by Bill Holter, JS Mineset:
The most common question I hear is “when”. When does the system collapse? When will we experience a reset? I think this is a very odd question. Odd because if you stand back far enough you should be able to see “you are watching it”! We are all so close and watching day by day movements, we are missing the big picture. Don’t get me wrong, many know systemically we are a bust but the daily watch for the lights out moment goes on. My point is this, the collapse is happening right before your eyes, “when” is a process and you are watching history!
The real global economy is in serious decline. You need no more evidence than declining trade and oil prices. If you would more evidence, Michael Snyder created a recent list http://theeconomiccollapseblog.com/archives/22-signs-that-the-global-economic-turmoil-we-have-seen-so-far-in-2016-is-just-the-beginning for you. What is and has already happened is unprecedented. Again, why ask “when” if you can already see it happening?
From a financial standpoint, we are also watching the collapse unfold. Earnings are collapsing across many diverse industries. Just as we saw leading up to the 1987 crash, 2000 and again in 2008 …we witness the “slaughter of the day” after the release of poor earnings or future guidance. Credit default swaps are blowing out across many industries, the most obvious and probably most important is in the energy and banking sectors. The global credit markets are seeing various corporate bonds collapse 5 and 10% on a regular basis …and not industry specific! Here again, you are watching the collapse unfold right before your eyes but question is still “when?”.
We of course arrived at this financial/economic point in history with the central banks driving the bus so to speak. Looking back to 1987, 2000 and 2008 we can see each time the reaction was “easing”. Each episode was more serious than the last and took more and more liquidity to keep the system together. The last episode in 2008 took well more than $20 trillion to keep the system from seizing up. Since then, central banks across the world and sovereign treasuries have overextended themselves to the point of insolvency yet many expect them to save the day again. The only tool left is the only tool they have ever really had, “press the accelerator” further.
The problem is now the “further” part. “Further” can only mean negative interest rates which will render the system bankrupt by individual parts and then ultimately collectively. There is no logical way to either understand negative interest rates or to expect them to work in any fashion. Investors are screaming for negative rates and as evidenced by Japan’s announcement, negative rates are briefly cheered. The reality however is quite different. Zero percent interest rates and now negative interest rates have and are damaging the banking sector. A Badly Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us. Please understand, Deutsche Bank is sitting on $75 trillion worth of derivatives (AND their CDS rates are beginning to elevate rapidly!), they are telling the central banks to not use the only tool they have!
I have said all along, derivatives would be a reason for the lights out moment. We now have volatility and decline resembling the precursor to the Lehman moment in 2008 …only this time with more debt, more derivatives and more interconnectedness within the system. Can any different result than what happened in 2008 be expected? The only difference I can see is the ability to reflate the system no longer exists in any fashion anywhere in the world. The largest derivatives player screaming they are being crushed with low to negative interest rates is simply part of the default process …and you are watching it unfold!
Before finishing I do want to point out the activity in gold and the mining shares. Gold is up close to 10% this year and the shares are up a crazy 45% in just two weeks! Something very big has changed. Many are saying it is because negative interest rates are coming, I am not so sure this is why. I believe big money and those running the clown markets understand where we are. I believe they understand no effort at reflation can work this time as we’ve passed that point now. It is my belief we are seeing gold move higher because it cannot “default” when the entire system defaults. What I am saying is this, the deflationary event of derivatives blowing up and taking the financial system with it will also destroy the currencies.
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