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A Mystery Investor Has Made A 262 Million Dollar Bet That The Stock Market Will Crash By October

One mystery trader has made an extremely large bet that the stock market is going to crash by October, and if he is right he could potentially make up to 262 million dollars on the deal.  Fortunes were made and lost during the great financial crisis of 2008, and the same thing will happen again the next time we see a major stock market crash.  But will that stock market crash take place before 2017 is over?  Without a doubt, we are in the midst of one of the largest stock market bubbles in U.S. history, and many prominent investors are loudly warning of an imminent stock market collapse.  It doesn’t take a genius to see that this stock market bubble is going to end very badly just like all of the other stock market bubbles throughout history have, but if you could know the precise timing that it will end you could set yourself up financially for the rest of your life.

I want to be very clear about the fact that I do not know what will or will not happen by the end of October.  But one mystery investor is extremely convinced that market volatility is going to increase over the next few months, and if he is correct he will make an astounding amount of money.  According to Business Insider, the following is how the trade was set up…

  • To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.
  • The trader then used those proceeds to buy a VIX 1×2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.
  • For reference, bullish call spreads are used when a moderate rise in the underlying asset is expected. Traders buy call options at a specific strike price while selling the same number of calls of the same asset and expiration date at a higher strike.
  • In a perfect scenario, where the VIX hits but doesn’t exceed 25 before October expiration, the trader would see a whopping $262 million payout.

I will be watching to see what happens.  If this mystery investor is correct, it will essentially be like winning the lottery.

But just because he has made this wager does not mean that he has some special knowledge about what is going to happen.

For example, just look at what Ruffer LLP has been doing.  They are a $20 billion investment fund based in London, and they have been betting tens of millions of dollars on a stock market crash which has failed to materialize so far.  But even though they have lost so much money already, they continue to make extremely large bearish bets

As of earlier this week, Ruffer had spent $119 million this year betting on a stock market shock, $89 million of which had expired worthless, according to data compiled by Macro Risk Advisors. The investor has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion expired at a loss.

Blame a subdued VIX for the futility. The fear gauge was locked in a range of 10 to 14 for the first three months of 2017, and while it has since climbed to as high as 15.96, it has been stuck well below 14 since a single-day plunge of 26% nine days ago. Earlier this week, the index closed at its lowest level since February 2007.

But that doesn’t mean Ruffer is giving up. Already loaded up on May contracts, the firm has continued to buy cheap VIX calls expiring later in the year — wagers costing about 50 cents.

I can understand why Ruffer has been making these bets.  In a rational world, stocks would have already crashed long ago.

The only way that stock prices have been able to continue to rise is because of unprecedented intervention by global central banks.  They have been pumping trillions of dollars into the financial markets, and this has essentially completely destroyed normal market forces.  The following comes from David Stockman

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

In the “bizarro world” that we are living in today, many companies are trading at prices that are more than 100 times earnings, and some companies are actually trading at prices that are more than 200 times earnings.

Stock prices have become completely and totally disconnected from economic reality.  As I discussed the other day, U.S. GDP has only risen at an average yearly rate of just 1.33 percent over the past 10 years, but meanwhile stock prices have been soaring into the stratosphere.

Nobody in their right mind can claim that makes any sense at all.  Just like in 2000, and just like in 2008, this absolutely ridiculous stock market bubble will have a horribly tragic ending as well.

Once again, I don’t know what the exact timing will be.  Stocks could start crashing tomorrow, but then the Swiss National Bank could swoop in and buy 4 million shares of Apple just like they did during the months of January, February and March earlier this year.

The biggest players in this ongoing charade are the global central banks.  If they decide to keep pumping trillions of dollars into global financial markets, they may be able to keep the bubble going for a little while longer.

But if at any point they decide to withdraw their artificial assistance, those that have placed huge bets against the market are going to make absolutely enormous piles of cash.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Janet Yellen Says A New Financial Crisis Probably Won’t Happen ‘In Our Lifetimes’ But The BIS Says One Could Soon Hit ‘With A Vengeance’

Federal Reserve Chair Janet Yellen is quite convinced that the United States will not experience another financial crisis for a very long time to come.  In fact, she is publicly saying that she does not believe that another one will happen “in our lifetimes”.  But there are other central bankers that see things very differently.  In fact, a new report that was just released by the Bank for International Settlements is warning that a new financial crisis could soon strike “with a vengeance”.  So who is right?

It would be nice if it turned out that Yellen was right.  Nobody should want to see a repeat of what happened in 2008, and Yellen seems extremely confident that she will never see another crisis of that magnitude

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London.

Even though the U.S. national debt has roughly doubled since the start of the last financial crisis, and even though corporate debt has roughly doubled since then as well, and even though U.S. consumers are more than 12 trillion dollars in debt, and even though the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives, Yellen believes that our financial system “is much safer and much sounder” than it was in 2008…

“I think the system is much safer and much sounder,” she said. “We are doing a lot more to try to look for financial stability risks that may not be immediately apparent but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging.”

I have a feeling that these words may come back to haunt her, and the fact that she has more power over the performance of the U.S. economy than anyone else does is more than just a little bit frightening.

The truth is that signs of a major new economic downturn are emerging all around us, and many are warning that the next great financial crisis is just around the corner.  For example, just consider what a new report from the Bank for International Settlements is saying.  The Bank for International Settlements is widely regarded as “the central bank of central banks”, and this new report is warning that we could be heading for “a financial boom gone wrong”

A new financial crisis is brewing in the emerging economies and it could hit “with a vengeance”, an influential group of central bankers has warned.

Emerging markets such as China are showing the same signs that their economies are overheating as the US and the UK demonstrated before the financial crisis of 2007-08, according to the annual report of the Bank for International Settlements (BIS).

Claudio Borio, the head of the BIS monetary and economic department, said a new recession could come “with a vengeance” and “the end may come to resemble more closely a financial boom gone wrong”.

And of course many of the most trusted analysts in the financial world agree with the BIS.  In fact, Dr. Doom Marc Faber is predicting that stocks could soon decline “by 40 percent or more”

If the man often hailed as the original “Dr. Doom” is right, the stock market could see another “lurch” higher — at which point investors may want to cash out quickly and run for cover.

Marc Faber, the editor of “The Gloom, Boom & Doom Report’ and a perennial bear, isn’t backing down from his latest dire prediction that would send stocks plummeting by 40 percent or more.

A drop of that size could take the S&P 500 Index down from Friday’s closing price of 2,438 to 1,463.

In the end, we shall see who is right and who is wrong.

And let us certainly hope that another crisis like the one we saw in 2008 does not happen any time soon, because tens of millions of Americans are completely unprepared for one.

According to a brand new survey that was just released, almost half the country currently spends as much or more money than they make each month…

Nearly half of Americans say their expenses are equal to or greater than their income, according to a new study from the Center for Financial Services Innovation. And for those 18 to 25 the percentage is over half, up to 54%.

“Half of America has no financial cushion,” says Jennifer Tescher, president and CEO of CFSI, which released the study. “They are living really close to the edge.”

And another recent survey discovered that 69 percent of all Americans do not have an adequate emergency fund.

With so many of us living on the edge, our society is extremely vulnerable to a major financial shock.  And when one finally does happen, a lot of people are going to get knocked out of the ranks of the middle class very rapidly.

Even though things seem relatively stable for the moment, poverty is on the rise all over the country.  For example, according to the Daily Mail the number of homeless people in Los Angeles has risen by 23 percent over the last year…

According to a new count released in May, the number of homeless people in the Los Angeles area jumped by 23 percent in the last year to reach nearly 58,000. Of those, some 5,000 are veterans, the highest number of homeless veterans of any city in the country and a near 60 percent increase over the previous year.

And we are seeing similar things in cities all over the nation.

The United States is in the midst of a long-term economic decline that goes back for decades.  Our economic infrastructure has been gutted, our middle class is now a minority of the population, and we have piled up the biggest mountain of debt in the history of the world in a desperate attempt to maintain a standard of living that we have not earned.

Hopefully Janet Yellen is right and hopefully the next major financial crisis will be put off for as long as possible.

But whether the next financial crisis comes quickly or not, the truth is that the U.S. economy is going to continue to decline if we continue to make the same kinds of incredibly poor decisions that we have been making for a very long time.

The Worst Financial Nightmare In Illinois History Erupts As State Comptroller Declares ‘We Are In Massive Crisis Mode’

Margaret Thatcher once said that the big problem with socialist governments is that “they always run out of other people’s money”, and unfortunately we are witnessing this play out in a major way in the state of Illinois right now.  At this point, the Illinois state government has more than 15 billion dollars of unpaid bills.  Yes, you read that correctly.  They are already 15 billion dollars behind on their bills, and they are on pace to take in 6 billion dollars less than they are scheduled to spend in 2017.  It is the worst financial crisis in the history of Illinois, and State Comptroller Susana Mendoza sounds like she is about ready to tear her hair out in frustration

“I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,” said Mendoza, a Chicago Democrat. “The magic tricks run out after a while, and that’s where we’re at.”

It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to “junk” if there’s no budget before the next fiscal year begins July 1.

Would you continue to do work for the Illinois state government if you knew that they were this far behind on their bills and that it is doubtful that you would be paid any time in the foreseeable future?

Of course the answer to that question is quite obvious.  As contractual relationships break down, social services are starting to suffer, and there is not much hope that things will take a turn for the better any time soon.

At this point things have gotten so bad that the Illinois Department of Transportation is planning to cease all roadwork starting on July 1st, and even the Powerball lottery is threatening to cut all ties with the state

As reported previously, the state Transportation Department said it would stop roadwork by July 1 if Illinois entered its third consecutive fiscal year without a budget – the longest such stretch of any US state – while the Powerball lottery said it may be forced to dump Illinois over its lack of budget. For now, state workers have continued to receive pay because of court orders, but school districts, colleges and medical and social service providers are under increasing strain.

So what has caused this unprecedented crisis?

At the core, the problem is political.  A tense standoff between a Republican governor and a Democratic legislature has resulted in the state going 700 days without a budget

On May 31, Illinois will have gone 700 days without a budget, an unprecedented political failure. Also on May 31, if a budget is not passed, it could mean that the state could go until 2019—an unimaginable idea, except that senators have already imagined it.

How does a state, led by a successful businessman as governor, a brilliant political strategist in the House, and a consummate dealmaker in the Senate, end up in this kind of political disorganization? Bad political errors led to bad political incentives, and as the problem worsened, so did the political risk of solutions—and what politicians had to ask of their constituents.

This is another example of how deeply divided we are as a nation right now.  Democrats hate Republicans and Republicans hate Democrats, and it is getting to the point where the two parties cannot work together on even the most basic things.

In the end, the state of Illinois is either going to have to cut spending dramatically, raise taxes substantially or some combination of both.  And since the Democrats have very large majorities in both chambers of the state legislature, I wouldn’t count on spending being cut that much.

This is the thing with big government – it always has a tendency to get even bigger.  And the bigger government gets, the more of our money and the more of our freedom it takes away.

That is why I am a huge advocate of dramatically shrinking the size of government on the federal, state and local levels.  Like Rand Paul has often said, I want a government so small that I can barely see it.

When you let government get out of control, what you end up with is a ravenous beast that has an endless appetite for more of your money.  In Illinois, the money is all gone and the beast is desperately hungry for more.

Sadly, what is happening in Illinois is just the tip of the iceberg.  If stock prices start declining from these massively inflated levels, state pension funds all over America are going to be in crisis mode very rapidly.  And a new recession would greatly accelerate the financial problems of a whole bunch of states that are already dealing with huge budget shortfalls.

Unfortunately, experts all over the country are warning that the next major downturn is coming very quickly.  For example, just consider what Bernard Arnault just told CNBC

A financial crisis could be just around the corner, according to the chief executive of LVMH, who has described the global economic outlook as “scary”.

“For the economic climate, the present situation is…mid-term scary,” Bernard Arnault told CNBC Thursday.

“I don’t think we will be able to globally avoid a crisis when I see the interest rates so low, when I see the amounts of money flowing into the world, when I see the stock prices which are much too high, I think a bubble is building and this bubble, one day, will explode.”

There is always a price to pay for going into too much debt.

A financial day of reckoning can be delayed for a while, but eventually bad financial decisions are going to catch up with you.  The state of Illinois is learning this lesson in a very harsh manner right now, and the country as a whole is on the exact same path as Illinois.

I am often criticized for endlessly warning about America’s coming day of reckoning, but you can’t pile up the biggest mountain of debt in the history of the world without paying a price.

Just like the state of Illinois, we will pay for decades of exceedingly foolish decisions, and unfortunately this is going to cause severe economic pain throughout our entire society.

Legendary Investor Jim Rogers Warns That The Worst Stock Market Crash In Your Lifetime Is Coming ‘This Year Or Next’

If Jim Rogers is right, the worst stock market crash that any of us has ever seen is right around the corner.  For the past 15 years, Rogers has been a frequent guest analyst on CNBC, Fox News and elsewhere, and he is immensely respected for the depth of knowledge and experience that he brings to the table.  So the fact that he is warning that we are about to see the worst stock market crash in any of our lifetimes is making a lot of waves in the financial community.  And of course Rogers is far from alone.  Previously, I have written about several other prominent experts that are warning that a new financial crisis is imminent, and I have also discussed how a number of big investors are quietly positioning themselves to make an enormous amount of money when the markets crash.  Could it be possible that all of these incredibly sharp minds could be wrong?  Yes, but I wouldn’t bet on it.

I was actually quite stunned when I first learned what Jim Rogers had told Henry Blodget of Business Insider during a recent interview.  Rogers has built up a tremendous amount of credibility, but now he is putting that credibility on the line by warning that a great stock market crash will happen by the end of next year.  Here is the key portion of the interview

Blodget: Well, yeah, TV ratings do seem to go up during crashes, but then they completely disappear when everyone is obliterated, so no one is hoping for that. So when is this going to happen?

Rogers: Later this year or next.

Blodget: Later this year or next?

Rogers: Yeah, yeah, yeah. Write it down.

There is no backing out of a statement like that.

If Rogers is wrong, he will never hear the end of it.

Subsequently, Blodget and Rogers also discussed how severe the coming crisis would be…

Blodget: And how big a crash could we be looking at?

Rogers: It’s going to be the worst in your lifetime.

Blodget: I’ve had some pretty big ones in my lifetime.

Rogers: It’s going to be the biggest in my lifetime, and I’m older than you. No, it’s going to be serious stuff.

So that means that Rogers is convinced that the coming crisis is going to be even worse than what we went through in 2008.

Of course this is something that I have been warning about for quite a while, but for Jim Rogers to make a statement like this is a really, really big deal.

Later in the interview, Rogers shared more details about what he believes the coming crisis will look like…

You’re going to see governments fail. You’re going to see countries fail, this time around. Iceland failed last time. Other countries fail. You’re going to see more of that.

You’re going to see parties disappear. You’re going to see institutions that have been around for a long time — Lehman Brothers had been around over 150 years. Gone. Not even a memory for most people. You’re going to see a lot more of that next around, whether it’s museums or hospitals or universities or financial firms.

That definitely sounds like an “economic collapse” to me.  Of course the truth is that the U.S. economy is already in the midst of a slow-motion economic collapse that stretches back for decades, but this coming crisis that Rogers is talking about is going to great accelerate matters.

Let us hope that it is put off for as long as possible, but at some point we are simply going to run out of time.

And when markets do start falling, they can move very, very rapidly.  Just look at what happened on Friday.  Technology sector stocks were down 2.7 percent, and the FAANG stocks were some of the biggest movers

Facebook fell $5.11, or 3.3%, to $149.60.

Apple fell $6.01, or 3.9%, to $148.90.

Amazon fell $31.96, or 3.2%, to $978.31 now demoted from the elect group for 4-digit stocks back to the large group of 3-digit stocks.

Netflix plunged $7.85, or 4.7%, to $158.20.

Alphabet – the G in FAANG – fell $33.58, or 3.4%, to $952.23, moving further away from everyone’s dream of closing at $1,000.

If we are indeed moving toward a new crisis, one of the things that we will want to watch for is an inverting of the yield curve.

We saw this happen in 2000 and in 2006, and on both occasions it foreshadowed that a huge stock market crash was coming in the not too distant future.

Unfortunately, CNBC says that a new inversion of the yield curve could happen “by the end of this year”…

The bounce in Treasury yields witnessed after the election of Donald Trump is now decaying in the D.C. swamp. If the Federal Reserve continues to ignore this slow growth and deflationary signal from the bond market and continues along its current rate hiking path, the yield curve will invert by the end of this year and an equity market plunge and a recession is sure to follow.

An inverted yield curve, which has correctly predicted the last seven recessions going back to the late 1960’s, occurs when short-term interest rates yield more than longer-term rates. Why is an inverted yield curve so crucial in determining the direction of markets and the economy? Because when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.

Another key indicator is the growth of commercial and industrial loans. According to Zero Hedge, this indicator has correctly foreshadowed every single recession since 1960…

While many “conventional” indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed’s target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon.

So considering the fact that this indicator has been so accurate, it is extremely alarming that we could see our “first negative loan growth” since the last financial crisis “in roughly 4 to 6 weeks”

After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, – the lowest since 2011 – after slowing to 2.3% and 1.8% in the previous two weeks.

Should the current rate of loan growth deceleration persist – and there is nothing to suggest otherwise – the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks.

And when you throw in all of the other signs that the U.S. economy is slowing down, a very clear picture begins to emerge.

It has been said that those that do not learn from history are doomed to repeat it.  As a society, we certainly didn’t learn much from the horrible financial disaster of 2008, and now so many of the exact same patterns are repeating once again.

An unprecedented financial crisis is most definitely heading our way, and the only thing left to be answered is how soon it will get here.

Central Banks Now Own Stocks And Bonds Worth Trillions – And They Could Crash The Markets By Selling Them

Have you ever wondered why stocks just seem to keep going up no matter what happens?  For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense.  In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since.  In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone.  At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms.  These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.

Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”.  If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank.  Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.

But of course what they have done is essentially destroy the marketplace.  A “free market” for stocks basically no longer exists because of all this central bank manipulation.  I really like how Bruce Wilds made this point

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion.

According to Business Insider, global central banks are on pace to purchase an astounding 3.6 trillion dollars in stocks and bonds in 2017.

Overall, the five largest global central banks now collectively have 14.6 trillion dollars in assets on their balance sheets.

You can call this a lot of things, but it certainly isn’t free market capitalism.

The Swiss National Bank is one of the biggest offenders.  During just the first three months of this year, it bought 17 billion dollars worth of U.S. stocks, and that brought the overall total that the Swiss National Bank is currently holding to more than $80 billion.

Have you ever wondered why shares of Apple just seem to keep going up and up and up?

Well, the Swiss National Bank bought almost 4 million shares of Apple during the months of January, February and March.

And as I mentioned above, the Swiss National Bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg”

Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.

The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.

It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show.

But as shameless as the Swiss National Bank has been, the Bank of Japan is even worse.

Today, the Nikkei is essentially a giant sham.  The Bank of Japan regularly goes in and just starts buying up everything in sight, and according to Bloomberg they are on pace to become the largest shareholder in dozens of the most prominent Japanese corporations by the end of 2017…

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

If global central banks have the power to pump up these markets, they also have the power to crash them.

Why would they want to do such a thing?

I can answer that question with just two words…

Donald Trump.

If the Comey angle doesn’t work, the elite could try to destroy Trump by engineering an absolutely devastating stock market crash.  Close to half the U.S. population dislikes Trump anyway, and so it would be fairly easy to get them to believe that Trump’s policies have caused a new financial crisis.  Of course that would be complete nonsense, but in our society today the truth often doesn’t really matter.

And without a doubt, evidence continues to mount that the real economy is starting to slow down substantially.  For example, we just learned that bankruptcies surged once again in May.  The following comes from Wolf Richter

So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

And there’s another concern: Bankruptcy filings are highly seasonal. They peak in tax season – March or April – and then fall off. The decline in April after the peak in March was within that seasonal pattern. Over the past years, filings dropped in May. But not this year.

Without unprecedented intervention by global central banks, financial markets would have crashed long ago.

And if they keep increasing their purchases of stocks and bonds, the central banks may be able to prop things up for a while longer.

Who knows?  Perhaps with enough financial engineering they would be able to keep this bubble going for years.  Of course things would start to get really awkward once they eventually owned virtually everything, but I have a feeling that things will never get that far.

I have a feeling that global central banks will eventually find an excuse to start “unwinding their balance sheets”, and I have a feeling that it will be at a time that is highly inconvenient for President Trump.

Is Puerto Rico’s Economic Collapse A Ploy By Liberals To Permanently Shift The Balance Of Power In Congress?

Next month, citizens of Puerto Rico are going to vote on statehood, and the absolutely devastating economic collapse that is gripping the island could be enough to push pro-statehood forces over the edge to victory.  Of course Congress has the final say on whether Puerto Rico becomes a state or not, but it is going to be very difficult to deny Puerto Rico’s 3.4 million residents statehood if they strongly insist that they want it.  Needless to say, if Puerto Rico becomes the 51st U.S. state that would greatly benefit the Democrats, because the population of Puerto Rico is very liberal.

Puerto Rico does not get to vote in presidential elections, but they do help select the nominees for both parties.  In 2016, 58,764 votes were cast in the Democratic caucuses held in Puerto Rico, and only 36,660 votes were cast in the Republican primary.  As a state, it is doubtful whether Puerto Rico would send any Republican lawmakers to Washington for decades to come.

So if Puerto Rico becomes a state, the Democrats would add two new senators and probably four or five representatives.

Puerto Rico would be the 30th largest state in the entire country, and so it would instantly have more political power than 21 other U.S. states.

This upcoming vote on June 11th is going to be extremely important, and pro-statehood forces are working very hard to get a positive result.  The following info about the referendum in June comes from Wikipedia

The fifth referendum will be held on June 11, 2017 and will offer two options: “Statehood” and “Independence/Free Association.” It will be the first referendum not to offer the choice of “Commonwealth.” Newly-elected Governor Ricardo Rosselló is strongly in favor of statehood for Puerto Rico to help develop the economy and help to “solve our 500-year-old colonial dilemma … Colonialism is not an option …. It’s a civil rights issue … 3.5 million citizens seeking an absolute democracy,” he told the news media.[30] Benefits of statehood include an additional $10 billion per year in federal funds, the right to vote in presidential elections, higher Social Security and Medicare benefits, and a right for its government agencies and municipalities to file for bankruptcy. The latter is currently prohibited.[31]

At approximately the same time as the referendum, Puerto Rico’s legislators are also expected to vote on a bill that would allow the Governor to draft a state constitution and hold elections to choose senators and representatives to the federal Congress.[31]

Over the past decade, Puerto Rico has been suffering through a nightmarish economic recession that never seems to end.  The island was recently forced to declare the equivalent of bankruptcy because it is facing $123 billion in debt and pension obligations.  At this moment 46 percent of the residents of Puerto Rico are living below the poverty line, the unemployment rate is 11 percent, and authorities just announced that another 179 public schools will be closing down.

It has been argued that the Obama administration could have done much more to alleviate the economic problems in Puerto Rico but that it purposely chose not to do so.

Why?

Well, the worse economic conditions get in Puerto Rico, the better it is for pro-statehood forces.  Puerto Ricans are being told that becoming a state is the key to Puerto Rico’s long-term economic future, and at this point many are willing to do just about anything to get the economic suffering to end.  The following is a short excerpt from a New York Times article entitled “Amid Puerto Rico’s Fiscal Ruins, a New Push for Statehood“…

A vigorous push for statehood was a central campaign promise of Gov. Ricardo Rosselló, 38, who was inaugurated in January. Next month, he will ask residents to vote, in a nonbinding referendum, for statehood as part of a long-term fix for a commonwealth facing a period of severe austerity that is likely to include shuttered public schools, frozen salaries, slashed pensions and crimped investments in public health. The island remains in the grip of a recession that has lingered for much of the past decade.

Could it be possible that this is what liberals have wanted all along?

Could it be possible that Obama and his minions saw Puerto Rico as a chess piece that could be used to permanently shift the balance of power in Congress?

Of course if Puerto Rico becomes a state that would have implications for presidential elections as well.

In the end, it will be Congress that decides what the fate of Puerto Rico will be, but if the people of Puerto Rico truly want to become the 51st U.S. state it is going to be really hard to deny them that opportunity indefinitely.

Last year at their national conventions, the Democrats and the Republicans both took the position that the citizens of Puerto Rico should be able to make this decision for themselves.  But once faced with a final decision, it is inevitable that many Republican members of Congress would be opposed to statehood.

Personally, I believe that either independence or “free association” would be much better for Puerto Rico, and let us hope that the people of Puerto Rico choose that direction.

But when people are really hurting, they will often grasp any sort of olive branch that is being offered to them, and right now the progressives are really pushing statehood.

Of course for strategists on the left, the goal is not to help the suffering people of Puerto Rico.

Rather, the endgame is complete domination of the U.S. political system by any means necessary.

The ’51st U.S. State’ Declares Bankruptcy As Corporate Insiders Sell Stocks At The Fastest Rate Since The Last Financial Crisis

Puerto Rico has collapsed financially and has “filed for the equivalent of bankruptcy protection”.  When this was announced on Wednesday, it quickly made front page news all over the planet.  For decades, Puerto Rico has been considered to be the territory most likely to become “the 51st U.S. state”, and there have even been rumblings that we could soon see a renewed push for statehood.  But that is on the back burner for now, because at the moment Puerto Rico is dealing with a nightmarish financial crisis that is the result of an accelerating economic collapse.  Unfortunately, many Americans still don’t believe that what has happened to Puerto Rico could happen to us, even though signs of major economic trouble are emerging all around us.

Almost two years ago I issued a major warning about the debt crisis in Puerto Rico, and now the day of reckoning for “America’s Greece” has finally arrived

Saddled by mountainous debts and undermined by rapid population loss, Puerto Rico filed for the equivalent of bankruptcy protection Wednesday in a historic move that will trigger a fierce legal battle, with the fate of the island’s citizens, creditors and workers at stake.

The oversight board appointed to lead the U.S. territory back to fiscal sustainability declared in a court filing that it is “unable to provide its citizens effective services,” crushed by $74 billion in debts and $49 billion in pension liabilities.

Like Greece, Zimbabwe, Venezuela and so many others, what has happened in Puerto Rico shows us that it is simply not possible to live way above your means indefinitely.  If your debt grows much faster than your economy, eventually you reach a point where financial disaster is inevitable.  This is a lesson that our leaders in Washington D.C. desperately need to learn before it is too late for the United States.

Since 2007, the population of Puerto Rico has declined by 10 percent and the number of jobs in that nation has declined by 20 percent.  It is a long-term economic collapse that just continues to get even worse with each passing month.

Unfortunately for Wall Street, many large U.S. financial institutions have invested very heavily in Puerto Rico’s bonds.  In fact, it has been estimated that 180 mutual funds have “at least 5% of their portfolios in Puerto Rican bonds”.

At this point, U.S. firms stand poised to lose billions of dollars as their investments become worthless, and many of these firms were totally blindsided because they were assured that this could not happen…

The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico’s securities, which are tax-free throughout the U.S. U.S. states can’t file for bankruptcy, and investors bought the bonds assured that it wasn’t a legal option for Puerto Rico either.

The scale of the restructuring is far larger than Detroit’s record-setting $18 billion bankruptcy, and it’s unclear how long a court proceeding would last or how deep would be the cuts that are imposed on bondholders.

So how far will the financial collapse of Puerto Rico ultimately ripple through our financial system?

It is hard to say, but without a doubt this is a major concern.

Meanwhile, corporate insiders are selling stocks at the fastest pace that we have seen in seven years.  The following comes from Business Insider

As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years. Selling totaled $10 billion in March, according to data compiled by Trim Tabs.

It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices?

What do those corporate insiders know that the rest of us do not?

Perhaps they are just being rational.  If I was a top corporate insider at one of these “unicorns” that have market caps in the tens of billions of dollars even though they are consistently losing hundreds of millions of dollars a year I would be selling too.

You make money in the stock market by selling at the right time.  Those that sold their Pets.com stock at the peak of the dotcom bubble got quite wealthy, but those that held on all the way through the stock market crash got completely wiped out.

There have been some analysts that have suggested that one way to make money in the stock market is to simply do what the insiders are doing.  If they are buying, then that is supposedly a time to buy, and if they are selling that is supposedly a time to sell.

Personally, I would rather use my limited resources to get prepared for the horrific crisis that is inevitably coming, but not everyone agrees with that outlook.

The crisis in Puerto Rico developed over an extended period of time, and there were plenty of warning signs.

So anyone that is still holding Puerto Rican bonds at this point is quite foolish.

Similarly, the warning signs here in the U.S. have been mounting for quite a while.  Just yesterday, we got more exceedingly bad news for the U.S. auto industry, and we are on pace to absolutely smash the all-time record for most retail store closings in a single year.

Just because a crisis does not arrive on the exact month or year that you were anticipating does not mean that it has been canceled.

I warned about a looming financial cataclysm in Puerto Rico nearly two years ago, but they somehow managed to hang on until now.  And even though the U.S. financial system is still afloat for the moment, everyone should be able to see that we are definitely living on borrowed time.

So don’t look down on Puerto Rico, because what is happening to them is eventually coming here too.

Global Financial Markets Plunged Into Chaos As Italy Overwhelmingly Votes ‘No’

italy-flag-map-public-domainItalian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos.  The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday.  It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result.  When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone.  In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe.  Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.

I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.

This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.

Just look at what has already happened.  All of the votes haven’t even been counted yet, and the euro is absolutely plummeting

The euro dropped 1.3 percent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.

A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.

In early 2014, there were times when one euro was trading for almost $1.40.  For a very long time I have been warning that the euro was eventually heading for parity with the U.S. dollar, and now we are almost there.

Meanwhile, Italian government bonds are going to continue to crash following this election result.  This is going to make it even more difficult for the Italian government to borrow money, and that will only aggravate their ongoing financial troubles.

But the big problem in Italy is the banks.  At this moment there are eight banks in imminent danger of collapsing, and virtually all of the rest of them are in some stage of trouble.  The following comes from a Bloomberg article about the crisis that Italian banks are facing right at this moment…

They’re burdened with a mountain of bad loans. Their stocks have cratered. And they have to operate in an economy prone to recession and political upheaval.

Signs have been mounting for months that Italy’s weakest lenders, and in particular Banca Monte dei Paschi di Siena SpA, were sliding toward the precipice, threatening to reignite a broader crisis.

And we may get some news regarding the fate of Banca Monte dei Paschi di Siena as early as Monday morning if what the Sydney Morning Herald is reporting is correct…

A last-gasp rescue for Monte dei Paschi di Siena, the world’s oldest surviving bank, has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday.

MPS and advisers JPMorgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a €5bn recapitalisation, the FT reports, citing people informed of the plan.

Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expected to nationalise the bank, say senior bankers.

If Banca Monte dei Paschi di Siena fails, major banks all over Italy (and all over the rest of Europe) could start going down like dominoes.

So what were Italians voting on anyway?

Well, the truth is that the constitutional reforms that were proposed actually sound quite boring

“The changes involve sharply reducing the size of one of the chambers of Parliament — the Senate — shifting its powers to the executive, and eliminating the Senate’s power to bring down government coalitions.

“The amendments also shift some powers now held by the regions to the central government, thereby reducing frequent and lengthy court battles between Rome and the regional governments.”

The reason why this vote was ultimately so important is because it became a referendum on Renzi’s administration.  The fact that he announced in advance that he would resign if it did not get approved gave a tremendous amount of fuel to the opposition.

So now Beppe Grillo’s Five-Star Movement stands poised to come to power, and that could be very bad news for those that are hoping to hold the common currency together.

The following is how NPR recently summarized the main goals of the Five-Star Movement…

“It calls for a government-guaranteed, universal income, abolishing Italy’s fiscal commitments to the European Union and a referendum on Italy’s membership in the Euro — a prospect that could unravel the entire single currency Eurozone.”

If Italy chooses to leave the euro, it will probably mean the end of the common currency, and the continued existence of the entire European Union would be called into question.

So this vote on Sunday was huge.  The Brexit had already done a tremendous amount of damage to the long-term prospects for the European Union, and now the crisis in Italy is sending political and financial shockwaves throughout the entire continent.

Over the next few weeks, keep a close eye on the euro and on Italian government bonds.

If they both continue to crash, that will be a sign that a major European financial crisis is now upon us.

And what happens in Europe definitely does not stay in Europe.

If Europe goes down, we are going to go down too.

At this point we still have almost a month left in 2016, but 2017 is already shaping up to be a very troubling year.  As always, let us hope for the best, but let us also keep preparing for the worst.

Deutsche Bank Collapse: The Most Important Bank In Europe Is Facing A Major ‘Liquidity Event’

toilet-paper-stock-market-collapse-public-domainThe largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes.  Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it has been called “the world’s most dangerous bank“.  Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”.  If you would like to review, you can do so here, here and here.  On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mis-handling of mortgage-backed securities during the last financial crisis.  As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.

At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit.  A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.

But the size of the fine is not really the issue now.  Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution.  Old sources of liquidity are being cut off, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.

As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008.  The following comes from Zero Hedge

It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.

It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018” and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.

The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank.  And every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.

In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.

Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.

Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price

Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.

Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.

If you would like to ready the full memo, you can do so right here.

One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives.  That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.

Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions.  It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…

The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.

“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.

So what comes next?

Monday is a banking holiday for Germany, so we may not see anything major happen until Tuesday.

An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary.

What appears to be more likely is the scenario that Jeffrey Gundlach is suggesting

But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.

The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine.

It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.

The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was.  Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.

Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.

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