Loss of Control …A Very Interesting Finish/Start!

Posted at 4:15 AM (CST) by & filed under Bill Holter.

Dear CIGAs,

2015 was a very interesting year in its own right, the way it finished was even more interesting.  As the year progressed we saw global trade, GDP and earnings weaken significantly.  We saw unprecedented rhetoric geopolitically while central banks and sovereign treasuries became suspect from both credibility and in some cases solvency points of view.

As the world turns on credit and credit alone, it would be a good exercise to make this the focal point.  We know the Fed “mandated” higher rates just a couple of weeks before Christmas.  I use the word “mandated” because it looks like they have raised rates but done nothing as far as withdrawing collateral and actually tightening credit conditions.  We saw no evidence of any tightening through year end.  Then the unbelievable happened, overnight rates collapsed to .12 basis points on Dec. 31.

Specifically I believe it is important to look at what happened in the U.S. credit markets on the final day of the year because it exposes two important areas.  Rates collapsed well below the recently announced new range and the Fed had a record overnight auction.   http://www.zerohedge.com/news/2015-12-31/yellen-you-have-problem-rate-hike-corridor-just-broke

http://finance.yahoo.com/news/-475-billion-year-end-fed-auction-suggests-more-problems-in-credit–mutual-funds-023901085.html# As a kicker, money market rates spiked.

Why is any of this important?  First, it shows the Fed is not in the complete lockdown and control of markets but more importantly it shows how far financial institutions have gone to “portray” solvency.  You see, they take a “snapshot” picture of their balance sheet at year end.  The huge movements of capital and rates were these institutions getting the “bad stuff” off of their books in preparation for the public picture!  Suffice it to say, the movements were quite obvious to all, internally and internationally everyone saw this and they “know”.

Shifting gears to the beginning of the year’s trading, “Happy New Year”!  Over the weekend, Saudi Arabia and Iran held their version of a “beheadarama” tit for tat which ended in the Saudi embassy in Tehran burned to the ground and the Saudis then breaking diplomatic ties.  This all occurred with the Saudis saying “we don’t care what the White House thinks of our actions”.  Can anyone say bye bye petrodollar?  In case you missed the obvious here, this is further evidence of a loss of control by Washington.

As the markets opened around the world, China took the lead and dropped 7% to trip their circuit breakers to close their markets for the day.  Interestingly the bozos on CNBC are saying “7% isn’t that much, China will probably change their rules and become closer to U.S. circuit breakers of 20%” …

Really?  Does anyone believe our markets would even open on day two after a 20% drop?  Many readers were either too young or were not paying attention in 1987.  The market crashed on a Monday but it was Tuesday that was the scariest day.  It was the purchase of illiquid Value Line futures with something like $6 million that turned the markets when everything else was frozen.  It was this event which created the plunge protection team and the belief in the “Fed put”.  The problem is this, we became so addicted to “help” on a 24/7 basis since 2008 and “risk” now has less than zero premium in it.  We wake up ever single day to “it can never happen again, the government will not allow it”.

I ask you this, what will happen to markets when it is perceived the Fed/Treasury/U.S. is NOT IN CONTROL?  Please do not tell me this can never happen because we just had a “three fer” in this category.  Money and credit went out of control Dec. 31st, geopolitics went out of control over the weekend and now the markets opened worse than any year since 1932!

I believe this “loss of control” began in late August last year and we have seen tremors on and off ever since.  The complete loss of control is certainly and mathematically coming.  I can say this with confidence because we are living in a larger experiment than ever before in history.  We have lived through credit bubbles before, we know they have always burst and caused economic and financial ruin.  To think “this time will be different” is the height of idiocy.  The only “difference” will be the scope and magnitude of how bad the collapse will be.  Previous credit bubbles never included the issuer and finances of the world’s reserve currency.  The “foundation” to the world’s financial system will come into question and the greatest panic of all time will only be stopped by turning the lights out in the casinos.  Loss of control and the plugs being pulled all around the world will lead to one universal “view” when the dust clears …an UNRECOGNIZABLE VIEW!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com