The investment world has an embarrassingly short attention span. But frankly, it is a necessity. If daytraders, hedge funds and other horses in the carousel actually had to look beyond the next week of market activity or study back on market history in comparison to today, then they would not be able to retain their blind optimism, which is exactly what is necessary for them to continue functioning. If they were all to examine the global financial situation with any honesty, the entire facade would collapse tomorrow.
At bottom, it is not central bank stimulus and intervention alone that drives equities and bond markets; it is the naive faith and willful ignorance of average market participants. There is a problem with this kind of economic model, however. Reality is never kept in check indefinitely. Fiscal truths will be exposed, one way or another.
How does one know when this full spectrum shift in awareness will occur? Well, there’s no science that can help us with that. While basic economics is subject to the forces of supply, demand and mathematical inevitability, it is also subject to human psychology, which is another matter entirely.
In the past I have made a point to outline similarities in responses to various economic crises. For example, the media response and public perception at the onset of the Great Depression was a highly unfortunate exercise in false optimism. The response just before the credit crash of 2008 by the media and the masses was much the same. It is interesting to note in particular that the mainstream media tends to become more over-the-top in its certainty of economic stability the closer the system comes to collapse. That is to say, the nearer we edge towards financial calamity, the more violently the mainstream media attacks people who suggest that danger is on the horizon.
First, take a look at the following attempts by the media to embarrass or silence analysts like Peter Schiff just before the crash of 2007/2008:
Now, watch this attempt by CNBC to attack Bill Fleckenstein for having the audacity to question the validity of current stock values and pointing out that the Federal Reserve is destroying the economy rather than repairing it:
Notice any striking similarities between the mainstream rhetoric of 2006/2007 and the mainstream rhetoric of today? Notice how emotionally aggressive and almost desperate the media becomes when maintaining market faith, rather than looking at the situation objectively as the fundamentals begin to overwhelm investor complacency?
To be clear, while mainstream economists are almost always wrong, independent analysts are not prophets. We usually cannot provide the exact timing for the economic shifts we see coming. All we can do is provide a general window in which the events are likely to take place. Peter Schiff’s predictions on how the housing bubble and the credit crisis would play out were absolutely correct, even though he was about six months to eight months off his timing. Again, this is not an exact science, and human psychology has the ability to offset market fundamentals for months.
The supposed “catalyst” for the 2008 crash is primarily attributed to the fall of Lehman Brothers. I highly recommend any of the “bullish” economists out there arguing today that the central banks intend to prolong a stock rally indefinitely examine the statements made in the mainstream about Lehman and by Lehman leading up to their eventual death rattle. Then, absorb and really think on some of the recent statements and tactics used by Germany’s Deutsche Bank.
Specifically, note Lehman’s use of accounting and derivatives gimmicks and the cycling of funds through various accounts in order to make the company appear solvent. Then, take a look at revelations coming out of places like Italy that Deutsche Bank has been using the same model of false accounts and market manipulation, once again, with derivatives as a main tool for fraud.
Also notice the same outright dismissals of all pertinent evidence that Deutsche Bank might be suffering a capital shortfall, as Chief Executive John Cryan blames “speculators” for the companies losses. Lehman’s Dick Fuld and Bear Stearns’ Jimmy Cain both blamed “speculators” and “rumors and conspiracies” for the fall of their companies during the derivatives debacle eight years ago. It would seem that history doesn’t just rhyme, it sometimes repeats exactly.
Below is a rather revealing chart from the folks at Zero Hedge comparing the collapse of Lehman Brothers stock value to the steady decline of Deutsche Bank. Check it out:
To be clear, Lehman was no catalyst. It was only a litmus test for a system completely devoid of tangible value and drowning in toxic debt. Lehman was a part of a much larger problem, it was not the cause of the problem. The same is true for Deutsche Bank.
The panic growing around Germany’s second largest financial institution, Commerzbank, as it moves to lay off nearly 10,000 employees and suspend its dividend is another crisis indicator separate from Deutsche Bank. The clear solvency issues in Italy’s major banks, including Monte dei Paschi, are yet another explosive element.
Keep in mind that when these edifices begin to crumble and Europe enters a state of financial emergency, the mainstream media and numerous governments will continue to blame speculators. They will also claim that the entire disaster was set in motion through a “domino effect”; the first domino probably being Deutsche Bank. This will be a lie. There is no line of dominoes. One bank will not be bringing down the other banks — yes, there is terrible interdependency, but the real issue is that ALL of these banks are falling due to their own cancerous behaviors. The very system they are built around is a corrupt and unsustainable model, and I hold that this is by design.
International financiers do not want the general public to look at the validity of the system, they want the public to view collapse events as an oversimplified case of cause and effect.
If the public were to understand that the global banking model is a destructive one (for the public, not for the elites), then they might demand the erasure of the model and its institutions entirely. The elites don’t want that. What they want is to be free to conjure crisis after crisis after crisis; to have the option to collapse the system only to replace it with something identical in nature but even more oppressive in its function. They want to create chaos today so that greater centralization can be purchased in the future through mass fear.
I continue to maintain as I always have that central banks around the world are shifting strategies and will do very little to intervene from this point on in the propping up of insolvent banking groups or equities markets. It is very unlikely that Germany or the European Central Bank, for example, will move to infuse Deutsch Bank with capital (at least, not until the damage has already been done). It is also unlikely that any central bank will move to openly stimulate markets until an equities crash has run its course. In fact, some central banks including the Federal Reserve may act to expedite a stock crash — watch for this to occur if Donald Trump attains the White House.
This has all happened before. It happened in 2008 when the Federal Reserve stepped back and allowed Lehman Brothers to go bankrupt. It will probably happen again when the German government and the ECB refuse to back Deutsche Bank. The noose is tightening on the global economy and, once again, the mainstream media is too biased or too dumb to see it. They’ll accuse the alternative media of crying “doom and gloom,” and perhaps our timing will be off. But exact timing will not really matter once the house of cards begins to topple. If we stick to our positions and refuse to be intimidated by rhetoric, the time will come when people will only remember that we were right for the most part and that the mainstream media was incompetent or dishonest.
In the meantime, we have a whole swarm of other trigger events before the end of the year. I predicted in my article The World Is Turning Ugly As 2016 Winds Down that the Saudi 9/11 bill might be vetoed by Obama and that the veto would be overturned by the Senate. This has now taken place, which means increased Saudi tensions with the U.S. resulting in the eventual demise of the dollar’s petro-currency status. Watch the coming Italian constitutional referendum which could pave the way for conservative movements to initiate an Italian version of the Brexit. Also keep an eye on Syria yet again as diplomatic conflict flares between the U.S. and Russia (gee, who didn’t see that coming?). And, of course, the U.S. presidential election which appears to be culminating into the most divisive political event in America in decades.
Ignore the delusional positivism of the mainstream media and a large part of the equities trading community. Their fantasies only grow more elaborate the closer we get to a market heart attack. And remember, economic collapse is a process, not an overnight affair. The progression of global decline should be apparent to anyone paying attention since 2008. The only question is, when will the average citizen become aware? My feeling according to current trends is, very soon.
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written by shutupnsing , October 05, 2016
Morality! "America will cease to be great when she ceases to be good." ~ de Tocqueville...it all started here!
“The core value of Individualism has been the common denominator linking all other aspects of our cultural distinctiveness. It’s what makes the United States, America. Valuing the sovereignty of individuals is precisely what makes America exceptional. So it’s the culture that warrants our attention because the actual underlying disease invading the mental health of our country has arisen not from the government directly, but from the injection of destructive ideas (via Frankfurt School>Columbia University in 1930’s) into our individualistic socio-economical system.” ~ Alexandra York at the 20min mark, Socialism in America: Part 2 of 3 http://sustainablefreedomlab.org/sia-part-2/?ct=t()&mc_cid=556d6b90d1&mc_eid=5bdfdf75cd
written by visitor , October 05, 2016
If ran a bank and had "accounting" problems, I would hold all my clients money hostage, promising to repay them, along with all my other creditors, in due time.
I suspect this is being discussed across all international banking, "how do we take their money, without making it seem like we are taking their money?"
I could see a situation down the road where the US gov will allow distressed banks to replace IRA money (money not invested in stocks/bonds) to be automatically converted to 10 year "savings bonds" with 0.01% interest.
Cause, you know, it's good for you, you can't just sit on your cash, you need to help the "Economy".
Or better yet, start issuing "War Bonds" to help the Country. Anything will work, as long as there are still assets left to be stripped.
written by Tim_M , October 05, 2016
Brandon-I won't be at all surprised if the Federal Reserve bails out Deutsche Bank.
written by Brandon Smith , October 05, 2016
@Tim
I think a form of "bail-in" is far more likely, at least during an initial breakdown. The central banks are clearly moving away from stimulus in order to facilitate instability.
written by Islander , October 06, 2016
"...the mainstream media is too biased or too dumb to see it"
The mainstream media is owned by the so called "elites", so they are just doing their part.
Other alternative media are starting to see things your way:
http://www.zerohedge.com/news/...-globalism
"Globalism, you see, is being recast not just as inevitable but as necessary as well, as the wise choice when contrasted with “populism.”"
written by WarriorClass III , October 06, 2016
The real unemployment rate is about 30%, and the under-employment rate is even higher as all the middleclass jobs have disappeared, been shipped overseas, outsourced and replaced with foreigners imported to the US. So for at least half of America, the collapse has already happened and unemployment insurance has run out. Then look at the global demand, and you see why there is no growth. The stock market is of little matter to most working and formerly working Americans; it is nothing but a game and an illusion to point at and say the economy is doing just fine, as the banksters funnel what money is left into their own pockets. I still question whether we will make it to the election without a civil war, or a catastrophe created by the banksters to head off said civil war.
written by Islander , October 06, 2016
And what about Italy's referendum in December?
Populists vs. Globalists?
I'm not sure why Renzi has to do it at all, unless, of course there's a deeper reason such as building up the scenario you warned us about.
written by turtlefeet , October 07, 2016
China just joined the IMF SDR basket and issued first SDR bond since 1981 to be settled in RMB: https://www.corbettreport.com/sdr-world-order/
And someone (maybe China again?) hedging their bets: http://www.zerohedge.com/news/...onal-bank/
written by wholy1 , October 07, 2016
To the dumb-downed, debilitated, debt-ridden, DISTRACTED "Merikaan Mushroom Majority" and the HildaBeast Flock CHOOSING to remain vegetating on Lame Scheme [disinfo] Dung in the dark of Plato's Cave, "APPARENT" doesn't occur until the EBT card "fails" and/or the shelves clear.
written by stevenguinness , October 09, 2016
Excellent article Brandon. Wondered if you could help with something - a while ago in one of your articles you spoke about an organisation in the US that was higher up than the fed and were responsible for making decisions. I saw some videos on YouTube about it too but can't remember the name of the body in question.
Any ideas? Thank you.
written by Tim_M , October 09, 2016
Steven,
It may be the Bank for International Settlements (BIS). The BIS is the "central bank of central banks."
written by papajules , October 09, 2016
Steve. I could be wrong, but I believe you may be thinking about the Council on Foreign Relations. Tied closely to the Fed and working directly with big players in both parties. However, not sure if they would be considered above the Fed. More like on par with same interests and goals.
written by stevenguinness , October 10, 2016
Thanks for your replies Tim_M and papajules.
It's the Exchange Stabilization Fund I was thinking of. I lucked upon a video on youtube whilst searching for what it could be.
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