Bank Warnings- Listening?

The coming credit meltdown will be as bad as the great depression and the financial crisis: Deutsche Bank (Personally I think that they are underestimating the size of our problems and what we face will dwarf those two events)

It is not only Deutsche Bank but many other banks warning about a credit problem that is brewing in corporate debt markets. If anyone should know it would be the people who lent the money don’t you think?

Personally, I am just as worried about the pension underfunding, the out of control debts, spending and lack of viable answers of not only corporations but also municipalities and states. I leave the Federal governments out of this equation because, in all likelihood, the central banks will bail them out if history is any guide. By “bailing out” it may mean they purchase our national assets for pennies on the dollar like they have done in Greece to reduce the debts.

Our debts have doubled during the last four presidential terms and it looks like a slam-dunk that Mr. Trump will trump them all when it comes to deficit spending. The result is that we may have a respite from our ultimate date with reality but it is only postponed- not negated.

So why is this important? Keep in mind that most of the financial game shows are focused on the “market going up!”. This is nice while it lasts but it is quite obvious, by looking at the dismal economic reports from around the globe, and YES here too now- that the stock market is completely unhinged from reality.

Just today- ISM numbers at 19-month low. Car sales crashed in the first quarter of 2019, heavy Truck orders crash 66% in March- and it goes on and on.  

Every bit of bad news is greeted with a stock rally because the more dismal the news is the more likely the central banks will keep “printing and buying”.

The “markets” have now become a place where central banks conjure up money out of nowhere and buy stocks. Sovereign Wealth Funds are now top shareholders in many well-known companies. After setting a record for stock buybacks by corporations last year the numbers are even higher now than they were last year- appearing to suggest a NEW all-time record for stock buybacks yet again in 2019.

In the meantime, all reports are showing that, up until very recently, private money has been flying out of equity funds. All that seems to keep the markets rising are central banks, companies themselves, sovereign wealth funds and momentum-chasing machines which know the price of all assets and the value of nothing. Do you see now why the markets make no sense?

More importantly, while all of the attention is focused on the “markets going up” the number of ZOMBIE companies are ignored. A zombie company is a company that cannot pay its interest and operating expenses with their earnings. In other words, without more debt they would likely not exist for long.

The list of zombie companies is growing as we speak. The recent pullback in interest rates may provide a small respite for a few of them but the writing appears to be on the wall- as many major banks are warning. Keep in mind Deutsche Bank didn’t say the POSSIBLE- they said the COMING credit meltdown- as in not “if” but when?

So what? Many may think that the problem is with the bondholders and the stocks will probably still go up because the central banks will “print and buy”. Good luck with that.

Anyone who has the slightest clue about companies defaulting on their debt SHOULD know that the first shareholders to get wiped out are the common stock holders. If a major corporation were to default on its debt the largest impact would likely be felt not by the bondholders- who would certainly be hurt- but by the stockholders who face the real reality of their position being completely wiped out.

This is likely the reason for the intervention first in the bond markets to stabilize those prices and then into stocks to give the illusion that all was “fixed” even though virtually NONE of the underlying weaknesses were addressed other than to “print and buy” to mask the gravity of the situation. (That we can’t pay the bills we have run up without “printing” most of the “money” to do it with).

The fact that interest rates cannot be allowed to normalize is a HUGE sign that all is not well. The fact that the Fed had to stop trying to reduce the size of its balance sheet (selling stuff it bought with money “printed up” out of nowhere) because the markets couldn’t absorb it without a freefall in those asset prices is also a large sign that our economy is far from well.

Actually, just the fact that all of the numbers are so fake and massaged (like 3.9% unemployment where 95 million people are just considered non-existent for the sake of the number being “correct” even if not realistic or factual) should make us all wonder why they don’t want us to know the truth.

This illusion will continue until it doesn’t. When that day is, is anyone’s guess but anyone unprepared is likely going to be in for some unsettling moments.

Do you still trust counterparties (people who owe you a debt) to pay you back? Are you sure? Do central banks trust counterparties? They can all “print” unlimited amounts of fiat (backed by nothing) “money so why should they care right?

In what I would deem an unusual situation these same people who have deemed gold a ‘barbarous relic” own more of it than anyone- according to Lawrence Thomas of GoldTelegraph.com a full 33,800 TONS.  In addition, they are buying now in record amounts. What do they know that others don’t?

According to Andrew McGuire, metals trader in London, Deutsche Bank and many major banks are buying gold in record amounts- along with Russia, China and many other countries also.  

Remember, gold has NO counterparty risk. As JP Morgan himself said “Gold is money- everything else is debt”. I include silver in that statement also.

In times of uncertainty it pays to possibly think outside the box and …

Be Prepared! 

Mike Savage

Financial Advisor, Raymond James Financial Services, Inc.

2642 Route 940

Pocono Summit, Pa 18346

Phone 570-730-4880

Fax 570-243-8141