The Financial System Could Fail At Any Time: Eurozone Downturn Intensifies, Out of Control Derivative Trade Threatens the U.S. Economy, Risk Ratio is Pushing Extremes, And US Headed for ‘Greatest Retirement Crisis’ in History
Investors must heed this warning and get their assets out of the banks now. The reality is the financial system could fail at any time and this is why investors must act today. See what’s happening in Cyprus: Banks are closed and whether people have cash, stocks, or gold in the bank, they won’t get it out of there.
This is why back in 2002 we told our investors to put up to 50% of their assets into physical gold and silver, and also advised them to store it outside of the banking system. The bottom line is that gold is guaranteed to reflect the massive money printing we will continue to see worldwide.”
There are few sure bets economically speaking (especially if one has to put a timeframe on them), but some things come close. One easy call was for a continued implosion in France.
Sure enough the Markit Flash France PMI shows Sharpest fall in French private sector output for four years.
- Flash France Composite Output Index posts 42.1 (43.1 in February), 4-year low
- Flash France Services Activity Index drops to 41.9 (43.7 in February), 49-month low
- Flash France Manufacturing PMI unchanged at 43.9
- Flash France Manufacturing Output Index rises to 42.8 (41.8 in February), 3-month high
Private sector firms in France reported a further steep decline in output during March. Moreover, the rate of contraction accelerated to the sharpest in four years. This was signalled by the Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, falling from 43.1 in February, to 42.1.
Over the past couple of months, I have been discussing the rising risk in the markets as asset prices have been propelled higher by continued Federal Reserve monetary actions even as corporate earnings have weakened…
In particular, in the post titled “There Is No Asset Bubble?”, I stated:
“Don’t misunderstand me. As we wrote last week – it is certainly conceivable that the markets could attain all-time highs. The speculative appetite combined with the Fed’s liquidity is a powerful combination in the short term. However, the increase in speculative risks combined with excess leverage leave the markets vulnerable to a sizable correction at some point in the future.
“The only missing ingredient for a correction is a catalyst to put ‘fear’ into an overly complacent marketplace…”
After the shot across the bow in 2008, you might have expected that regulators and market participants would use the experience to change for the better, to become more prudent, and to reduce the sorts of risky behaviors that almost crashed the entire system.
Unfortunately, you’d be wrong…
In 1998, there was a firm called Long-Term Capital Management (LTCM, as it is commonly referred to today), staffed by the best of the best, including one of the very top bond traders that Wall Street ever produced as well as two future Nobel laureates.
LTCM boasted of its use of complex models that were supposed to generate outsized returns while operating with a risk-minimizing profile that, mathematically, was only supposed to experience severe losses so infrequently that the periods between them would be measured in the thousands of years.
Unfortunately for LTCM, their models badly underestimated real risks, and their leverage was such that their original $1 billion in capital turned into total losses of $4.6 billion in a little over four years, nearly dragging down the entire financial system in the process.
While this experience has much to teach us in the way of market risk, hubris, and the dangers of leverage, it really needs to be understood in terms of the rise of moral hazard on Wall Street. The main lesson that Wall Street seems to have learned from the LTCM disaster is that if the wipe-out was big enough, the Federal Reserve would swoop in and rescue things.
Message received: Go big or go home. Take on as much risk as possible, secure in the knowledge that if things got bad enough, the Fed would simply print up what was necessary to make all the players whole again, with perhaps one core player or institution thrown under the bus for the sake of appearances.
Fast forward to…
As we are already seeing, many older people have had to return to work because they either could not afford the costs of living or they need employer-subsidized healthcare. Others realize they need more money so they work longer, considering themselves to be postponing retirement. But many Americans have put ideas of retirement aside and plan to work as much as they can for as long as they can.
In the end, most people will end up in the same boat, according to Siedle — with deteriorating health, a lack of employment opportunities and insufficient funds.
“Too frail to work, too poor to retire will become the new normal” for the majority of the nation’s elders, he explains, noting that the problem will be too big for the nation to ignore.
Out-of-control derivatives were largely responsible for the 2008 financial crisis … and still pose a massive threat to the economy.
Unchecked derivatives are so harmful to the economy that:
- Warren Buffet called them “weapons of mass destruction”
- A Nobel prize winning economist who helped develop derivatives pricing said some of them were so dangerous that they should be “blown up or burned”
- Newsweek called them “The Monster that Ate Wall Street” after the financial crash
This is especially true since the big banks are manipulating the hundred trillion dollar derivatives market.
No, the big “financial reform” bill passed in the wake of the financial crisis didn’t fix anything. Wenoted last year:
No, there have not been any reforms or attempts to rein in derivatives, and the Dodd-Frank financial legislation was really just a p.r. stunt which didn’t really change anything.
We are going to crash big:
and as in 2007-2008, someone try to sound alarm, but everyone laugh: