulf the auto loan market.  Soon it will start creeping into the housing mortgage market.  The gerbil is almost dead but it’s still making the wheel spins albeit slowly.  Not surprisingly the stock market is looking at the gerbil as it dies and interpreting any sign of life as a reason to party on…

A Flock Of Black Swans Hovers Over This Bear Market Bounce

The Dow has spiked up nearly 1,000 points in six trading sessions.  Similarly, the S&P 500 has shot up 6.4% in the last six trading sessions. Nothwithstanding the continued flow of increasingly bearish economic data, stock market moves like this do not occur in a bull market.  The economic indicators continue to get worse – much worse.  Maybe the markets are giddy because they are anticipating more money printing – I don’t know.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.  – Ludwig Von Mises,  “Human Action”

I don’t care what so-called Wall Street scam artists, financial media imbeciles and the  charts are saying.  The basic underlying economic, financial and geopolitical fundamentals continue to show two developments brewing:   the onset of a Greater Depression and war.

The black swans are right in front of our eyes in the form of debt at every level of our system:  Energy industry, student loans, auto debt, personal and credit card debt, corporate debt and real estate/commercial property/housing debt.

The energy debt crack-up boom is here and now. The Government can somewhat hide the SLMA debt problem but I’ve seen estimates that as much as 40% of the $1.3 trillion is in technical default. The Government lets people go into deferment or enables as little as no monthly payments with a new income based test that Obama initiated. But the Government still has to make payments on the debt as a the pass-thru guarantor to entities that hold the student debt.

The auto debt will become a problem this year:  More Subprime Borrowers Are Falling Behind On Their Auto Loans.   Repo rates are already at historically high levels.  The enormous glut of new cars will begin to push down the resale value of repo’d vehicles, forcing big losses on banks and auto loan-backed asset-trust investors.

The rate of delinquency on all of the new 3/3.5% down payment  mortgages issued over the last 5 years will begin to move up quickly this year as well.  In fact, the banks are still sitting on defaulted mortgages from the last housing market collapse.  But the liquidity pushed on to the banks by the Fed has enabled them to endure non-performing loans on their balance sheet.

And then there’s the tragically underfunded pensions…the State of Illinois has openly admitted to a $111 billion underfunding problem.  Several other States have disclosed 40-50% underfunding of their State-employee pension plans.  The problem with these estimates is that they rely on projected future rates of return that are too high.  Most funds assume a 7.5-8.5% ROR in perpetuity.   Last year most funds were flat to negative. YTD pension funds are quite negative.

How is it even remotely possible that any pension fund is underfunded given that, since the 2009 low, the stock market has tripled in value and the bond yields have fallen to record lows, which means bond portfolios should have soared in value?   Pension funds should be, if anything, over-funded right now.

Furthermore, those underfunding estimates assume bona fide, realistic mark to market marks on illiquid investments such as CLO’s, CDO’s, Bespoke Tranche Opportunites (think “The Big Short”), private equity fund investments, real estate, etc. – you get the idea.  I would bet most pension funds, public and private, are fraudulently over-marked on at least 20% of their holdings.   I know many pensions have allocated  in the neighborhood of 20% of their investments to private equity funds.  Most of these funds are in the early stages of becoming little more than toxic waste.

Pension underfunding is no different from a brokerage account that is using margin.   “Underfunded” is a politically acceptable term for “we are using debt to make current payments.”   The “debt” incurred will be owed to future beneficiaries.   But here’s the rub: with assumed rates of return too high and investments already overvalued for political purposes, it is highly likely that future pension fund beneficiaries – private and public – will be left holding little more than an “IOU.”

In other words, the pension underfunding problem is, in reality, another massive chunk of debt has been cleverly disguised and layered into our system.  It has been yet another mechanism by which the Wall Street racketeers have sucked wealth from the middle class.

By all appearances, this recent dead-cat bounce in the stock market is quickly losing steam.  Macy’s stock is up 1% because it “beat” estimates using “adjusted” EPS. “Adjusted” is a euphemism for “recurring non-recurring expenses that we strip out of our reported net income calculation to make the headline earnings report look better.”  Of course, hidden in between the lines is the fact that Macy’s revenues and net income (any way you want to calculate it) has dropped precipitously year over year.

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It’s impossible to know for sure how much longer this parabolic spike up can last. It might even run up to the 200 dma (red line). But inevitably the market take another parachute-less base jump off a tall building and remove another chunk of money from daytraders, retail investors and their moronic advisors and, of course, pension funds.

If you want ideas on how to take advantage of a market that is inevitably headed much lower, please visit the  Short Seller’s Journal.

The Latest Weekly Short Seller’s Journal Is Now Available

The stock market (S&P 500) jumped 97 points the first three days of last week.  That’s an average of 32 points per day for those three days.  The economic news continues to show quickly deteriorating U.S./global economic conditions.  U.S. Treasury debt is now over $19 trillion.  There is a near-100% probability that the U.S. Treasury will hit the new $20 trillion debt ceiling limit before the March 2017 borrowing authority extension date arrives.

I have no doubt that the Fed will re-ante its money printing program – aka  “QE” – before Labor Day.

My latest issue of the Short Seller’s Journal features a highly overvalued construction industry stock plus a tech/media stock with big operating losses. Click HERE or on the image below to subscribe.

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Hey Dave, loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation.

I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming.   – Ken

The Corruption In The U.S. Has Reached Insane Levels

The U.S. financial and political system has become possibly the most corrupt system in recorded history. But even worse is the willingness of the American public to endure and even accept the blatant corruption that has engulfed the system. The latter attribute is best explained by the psychological phenomenon known as “Stockholm Syndrome.”

The poster-child for this analysis, of course, is Hillary Clinton. Clinton should be spending all of her time defending herself from being thrown in jail for life.  Instead, she gets annihilated in the New Hampshire primary voting and yet comes away with the same number of delegates as her opponent.  It’s almost as if the more evidence is released which shows that Hillary Clinton broke laws and seriously compromised national security the more popular she becomes with ideologically blind Democrats.

Same for Trump.  The only reason he has achieved some measure of support is because he’s willing to challenge the long running corrupt establishment politicians and there’s enough people who sense that the crux of the problem is Washington DC.  But Trump is not the solution to the problem – he’s part of the problem from the Wall Street side of the equation.  Trump is the guy who has run his casino “empire” into bankruptcy three times – “Chapter 33” (Chapter 11 x 3).  He’s no more qualified to run the country than is a pedophile to run a daycare center.

As for Wall Street, I’m watching in horror as the same problems that blew up the financial system in 2008, problems which were never fixed, have become even bigger and more dangerous.  Yet the public whistles by the graveyard as they are about to be subjected to money market fund gates and a cashless monetary system.   The EU is getting ready to abolish the 500 euro note.  And Larry Summers, one of the most insidiously corrupt public officials I’ve seen in my lifetime, has proposed abolishing the $100 bill.  And no one cares.

A digital currency system not only will enable the Government to monitor everything you do with your money, it will also enable them to more easily “corral” any money you keep in a bank in order to use that capital for the bail-ins which will inevitably hit the system when 2008 Redux hits the system.

It’s not  a secret to anyone paying attention, but the Government spending deficit is on the cusp of going parabolic.  The one-time accounting games and fleecing of Fannie Mae and Freddie Mac to help “fund” Government deficit spending and to enable the appearance of of a smaller deficit are now used up.  No one seemed to care, but the amount of Treasuries outstanding jumped up by about $700 billion to $19 trillion right after Congress and Obama raised the debt ceiling limit to $20 trillion. Folks, that’s money that has been already spent but which was hidden from the actual 2015 spending numbers by Jack Lew’s magic accounting wand.

Now that China is openly liquidating its Treasury holdings, the U.S. Government will need to find another source of funding for its Ponzi schemes.  Enabling “gates” on money market funds will help the Government channel big waves of capital into Treasury bonds via Treasury mutual funds.   Notice there have not been any proposals to gate those.  It’s another backdoor bail-in that will be implemented on a complicit public.

I said back in 2003 that the powers that be would hold up the system with printed money and credit until they were done sweeping every last crumb of wealth off the table and into their pockets.  But I had no idea what that process would look like.  Now I’m starting to see how my prediction is unfolding and I will admit it’s clever.  It’s the “boiled frog” strategy being executed with near-perfection.

Money market mutual fund gates, which go into effect in Q3  – and a digital currency system – which could go into effect before the end of the year – are nothing more than totalitarian capital controls in disguise.  I have no expectations other than that the public will embrace them with eagerness as I suspect they’ll be shoved down our throats in the name of national security.

For anyone who “gets it” and who is paying attention to what’s happening, my best advice is to start moving as much of your money out of mutual funds, retirement accounts and banks and into physical gold and silver that you safekeep yourself.  Ironically, at a time when the eschewal and ridicule of precious metals by the media and the clueless masses has reached an epitome, now is the best time since the bull market began to convert fiat currency and custodial-held wealth into gold and silver bullion.

The Mysterious Janet Yellen Plus The Retail Sales Data Farce

Retail sales for January were published by the Government’s Commerce Department today. They show an alleged .2% gain for January over December and a 3.5% gain from January 2015.  Nothwithstanding the fact that these numbers are estimates based on highly questionable data samples,  these numbers do not include any adjustment for price inflation.

Having said that, it’s impossible to know what’s real and what isn’t with Government economic data reports anymore because everything is based on “random samples” that are “seasonally adjusted” by some mysterious X-13ARIMA-SEATS econometrics program. Having studied econometrics and statistics while in the University of Chicago Graduate School of Business, I can say with 100% certainty that econometrics is much more of an “art” than “science.”

For instance, in today’s retail sales report, the Government discloses that the .2% month to month gain in retail sales could actually be anywhere from -.3% to +.7%.  The level of “confidence” in this estimated range is 90%.   It’s another way of saying that the estimate is useless.  Of course, the estimate matched Wall St’s estimate and the stock market jumped up accordingly in knee-jerk HFT-algo driven predictability.

As it turns out, the estimated gain in retail sales reported in January is fully attributable to the seasonal adjustment factors in the X-13ARIMA-SEATS seasonal adjustment statistical meat grinder programmed by Government drones:   January Retail Sales:  It Was All In The Seasonal Adjustment.

This brings me to the topic of Janet Yellen on the heels of her semi-annual Humphrey-Hawkins (the old name for it) testimony to Congress earlier this week.  I’m not really sure how or why Janet Yellen was elevated to the Chairmanship of the Fed, but quite frankly she is an utter disgrace to this country.

Unless she really believes the numbers fed to her by her handlers, she should be embarrassed to get in front of the public and state that the economy is in good shape.  She looks like a complete idiot to everyone who studies the facts about the economy and about the data used to represent and “estimate” economic activity.

If she truly believes economic reports like the employment numbers, I have to question her Untitledlevel of intelligence.  If she knows the economy is tanking but continues to assert that the economy is expanding, I have to question her ethics and morality.

Without a doubt she is not fit to be what is considered the most powerful Central Banker in the world.  She hopelessly either stammered through or avoided some questions tossed out at her by Congressmen to which she should have known the answers cold.

Greenspan was “the Maestro,” not because it took ingenuity to flood the system with liquidity with system every time the stock market started to head south but because his of his ingenious ability to spin his words into something that sounded highly intelligent. Bernanke would show visible agitation and his face would flinch when he was given questions for which he was going to answer with a lie.

Janet Yellen, on the other hand, has been put into a seat for which she is pitifully unqualified.  Not only does she appear to be incompetent as an economist, but she lacks any ability to think on her feet when confronted with questions beyond the scope of those she’s been programmed to answer since starting her career at the Fed in 1977.

Deutsche Bank Burns – Silver Is The Trade Of The Decade

If I’m right and this is the start of what happened starting in late Oct.2008, guys like Bron and [Jeffrey] Christian and Trader Dan are going to end up looking like the biggest assholes in the world.  Although I think that trip is booked and the train has already left the station, no matter what the price of gold does.  – comments from me to some long-time colleagues

Deutsche Bank management spent Tuesday and Wednesday trying to make the case that it had plenty of liquidity and a gameplan to address structural issues.  They threw the hail Mary yesterday when they announced the possibility of using available “liquidity” to repurchase a few billion euros worth of senior bonds.  I have quotes around “liquidity” because, as I outlined in my blog post about this yesterday, DB is technically insolvent.

What has unfolded this week at the zombie bank is almost exactly the path to collapse taken by Bear Stearns.  In fact, just like he did with Bear Stearns when he issued a table-pouding, booyah screaming buy on Bear Stearns about two weeks before it collapsed, Jim Cramer was out earlier this week telling investors not to worry about Deutsche Bank and that, “the European banks have a plan. The government has a plan…This is not 2008, because they learned from 2008.”

Cramer has proved to be a remarkably accurate contrarian indicator on stocks just ahead of a collapse in price.  DB stock has already partially collapsed since August, falling more than 50% since then.

If you want to dismiss my view, that’s fine.  But ignoring the action in the credit default swaps is a big mistake.  The CDS on DB’s subordinated debt have gone parabolic, jumping to a spread over Treasuries of well over 500 basis points today.   Over the past week, the CDS spread on both the senior and subordinated debt of DB has gone parabolic.  This is the clearest possible signal, other than the truth from upper management, that DB is on the ropes.

CDS investors are among the smartest in the market because they tend to be closest to the real inside information at banks.   I know this because when I traded junk bonds which, prior to the proliferation of CDS, were the “smartest” eyes in the market, our desk was right next to the bank debt trading desk.  The bank debt crew always had access to internal numbers on the companies they traded.  We were very tight with the bank debt traders, if you know what I mean.

This leads me  to silver. I’l be going on record tomorrow in a podcast with Silver Doctors that silver is the trade of the decade.   Also, the LBMA silver fraud fix was the cartel’s last gasp effort to grab as much physical silver as cheaply as possible.  That silver fix event was outright theft of silver from the sellers of physical silver on the LBMA that day.

I believe, just an educated guess, that the accumulation of silver was out the necessity to make deliveries under paper obligations –  LBMA contracts, Comex futures, OTC derivatives.  I believe the looming shortage in physical silver is worse than in physical gold and last summer was an omen of what’s coming.

The ratio of price appreciation in today’s trading for gold:silver is 95:1.  A normalized GSR is 16 or lower.  The GSR hit 32 when silver was approaching its top in 2011.  My point here is that they are throwing the kitchen sink at silver right now to keep the price down as much as possible in order to limit the potential damage that is going to occur to the banking entities that are perilously short paper silver, while their counterparties are starting to pound on “the door” looking for deliveries.

We are likely transitioning into the third and final leg of the precious metals bull market.  I believe that the smart money will eschew all fiat currencies and move their capital into the best possible contra-fiat currency asset:  gold and silver.  Today, for instance, the dollar is down on a day when typically the dollar is used as a flight to safety.  Gold is up $60.   The smart money will get the train wheels rolling and the retail crowd will pile on about 2/3 of the way through the ride, paying extraordinary premiums to get physical gold and silver in their hands.

All fiat currencies are backed by nothing but promises from Governments that are leveraged up to their eyeballs.   Physical gold and silver do not have any counterparty risks as long as you do not buy them on margin and keep them in a custodial account.  The margin risk is obvious, for most people the custodial risk is non-obvious but very real.  Just ask the traders who owned physical silver in MF Global’s Comex warehouse account…

Dave, I wouldn’t be surprised if half of the JPM silver “horde” doesn’t exist and that they’ve screwed clients ala Morgan Stanley (the only mega investment bank to have been officially busted in the last 50+ years for not having customer precious metal in allocated and segregated accounts).  Ted Butler et al. have this wrong too.   It’s not clear how much fraud we’re talking about, but hey, we’re talking JPM.  – a well known market analyst and blog host and silver market expert

Global Economic And Banking Collapse On Deck

Always love your analysis. A friend shared with me one week of your short sellers journal and I was impressed. GLNG took an extra week after you published it but it did start dropping.  I’m very experienced in options. Just ordered it for your short picks…I don’t really need the info of how to play options… just like your research and analysis. – “Colin” – SHORT SELLER’S JOURNAL (link)

All eyes are focused on Deutsche Bank.  Rightly so, for the most part.   “As you said, Deutsche Bank is blowing up” (Dr. Paul Craig Roberts in an email to me this morning).  It was reported this morning that the bank’s CEO released a memo to employees in which he assured the “troops” that everything was fine.   Most people do not remember this but I’ve been cursed with a great memory for certain details.  Jimmy Kayne, the CEO of Bear Stearns, when Bear blew up gave the same type of pep talk to Bear employees shortly before Bear was flushed down the toilet.  Reaching even further back in the annals of epic corporate fraud induced collapses, Ken Lay gave the exact same kind of pep talk to his people right before Enron collapsed.

As the adage goes, once a rumor is denied at least three times, the fact-basis of the rumor has been confirmed.

But it’s not just DB – it’s the entire western banking system.  While DB stock was getting pummeled yesterday, it escaped everyone’s attention that Morgan Stanley stock was down over 7% as well.   Bank of America stock was hit 5.4%.  Goldman Sachs as drubbed Untitlednearly 6%.  Today Credit Suisse stock is getting hit 7.7%.   These banks all have one common denominator:  an exceedingly high degree of exposure to Euro-debt credit default swap counterparty risk.   Include RBS and Barclays on that list as well, both of which are headed for the credit default swap waste bin unless the Fed and the ECB decide to print enough digital money to keep them alive.   The most stunning collapse in stock price is perhaps Credit Suisse (green line) which had been the best performing stock among the group until mid-July.  Wonder what changed?   Nearly as a notable as CS is Morgan Stanley (dark purple), which has managed to stay out of the media but it clearly exhibiting signs of extreme underlying financial distress.  Most might not remember, but Morgan Stanley should have been one of the primary casualties of the 2008 de facto collapse but it was quietly re-monetized so that it could continue fleecing the public by raking in big fees from the huge volume of “Club Med” European credit default swaps that it sells.

It’s nearly impossible to identify the specific root cause of the obvious banking system melt-down that is occurring. By design the use of OTC derivatives  by the banks has been completely obscured and hidden from sight.   As was evident from Jamie Dimon’s admissions during the “London Whale” crisis at JPM, even the people running these banks do not have a full understanding of the magnitude and degree of risk buried in the big bank balance sheets.  Since the Central Banks get their bank-specific information from the banks, it means that Central Banks therefore do not fully understand the scope and severity of the problem either.

That fact alone should be enough to frighten anyone paying attention out of the banking system and into the relative safety of precious metals.

I was chatting with a close friend of mine in NYC.  He lived with me through the turbulence at Bankers Trust (Proctor and Gamble derivatives lawsuit, Long Term Capital exposure, etc).  He stayed on and worked at Deutsche Bank and then at Lehman.  He knows when something is irrevocably wrong at these banks.  His comment to me this morning was that “something is blowing up behind the curtain in the banking system and it has to be the derivatives.”

Of course, the reason the derivatives are blowing up is because the underlying credit instruments from which they are “derived” are melting down as well.  We know about energy, industrial commodities and high yield – all of which the banks above have heavy exposure – but I would also suggest that auto loans and mortgage paper (luxury housing bubble pops) are starting to crack hard too.  Banco Santander has been one of the more aggressive auto finance lenders and its stock has is down 50% since April and down 38% since early October.  Capitol One down 25% since early December.

The message is clear:   the credit markets are beginning to accelerate in their collapse.

 

Will Deutsche Bank Be Saved From Collapse?

Deutsche Bank  stock is down over 8% today.  It’s trading at $15.53.  This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.Untitled

With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position:  LINK   “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks.  The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.

Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.  Denial of a catastrophic problem is affirmation that the problem is very real.

Typically the credit markets sniff out a very real problem before the equity market “catches up.”   Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks.  Under Anshu Jain’s “leadership,”  DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management.  It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.  The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:

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Currently DB has roughly $2 trillion assets supported by $68 billion of book value.  The problem is that many of its assets are highly overstated in value and have yet to be written down.  The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015.  The problem is that over 85% of the charges taken by DB were attributed to legal costs.  We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level.  DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses.   It would only take a 3.5% write-down of its asset base to wipe out its book value.  

THEN there’s the derivatives.  DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet.  The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount.  But ask AIG and Goldman Sachs how hedging / netting works out in the long run.   “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting.  Once the defaults start, “net” becomes “notional” in a hurry.

I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman.  I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative.  I had concluded that those banks were technically insolvent.    Eight months later it turned out I my analysis was quite accurate.  Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.

The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would.  To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion.   Then there’s the derivatives…

The Global Economic System Is Crashing – The Stealth Gold Bull Is Alive

Well, this time is indeed very different. This is not Jan., 2015. The world is waking up to the fact that a brand new, multi-headed hydra solvency crisis is upon us. – Eric Dubin, The News Doctors (link below)

One of the idiots from Wall Street that CNBC likes to roll out was on scratching his head over the behavior of the stock market. He asserted that it was nothing more than panic because “the real economy is doing well.”

I’m wondering what data he’s using to draw that conclusion. Nearly every report that has been released for the last few months, other than the highly manipulated/fabricated Government employment report, is showing that economic activity is collapsing to levels last observed in 2008.

The Baltric Dry Index has collapsed to all-time lows. Freight and goods transportation indices area showing a collapse in demand in the wholesale and retail distribution system. This shows a collapse in consumer spending. Based on unadjusted, unannualized numbers, existing home sales plunged 20% from Q3 to Q4. Auto sales are quickly rolling over. Energy debt is blowing a hole in bank balance sheets across the country. Auto finance paper is next.

These are black swans. They’re black swans because no one seems to see them. If they the market sees them then it is not acknowledging them. The current sell-off in the stock market is not remotely close to an acknowledgement of these black swans.

The S&P 500 is at its most overvalued in history by several metrics. It’s dropped roughly 10% from its all-time high and a spectrum of people from money managers to Congressmen are calling on the Fed to “do something.” No one seemed to be bothered by the fact that the stock market never should have been enabled by the Fed to go parabolic over the last 5 years, becoming more dislocated from the underlying fundamentals than at any time in history.

Then there’s gold.  Gold has been pushed inexorably lower by western Central Banks in order to facilitate bad monetary policy decisions.  But gold is the ultimate hedge against corrupt Central Banks and Governments.   Physical gold inventories at the bullion bank controlled gold exchanges in the west are quickly disappearing, as is silver now too.  GLD does not count because it’s always been a roach motel largely of paper gold.

This disappearance of physical gold is another black swan that is neither recognized nor acknowledged by the market, except by a few “conspiracy theory riddled” gold bugs. But the third leg of the gold bull market that began in 2000/2001 is stealthily taking off. Eric “The News Doctors” Dubin has written a worthwhile analysis of what is unfolding:  Stealth Gold Bull Market Continues;  Real-Time Analysis.

Someone from Australia emailed me a report showing that the Perth Mint had temporarily suspended gold sales last night/yesterday.  Physical gold is indeed disappearing.  Soon it will be harder to get at the retail level unless the buyer is willing to pay a hefty premium over spot.  I’m going to start converting as much paper currency as I can into silver – the original and first monetary metal – because it will soon become hard to get as well.

 

Latest Short Seller’s Journal Has Been Published

The featured stock is being dumped by insiders at an alarming rate. What do they know about the Company that is being ignored or overlooked by the market? In the last three months, insiders have sold 7.2 million shares vs. “buying” 535k shares. The buying has largely consisted of the conversion of restricted stock units granted as compensation into tradeable shares which will be then be sold.

Jim Cramer has a table-pounding buy on this stock. That’s usually the kiss of death. Cramer calls this company on of the best stories for 2016. For those of you who are unaware, Cramer is one of the best contrarian stock indicators possibly in history. More often than not, a table-pounding buy issued by Cramer is the kiss of death for a stock. Perhaps the best example of this was his strong endorsement of Bear Stearns shortly before Bear Stearns completely collapsed. This company won’t collapse but it is extremely overvalued, especially in the face of a economy headed into a deep recession.

I also have revisted to ideas from earlier issues, one of which is now down 17% vs. 10% for the S&P 500 in the same time period. Finally, I have a quick-hit short sell idea on a company that is highly overvalued and reports earnings next week.  I also had detailed ideas for using puts and calls to replicated shorting the stocks, with specific put/call suggestions.

You can subscribe to the Short Seller’s Journal by clicking on this link:  SSJ or on the image below:

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