The

Great Wait

Continues 

Market Plummets if Global Central Banks Pull Plug – Nomi Prins

By Greg Hunter’s USAWatchdog.com (Early Sunday Release)

These central banks today, 10 years after the financial crisis occurred, that was supposed to be an emergency situation.  They have $21 trillion worth of conjured money in return for debt assets, stocks and corporate bonds around the world.  If they pulled that plug, if they were to take down any of the $21 trillion, even a little bit . . . it would begin to create a major rupture in the financial system.  This is why I say the central banks are the market.  Without them, the markets would be nowhere near these highs. If they pulled their help and subsidies, the market would plummet really quickly.”  

Prins admits this has gone on for longer than most believed possible, 

but says it can’t go on forever. 

Consumers, who are at all-time debt highs, don’t have enough to continue to service their debt.  

When these things happen at the same time in terms of lack of payments, delinquencies and defaults, then money will be taken out of the stock markets to plug the gap, and then the stock market comes down. 

It will start with debt disintegrating, defaulting or having delinquencies. . . . The behavior that happens after this is the seizure of credit and lack of confidence everywhere.  When the cracks start, they will get bigger and bigger faster, and that’s when we have a crash.”

How does the common man protect himself? Prins says, “They have to own things, and by that I mean real assets, hard assets like silver and gold.  That’s not as liquid, so taking cash out of banks and sort of keeping it in real things and keeping it on site . . . keeping cash physically.  

You need to extract it from the system because the reality is when a financial crisis happens, banks close their doors to depositors. . . . Also, basically try to decrease your debt.” 

DYI:  Until around 3 years ago I had never heard of a “prepper” [I’m 63 years old].  I’ve never been much of a doom and gloom type of guy but due to the massive economic imbalances here in the U.S., I’ve been grabbed by the collar and seat of the pants and thrown into the “doom and gloom prepper” room.  These imbalances are not confined to the U.S.  Canada, Australia, New Zealand, Netherlands with debt bubbles manifesting itself in an overblown real estate bubble.  Central Europe has junk bonds with yields less than the U.S. 10 year T-bond!  Any attempt for any central bank to unwind their bond buying spree even a little it will be a rocky road for world wide stock and bond markets.  Even if world wide central banks decide not to unwind given enough time the house of cards they have built will come crashing down and no amount of intervention will reverse that outcome once sentiment changes direction.   

Recession warning checklist:

• Widening credit spread…Comparing yields between the 5 year Treasury note and Vanguard’s High-Yield Corporate Bond Fund.
• Moderate or flat yield curve…10 year Treasury bond yield less than 2.5% of 3 month Treasury bills.
• Falling stock prices…S&P 500 fifty day moving average below the two hundred day moving average.
• Falling Home Builders Index…The indexes fifty day average below its respective two hundred day average.
• Purchases Managers Index:  PMI below 50

So far only two out of my five have gone negative.  Credit spreads are widening.  Vanguard’s High-Yield Corporate Bond Fund has a yield of 5.48% as compared to the U.S. Treasury Note at 2.78%.  This spread has been slowly widening over the past several months.  The second indicator to go negative is the U.S. 10 year Treasury bond less than 2.5% of the 3 month Treasury bill.  Currently the spread is at 1.11% [2.95%-1.84%=1.11%].  The remaining three are all in positive territory.  So far no recession but with two indicators gone negative its time to stay on high alert.

Survival checklist:

• U.S. Treasury Securities…Vanguard’s Short Term Treasury Index Fund [symbol VSBSX].  Don’t forget U.S. Treasury Savings bonds an excellent investment that is very close to a cash equivalent.

• Utility Stocks…Vanguard’s Utilities Index [symbol VUIAX] one draw back the fund’s minimum investment is $100,000 a bit steep for average Joe and Jane.  Franklin Funds has their Franklin Utilities Fund that has been around for decades with a much lower entry cost of $1,000.  During any market smash these stocks will go down in price but nothing as compared to the overall market.  Unless we experience a 1930’s style depression their dividends will be secure.

• Precious Metals Mining Stocks:  DYI’s favorite is Vanguard’s Precious Metals and Mining Fund [VGPMX].  This is one of the few bright spots as most common shares U.S. valuations have flown to the moon.

• Cash on hand:  Having simply cash at home if the banks become severely impaired they may only allow small withdraws per day.  You can wait until all five of my indicators for the economy goes negative before having large sums of cash on hand at home [and keep your mouth shut about it].

• Physical Gold and Silver coins:  Reasonable value and a way to have additional purchasing power during any downturn.  Not as liquid as cash but you can store larger sums with physical coins.

• Get out of debt:  A fantastic idea no matter what type of economy we have.  Nothing beats a paid off house, car(s), student loans and credit cards.  DYI is here to earn dividends, interests and possible capital gains NOT paying it out.

• Food Storage:  Last on the list but not a bad idea to have at least 3 months storage and I won’t argue if you go out to 2 full years.  The worst that can happen is can just eat the food if Armageddon doesn’t occur. 

DYI

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