The System Is Starting Its Final Collapse

The director of the CME Metals Group announced her resignation to effective December 11. No further explanation was provided – Reuters link.  I’m not one to infer some type of conspiracy theory in connection with this, but it seems rather abrupt.   It’s akin to Bernanke leaving the Fed much sooner than anyone expected.  The rats are leaving the ship before it sinks.

The collapse began in earnest in 2008.  This is why gold soared to all-time highs in dollar terms until late 2011.  The effort to push down the price of gold is overt evidence that the systemic collapse, even with the heavy application of money printing, has been ongoing since 2008.  The recurring violent hits to the price of gold using fraudulent paper gold is overt evidence that the authorities are becoming more desperate in their attempt to hide any possible market signals that the systemic collapse is accelerating.  This is how gold behaved from March 2008 – October 2008.  Look what happened then.

Something catastrophic is occurring behind “the curtain.”   I would love to have a peak at what is melting down.  We can generally speculate that, with the oil, copper and iron ore price collapse, and with emerging market currencies collapsing,  there’s been a series of derivatives  explosions that have been contained but that are straining the Central Banks’ abilities to keep the system from coming completely unglued.  This is also why the price of gold is being contained with brute force.

We have never seen markets behave the way they’re behaving right now,  with absolute unpredictability.  The overt intervention is a big part of the what we’re seeing on the surface with gold, currencies, credit markets and the primary stock indices.  But all indications suggest a high likelihood of several train wrecks occurring at once behind the scenes.  The intervention, of course, is keeping the surface indicators from crashing.  But the intervention has also destroyed the signal transmission and rational capital allocation mechanisms of the market.  Adam Smith’s “invisible hand” has been amputated, if you will.

This is why stocks like AMZN, FB, GOOG and NFLX trade at insane p/e ratios.  It’s debatable whether or not AMZN has bona fide economic net income in the first place.  I have not looked in depth at the accounting of FB, GOOG and NFLX to assess whether or not their “net income” is a function of GAAP manipulation or if they actually produce real cash flow in excess of all expenses, on and off the income statement.  But all of them unequivocally trade at sublimely irrational market caps and they are the primary devices being used to keep the S&P 500/Dow indices propped up.

Another indication of the chaos erupting behind the “curtain” is the melt-down going on the junk bond market.  Alhambra Partners wrote a piece in which it asserted that the stunning spike higher in triple-CCC rated junk bonds is indicative of something blowing up in the junk bond market – LINK.    But it’s not speculation, it’s a fact.  And it’s not “something,” it’s the entire distressed credit asset class.

The asset class itself, like every other financial asset, is horrendously mis-priced thanks to the massive Central Bank intervention.  But unavoidable leaks are springing and they are going to turn into torrential floods.

The reason triple-CCC yields are blowing out is that some entity or entities have been forced to sell.  Here’s how it works – I know this based on first-hand experience trading this stuff:   As you know by now, the bond market has become extremely illiquid.  This means that there’s a lack of capital available to accommodate sellers who look to sell at price levels remotely close to where bonds are being quoted.

Everyone (big pension funds, hedge funds, mutual funds, etc) keeps the price marks on the bonds in their portfolio unchanged and holds their breath that a seller never appears who has to sell for whatever reason and forces a re-pricing of the bond issue, which in turn forces a re-pricing of the market.  I’ve lived this nightmare as a sell-side junk bond trader running capital positions in triple-C paper.

The fact that triple-C bond yields have blown out so quickly means that sellers have appeared and the yields on these bonds are going to blow out until they become high enough for a bona fide distressed buyer to decide it’s worth the risk to buy some of the paper. We’re not talking 10-20 points below where everyone is marked.  Many of these bonds will plummet from the 80’s and 90’s to the 20’s and 30’s before enough capital begins to flow into the market to provide a bid big enough to take on the selling.  That’s usually the first step down before it gets even worse.

This dynamic is going to spread to other asset classes within the credit market, like subprime mortgage pass-thru trusts, collateralized debt obligations, etc.  This how it began to unfold in 2008.  This is why Wall Street banks are now net short corporate bonds. The problem is that this time around the amount of debt of all varieties is a few multiples greater than it was in 2008.  And connected to all of this is a preponderance of OTC derivatives.  Derivatives that I believe are already melting down behind “the curtain.”

At some point the “collapse dyamic” is going to hit the entire stock market.  It already has in several sub-sectors and individual stocks below the surface.  We see this in the “cliff-dives” that occur when companies report “unexpectedly” disappointing earnings results.   Stocks which were held up with the broad indices thanks to the Fed’s monetary lasiviousness get quickly repriced to downside.

This morning a poll is out from Quinnipiac University which reports that 83% of Americans polled live in fear of another “terrorist attack.”  I find this highly troubling because of the amount of power it gives the Government to control the population.   I expect to see a stunning degree of abuse of this power, as if the Patriot Act, Homeland Security Act, Detainee Bill and surveillance laws are not horrifying enough.

In late 2003, a colleague and friend of mine and I surmised that we would eventually see things occur in this country that would “blow  our minds.”  This is in the context of Enron, 9/11 and the highly illegal invasion of Iraq having already occurred.  Ponder that for a moment.

The  hallmark of an empire in collapse is the imposition of Governmental totalitarianism and reckless attempted military imperialism.  Currently the U.S. military is the most dangerous terrorist in the world.  Contrary to the view reflected in the Quinnipiac poll, my biggest fear is that the U.S. Government is soon going to turn its reign of terror on its own citizens.  History tells us this is what occurs when a powerful economic/political system is in the final stages of collapse.

29 thoughts on “The System Is Starting Its Final Collapse

  1. Dave,

    Regarding the brainwashing out there- I asked a few of my associates about AMZN, gave them short summary bullets of some of your main points. Their response:

    -no way that Oracle et al can compete with Amazon, way too big, way too much server space etc
    -AMZN makes so much money from their fulfillment- charging per month for storage, etc. no way others can compete
    -etc

    I asked what the barrier to entry for Walmart, Target (crappy website) etc to compete- if they can make a search/find function like amazon… they said no way, amazon is too big, etc.

    I asked how long it can continue if bezos keeps issuing new debt to stay in business, etc… blank looks.

    Then the old blather about PE does not matter (1999… echo…) and a company like Amazon and TSLA (TELSA!lol) are different, gamechangers! you can’t value them the same way. Earnings don’t matter, it’s the incredible potential and technology the company brings to the marketplace. Well, what about barriers to competition? blank looks again…

    well, I’ll go hop on my unicorn and sip some cool-aide

    Anyways, I know where to sell that incredibly potentially bridge in Brooklyn…
    beep beep

    1. Your friends are clueless. AMZN loses money because of its fulfillment. My report proves it with hard evidence from their financials. AMZN doesnt make money it loses money. I break out the AWS and show that AMZN’s cloud business is tiny compared to ORCL, et al. Dude, your friends are retarded and clearly have not looked at any of the facts.

      1. “I have not looked in depth at the accounting of FB, GOOG and NFLX to assess whether or not their “net income” is a function of GAAP manipulation…”

        Is there anybody who has done this analysis, as you have done on Amazon? Certainly none that get mainstream exposure. The story is quite incredible.
        There’s got to be some of the smarter guys in the room who have this sussed.
        The end game will be interesting – I wonder what the world will look like on the other side of the hill. Populated by laughing Bezos – perish the thought!

        1. I don’t know to what extent the guys running these companies begin to buy into their own bullshit or whether they are laughing at the world in private. Hubris can take over and these guys start to eat their own defecation.

          There’s for sure people who are aware of the accounting bullshit I’ve laid out with AMZN. What’s incredible is that AMZN is getting so much love for it’s cloud business. I have it from someone connected to an insider at the company that most of that revenue is from Silicon Value start-ups who want the cheapest cost cloud service. 99.9% of those start-ups won’t be around in 2-3 years. Bezos has invested in a lot of them and I’m sure he’s been forceful in making them use AMZN AWS. What does he care? He keeps unloading thousands of shares every month at these nosebleed levels.

          1. What’s also interesting about AWS that seems to get ignored is the hyperdeflationary nature of the pricing over time. The prices they charge are down over 90% in 3 years. So, their revenue stream can grow only with exponential growth on the customer side and yet their main customer base are profit-less start-ups with huge cash burn rates. None of that matters right now, but there will come a day in the not too distant future when it will. This is how stocks can drop 90%+, which would still leave them with a $30B+ valuation which not too long ago was a significant one.

          2. But Mr. K, with the brand new Fed policy of bailouts for ‘systemically important’ individuals, won’t Jeffy and company be feasting on free fiat after the next large crisis? In that case, we may ‘never’ be rid of AMZN because with an unlimited funding mechanism, they can just make up for larger and larger losses with higher and higher volume.

      2. Dave, you just described most of Silicon Valley! They inhale hopium constantly! Many technology stocks are pure hype pump jobs from Wall St salesman and Silicon Valley angels and VCs.

  2. I believe today we witnessed the break in the top heavy greenback
    which means the strong dollar BS is about done despite the
    heroic efforts of the fed to hold things together. As you say Dave
    there’s a chain reaction of bad stuff happening behind the scene
    and who knows if the dam can be plugged one more time. There
    is a general sense of foreboding prevalent in the land and for good
    reason.

  3. “… my biggest fear is that the U.S. Government is soon going to turn it reign of terror on its own citizens…”

    No doubt, if no ‘light’ forces were standing in their way, that is exactly what the dark forces currently running our government would attempt.

    But, just as there is panic behind the scenes in the big banks and insurance companies, there is panic behind the scenes in government and the dark military, I would surmise. U.K., Germany, and France are now fighting on the side of Russia, Iran, and Syria against the U.S./Saudi/Turkish/Israeli forces in Syria and Iraq. That is quite the punch in the eye to The Cabal, that the rats are openly jumping off the sinking ship and then turning around and helping torpedo it.

    I think the military and financial arms of The Cabal are in their death throes, Dave. The ‘SLBM launch and flight’ over Los Angeles was most certainly not an SLBM and was a demonstration to the dark U.S. military that they do not hold air (or space) superiority.

    JADE HELM was a big nothingburger, and prior hints at imminent martial law (and massive deaths from bird flu, etc.) were, too. Powerful forces that show their faces here and there as UFOs are helping us. Sounds kooky, I know, but that is how I piece things together, friend.

    1. Hi,

      Interesting take on our current situation, thanks for sharing.
      Could you give me a few more pointers why Los Angelos launch can be interpreted in this way ? Similar for the UK moving out of US orbit ?

      Thanks in advance,

      Tim

  4. “Adam Smith’s “invisible hand” has been amputated”

    That is such a succinct illustration, Dave, of the present Orwellian fascist Kimura-like submission hold that will soon evolve into an attempt for a rear naked choke hold on the scared American citizenry, which have become vulnerable in their counterproductive and irrational search for security.

  5. It appears the COMEX may be in breach of some anti-trust laws or the Sherman Act … will the Gold Mining companies & Gold Funds please lawyer up and crush the phucking COMEX legally … running a phony market of 300 phony ounces per 1 real ounce is causing measurable harm to your industry & companies.

    1. If you are right about infringements of the “anti-trust laws or the Sherman Act “, you may be also interested to know that the CME ‘high-ups’ are also in violation of the US ‘Misprision of Felony’ law (https://www.law.cornell.edu/uscode/text/18/4 – look it up, it’s really interesting) which, if invoked, would really have them worried and resigning BTSHTF is neither here nor there. The trouble is that those in ‘authority’ in your wonderful country won’t act as they (the Dept. of Justice, for example), are complicit . However, it doesn’t change the fact that the law still exists and has been broken by CME executives.

  6. The S&P ‘Distress Ratio’ for junk bonds has now matched the level reached in September 2009. Only this time the amount of leveraged loans and distressed high yield debt (which are unsecured or subordinated) are tanking.
    The yields are screaming higher, having doubled from one year ago to now at 16.6%, the highest since August 2009.
    Hiding in the wings about to make their reappearance, are the subprime mortgages 2.0 and the subprime auto loans.
    They’re baaack!

  7. Jade Helm ALLOWED this administration to …stage equipment and supplies around the country…for their soon to be ‘used’ event…staged and ready to go..without a ‘whimper’ from the public….’Gorilla warfare’ will come to this country…and it will not be pretty….but Freedom and Liberty…will not vanish without a fight…contrary to what TPTB think…..as History shows us…..those that desire to control others …will be eliminated…..they will never be the ‘last man or woman ‘ standing……..a FACT of History…..imho….Semper Fi

  8. Dave,

    “But the intervention has also destroyed the signal transmission and rational capital allocation mechanisms of the market. Adam Smith’s “invisible hand” has been amputated”

    Not only on the spot…..this is poetry!

  9. It´s probably the oil derivatives that are melting down behind the curtain.
    Many of the hedges are running out for the oilcompanies and now they can´t hedge themselves anymore and they must face the low prices.
    I also think that they are fighting as hell to keep Deutsche and Glencore afloat and at the same time try to boost the price of oil and copper.
    When everything finally blows up the FED will have lots of valueable assets on their hands for instance millions of AMZN shares bought at 670-680 dollars.
    That´s true value!

  10. Wow Dave, When you can issue yourself infinite credit i.e. (.gov, fb, goog. itune. jpm , amazon et al) of course the actual currency you lend yourself is inherently worthless. This means that the people spending this worthless currency are clueless of this . Some people on this thread seem shocked by this fact! Ponzi guys!!! now they are going for the real money (gold) thats’ why they constantly hammer price. Great to see some people finally starting to get it. Great stuff Dave.

  11. Excellent analysis Dave. Perhaps the biggest tell is the head rat jumping ship next week
    as Director of PM for CME (most manipulated market in the world) . As someone stated above, that the Justice Department is enabler by their “see nothing” non prosecutorial actions, CME has had smooth sailing thus far. But, as you say, behind the scenes things are coming apart rapidly Now. Thanks for your great analysis Dave.

  12. I have had this feeling for about 10 years that when the paper money system collapsed it would happen over night, not stocks, not US dollar, i mean the entire paper money system. It is all notional and when ordinary people finally realised the depth of the con, they would panic like every other financial scam in history. So the hand may have been amputated but the PTB has finally noticed the hand keeps moving like any good horror tale…heehee

  13. Right on time..Geithner is teaching a Coursera course on “The Global Financial Crisis”

    About this Course

    Former U.S. Secretary of the Treasury Timothy F. Geithner and Professor Andrew Metrick surveys the causes, events, policy responses, and aftermath of the recent global financial crisis.
    Subtitles available in English
    11 weeks of study, 4-6 hours/week
    https://www.coursera.org/learn/global-financial-crisis?

    See….

    Jack. [After some hesitation.] I know nothing, Lady Bracknell.

    Lady Bracknell. I am pleased to hear it. I do not approve of anything that tampers with natural ignorance. Ignorance is like a delicate exotic fruit; touch it and the bloom is gone. The whole theory of modern education is radically unsound. Fortunately in England, at any rate, education produces no effect whatsoever. If it did, it would prove a serious danger to the upper classes, and probably lead to acts of violence in Grosvenor Square.

    The Importance of Being Earnest…Oscar Wilde

    trivialize the important…make important the trivial….I’m sure he will…Winning!

  14. Dave,
    The markets are very predictable. General stock indexes manipulated up, government bonds manipulated up, real estate manipulated up, commodities (especially precious metals) manipulated down. From speaking with regular (Keynesian) Wall St people I know, asset price inflation in stocks, real estate and government bonds is the “good” kind of inflation and it doesn’t count (according to them) as evidence of inflation.

  15. The system has BEEN collapsing, its just a (mostly) slow motion train wreck.

    The SBLM launch was unusually public, by design. My bigger issue is that our “weapon systems” look much better on paper than in reality. Waste, fraud and corruption – mainly on the government side, although contractors are happy to join in and its condoned by the government to help justify their actions.

    Finally, notice how the gun control freaks come out, regardless of the facts? All of this drives up gun sales and they know it. They want to provoke a civil war, plain and simple. The military won’t come to the gun control freaks side, but they are no doubt arming up their useless idiots along with importing jihadist muslims to counter balance those who love freedom.

  16. I work for a law firm who has represented mining companies since the late 1800s . We also represent oil companies since the 1970s. All I can say is they have been slow on paying their bills . Most of them are three months behind, which has never happened before.

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