We’re On Cusp Of A “Nuclear” Meltdown In The Credit Markets

The bond market is going to crash in way that no one thought possible .  –  A very well-connected Wall Street insider and a friend of  mine for over 20 years

I have been warning anyone who wants to listen to get out of the bond market.   We are being given point-blank warnings from the elitists.   Two more huge warning flares were sent up this morning.

The BIS – Bank for International Settlements, the Central Bank of global Central Banks (i.e. the Fed answers to the BIS) – warned in its latest annual report that global credit markets “are once again in risky territory:”

The BIS focused mainly on fresh accumulation of new corporate and sovereign debt by asset managers rather than banks and scratched its head about the coincidence of sub-par economic activity and record low default rates that in turn depress borrowing rates and credit spreads ever lower nearly everywhere.

“Asset managers” means the mutual bond funds you are invested in with your financial advisor or your 401k plan.  Get out of them.  Here’s the article link:   Scoping The New Subprime As Watchdogs Cry “Bubble.”

Ironically, a Portuguese bank, Banco Espirito Santo SA missed a bond payment and its bonds did a cliff-dive (source:  Zerohedge):

20140709_ESP

You see that graph?  That’s what the graph of Enron looked like before it collapsed.  This is what the entire bond market will look like when the derivatives bombs start to explode. Here’s the Bloomberg article link on the situation:  Espirito Santo Bonds Tumble.

What’s missing from the analysis is the OTC derivatives that are tied to the credit condition of this bank.  The Bloomberg article mentions credit default swaps but doesn’t explain the implications.  The implications are that somewhere, some bank or asset manager is on the hook for any “insurance payments” that will need to be made as part of the bet that was made when institutional investors and Wall Street banks placed their bets on Portuguese banks using OTC derivatives.  Eventually someone on the hook for the payment won’t be able to make it and the fun begins.  This is exactly what happened with AIG/Goldman Sachs.

It is THIS risk that is hidden away and deeply embedded in the bond market.  It is hidden in your bond funds that your “trusty” registered financial adviser with fancy initials after his/her name put you into.  You are exposed to this catastrophic risk.  In just five minutes of using Google, I found several Black Rock bond funds that are exposed to Portuguese debt.  Your genius adviser probably has you in one of these funds.

The bottom line is that you need to get out of your bond funds now before your money gets trapped and destroyed.   My co-producer and I did a video explaining why your money will get trapped in bond funds:   Get Out Of Your Bond Funds Now.

We are working on a multi-part series that will explain all aspects of why the insiders are terrified of a nuclear melt-down in the bond markets.

The only way to protect yourself from the coming destruction of the bond market is to move your money into physical gold and silver.  If you want to try and get rich off of this, you need to own junior mining stocks.  Not many people outside of the gold investment community is talking about this sector.  But gold was the best performing investment in the first half of 2014 and silver was third (oil was 2nd).  All three beat the S&P 500.

I have four great junior mining stock ideas available here:   Junior Mining Stock Research Reports.  I’ll hopefully have another one up later this week plus an added feature.

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper.  –  Ayn Rand (“Francisco d’Anconia”),  “Atlas Shrugged.”

24 thoughts on “We’re On Cusp Of A “Nuclear” Meltdown In The Credit Markets

  1. interesting likely related story linked in ed steer’s column:
    everything is catching a bid…the floaters, the sinkers, & everything in between.

    http://www.bloomberg.com/news/2014-07-07/complacency-breeds-2-trillion-of-junk-as-sewage-funded.html
    So many investors piled into a May bond sale by Clear Channel Communications Inc. that the radio broadcaster, with a credit rating that implies default is almost a certainty, more than doubled the offering to $850 million.

  2. @ Dave

    who you care to comment on the status of a market when our currency is worth zero and the crisis is here…how does our market stay OPEN…..for trading, or does it just go away..

    thanks

    dan

    1. I was having an email convo with a very well known blogger – someone who gets 10x the hits per day I do…of course, I think my work is better 😉

      He covers stuff from a different angle and writes more carefully than I have time to do.

      Anyway, after our intial tete a tete, this was my remark:

      If I’m right about the bond market imploding, there’s really no “investment model” we can overlay on what will happen. I think it will morph into chaos and we will understand for real why the Govt passed the Patriot/Homeland Security/Detainee Acts and why the DHS, NSA, Postal Service etc have been stockpiling ammo and why Obama signed a Bill enabling the use of military force on domestic citizens.

      But if I laid that view out in public, no one would read my work because they would think I’m insane, like everyone did in 2004 when I sold my house and advised everyone I knew to do the same….

  3. Thx for another great post Dave. Any chance you could elaborate on what your friend said specifically without divulging identity? There is so much hyperbole and speculation out there these days it is so hard to know the truth and what wickedness comes our way. I know our whole (small) pm community would be grateful. Appreciate all your great work and keep telling the golden truth! Michael

    1. Everything I’ve been writing about about the credit market is true. This guy has seen the positions first hand.

  4. Hi Dave.. Thank you for the continuing coverage of this Bond issue. Do you think any bond funds will be reasonably safe? For instance, I am presently in a cash-like “stable value fund” in my 401K. When I look at the composition, it involves a majority of “wrap” agreements that have a long list of insurers (Prud, NY Life, Met Life, etc) as counterparties… so this sounds dicey and I probably need to get out. Where to go though within the 401K choices? (I cannot get out without quitting). If I look through some of the bond fund choices, some (like Vanguard fund VFIRX) are simply filled with short term Gov. bonds… no derivatives, no wraps. Would something like this be more safe based on your understanding of the scenario you see unfolding, or is there still stuff probably going on under the covers of a fund like this that would make it potentially toxic? Thanks, 1 Kg Lunar Dragon

    1. No. Get your money OUT of the system. They gated money market funds in 2008. They are going to gate all bond mutual funds, if not all funds. The warnings are there. Anyone who leaves their money in the Wall Street money meat grinder is in denial.

      Take any funds you can OUT Of your 401k. Go buy a home and designate it as a primary home and borrow against your 401k to buy it. Do anything you can to get your money out. If you have any options of just selling your funds and sitting cash w/out getting “swept” into a money market fund, do that.

        1. It’s better than keeping your money in a 401k and it allows you to get your money out in a “back door” way.

          401k people are screwed to the extent that they are locked in until they leave their job. You could
          get a new job and roll your existing 401k into a self-directed IRA and THEN take your money out, paying
          a 10% early exit fee and income taxes. It’s better than keeping your money locked up in a way that you can’t
          get at it…

          1. Sorry, you didn’t ask for my advice, but I would think if you purchased ahome against the 401k and it tanks, your left with an upside dow loan without any 401k either. How about rolling your 401k into a silver/gold eagle IRA (physical bullion) Thats what I did.

          2. You’re still trapped in a 401k. Who’s the custodian? If the bond mkt does what I think it will, your custodian will be vaporized. SIPC won’t cover it because there will be a scramble for SIPC money like nothing you’ve seen.

            And we haven’t even begun to address the political risk of the Govt deciding they need retirement assets to monetize the Govt. debt. There’s already been Congressional hearings on ideas for making retirement assets “less risky.” Look it up.

            I made the prediction in 2003 that the insider elitists would hold up the system with printed money until they’ve swept every last crumb of middle class wealth off the table and into their pockets. I predicted the retirement asset base would be the last big asset they would go after. So far I’ve been right. I’ll be right about retirement assets too.

            FYI. My definition of “middle class” is anyone who doesn’t have enough liquid wealth to buy his own major politician. Harry Reid went from barely having a pot to piss in to being worth at least $10 million since he’s been in Congress. You got $10 million liquid? Guys who have that kind of jake are worth $100’s of millions and billions.

      1. What do you mean by getting swept into a money market fund. What is the risk in that over leaving it in 401k equities?

  5. Another interesting timing post answers the question: “ok, so what’s missing still after the mesmerizing runup in the Western world indexes (presaging some kind of gigantic paper accident in bonds/currencies)?”

    A: We’ve yet to see ASIA blastoff. if this is now on the cusp, then it’s just going to l get interestinger by the day now.
    so, pick 1 or 2 TOPIX MSCI Singapore, hang seng, shangkai-shek etc & see.
    ——————————————————
    The price charts of Asian stock markets suggest that a significant advance has started or will start soon
    july7
    http://peterlbrandt.com/asia-tigers-ready-roar/

  6. Dave….Re:SDRG.

    You said that the the person that introduced you to SDRG>….yes, I know who that is.
    Im not a fan of him myself…but outside of that, SDRG has gone from a half penny now up to 4 pennies in a hurry. Some days good volume, some days not as strong.

    Looks like some insider buying on news that FINRA might bring the Dragon back to life by trading on the OTCQB. I moderate the forums at IHub for SDRG and some good talk there.

    Anyhow…I know many people felt burned with Marc but he has made a nice turnaround in the past 2 years.

    This is my lotto for the jr miners and its looking good. I do have thank you since I discovered this stock on your older site.

    Im with you on Junior Miners. Use gold and silver to protect of whats coming, make some big time $$$ on the miners. Met an old timer at a coin shop a year ago in Vegas (its the biggest shop on Sahara and Tenaya) who made a fortune on the miners back in the day. His proof was his Ferrari and barbie doll bimbo lady who I think was a third of his age. 🙂

    Not the kind of stuff follow by example (since we are trying to avoid the hyper-materialistic, narcissist, shallow types) but just stating that I was eye witness to a guy that made it pretty damn big. 🙂

    People get excited for 100-200% gains. Who wouldnt. But how about 10-baggers, 20-baggers and more when silver and gold go to parabolic heights.

    People go to Vegas for the thrill of making a few thousand bucks. Well, I am gambling in miners for making 6 to 7 figures once g&S make their huge move.

    1. LOL. I forgot about SDRG. My only big mistake and it was a mistake because I relied on my “source” for due diligence because he got his info directly from Marc. I always do my own due dili regardless of what anyone tells me about their source of info. For some reason I got “seduced” into SDRG. What’s the status of the big lawsuit from that Chinese group? They own a pretty chunk of SDRG and were suing Marc for fraud.

      1. Dave….

        The status of SDRG was that the chinese group (and I know who you are referring to) LOST the case against SDRG.

        A lot of the speculation on Marc was the same I felt. ALL TALK, NO SHOW CEO. Some thought he was a fraud. And I cant blame those people.
        What irked me was when he lost Mexico.

        BUT…SINCE THEN, Marc has made a huge turnaround. SDRG’s final straw, or at least what it seemed…was when SDRG got on the DTC Chill list. Marc got us off at the Chill List when pundits thought that was it for SDRG.

        He also did moves where some thought it was foolish which proved to be great. He sold Erbahuo for $1.2 mill, which was a bit low…but it was much needed liquidity (market cap was around that figure at the time too coincidentally ).

        He has kept up with all of the 10ks with reports, given complete and detailed narratives to FINRA and cleared the issues with the SEC with getting us off the chill.

        He HASNT diluted this stock to the crapper or even did a R/S. Even with the loss of Mexico/sale of Erbahuo…Id say at TOPS its 15-20% of the value that SDRG has seen before (in the DOLLARS).

        There were 40 mill/ozs of silver in China in the past 43101s BEFORE DADI and Lapandao and SDRG was of big value.

        THe issue now with SDRG? Its awaiting FINRA approval which looks to be really good but nothing is ever a guarantee or 100%……
        Once approved then this stock will kick off another run.

        As I stated, I did buy this stock for a quarter in the past..though made a huge risky purchase at a half of a penny. Its sitting at 5 pennies at the moment.

        1. Whoops…a typo…meant to say “80-85% of the value that was set for SDRG”….or 15-20% reduction at most.

          Meaning, its old value of $1 =.80 today…obviously not exact and my math sucks (Im the guy that needs a calculator to fill in the numerical figure when posting here……for example…… _x 2 = 4. Is the answer 5? 3? Or….2?? 🙂

          That is all

  7. Jim Sinclair has been singing from the same hymn book
    for some time now. It appears we are getting closer to the
    day when TPTB lose control of this monster they’ve
    created. It’s sad that 90% of the sheeple haven’t a clue
    and are about to be blindsided by the coming financial
    disaster that will unravel the economy like a house of
    cards.

  8. Are all derivatives linked together in this? I am looking at some call options for mining companies (since I don’t have much I can put in the stocks). Would this be overly risky to buy calls? Sorry if this is a basic question, I’m trying to get up to speed

    1. LOL. No. Options on public companies are completely different and separate from OTC “structured note” derivative contracts.

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