Stock-market rescue measures, concocted by the government, have been hailing down for days, including an interest rate cut by the People’s Bank of China a week ago. But the collapse proceeded with brutal relentlessness. So now, Premier Li Keqiang pulled out all stops and the State Council is calling the shots in the market, the craziest, most desperate shots.
From July 4 last year through June 12 this year, the Shanghai Stock Exchange (SSE) soared 150%. It was the era when stocks would create unlimited wealth out of nothing in no time, when all comers, from street vendors to farmers, would get their government-promoted chance to get rich quick.
“When our national economy is in its worst shape in more than a decade and many corporates have run into trouble, our stock market suddenly shot up to make everybody happy,” George Chen, Managing Editor for the International Edition of the South China Morning Post, wrote in mid-April.
Read More @ WolfStreet.com
Dear CIGAs,
Often times I like to write about an event or someone else’s article because of the importance to the overall picture. Today I will do something a little different. Below is an e-mail I received last Thursday from a friend. I have the utmost respect for his thought process and his knowledge. The writer is "plugged in" if you will, he has very high and powerful contacts in both China and London while he operates out of North America. The following is chilling to say the least because it comes from someone who "knows", it is not a speculation on his part because he is seeing it real time! I will add my comments afterward.
"I have been pounding the drum for some time about shrinking liquidity and what the impact will be. Well, I can tell you that we are almost there and a real crisis is developing far faster than what I envisioned that is impacting the 75 Trillion Shadow Banking sector which is on the verge of implosion. Focus on Europe as the real crunch will spread like a wildfire from there seizing up all credit markets.
We will ignore China and the BRIC for the time being as to impact and focus on the European Ponzi that the bankers have brought to the table.
The specific area we should keep an eye on is the U.S./bund 10yr yield spread, currently quoted at 155bp. This spread will start taking its lead from the euro, so when that starts to lose favor keep sharp eye out for the next shoe to drop.
Asian shares were very volatile today, Shanghai in particular, trading with a 10% variation (daily low to high) today as PBOC were active again. In Europe we did see small gains intraday in DAX and CAC but neither could hold on and actually closed well into negative territory both down over 1%. UK FTSE never got into the green all day and closed -1.5%. Even seasoned Traders are scared now about intra day swings and being caught in a downdraft at closing. Banks are tightening the leash on trading lines to reduce exposure which is sure to castrate liquidity of bonds.
Credit markets are almost closed, I am being told! I REPEAT again the CREDIT markets are almost closed! Trades are happening by appointment and to even move 1MM EM bonds (at an opening price) is almost impossible. It is not uncommon to hear an indication only to trade and a 2% trade away from from opening, assuming you are able to trade, and desire to trade is no guarantee of a sale. NO ONE is standing up to market prices and to liquidate even a small portfolio can take weeks. It is important that you cannot any longer trade the basis as value is dropping and there no point to partially selling specific bonds unless you can clear a given position! Because once there is a traded price ALL holders of same or similar will have to remark the book. That is unless you are a bank where the Balance Sheet is not a Mark-to-Market approach on a daily basis for the book being held. Think holding government debt at par for the likes of Italy or Spain knowing they can never clear the debt, and knowing that no one will buy at market. So what is the true value of a large portfolio? Do you hang on getting interest while it is still being paid or do you attempt to go to cash? And if you do who is going to step into your shoes ? Especially since the banks are all trying to save cash and want no exposure of any kind. We maybe approaching the point where central banks are losing credibility and their ability to contain the fallout, when governments are so badly in debt they are powerless and rudderless in a sea of chaos.
We are coming very close to complete chaos that will make 2008 look like a walk in the park! We will be fortunate if we make fall without a real financial disaster!
——————————————————————————————-
Following up from yesterday let’s ponder the upcoming Crisis that we are facing that specifically involves bonds, which are the bedrock of the financial system and what the fallout maybe.
Every asset class in the world trades based on the pricing of bonds. So the fact that bonds are in a bubble (perhaps the biggest bubble in financial history), means that EVERY asset class is in a bubble. Everything from real estate to stocks to the buying of cars. Ever wonder why car loans in America exceed the value of the cars in question.
Depending on who you speak with globally there are $75-$100 trillion in bonds in existence today.
A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.
So whatever the real trillion it is, the size of the bond bubble alone should be enough to give pause. Even to the most aggressive or optimistic folks.
However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to something like $500TRILLION. This affects both banks and the shadow banking industry. No wonder the Bank of England is perplexed as to the shrinking liquidity, it is a problem to which they have no solution.
To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
And this was at a time when there was QE and other means to throw at the problem which are now spent. So what will be used this round?
This is why the shrinking liquidity in bond sales is even to give real pause and wonder what will come to be as confidence in government wanes, and the shrinking liquidity affects all markets at the same time in different degrees but with a universal discount of value and liquidity, egged on by collapsing derivative trades."
So there you have it. This is something I have been saying for quite some time, we are living in the greatest credit bubble of all time…and it is bursting. It is bursting because liquidity is drying up. The point made regarding the inability to offload bonds speaks to just how small the "exit door" really is in the most crowded trade in all of history! I hope you did not miss what was said about "marking to market". The sale of a measly $1 million worth of bonds at any discount affects the pricing of BILLIONS which then acts as a further liquidity restriction on bank balance sheets.
To this point we have not seen much weakness in U.S. markets BUT we are witnessing the "volume" dry up drastically. This lack of volume also speaks to the size of the exit door. Without volume, how does one sell if they want to? Better yet, without sufficient volume, how does one sell if they HAVE TO or are FORCED TO? In Asia, China’s stock market has collapsed over 20% in just three weeks. They are living a real life margin call! What is most humorous to me is China has now instituted rules where stock market margin calls can be met by posting real estate as collateral! Meeting margin with an already margined asset is the recipe for disaster!
Please understand this, "policy" and central banks are doing whatever they can to keep investors away from the exit door because they know there isn’t one. Central banks all over the world are "buyers" of nearly all things paper, do we really have "markets"? Anywhere? Let me finish with this, it is written in the Bible "and on the third day He rose again". Here on Earth I believe we will soon find out after credit breaks, "and on the third day …nothing opened". I truly believe this is possible. I do not believe the Earth can spin more than twice after a true break in the credit markets before a COMPLETE SHUTDOWN will occur. Nothing "paper" will be spared!
Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com
With many states on the move to make vaccinations mandatory, perhaps
people should reconsider how sound that vaccine safety really is – and
how much we trust the system to keep it in check.A vaccine researcher formerly at Iowa State University was sentenced to four and a half years in prison for spiked data, after admitting to “fabricating and falsifying data in HIV vaccine trials.”
Rare is the scientist who goes to prison on research misconduct charges. But on 1 July, Dong-Pyou Han, a former biomedical scientist at Iowa State University in Ames, was sentenced to 57 months for fabricating and falsifying data in HIV vaccine trials.Read More @ SHTFPlan.com
Volatility, Confusion Reign As PBoC Intervenes: Chinese Stocks Surge Then Tumble
Submitted by Tyler Durden on 07/05/2015 - 22:25 On the heels of a weekend which saw Beijing launch a series of ad hoc policy maneuvers designed to stop the bleeding in China's equity markets, the SHCOMP opened sharply higher Monday only to give back half of its opening gains minutes later in a preview of what will likely be a week of unprecedented volatilty as panicked housewives and banana vendors looking to sell the rips battle the PBoC for control of China's stock market mania.
At long last, following years of delay, the U.S. government has finally
admitted that it poisoned its own troops in Vietnam decades ago through
the mass use of the herbicide known as “Agent Orange.”In recent days, federal officials agreed to provide millions of dollars in disability benefits to at least 2,100 Air Force reservists and active duty forces that were exposed to Agent Orange on airplanes used to spread it during the war.
NBC News reported:The new federal rule, approved by the White House Office of Management and Budget, takes effect [June 26]. It adds to an Agent Orange-related caseload that already makes up 1 out of 6 disability checks issued by the Department of Veterans Affairs. The expected cost over 10 years is $47.5 million, with separate health care coverage adding to the price tag.
Read More @ NaturalNews.com
The result of the referendum in Greece is a great victory for freedom,
but it is also threatens to unleash unprecedented economic chaos all
across Europe. With almost all of the votes counted, it is being
reported that approximately 61 percent of Greeks have voted “no” and
only about 39 percent of Greeks have voted “yes”. This is a much larger
margin of victory for the “no” side than almost everyone was
anticipating, and it represents a stunning rejection of European
austerity. Massive celebrations have erupted on the streets of Athens
and other major Greek cities, but the euphoria may not last long. Greek
Prime Minister Alexis Tsipras is promising that Greece will be able to
stay in the euro, but that gives EU bureaucrats and the IMF a tremendous
amount of power, because at this point the Greek government is flat
broke. Without more money from the EU and the IMF, the Greek government
will not be able to pay its bills and virtually all Greek banks will
inevitably collapse. Meanwhile, the rest of Europe is about to
experience a tremendous amount of pain as financial markets respond to
the results of this referendum. The euro is already plummeting, and most
analysts expect European bond yields to soar and European stocks to
drop substantially when trading opens on Monday morning.Personally, I love the fact that the Greek people decided not to buckle under the pressure being imposed on them by the EU and the IMF. But amidst all of the celebration, the cold, hard reality of the matter is that your options are extremely limited when you are out of money.
Read More…
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Hillary Ropes Off "Everyday" Reporters, Creates Media Spectacle
Submitted by Tyler Durden on 07/05/2015 - 21:00
IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes
Submitted by Tyler Durden on 07/05/2015 - 20:23
China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility"
Submitted by Tyler Durden on 07/05/2015 - 19:31 "The A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt."/
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