Oil Price Plunge Will Be The Black Swan Trigger for Next Global Crisis
On December 23rd the Dow Jones Industrial Average (DJIA) closed above 18,000 for the first time after data allegedly showed the U.S. economy posted its strongest growth in more than a decade! The DOW has tripled its March 2009 lows, trading at 18.5 times forward earnings, higher than the 10-year average of 13.9.
However what you probably don’t know is that when the DJIA just blew past 18,000, high yield debt is starting to crash again, and Bloomberg’s Commodity Index for Industrial’s
(BCOM:IND) dropped below the 2008 financial crisis lows of 125, for the first time.
The collapse of the commodity prices is considered a “leading indicator” by most Wall Street pundits of where the broader markets are heading and this is an ominous trend in regards to the stock market. Because prior to the horrific collapse of stocks in 2008, the high yield debt of the bond market that is based on the price of commodities and energy prices collapsed first.
Below is a clear example of what happened with the commodity markets that led up to the financial crash of 2008. The graph below of the U.S. High Yield B Total Return Index Value shows that high yield bonds began crashing early September, two weeks before the Lehman Stock Market Crash on September 15th 2008:
Commodity Markets Leading Up to the Financial Crash of 2008
However, the U.S. stock market did not crash and bottom for nearly another 3 months (early December) AFTER the debt collapse of the corporate junk bond market:
High Yield Debt, the Commodities Market, and Junk Bonds
The point is, what happens to high yield debt is often an excellent indicator of what is about to happen to stocks and nearly 20% of the commodities market is composed of energy bonds. Because of the declining price of oil, the panic in energy bonds is starting to infect the broader markets. So if you really want to know where the stock market is heading in 2015, keep a close eye on the market for high yield debt by looking at the recent activity on the high yield debt on the the junk bond market.
iShares iBoxx $ High Yield Corporate Bond (HYG) First Trade Horoscope
Above is the iShares iBoxx $ High Yield Corporate Bd (HYG) ETF first trade horoscope.
The iShares iBoxx $ High Yield Corporate Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds.
Since the beginning of November, junk bonds have been falling steadily on the iShares iBoxx $ High Yield Corporate Bd (HYG), as the Dow Jones Industrial Average (DJIA) has continued to reach new heights…
Keep in mind that the dynamic, as shown above, is one that is neither sustainable or tenable, nor is it one that will persist indefinitely. Either junk bonds will rebound or U.S. stocks will start falling.
Blackbox Planetary Transit Forecast to the
iShares iBoxx $ High Yield Corporate Bd (HYG) ETF First Trade Horoscope
The blackbox planetary transit forecast to the iShares iBoxx $ High Yield Corporate Bd (HYG) ETF first trade horoscope portends a period of extreme volatility and drastic price changes. For the Uranus-Pluto square alignment throughout 2015 will continue to exert tremendous downward pressure on the high yield corporate bond market — a testimony that the junk bond market will continue to fall in the coming months ahead.
In addition, the Baltic Dry Index (BDI), which is one of the best leading indicators of economic activities, measures the demand to ship raw materials and precursor materials to production. The BDI indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials coal, metallic ores, and grains. As of now the BDI is at the lowest point since 2008.
Due to the recent collapse of commodity prices along with massive fleets of credit-driven malinvestment-based shipping vessels, the BD just plunged back below 1000, now at its lowest for this time of year since 2008.
Keep in mind, not only are commodities crashing but Crude Oil is cliff-diving:
Meanwhile, the $9 trillion carry trade is starting to unwind.
The following is an excerpt from a recent Zero Hedge article…
Oil’s collapse is predicated by one major event: the explosion of the US Dollar carry trade. Worldwide, there is over $9 TRILLION in borrowed US Dollars that has been ploughed into risk assets.
Energy projects, particularly Oil Shale in the US, are one of the prime spots for this. But it is not the only one. Economies that are closely aligned with commodities (all of which are priced in US Dollars) are getting demolished too.
Just about everything will be hit as well. Most of the “recovery” of the last five years has been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more “risk assets” (read: projects or investments fueled by borrowed Dollars) blow up. Oil is just the beginning, not a standalone story.
If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system.
And that’s assuming NO increased leverage from derivative usage.
In many ways 2014 is the new 2007 with all the negative potential but 1000 times more explosive going into 2015, as similar economic patterns that were in play going into the financial crisis of 2008 are now happening once again, with the stock market becoming completely divorced from economic fundamentals as the “real economy” continues to disintegrate.
Another Ominous Sign of Financial Trouble
Five “Too Big To Fail” Banks U.S. With More Than $40 Trillion Each In Exposure To Derivatives
Another ominous sign that we are heading towards a financial trouble is President Obama recently signed omnibus spending plan that changed several provisions in the Dodd-Frank law that restricted derivative trading and the use of depositor money for Wall Street gamblers.
What that means is bankers can use depositor money and if or when the markets blows up and the banks are in trouble again, depositors (checking and savings accounts, along with trust funds, and pensions) will be on the hook for trillions of bad bets by the Too Big To Fail (TBTF) banks.
There are 5 TBTF banks in the United States that each have more than $40 trillion in exposure to derivatives of various types. They are as follows:
Total Assets: $2,476,986,000,000 (about $2.5 trillion)
Total Exposure To Derivatives: $67,951,190,000,000 (more than $67 trillion)
Total Assets: $915,705,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $54,564,516,000,000 (more than $54 trillion)
Bank Of America
Total Assets: $2,152,533,000,000 (a bit more than $2.1 trillion)
Total Exposure To Derivatives: $54,457,605,000,000 (more than $54 trillion)
Total Assets: $831,381,000,000 (less than $1 trillion)
Total Exposure To Derivatives: $44,946,153,000,000 (more than $44 trillion)
Total Assets: $1,894,736,000,000 (almost $1.9 trillion)
Total Exposure To Derivatives: $59,944,502,000,000 (nearly $60 trillion)
Citigroup was the driving force behind recent legislation to use taxpayer money to insure banks against losses in the risky derivatives market. Citigroup has increased the amount of derivatives on its books by 69% since 2007. Americans already bailed out Citigroup during the financial crisis to the tune of $45 billion, plus $2 trillion in emergency loans!
Oil Derivative Contracts and Bailouts (and Bail-ins)
Former Assistant Treasury Secretary Paul Craig Roberts stated that he thinks that the legislation was passed because of the trouble that has been brewing from the oil derivatives, which is now estimated to be nearly $300 trillion in future derivative losses!
Why else would Citigroup be pushing this bailout to Congress in such a hurry? Simple, because the TBTF banks have placed some very bad bets on oil derivative contracts and are going to need another massive bailout, or rather I should say a “bail-in”, when they come due in the coming months ahead.
Keep in mind that the recent bill was a bad deal for Main Street when both Democratic Senator Elizabeth Warren and Republican Senator Ted Cruz – who are total polar opposites in the political spectrum – but not on this issue, voted against it. About 40 Senators also voted against it from both parties, but it was not enough to stop it from going to the President’s desk to be signed into law.
Below is the 2015 planetary transit multi-blackbox forecast to the five TBTF banks in America:
If we look further into the longer planetary cycles that are now in operative over the forth-coming months ahead we can see heading for another global crisis.
Barbault Planetary Cyclic Index
Before we proceed, lets review quickly what the Barbault Planetary Cyclic Index is. The Cyclic Index (the graph above), is the sum of all the angular distances between the pairs of the outer planets, Jupiter, Uranus, Neptune and Pluto. The Cyclic Index has proven to be one of the most accurate predictive tools for mundane astrologers for determining economic growth and political relations among nations. According to astrologer Andre Barbault, the sum waxing phase (ascending line) of each planetary pair are considered periods of stability and evolution (constructive growth, development, expansive, progressive with optimism and diplomacy ) while the waning phase (descending line) are periods of crises and involution (contraction, decay, recession, pessimism, war and destruction).
The next and final Uranus-Pluto square alignment will occur on March 16th 2015. During this period, Mars will enter Aries and conjunct Uranus and square Pluto. This highly dangerous and volatile planetary combination that augurs powerful shocks to the system, drastic changes in financial position, titanic power plays and attempted takeovers, accelerating market volatility, major market corrections, currency crisis, bank panics, and often unexpected and sudden large-scale economic failure.
Since 2008 the United States has wallowed in slowly degrading financial conditions, hidden by bogus economic statistics, suppressed interest rates, reckless monetary policy, and artificial stimulus (TARP/QE – central banks pumping cheap money into the financial system), in an attempt to prop up and manipulate stock prices and equities markets in an attempt to prevent a deflationary depression.
Projecting forward, the final Uranus-Pluto alignment in the Winter of 2015 occurs during which time the Cyclic Index makes its precipitous downward plunge, descending 497 points from its peak in May 2014 at 996 to 456 in March 2022, indicating that we are heading into a perilous period where the damage control that was put in place in 2008-09 by the central banks and government will begin to wear-off. The excessive rationalization and applied perception management on the part of the government pontificated by the mainstream media will begin to lose credibility with the general populace as day-to-day uncertainty fraught with “high strangeness” increases, as “volcanic shocks” to the global system continue to intensify.
Today we have the greatest debt bubble in history. And we also have the greatest asset bubble in history that includes stocks, commodities, and real estate. The last time an asset bubble burst was in 2008 because of the subprime crises, due to a small tranche of loans that went bad, which triggered a financial panic and a debt crisis to follow.
Now have a similar scenario which is very likely to occur again and mundane astrological portents augur major trouble ahead as geopolitical and financial shock-waves continue to accelerate and intensify with tremendous pressure on oil derivatives along with the debt underpinning the energy sector. This will likely trigger major turmoil and trouble in the derivatives markets as oil and energy derivative contracts come up short and invoke expected margin calls that will trigger the next global crisis.
Things will quickly unravel as we enter 2015, and the populace will soon forget much of the recent propaganda that the U.S. economy is growing strongly and that job creation is robust, for the world has NEVER been in a more precarious economic, financial, and geopolitical situation that it’s in right now. As those Derivatives go bad, it will exert massive and insurmountable losses in the Credit Default Swap (CDS) markets, which in turn will take out the major banks. For it is clear we are about to undergo a period of pain, change, and crisis as we witness radical events of collapsing global currencies along with the breakdown and collapse of unsustainable, obsolete, and untenable systems of finance and banking.
Very good article William and very scary grim prospects for economy. What will become of 401k’s of millions of people ? It would seem if kept in the market funds most 401k fund managers have the retirement savings of millions of people in, their retirement neat eggs are at serious risk just as in 2008 when the their nest eggs were cut in half only this time the cause and effects will be much worse making a recovery much slower and with the new legislation passed to use bank deposits to cover derivative losses I can only speculate financial ruin is on the horizon for most everyone who doesn’t take the early withdrawal penalty and cash out of their 401k’s . In 2008 when the bad news hit I shifted out of market funds into a CD option which avoided another 45% drop in 403b and hedged with a gold ETF fund when gold was at $1100 and got out of it after pullback from $1900 but this time with the new legislation exposing bank deposits it would seem physical gold and silver held outside of banks i.e. Private safety deposit box etc as I would be leary in such a worse case scenario if banks will prevent people from accessing safety deposit boxes as well as savings accounts and if wether paper gold hedge this time around would be any good as their might be not enough physical gold to cover all the gold contracts this time around especially should hyperinflation kick in and millions of people demand delivery of their gold. In 2008 there was a lag time and gold even went down for awhile after stocks crashed before it climbed to peak of $1900 over next 3 years but this time could be very different with Russia and China stockpiling gold and U.S. shorting gold prices down to manipulate dollar up and in their effort to sink Russia economy. What took 3 years for gold to reach a peak back then could take only 3 months this time around when everyone realizes they been swindled yet again by the same Wall St crooks, politicians and Fed and are tripping over one another to jump into gold. Russia and China and other countries could make matters even more dire and sink U.S. Economy should they demand delivery of their gold deposits in U.S. If you didn’t see the recent episode of Book of Secrets on H2 history Chanel about Gold crisis you might want to take a look as Germany not to long ago asked for delivery of some of their gold and U.S. stalled and told them they couldn’t make delivery till 2020 and when Germany requested to examine their gold reserves they were told they could not do so either. A few other countries have also been given the run around. They even set up the Chief of IMF on a sex scandal charge in 2011 after he requested an audit of U.S. Gold reserves forcing him to resign. Ron Paul and friends also,requested a gold audit but had to settle for only a 1st ever partial audit of federal reserve which revealed $16 trillion as real bailout # from 2008 meltdown which some believe to be as much as $29 trillion. For all we know gold reserve #’s are also falsified to cover up for some massive losses due to gold derivatives being leveraged to hilt that banks left off the books or something of that sort and U.S. is stalling countries requesting deliver of gold until they can manipulate gold prices lower and cover their short positions. Some shady going ons definitely going on and should Russia and China call on U.S. to deliver their gold they may not be so accommodating to the stall tactics given Germany and the other countries.
Excellent forecast and overview of what is going down globally and in the United States William.
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