first majestic silver

Bombs errr Bonds, Debacle At Our Doorstep!

July 3, 2014

The breathtaking rush into the perceived safety and stability of the Bomb er Bond markets which began at the depths of the 2008 Global financial crisis are in blow off mode.  A recent Bank of international settlements annual report has been ignored due to its message of CAUTION.  The main stream media routinely blacks out these messages and have done so this time.  Frenzied reach for yields are occurring throughout the world.
"Investors are gobbling up riskier assets like never before."    

– Wall Street Journal, May 27, 2014


Actually, we are closer to the 1996 lows in yields than it appears as back then it was 5 year treasuries versus 7 year treasuries being graphed now.  This is understandable as over $35 Trillion dollars (35 million million) have been printed or issued out of thin air by lenders or central banks since 2008.  That money is now frantically seeking a home.  Keep in mind we operate in a reserveless banking system with leverage ratios officially about 33 to 1 but probably much higher if properly measured.  Most people don’t understand that deposits used to drive lending; now the lending drives the deposits as can be seen in cash balances worldwide.
"Financial markets are euphoric, in the grip of an aggressive search for yield,"… And yet investment in the real economy remains weak while the macroeconomic and geopolitical outlook is still highly uncertain."

- Claudio Bono, Bank of International settlements, June 2014

The BIS report outlines several alarming facts related to syndicated loans; “—"for instance, credit granted to lower-rated leveraged loans" exceeded 40% of new loans for much of 2013. "This share was higher than during the pre-crisis period from 2005 to mid-2007" and "fewer and fewer of the new loans featured creditor protection in the form of covenants."

Leverage and ISSUANCE is at record levels across a wide spectrum of credit and bomb er bond markets!

Over $642 BILLION Dollars of corporate DEBT sales in the first half of the YEAR at record LOW Rates sets and ALL TIME RECORD!

The dash for trash such as PiK toggles, cov lite, junk, commercial loans. corporates and US treasuries are at levels rarely seen in history.  Can it go farther?  Sure.  $35 million million is seeking a home and income in a world that has a shortage of real investments.  That’s a lot of cabbage rotting away from printing press and exploding credit issuance.   Nobody knows when the last fools will be in at the top but it is certainly time to start looking for them.  Money is just mindlessly seeking shelter from the central banks mandate to INFLATE or die.  Central banks have joined the frenzy mindlessly rushing into overvalued tangible markets in exchange for the worthless paper (FIAT CURRENCY) on their balance sheets.  Recent reports put the number at over $29 Trillion since 2008.  Here’s another picture of the insanity afoot in the world from Lance Roberts at

“We have seen this exuberance before.  In 1999, the old valuation metrics no longer mattered as it was “clicks per page.”  In 2007, there was NO concern over subprime mortgages as the housing boom fostered a new era of financial stability.  Today, it is the Federal Reserve ‘put’ that is unanimously believed to be the backstop to any potential shock that may occur.”

- Lance Roberts

Those are all time lows in junk bomb er bond yields.  Much of the printed money has fled the developed world for the emerging world where interest rates still put a cost (not zero) and return on money:

Informed observers know there has been no REAL ECONOMIC growth since 2008; actually it has been much longer than that.  It has actually been over 30 years since real growth occurred in the developed world.  All reported growth since the early 1980s has been debt disguised as growth.  It is why your money has lost so much purchasing power since that time.  Living standards are in free fall in REAL terms.  It is this debt growth and debasement that has FUELED and DESTROYED the middle classes in the developed world.  Growth became a function of printing money and debt issuance in thinly disguised socialist welfare states in Europe and the US.

“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

The elites, banksters and insolvent governments of this era are following the latter route as have all their predecessors.  This has been a bottom line of the present day situation since Breton woods II in August 1971 forever altered the definition and functions of money.   One day the citizens of the world had semi sound real money in their hands and bank accounts to store their labor and wealth in and the next day it was IOU’s or morally and fiscally bankrupt public servants government and banksters.  It was the greatest heist in history done in DAYLIGHT.

Now the greed and avarice of public servants, something for nothing constituents and the banksters which facilitates them KNOW NO BOUNDS and has outdone every previous episode in history.  The boom has been tremendous but the bust will be one for the history books.

Real money is still available as it has been throughout time.  Those are Gold, Silver, Commodities, land and in more recent century’s energy.  Throughout history humans have consumed all of these and exchanged money for them.  These are the basics of existence, always have been and always will be.  To put into perspective how debt has substituted as growth here is something to ponder:

From 1950 to 1980, the world's largest economy soared by 191% in inflation-adjusted terms, while the combination of household, corporate (including financial) and government debt increased by a mere 12%”

“In the following three decades, from 1980 to 2010, the U.S. GDP grew a more moderate 124%, yet total debt rose by an almost identical 125%”.

Did GDP increase or did the DEBT GROWTH create the illusion of GDP growth?

The answer is self-evident.  The greatest experiment in leverage in HISTORY and money printing has been transpiring for over 44 years.  Someday soon it will all end with a pop.  On that day hope will turn to fear as the leverage FAILS.  But the present day version has all the fingerprints seen throughout history and are now front and center.  Now we are going to look at a number of pictures which are reflections of each other.  The first is Global Money supply from 1986 to January 2013:

Yes, you see that right it has exploded from $5 trillion in 1986 to $52 trillion in less than 30 years dwarfing all of history before it.  Since 2002 it has gone virtually vertical.  Do you know what happens to a plane when it climbs like that?  It isn’t pretty.  Since January of 2013 it is up at least another $3Trillion.  That PILE of worthless IOU’S are now just COUPONS you can EXCHANGE for REAL WEALTH.  Let’s take a look at the bombs er bonds and it is the mirror image of the previous chart and runs from 1989 to September of 2013:

Wow, another $90 Trillion and easily up another $2 to 3 trillion in the last 9 months and the developed world has debt to gdp ratios which are UNMANAGEABLE to say the least.  This does not include bank lending.  Most people don’t know but global asset markets now total almost $250 trillion ($250 million million) but the ugly little detail is that 80% of it is INTANGIBLE sitting in worthless paper of one sort or another.

The math is hopeless.  If interest rates average 5% on this pile of paper above ($175 trillion) the interest alone is a cool $11.25 Trillion alone.  Like I said, no principal can be paid back on balance.   A lot of this debt is already non-performing, just not reported as such through official chicanery.  So, those productive assets must make that amount just to pay the interest on the piles of paper.  This graph ends in Q2 2012, almost 2 years ago.  Keep in mind the cash that was created when the debt is equal to the $175 trillion (175 million million) so it is sitting somewhere in a bank, called money but actually a form of junk bombs er bonds.  At some point the pile of paper is going to try and move into the real assets and a “Crack UP Boom” will commence.  We can see a ghost of it today as all asset classes are rising simultaneously in the last 6 months.

The world’s sovereigns and financial systems remain addicted to DEBT and debt spirals are plainly visible THROUGHOUT the world:

Author’s Note:  In my opinion the greatest manmade disaster and OPPORTUNITY in history is unfolding in every corner of the world.  Are you diversified or operating with EYES WIDE SHUT?  Are you prepared to turn it into opportunity by properly diversifying your portfolio?  Adding absolute return investments which are designed with the potential to thrive (up and down markets) regardless of what unfolds economically or politically?  This is what I do for investors; help them diversify into investments which are created to potentially thrive in the storm.  For a personal consultation with me CLICK HERE!

Most people don’t understand the Bombs er bonds are IOU’S denominated in IOU’S.  If one creditor doesn’t get you the other one will.  What good is an IBM bond worth if it is denominated in US dollars, Japanese Yen, Euros, etc.: which are already MATHEMATICALLY worthless?  We are just waiting for PEOPLE to WAKE UP as Von Mises puts it.   The banks are also sitting in hopeless insolvency and zombies in everything but name:

The US looks good in comparison to most others, but the dirty little secret is that they have written and are counterparty’s to over $200 TRILLION dollars of over the counter derivatives with nothing anchoring them but the CREDIT RATING which are public fictions.   Those OVER the COUNTER derivatives have no margin held against adverse moves against them.  In reality those derivatives are in place to manipulate and control these markets.   Please recall that world banks are operating at leverage ratios which make MF Global look PRUDENT.  At least 20% of those balance sheets in bonds which are unpayable and inextinguishable; it is called risk free government DEBT.  HO HO! These world banks are Zombies, operating in regulatory approved and ENGINEERED INSOLVENCY.  A large portion of their balance sheets reside in debt of sovereigns which have not paid a penny back in 30 to 50 years. It has only been rolled over and new borrowing to fund the welfare state issued.  We are operating in a world where the business model of the governments is Ponzi economics.  Never in history have so many governments operated with no intention of repayment.  As Lenin so aptly put it:

“Without big banks socialism would be impossible”

- Vladimir Lenin

Of course this is just the on the books amount, the real total including unfunded future liabilities is 4 or 5 times this amount.  Take a look at these charts showing you the GAAP adjusted numbers for the UNITED STATES from (I highly recommend johns work):

These are a little old as I took them out of an older presentation.  But the GAAP adjusted deficits regularly hit $7 Trillion dollars ($7 million million) a year and the real deficit is $90 Trillion (90 million million) not the $17.5 Trillion told to the public.  Lawrence Kolikoff at Harvard puts the real GAAP adjusted budget deficit at over $222 Trillion dollars (222 million million).  The idea that this will ever be paid is ZERO and the when the S**T hits the fan moment is on the near horizon.

In closing, Contrary to main stream media and finance industry we are not getting into a recovery we are heading into the next wave of INSOLVENCY.  Global central banks cannot allow these flows to REVERSE so you can expect their balance sheets to BALLOON AGAIN as the become the market maker of LAST RESORT.  It’s INFLATE or DIE for the world’s CENTRAL bankers or their Ponzi economies and financial systems will PERISH.  So you can expect the MADNESS to CONTINUE until it CAN’T.

RECENT IMF and Federal Reserve white papers propose exit fees for bond funds to discourage flight out of these asset classes.  HA HA, when the real PANIC sets in it will be “get me out” at ANY PRICE for the fools that have chased these markets.  With the weakest hands JUMPING FIRST!   As the FED tapers (tightens monetary policy), the Peoples Bank of China reigns in the rate of credit growth and attempts a soft landing, and the Bank of England raises short term rates do you think these lala land paper asset values can be sustained?  What do you think will happen when these flows REVERSE?  Who will buy them on their way down and provide LIQUIDITY?  Dodd Frank has severely restricted the banks’ ability to do so.  Famous Distressed bomb er bond investor Howard Marks is warning of froth and overvalued markets.  As Warren Buffet has said many times be cautious when investors are greedy and greedy when investors are panicking.  GOOD ADVICE at this TIME! They are in greedy mode.

Whether this plays out over a year or a decade the end zone remains the same as it has throughout history: a currency and financial system extinction event as these assets revert to the mean and drop to a value which provides a yield greater than the REAL RATE of investment.  That intangible and worthless paper IS the RESERVES of the global banking systems.  I am Austrian and it is etched in history and never ends any differently.  Only this time it is different, Different in scale!  It isn’t one or a few countries; it is all of them in the developed world!  It is the greatest mass insanity in history.  This is NOT DOOM and GLOOM:  IT IS THE GREATEST OPPORTUNITY IN HISTORY if you put your portfolio into applied Austrian economics investments.  This is my specialty.

Author’s Note:  In my opinion the greatest manmade disaster and OPPORTUNITY in history is unfolding in every corner of the world.  Are you diversified or operating with EYES WIDE SHUT?  Are you prepared to turn it into opportunity by properly diversifying your portfolio?  Adding absolute return investments which are designed with the potential to thrive (up and down markets) regardless of what unfolds economically or politically?  This is what I do for investors; help them diversify into investments which are created to potentially thrive in the storm.  For a personal consultation with me CLICK HERE!

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