The
Dominoes
Set to Fall?
World Wide Deflationary Smash!
“As early as 2012, I have been publicly and privately advocating that Australian policy makers take pre-emptive policy action to deal with the structural imbalances within the Australian economy, especially Australia’s household debt bubble which in proportional terms is larger than the household debt bubbles of the 1880s or 1920s, the periods which preceded the two depressions experienced in Australian history,” he told news.com.au this week.
“Millions of ordinary, financially unprepared, Australians are now at the mercy of the international markets and foreign policy makers. Australian history contains several examples of where similar pre conditions have resulted in an economic apocalypse, resulting in a significant proportion of the Australian people being left economically destitute.”
DYI: A tsunami of
biblical proportion will arrive to Australian shores with a deflationary smash
as the population defaults on their debts driving the economy into a
depression. Australia or Canada could
very easily be the beginning dominoes that fall setting off a world wide collapse
toppling one over leveraged bank then other – the domino effect.
Australians a bit of advice from the States
who have experienced this before – and will again soon - if you are in debt get out of debt; if you
out of debt stay out of debt. Sell off
your house yesterday using the proceeds to pay off all other debts if possible,
from the sale of your home. Build savings
in the highest quality credits – such as Australian and U.S. Treasury
securities with maturities across the board with 75% of your savings the
remaining portion purchase physical gold and silver. Have your shopping list ready for stocks,
bonds, and real estate, a few years from now a major buying opportunity
will arrive as world markets mean invert from over valuation to under
valuation. The Boy Scout motto: Be Prepared!
1:
TIGHTENING MONETARY POLICY
Due to Australia’s record high foreign debt, increases in the international cost of credit are being passed onto Australian borrowers through the banking system, particularly on interest-only and investor loans.
2:
INVERTED AND FLATTENING YIELD CURVES
In May 2017, the Chinese Government bond market recorded its first ever inverted yield curve. Also, the US Government bond yield curve, over the past 6 months, has significantly flattened as some market analysts anticipate an inverted US yield curve in late 2017.
Inverted yield curves (or where long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality) are known as a market predictor of a coming market crash or broader economic recession.
3:
SOVEREIGN AND CORPORATE DEFAULTS
Sovereign government and corporate defaults in both developed and developing economies are beginning to emerge. For example, China has registered in 2017 its highest level of corporate defaults in the first quarter of a calendar year on record. Delinquencies and charge-offs in the United States soared to $US1.4 billion in the first quarter of 2017, the highest recorded level since the first quarter of 2011.
DYI: All
Central banks have painted themselves into a corner as they pursued a course of
sub atomic low or outright negative interest rates. What would any rational critical thinking
individual drawing to a conclusion? Debt
based financing surged ahead within all three macro economic areas –
individuals, corporate, and governments, as all three have gorged themselves to
outright gluttony of low interest rate debt!
Interest rates will not stay negative or sub atomically low forever and
when these rates begin to normalize corporations will be unable to pay the
higher rate as they attempt to refinance unless they reduce employment to drive
down costs. Many will simply go out of
business along with mass unemployment for their employees.
Real estate prices move inversely to interest
rates; prices will drop ending the financing game of using real estate
properties as an ATM machine. And for
those who become unemployed will attempt to sell their property will find the
value of the home below the mortgage.
Either defaulting or engaging a short sale the banks will be under full
fledged distress – of their own making (they should have never made the loans)!
Australian government budget deficits will
soar as tax receipts dry up and interest rates surge ahead forcing the
government into massive spending in its attempt to stop an outright depression
further crowding out the private sector acerbating a dire condition. Now that corporate, individuals, and
government are on the ropes the Australian stock and corporate bond market will
crash within the 60% to 75% range mean inverting to jaw dropping levels
creating bargains for the prepared investor.
4:
FALLING CONFIDENCE AND CREDIT DOWNGRADES
In May 2017, six major Canadian banks were downgraded by Moody’s Investor Service (Moody’s) as concerns rise over soaring Canadian household debt and house prices leave lenders more vulnerable to losses. Moody’s also downgraded China’s sovereign debt in May 2017 for the first time since 1989 and has warned of further downgrades if further reforms are not enacted.
In May 2017, S&P has downgraded 23 small-to-medium Australian financial institutions as the risk of falling property prices increases and potential financial losses start to increase. In June 2017, Moody’s downgraded 12 Australian banks, including Australia’s four major banks.
Standard and Poor’s and Moody’s downgraded bonds for the US State of Illinois down to one notch above junk bond status as the state has over $US 14.5b in unpaid bills. Despite a new budget deal passing the Illinois state legislature which raises more revenue through higher taxes, Moody’s this week has placed the state government’s bonds under review for possible downgrade.
5:
EMERGING CHINESE CREDIT CRISIS
Significant concerns among international observers are now being discussed publicly regarding the $US4 trillion Chinese Wealth Management Product (WMP) market as Chinese bank regulators are now taking significant interventionist steps to drain liquidity and reduce financial risk. As a result of recent interventionist steps, the one-year Shanghai Interbank Offered Rate hit a two year high at 4.30% in May 2017.
DYI: I’ve
stated for over 5 years China is debt based economic time bomb. When it blows up it will be the shot heard
around the world pushing world wide GDP into negative territory. World wide recession will occur.
6:
SIGNIFICANT GROWTH IN VALUE OF CRYPTO CURRENCIES
In the past five months, the crypto currencies industry (especially the leading five internationally recognised cryptocurrencies) have experienced tremendous growth in market capitalisation indicating that investors are seeking to escape the formal banking and financial system as well as government mandated fiat currencies.
7:
DISCREDITED AUSTRALIAN FISCAL AND MONETARY POLICY
Moreover, despite the introduction of new macro prudential rules by APRA, artificially low interest rates by RBA driven by a flawed monetary policy framework, has seen Australian household debt as a proportion of disposable income continue to climb to a new record high and now stands at 190.4%.
DYI: As far as
this blogger is concerned the seed of economic Armageddon has arrived. As the dominoes begin their toppling the U.S.
will not be immune from the up coming deflationary smash as real estate drops
25% and stocks are hammered to the tune of 55% to 70% along with junk bonds
defaults of biblical proportions. Be
prepared; DYI is and so should you.
Updated Monthly
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 7/1/17
DYI
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