A train wreck is coming! When does it hit the wall? The answer to that question is it’s not very far down the road, and I can promise you that is when all hell is going to break loose. [Let me explain why that is the case.]
The above are edited excerpts from a post* by David Stockman (davidstockmanscontracorner.com) entitled David Stockman Interview On Turbulent Financial Markets: “There’s A Train Wreck Coming” .
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Stockman goes on to say in further edited excerpts:
We are headed into a perfect storm of:
- policy failures…by the Fed, which has inflated this massive bubble and painted itself into a corner with no clue how to get out, and
- an absolute failure of American world dominance…as our foreign policy collapses everywhere…
The Stock Markets Setting Up For A Big Failure
If you layer that on top of an already fragile financial bubble that is waiting to burst, I think we are in a zone of extreme danger.
It’s hard to predict whether this will be the big, destructive bear market that inevitably has to come, or simply just another dip that encourages the robots and the trained seals on Wall Street to buy for another move higher but one of these times we are going to have a big failure and I don’t think it’s too far down the road.
If you look at the stock market it has gone nearly straight up for the last 64 months. If you look at the chart of the S&P 500 you can see that year after year the dips get shallower and more infrequent and that is not a healthy chart. That is a sign of a market that is not discounting the actual real world future, but simply trading the word clouds and the liquidity that is being injected by not only our central bank, but central banks around the world.
The Fed Quandry Regarding QE Tapering
The difficulty is that I don’t believe this central bank ‘act’ can be kept up. We have had such tremendous expansions of balance sheets that even the central bankers are now beginning to second guess themselves, become divided among themselves, and begin to worry about how they get out of the corner they have painted themselves into.
The above factors are what will ultimately cause a major collapse. It’s just a question of when the black swan comes flying in, or when the confidence in this whole central banking illusion finally breaks down in the markets.
Massive Leverage Is Unsettling
I think the whole global financial system is booby trapped with both visible and hidden leverage. The problem with the Fed, and Yellen in particular, is that they are looking at a very narrow set of indicators….[such as] the nominal balance sheets of the big banks but the biggest source of leverage in the economy today is the whole area of structured finance and options trading of one type or another. These Wall Street mechanisms are inherently leveraged; and the market has been coiled up like a spring everywhere owing to the endless bid funded by that massive leverage. On the way up this forces assets values to continue to inflate and rise but, on the way down, when these positions are liquidated, the adjustment can become very violent in the other direction.
A Train Wreck IS Coming
We have a train wreck in front of us but this train wreck isn’t simply going to hit a wall out of the blue. Actually, it has been forming and accumulating and expanding for many years now, and yet it has simply been ignored, particularly by the financial markets which have ridden this bubble to these extreme and historic heights.
When you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, however, and when that pattern is replicated around the world, that is a train wreck in slow motion.
When does the financial train hit the wall? The answer to that question is it’s not very far down the track, and I can promise you that is when all hell is going to break loose.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://davidstockmanscontracorner.com/david-stockman-interview-on-todays-turbulent-financial-markets-stay-out-of-harms-way/ (Copyright © 2014 Conyers LLC . All Rights Reserved.)
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