Funds

This Is What A Financial Crisis Looks Like

December 14, 2015December 14, 2015 by Michael

Just within the past few days, three major high yield funds have completely imploded, and panic is spreading rapidly on Wall Street. Funds run by Third Avenue Management and Stone Lion Capital Partners have suspended payments to investors, and a fund run by Lucidus Capital Partners has liquidated its entire portfolio. We are witnessing a race for the exits unlike anything that we have seen since the great financial crash of 2008, and many of those that choose to hesitate are going to end up getting totally wiped out. In case you are wondering, this is what a financial crisis looks like. In 2008, other global stock markets started to tumble, then junk bonds began to crash, and finally U.S. stocks followed. The exact same pattern is playing out again, and the carnage that we have seen so far is just the tip of the iceberg.

Since the end of 2009, a high yield bond ETF that I watch very closely known as JNK has been trading in a range between 36 and 42. I have been waiting all this time for it to dip below 35, because I knew that would be a sign that the next major financial crisis was imminent.

In September, it closed as low as 35.33 at one point, but that was not the signal that I was looking for. Finally, early last week JNK broke below 35 for the very first time since the last financial crisis, and since then it has just kept on falling. As I write this, JNK has plummeted all the way to 33.42, and Bloomberg is reporting that many bond managers “are predicting more carnage for high-yield investors”…

Top bond managers are predicting more carnage for high-yield investors amid a market rout that forced at least three credit funds in the past week to wind down.

Lucidus Capital Partners, a high-yield fund founded in 2009 by former employees of Bruce Kovner’s Caxton Associates, said Monday it has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month. Funds run by Third Avenue Management and Stone Lion Capital Partners have stopped returning cash to investors, after clients sought to pull too much money.

When it says that those firms “have stopped returning cash to investors”, what that means is that many of those investors will be lucky to get pennies on the dollar when it is all said and done.

Like I said, now that the crisis has started, the ones that are going to lose the most are those that hesitate.

And just check out some of the very big names that are “warning of more high-yield trouble ahead”…

Scott Minerd, global chief investment officer at Guggenheim Partners, predicts 10 percent to 15 percent of junk bond funds may face high withdrawals as more investors worry about getting their money back. He joins money managers Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross in warning of more high-yield trouble ahead.

In this type of environment, the Federal Reserve would have to be completely insane to raise interest rates.

Unfortunately, that appears to be exactly what is going to happen.

If the Fed raises rates, that is going to make corporate debt defaults even more likely and will almost certainly drive high-yield bonds down even further…

Higher rates could make corporate bond defaults more likely and investors are already bailing out of the sector, pulling $3.8 billion out of high-yield funds in the week ended December 9, the biggest move in 15 weeks. The effective yield on U.S. junk bonds is now 17 percent, the highest level in five years, according to Bank of America Merrill Lynch data.

A whole host of prominent names are warning that the Fed is about to make a tragic mistake. One of them is James Rickards…

“The Fed should have raised interest rates in 2010 and 2011 and if they did that they would actually be in a position to cut them today,” said James Rickards, a central bank critic and chief global strategist at West Shore Funds. “The Fed is on the brink of committing a historic blunder that may rank with the mistakes it made in 1927 and 1929. By raising into weakness, they will likely cause a recession.”

In 2015, we have already seen stocks crash all over the globe. Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and some of them were down by as much as 30 or 40 percent. At this point, conditions are absolutely perfect for a frightening collapse of U.S. markets, and the Federal Reserve is about to pour gasoline on to the fire.

Anyone that says that “nothing is happening” is either completely misinformed or is totally crazy.

I like how James Howard Kunstler summarized what we are currently facing…

Equities barfed nearly four percent just last week, credit is crumbling (nobody wants to lend), junk bonds are tanking (as defaults loom), currencies all around the world are crashing, hedge funds can’t give investors their money back, “liquidity” is AWOL (no buyers for janky securities), commodities are in freefall, oil is going so deep into the sub-basement of value that the industry may never recover, international trade is evaporating, the president is doing everything possible in Syria to start World War Three, and the monster called globalism is lying in its coffin with a stake pointed over its heart.

The financial markets held together far longer than many people thought that they would, but now they are finally coming apart at the seams.

Moving forward, the “winners” are going to be the people that pull their money out the fastest. This is especially true for high risk funds like the three that just imploded. If you hesitate, you could end up losing everything.

And as this rush for the exits accelerates, sellers are going to greatly outnumber buyers, and this is going to push prices down at a very rapid pace. We are going to hear a lot about a “lack of liquidity” in the days ahead, but the truth is that what we will really be looking at is a good old-fashioned panic.

This Is What It Feels Like To Have Your Life Savings Confiscated By The Global Elite

March 29, 2013 by Michael

What would you do if you woke up one day and discovered that the banksters had “legally” stolen about 80 percent of your life savings? Most people seem to assume that most of the depositors that are getting ripped off in Cyprus are “Russian oligarchs” or “wealthy European tycoons”, but the truth is that they are only just part of the story. As you will see below, there are small businesses and aging retirees that have been absolutely devastated by the wealth confiscation that has taken place in Cyprus. Many businesses can no longer meet their payrolls or pay their bills because their funds have been frozen, and many retirees have seen retirement plans that they have been working toward for decades absolutely destroyed in a matter of days. Sometimes it can be hard to identify with events that are happening on the other side of the globe, but I want you to try to put yourself into their shoes for a few minutes. How would you feel if something like this happened to you?

For example, just consider the case of one 65-year-old retiree that has had his life savings totally wiped out by the “wealth tax” in Cyprus. His very sad story was recently featured by the Sydney Morning Herald…

”Very bad, very, very bad,” says 65-year-old John Demetriou, rubbing tears from his lined face with thick fingers. ”I lost all my money.”

John now lives in the picturesque fishing village of Liopetri on Cyprus’ south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewellery and imitation jewellery.

He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.

He planned to spend it on his grandchildren – some of whom live in Cyprus – putting them through university and setting them up. There would be medical bills; he has a heart condition. The interest was paying for a comfortable retirement, and trips back to Australia. He also toyed with the idea of buying a boat.

He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone.

”If I made the decision to stay, I was going to build a house,” John says. ”Unfortunately I didn’t make the decision yet.

”I went to sleep Friday as a rich man. I woke up a poor man.”

You can read the rest of the article right here.

How would you feel if you suddenly lost almost everything that you have been working for your entire life?

And many small and mid-size businesses have been ruined by the bank account confiscation that has taken place in Cyprus.

The following is a bank account statement that was originally posted on a Bitcoin forum that has gone absolutely viral all over the Internet. One medium size IT business has lost a staggering amount of money because of the “bail-in” that is happening in Cyprus…

The following is what the poster of this screenshot had to say about what this is going to do to his business…

Over 700k of expropriated money will be used to repay country’s debt. Probably we will get back about 20% of this amount in 6-7 years.

I’m not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation.

The business is definitely ruined, all Cypriot workers to be fired.
We are moving to small Caribbean country where authorities have more respect to people’s assets. Also we are thinking about using Bitcoin to pay wages and for payments between our partners.

Special thanks to:

– Jeroen Dijsselbloem
– Angela Merkel
– Manuel Barroso
– the rest of officials of “European Comission”

With each passing day, things just continue to get worse for those with deposits of over 100,000 euros in Cyprus. A few hours ago, a Reuters story entitled “Big depositors in Cyprus to lose far more than feared” declared that the initial estimates of the losses by big depositors in Cyprus were much too low.

And of course the truth is that those that have had their deposits frozen will be very fortunate to ever see any of that money ever again.

But just a few weeks ago, the Central Bank of Cyprus was swearing that nothing like this could ever possibly happen. Just check out the following memo from the Central Bank of Cyprus dated “11 February 2013” that was recently posted on Zero Hedge…

Sadly, the truth is that the politicians will lie to you all the way up until the very day that they confiscate your money.

You can believe our “leaders” when they swear that nothing like this will ever happen in the United States, in Canada or in other European nations if you want.

But I don’t believe them.

In fact, as an outstanding article by Ellen Brown recently detailed, the concept of a “bail-in” for “systemically important financial institutions” has been in the works for a long time…

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.

If you do not believe that what just happened in Cyprus could happen in the United States, you need to read the rest of her article. The following is an extended excerpt from that article…

*****

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

*****

You can find the rest of her excellent article right here. I would encourage everyone to especially pay attention to what she has to say about derivatives.

Sadly, what is happening in Cyprus right now is just the continuation of a trend. In recent years, governments all over the world have turned to the confiscation of private wealth in order to solve their financial problems. The following examples are from a recent article posted on Deviant Investor…

October 2008 – Argentina’s leftist government, facing a gigantic revenue shortfall, proposes to nationalize all private pensions so as to meet national debt payments and avoid its second default in the decade.

November 2010 – Headline – Hungary Gives Its Citizens an Ultimatum: Move Your Private Pension Fund Assets to the State or Permanently Lose Your Pension – This is an effective nationalization of all pensions.

November 2010 – Ireland elects to appropriate ten billion euros from its National Pension Reserve Fund to help fund an eighty-five billion euro rescue package for its besieged banks. Ireland also moves to consider a regulatory move that compels some private Irish pension funds to hold more Irish government debt, thereby providing the state with a captive investor base but hugely raising the risk for savers.

December 2010 – France agrees to transfer twenty billion euros worth of assets belonging to its Fonds de Reserve pour les Retraites (FRR), the funded portion of its retirement system, to help pay off recurring social benefits costs. No pensioners are consulted.

April 2012 – Argentina announces that its Economy Ministry has taken an emergency loan from the national pension fund in the amount of $4.3 billion. No pensioners were consulted.

June 2012 – Treasury Secretary Timothy Geithner unilaterally appropriates $45 billion from US federal pension funds to help tide over US deficits for the remainder of fiscal year 2011.

January 2013 – Treasury Secretary Geithner again announces that the government has begun borrowing from the federal employees pension fund to keep operating without passing the approaching “fiscal cliff” debt limit. The move effectively creates $156 billion in borrowing authority from federal pension funds.

March 2013 – Open Bank Resolution finance minister, Bill English, is proposing a Cyprus style solution for potential New Zealand bank failures. The reserve bank is in the final stages of establishing a rescue scheme which will put all bank depositors on the hook for bailing out their banks. Depositors will overnight have their savings shaved by the amount needed to keep distressed banks afloat.

Can you see the pattern?

As I wrote about the other day, no bank account, no pension fund, no retirement account and no stock portfolio will be able to be considered 100% safe ever again.

And once the global derivatives casino melts down, there are going to be a lot of major banks that are going to need to be “bailed in”.

When that day arrives, they are going to try to come after your money.

So don’t leave your entire life savings sitting in a single bank – especially not one of the banks that has a tremendous amount of exposure to derivatives.

Hopefully we can get more people to wake up and realize what is happening. We are moving into a time of great financial instability, and what worked in the past is not going to work in the future.

Be smart and get prepared while you still can.

Time is running out.

Tens Of Millions Of American Families Are Living On The Edge Of Desperation – And The Economy Is About To Get A Whole Lot Worse

December 5, 2011November 30, 2011 by Michael

Have you ever been so poor that you had to live in your car? Have you ever been so low on funds that the only place you could afford to live was a rat-infested motel? Have you ever spent a night living in a tent city or sleeping in the streets? If not, you should consider yourself to be very fortunate. As the recent Black Friday madness demonstrated, there are still lots of Americans that are doing well enough to go on wild shopping sprees, but the reality is that there are also millions of American families that are falling through the “safety net” to a place of total desperation. In a previous article I talked about the fact that the U.S. Census Bureau recently announced that a higher percentage of Americans is living in extreme poverty than has ever been measured before. Not only that, 2.6 million more Americans fell into poverty last year. That was also a new all-time record. As you read this, one out of every seven Americans is on food stamps and one out of every four U.S. children is on food stamps. Tens of millions of American families are living on the edge of desperation. In many communities across the United States, there is so much despair in the air that it is almost tangible. When you look into the eyes of many Americans these days, it almost seems as if all the hope has been sucked right out of their hearts. Economic despair is at epidemic levels, and unfortunately the economy is about to get a whole lot worse.

Did you see the report on families that are living in their cars that Scott Pelley did for 60 Minutes the other night?

If you have not seen it yet, I highly recommend that you take a few minutes to check it out.

At one school in Florida alone, Pelley met 15 children who had been living in their cars.

The following is a brief excerpt from Pelley’s report….

This is the home of the Metzger family. Arielle,15. Her brother Austin, 13. Their mother died when they were very young. Their dad, Tom, is a carpenter. And, he’s been looking for work ever since Florida’s construction industry collapsed. When foreclosure took their house, he bought the truck on Craigslist with his last thousand dollars. Tom’s a little camera shy – thought we ought to talk to the kids – and it didn’t take long to see why.

Pelley: How long have you been living in this truck?

Arielle Metzger: About five months.

Pelley: What’s that like?

Arielle Metzger: It’s an adventure.

Austin Metzger: That’s how we see it.

Pelley: When kids at school ask you where you live, what do you tell ’em?

Austin Metzger: When they see the truck they ask me if I live in it, and when I hesitate they kinda realize. And they say they won’t tell anybody.

You can view the entire 60 Minutes report below….

Did you ever think that this would happen to America?

What makes things even sadder is that there are millions upon millions of empty homes right now in the United States.

Millions of American families have been foreclosed upon in recent years and home prices keep falling with no end in sight.

In fact, today it was reported that home prices are now the lowest that they have been in eight years.

So why aren’t people renting or buying more homes?

Well, the truth is that you can’t afford a mortgage payment or a rent payment if you don’t have a decent job.

When someone can’t find a good job, then none of the other economic statistics that many of us love to talk about so much really matter.

That is why I write about what is happening to American jobs so often. Today, big corporations are shipping as many jobs as they can out of the country. An average of 23 manufacturing facilities were shut down every single day in the United States last year. Even though our population is rapidly increasing, there are 10 percent fewer middle income jobs in the U.S. today than there were a decade ago. Until this trend gets reversed, the number of American families living in their vehicles is only going to increase.

Unfortunately, the U.S. economy is about to get even worse.

Today, it was announced that American Airlines has filed for bankruptcy. Sadly, there will be many more companies filing for bankruptcy during the upcoming economic downturn.

As I wrote about yesterday, we really are on the verge of a major league collapse of the financial system in Europe.

Jim Cramer of CNBC says that because of what is happening in Europe, the global financial system is at “DEFCON 3, two stages from a financial collapse that is so huge it’s hard to get your mind around.”

Unfortunately, Jim Cramer is not exaggerating. The global economy is heading for a massive amount of trouble if something dramatic is not done immediately.

This is not a drill. Bert Van Roosebeke, an economist with the Center for European Policy, recently made the following statement about the cold, hard reality now facing Europe….

“We’re actually really running out of money”

Back during the early 1930s, the flow of credit was greatly restricted and that was one of the primary causes of the Great Depression. Back in 2008, another massive credit crunch just about brought the financial world to its knees.

Well, now it is starting to happen again. A nightmarish credit crunch has already begun in Europe, and nobody seems to have any answers about how to stop it.

The following comes from an article in the New York Times….

From global airlines and shipping giants to small manufacturers, all kinds of companies are feeling the strain as European banks pull back on lending in an effort to hoard capital and shore up their balance sheets.

The result is a credit squeeze for companies from Berlin to Beijing, edging the world economy toward another slump.

When there is a credit crunch of this magnitude, it causes the money supply to start to shrink. This is already happening all over Europe as a recent article in the Telegraph noted….

All key measures of the money supply in the eurozone contracted in October with drastic falls across parts of southern Europe, raising the risk of severe recession over coming months.

Right now, we are seeing the money supply in each of the “PIIGS” nations fall at a staggering rate. The following comes from the same Telegraph article referenced above….

Simon Ward from Henderson Global Investors said “narrow” M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.

While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. “This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery,” said Mr Ward.

Those numbers are really, really bad.

But instead of doing something to prepare for the coming economic crisis, members of the U.S. Congress are focused on stripping even more of our liberties and freedoms away from us.

As I wrote about yesterday, a new law (S. 1867) is being pushed through the U.S. Senate that is extremely frightening.

If this bill becomes a law, the United States of America would officially become part of the “battlefield” in the war on terror, and any American citizen could easily be flagged as a “potential terrorist”.

Once identified as a “potential terrorist”, the U.S. military would be able to arrest you, take you to a foreign prison and detain you for the rest of your life without ever having to charge you with anything.

What in the world is happening to America?

Unfortunately, as the economy gets even worse civil unrest in this country is going to intensify and the thin veneer of civilization that we all take for granted is going to start to disappear.

In response to the coming civil unrest, the U.S. Congress will try to pass laws that will be even more repressive than S. 1867.

Our nation has entered a downward spiral and things are going to become very frightening if this thing is not turned around.

So what do all of you see happening as we get ready to enter 2012? Please feel free to leave a comment with your opinion below….