Over the last two weeks, major movements have been taking place economically across the globe. These events are moving international markets into “correction” territory, but cumulatively, could quickly spiral into a global meltdown of markets. Although, the US hasn’t reached critical mass and may actually experience a short term strengthening of markets as international markets flee to the US for safety; the signs of a major crash are now flashing red. What should you look for and what can you do?
Four major places to watch right now are Greece/European Union (EU), China, oil, and bonds. Greece has the potential to start a ripple effect against austerity across the EU triggering a banking run, panic, and global losses. This could unhinge the massive derivatives market and alone cause a global economic collapse. China is so big now that the recent losses in their market will spread globally this week if the losses are not stabilized. Any major downturn in China’s economy will further increase the already saturated oil market driving the price per barrel even lower. If oil continues to drop and stay low, US oil producing states will feel this the hardest, which will sharply increase US unemployment numbers. The loss of high paying jobs will throw even the totally fudged US financial numbers clearly back into recession territory and drag the world back down with it. Finally, the bond market has seen a liquidity crunch that likely will only get worse. If governments can’t manage to keep their bond yields low, the already massive debt loads (and payments on interest) these nations are carrying will explode and force them into financial crises far worse than anything Greece is facing.
Presently, the situation in Greece is very serious. If you haven’t been watching the events in Greece recently, you need to get up to speed. Greek voters today returned a resounding “no” vote to the economic hitmen of the world. Congratulations to the Greeks, which so far have refused to become debt slaves to the banking cartels. However, the pain for Greece is just beginning. The banks won’t give up easily and would go as far as fomenting a revolution in Greece to protect their financial interests. Nonetheless, Greece has for the moment outmaneuvered the banks and shown that the people can stand against their insider dealings and manipulative control. Dangerously, the bankers won’t flinch at doing everything in their power to punish the Greeks into submission. The banks are already talking about turning off the power, cutting shipments of medications and food, and shutting down rail service. These are acts of war and will lead to the deaths of many Greeks, which will only increase their resolve. If the Greeks hold firm and force the banks to take a loss and renegotiate on their debt then Spain, Italy, Portugal, Ireland, and even England may quickly follow suite. Although, the Greeks will likely have their savings still in banks seized to cover their government’s debts, the rest of the austerity stricken EU countries will wise up and pull their money from the banks before demanding the banks take a loss on their exploitationist loans. This will cause a panic and banking crisis that will force the EU and central banks to put draconian capital controls in effect, enact banking holidays, and freeze accounts. Remember, most banks are so illiquid and over leveraged, it would take as little as a 1% or 2% loss in asset value to collapse a major bank. If a major European bank goes down, it will be the world’s “Lehman Moment.” As such, any loss the EU and banking cartel “agree” to take will be passed on to the general markets (you) in a very negative way. It is lose-lose, but if the banks are allowed to subjugate nation after nation into debt slavery, it will never get better.
Even though Greece has taken the headlines, China may weigh far more heavily on global markets. China’s markets have been hammered over 30% lower in the last three weeks and it has reached a crisis level. In fact, China’s central bank is now being forced to intervene and inject funds to try and stabilize the market. However, this appears to have not created the “security” hoped and as of writing, China’s stocks were again crashing almost immediately after opening higher. Like others, I am expecting some wild swings in China’s market with increasing volatility. However, I think the prognosis for how markets will look by the end of this summer is increasingly poor. Watch China’s markets closely to see if the communist central planners can temporarily whitewash the market into stability or if their bubbles have finally reached the point of no more manipulation and crash hard. This coming week will be very revealing and if China isn’t able to mitigate the losses, prepare for an imminent global crash.
We can debate oil as a lead or lag economic indicator. I will simply suggest that as the globally economy tanks, so will the price of oil. Although that is quite a relief on our fuel bill, the reality is that it will cost America the few remaining decent jobs it has left. Once these energy related jobs are gone, it will send a ripple through the US economy that even the Obama Whitehouse won’t be able to cover up. Further, even before oil drops, US equities are poised to take a potential beating this week depending on Greece and China. Volatility will surely be spiking, but how the market responds will be up to Yellen and the Fed….unless the fallacy of a central planned economy has also materialized in the US. If it is the latter case, markets are poised to start a long and painful slide into correction territory that will elude any hope of recovery for years. The inevitability of the failure of Keynesian economics is certain; however, we just can’t pin the exact date to its demise.
Finally, bond liquidity has become an increasingly perplexing problem for the central planners. Their goal all along has been to keep yields low, but now, no matter what central banks seem to do, the bond yields are rising. The market forces driving the liquidity crunch in bonds are beginning to prove once again these things can only be temporarily manipulated, not controlled. If bond yields continue to rise, global currency markets, to name just one sector, will be thrown into complete chaos, which will directly impact international trade. It is impossible to say who the winners and losers will be, but countries that are heavily in debt like the US will be the worst off if they have to start paying higher interest rates on their debt. In fact, with debt levels such as the US is carrying, even a marginal increase in rates has the real potential to effectively bankrupt the operating budget of the US and cause the final decoupling of the Dollar as the world’s reserve currency. This final note will be what economically obliterates the US as we know it and is already near 50% complete.
So, this latest batch of economic crises can end a lot of ways, but ultimately, it has to go badly. Markets need to correct to reality and that will be painful. The writing is on the wall that the correction is now going to happen sooner rather than later and current conditions are ripe for this correction. I am not a financial advisor, but would recommend that you get any money you have in equities and cash out now. I would also look at how any retirement funds are structured and at least attempt to diversify them into a position more secure to insulate you from a complete loss. Personally, I cashed out my retirement plans, paid the government its blood money, and put the money back into choice land. As for banks, only maintain the minimum balance necessary and diversify the rest between cash (US and foreign currencies), gold/silver, and tangible assets such as land, houses, equipment, and businesses located both domestically and overseas. You may take a loss and depreciation on tangible assets, but at least you will have them and can use them to make money, food, and shelter. At this stage of the game, you can still make money if you are smart, but for the financial laymen, focus now on hedging against major loss. My final word of caution tonight is one based on historical precedent. On more than one occasion, on the eve of a major financial crisis…meaning a loss for the banking elite…war broke out. For this reason alone, all bets are off for any peace deal with Iran. Iran may suddenly become the “easiest” scapegoat to distract and blame a global economic collapse on, which has been one of my gravest concerns I have written about over the last decade. In the event of war, don’t expect this to be small or stay contained to just one nation. Bet on it going global with major actors entering the conflict.
By Guiles Hendrik
July 6, 2015