What the Three Market Bears Mean for Resources

When I started working with Port Phillip Posting in December 2013, the Publisher, Kris Sayce, was the biggest marketplace bull I had ever fulfilled.

Yet, as you read in his post here, he’s now turned shockingly bearish! And for good reason.

Kris’ view now aligns with our co-workers Jim Rickards of Strategic Intelligenceand Vern GowdieofGowdie Family Wealth. They are all anticipating a major near-term stock market accident; possibly worse than that of the worldwide Financial Crisis.

Will they be right?

Only time will tell.

I’ll explain…

The US interest rate rise is coming

Kris recently wrote in Tactical Wealth, ‘the more We look at the evidence and review what I’ve written, the greater convinced I am that a major stock market collapse is only days away‘.

When someone who’s been right for seven years straight modifications tack, it’s worrisome. Kris’ view is that the stock market will crash because of two reasons — interest rates and earnings.

So let’s speak interest rates…

I’ve long said to anticipate a US interest rate hike this year.

US Federal Reserve Chairperson, Janet Yellen’s continues to confirm our forecast with her comments this week. In her own phrases,

‘Most judged that the conditions with regard to policy firming had not yet been achieved, but they noted that conditions were approaching that point. Participants observed the labor market had improved notably since early this year, but many saw scope for some further improvement‘

Indeed, it’s now not ‘if’ however ‘when’ the US Fed will raise rates. That said, the US Given plans to raise rates sooner rather than later.

On the topic of timing, it’s always been my view that the high quality hike will come in September or October. This target lines up with Yellen’s comments last month:

‘We should also be careful not to tighten too latebecause, if we do that, arguably we could overshoot each of our goals and be faced with this situation where we would after that need to tighten monetary coverage in a very sharp way that could be disruptive.

‘If there is a negative surprise to the economy with rates of interest pinned at zero, we don’t have great scope to respond through loosening policy further, while with a positive shock obviously we can tighten monetary policy.‘

What I find interesting is the Fed’s intention to have some ammunition upward its sleeve, to fight the following financial crisis.

This is a shocking cause to raise rates.

But I guess the worst forecasting institution around the globe — a tough call when you toss in the International Monetary Fund — has to at least seem useful.

As Kris recently wrote to Tactical Wealth readers,

‘The Fed appears to believe that increasing interest rates is a no-lose situation for them. If the Fed raises rates of interest and the markets keep booming, they can say they were to raise rates.

‘But if the Fed raises interest rates and markets dive, it gives them an excuse in order to intervene in the market…perhaps through launching a new money-printing program.

‘An increase in the September meeting seems probably. That’s because it’s just two to three days before the next US revenue season‘.

Kris Sayce says ‘watch out for the October stock market crash’

And this brings me personally to my Publisher’s second stage — earnings. No doubt, and in collection with Kris’ October stock market accident warning, he expects them to be terrible.

In fact, looking back at when we were approaching the Global Financial Crisis, earnings began to slow down immensely. Yet, while earnings slowed down, mergers and acquisitions activity was booming — a sure sign that the crash was coming…

In today’s regard, this quote from Dealogic describes it all:

‘Global Healthcare M&A volume stands at a YTD record a lot of $422.8bn in 2015, up 42% from 2014 YTD and has almost exceeded the full year record high volume of $429.3bn set in 2014.’ A big increase in M&The activity is a danger sign. You usually see a peak within activity as the economy and markets near a peak‘.

So with earnings slowing down and acquisitions at an all-time high, is a accident coming?

Worse than subprime

According to finance experienced Vern Gowdie, it’s inevitable. And when it comes, the crash’will be far even worse than either 9/11 or the GFC. Banks going broke. Governments reneging on bond obligations. Massive pension funds scrambling to protect what’s left of their portfolios.‘

This aligns with Rick Rickards: ‘when the next crisis hits, the actual predictable and illogical response will be for panicked investors in order to storm the doors of america Treasury and demand to buy as much of that worthless paper because they can‘.

The argument for owning All of us Treasuries is that, like it or not, the US is the still the reserve currency of the world. It’s also got the largest economy. And the greatest and most liquid financial markets. So, when panic comes, individuals turn to the US financial markets with regard to safety.

No doubt this is precisely why Rickards believes that the bond bubble can continue to run for, possibly, years to come…

So, if the three has don’t see the crash arising from the bond market, where will the crash come from?

Eye wide open

Jim Rickards elaborates here:

‘The next financial collapse, already on the radar screen, will not originate from hedge funds or house mortgages. It will come from junk bonds, especially energy-related and emerging-market company debt.

‘The Financial Times recently estimated that the total amount of energy-related corporate debt issued from 2009-2014 for exploration and development is over US$5 trillion. Meanwhile, the Bank for International Settlements recently estimated that the total amount of emerging-market dollar-denominated company debt is over US$9 trillion‘.

So Jim Rickards is looking for a dual financial crash next year! Part one will be in All of us dollar-denominated emerging market corporate credit sector. And part two will arise in the energy corporate credit space.

And for this reason Tim Dohrmann and Jim wrote in Strategic Intelligence this week:

‘If Yellen will raise US interest rates, secure your seat belt and look away below. Markets will have absolutely no bottom and we’ll be set for a 1998-style crash beginning in rising markets.

‘For that reason, the most important date of the year will be the Sept 17 Fed meeting.

If the Fed raises rates, you’re going to visit a huge amount of capital hurry into the US dollar. This might trigger the emerging marketplace crisis in the years forward. Lower oil prices could easily trigger a junk bond collapse.

And there you have it: the right ingredients for the next financial accident.

But if you ask me…

The next global financial crisis will stem from government bonds.

The majority tend to be far too bullish on bonds — at a time when economic development has come to a halt and the financial system is severely overleveraged. Historically, these conditions typically spell the end of bond bubbles. However most people dismiss that there could ever be a crisis in bonds which could wipe out wealth worldwide.

Governments defaulting on their bonds is the turmoil you should be worried about…

And when the US fed raises rates, it will spell the end to this 30-year bond bull market.

The hedge?

Commodities.

To find out more, go here.

Regards,

Jason Stevenson,

Resources Analyst, Resource Speculator

From the Port Phillip Posting Library

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