Special guest Graham Summers is the Chief Market Strategist for Phoenix Capital Research, an independent financial research firm based in Charlottesville, VA. He writes Gain, Pains, and Capital, the firm's FREE daily e-letter covering the equity, commodity, currency, and real estate markets. Graham also writes Private Wealth Advisory, a weekly investment advisory devoted to helping paying clients navigate the financial markets and produce outsized returns from their investments. To whit, Graham called the 2008 Crash and was one of the few newsletter writers to produce positive gains that year . Graham Summers worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He has made presentations on investment ideas to high net worth clients in Dubai, Singapore, Zurich, Playa Del Carmen and his research has been quoted by Crain's New York Business, Money Talk Radio, Reuters, and RollingStone Magazine to name a few publications.
"When I think of repression I think of the Psychological concept that repression is the suppression (or pushing back) of something that is too painful to deal with in sort of a conscious way. That is exactly what the central banks of the world have been doing essentially since 2008. What we had in 2008 was the beginning of a debt deleveraging cycle o the dreaded debt deflation. The economists often like to argue that deflation is terrible but they are being overly general because deflation is actually a wonderful thing (we all want to have things we want to buy be cheaper) but the issue for the economists or Keynesian's is 'debt deflation'".
When debt begins to deflate you run the risk of becoming insolvent particularly in the bond market.
"Because we have been in this debt leveraging cycle for over 30 years ( a bond bubble would be the simplest way of putting it) the central banks are all terrified of a bond bear market because that means that almost instantly all developed nations are bankrupt because the way they have papered over the decline in living standard is by issuing more debt. It has gotten to the point now where because we don't have the money to pay the debt back we are issuing new debt to roll over the old debt (or pay back the old debt)."
"It sounds like a Ponzi scheme and it actually is! It works relatively well while the bond or underlying asset is rising in value because the debt is getting cheaper and the yield is falling
"When it reverses if you don't have the money to pay back the bond so you start to enter a deflationary cycle which is what we had in 2008.
Watch What the FED Does - Not What it Says
"Most of what the central banks talk about is nonsense. If you watch their actions it is about how do we stop the bond bubble from blowing up? They have done that by three ways:
- They cut interest rates down to zero. By doing this they made it much easier to finance debt.
- They began engaging in Quantitative Easing (QE). They essentially print money and buy large assets from the banks. It started out as Mortgaged Backed Securities (MBS) because they were the assets devaluing fastest. The second and third rounds were just attempts to keep the whole thing afloat. By Buying bonds you are basically broadcasting to the world I am going to be buying this asset in the near future. The most obviously trade is then for you to buy the bond before you and then turn around and sell it to you for a profit. Globally investors have essentially been front running the central banks.
- They suspended accounting standard. This was so banks weren't forced to sell devaluing products but could maintain using them as collateral at higher required values.
"Essentially Repression was the Central Banks trying to repress the terror of debt deflation!"
"All of this has manifested a sort of financial perversion where you seeing capital doing all sorts of crazy things and flowing into areas it would have never gone to before because risk has been so mis-priced by the market."
- $555T INTEREST SWAPS
- All Interest Swaps are trading "hinged" on Bond Collateral which is in a massive bubble,
- Something may be up when the Plunge Protection Team takes up increasing residence in Chicago where Bernanke is now consulting to Citadel (the largest High Frequency Trading player in America) also in Chicago.
- $72T SHADOW BANKING
- The source of the 2008 Financial Crisis has mutated to new instruments to borrow short to finance Student Loans and Car Loans. The Shadow Banking Systems now "hinges" on Repos, Collateral Transformations and Rehypothecation.
- USD CARRY BLOWING UP
- The $9T US$ carry Trade is hinging on ~$5T in merging Markets which ar now on the wrong side of the trade as the US dollar spikes,
"When it gets serious you can expect the central bankers to lie!"
Video: Financial Repression Authority with Graham Summers