Something very ominous is brewing behind the scenes. It is systemic and related to a ongoing credit collapse behind “the curtain.” The indicators are right in front of our eyes, regarded with indifference by a zombified, propaganda-infused public injected with the “hope heroin” greedily pedaled by Wall Street, the Fed and the Government.
The credit markets are in a slow state of collapse led by high yield bonds and leveraged loans, which have been declining for the better part of a year. Recently that decline has turned into a tail-spin in the more toxic classifications of “high yield.”
It was revealed by Zerohedge LINK, in a display of adept journalism, that the Dallas Fed has quietly told its regional member banks to refrain from marking to market their distressed energy loans and to defer an initiative to foreclose on defaulting loans to technically bankrupt energy companies drowning in debt.
Of course the head of the Dallas Fed, a former high-ranking Goldman Sachs executive, has issued a polished denial. We need to two more denials before the intel is confirmed to be true. But I know from a source that it is indeed true. A couple months ago a little birdie passed on the remarks made to his client from the President of a big regional bank in Texas: the economic hurricane brewing from the collapse in energy prices is about to hit Texas hard and it will hit every sector of the Texas economy.
Back to the Dallas Fed issue, does this sound familiar? Anyone happen to learn anything from “The Big Short” about the fraudulent behavior of the big banks when their fraudulent business activity hits the wall? One well-read analyst dismissed this latest round of fraud by attributing it to the change in mark to market accounting rules passed in 2009. But these rules were meant to enable the big banks to avoid reporting asset mark-downs for GAAP purposes, enabling them to mark-up bad assets. This further enabled these banks to misrepresent their earnings per share in quarterly earning reports. But that analyst is whistling past the graveyard on this issue. This is much more insidious and fraudulent than changing the GAAP accounting rules. This is about telling banks to let bankrupt companies pretend to be solvent, just like we saw in The Big Short with CDO’s and CLO’s.
This latest move by the Fed is an attempt to play Atlas and hold up the world of banking on its shoulders. It’s about enabling these banks to avoid taking big hits to their reserve capital. This lets the banks carry on as if nothing is wrong when they should be selling assets hand over fist and raising even more capital to use as reserves against collapsing energy assets. The canary has died and the Dallas Fed is going to try and carry the canary out of the mine before anyone sees the corpse.
Now does it sound familiar? This is exactly what happened in 2008 in the mortgage market. Only this time around it will be worse because this dynamic will encompass most of the biggest lending sectors of the financial system: energy, auto loans and student loans. Don’t worry, mortgages won’t be left out. The pool of homebuyers sitting on 0-3% down payment mortgages has bubbled up. I predict that within the next twelve months a large portion of the subprime mortgages disguised as FNM/FRE/FHA conventional loans will be come quite problematic for the banks.
How does this relate to the Tuesday morning massacre in the large cap miners? Whenever something really bad is about to hit the system, one of the first places it manifests is with an unexplainable raid on the mining stocks. I thumbed through the news announcements of every single component of the HUI index and could not find any news reports that would have triggered a 6% hit on the HUI. Some of the biggest stocks, like BVN, Kinross and Newmont are down 7-10%. Unexplainably down.
This could lead to a big attack on gold/silver, so brace yourself. It won’t last and anyone who sells into it out of fear will regret doing so in 3-6 months.
The global financial system is collapsing. It was reported yesterday that Italy’s big banks are melting down. This will trigger a big daisy-chain explosion credit default swaps. I expected to see the S&P futures down 2% on this report. They were up 1.5% overnight. I guess a melt-down starting in the European financial system is a good reason to pile into U.S. stocks…But on the contrary, I knew I would wake up to find the SPX futures up big and that’s what confirmed for me that the system is collapsing. The Tuesday morning slaughter in the large-cap miners is Fed’s attempt to get that canary past the last group of people entering the mine and it further confirms that the global economic system is failing.
Dave –
Stockman’s take on Amazon…..
http://davidstockmanscontracorner.com/amazon-and-the-fantastic-fangs-a-bubblicious-breakfast-of-unicorns-and-slippery-accounting/
this canary?
https://www.youtube.com/watch?v=OaKDLm4k58Q
“Out of the 10 stocks I track in this sector, there are only 5 that are still in a long-term bullish trend. They are Amazon (AMZN]……. ”
http://www.ino.com/blog/2016/01/beware-of-dead-cat-bounces/#.Vp6SUFkYHsE
Amazon?? I’m sure this guy knows volumes more about the financial markets than me but…how do people think this??
Aaron Layman had trouble posting a comment – my comment moderator is “buggy.” Hopefully I can try to fix it soon.
“I was checking on home prices in my former stomping grounds (West Texas), and the carnage in the oil patch is picking up steam. Home prices in the Odessa-Midland area are cratering along with the price of oil. I grew up in this area and experienced the 80’s bust as a kid. This time isn’t really any different other than the fact that our modern banking system is exponentially more corrupt. The quote from the Texas “economist” (see link in my article) about cratering home prices had me falling out of my chair in laughter. The sad part is that he seems to be so clueless about the demand equation, but then again, many economists are nothing more than sell-side cheerleaders for varied interests.
Nothing like seeing your home values drop by 15-17 percent in the span of one year!
http://aaronlayman.com/2016/01/odessa-midland-home-prices-see-double-digit-declines-from-bubble-peak/
“
HUI collapsed. Even worse the HUI?GOLD ratio collapsed. I’ve been thinking for some time the 2000 HUI low is the algo target. It seems more then an even bet after the number of new lows in the sector in recent days. I expect the metals to get hit the next for days as the miners tend to lead given the powers that be position themselves short in then before whacking the metals via the comex. Looks like for the general good this sector must be destroyed. Free markets? I wonder if we will ever see those again.
What’s the endgame here, Dave? Is the official sector which , in opinion, includes the bullion banks (as state agents), trying to bankrupt the industry so as to take possession of the assets?
Other than a couple South African Miners (currency Play on Gold) the Gold Miners are going nowhere …. the dividends from the majors suck ….. and why would anyone risk their money in a public Gold miner for more than a quick trade when the COMEX/LBMA price discovery process is a fraud – notice how the Gold stocks have sunk right in tandem with the growth in paper Gold to real Ounces.
The Wall Street Titans can short the entire Gold stock complex into bankruptcy simply by leveraging up to 500-to1 Paper Gold to real Ounces and keeping it there.
Buy the Bullion – the Bullion cant go broke.
I think that works till someone or some group of someones demands delivery for orders and will not settle for paper, and instead insists on the physical metal.
“The name of the game is bailout. “
… and bailin.