I hope you have had a good week and that life is treating you well. As I have dug through the mountainous volumes of news articles this week I continue to marvel at how manipulated the messaging is. Every piece of news offers opposing views from pundits and vested interests. How in the world can people continue to believe that the outlook is improving? The equity markets are getting crushed and only move up slightly when the presstitute media hints that more stimulus via QE (Money Printing) “might” be coming or when massaged statistics show a positive improvement in some part of the economy. Even then, the average person should be able to see the quackery.
Moodys, a major credit rating agency, announced today that they are putting a downgrade on 175 oil, gas and mining companies. These companies have over half a trillion dollars in debt combined. If you think Lehman Brothers was a problem in 2008 I highly recommend that you think about what the fallout will be from these companies going bust.
To make matters worse, the US Federal Reserve has allowed banks to not value their energy market debt exposure to what the true underlying market value is. In simpler terms, generally accepted accounting principles state that companies must value their assets to their current market value. In the case of banks, if their asset values drop this can impact their capital ratios and if the ratios drop below a legislated level the said banks will be forced to raise capital. Back in 2008, banks all over the world required a tax payer bailout to the tune of trillions of dollars because of the same issue. So here we are again; repeating history. Fraud is being approved by a corrupt regulator to allow for the facade of “everything is hunky dory” to continue.
Week after week I have warned that investors need to take cover now. The financial press will lead you to believe that now is a good time to “buy the dip” or increase your exposure to sectors such as bank stocks. Perhaps they should be advising investors to bet against the bank stocks and short them. I will not be surprised to see a near term bounce higher in equities and then a continued drop towards the abyss. After all, confidence is the only thing keeping the financial markets afloat. Personally, as I wrote about in an article a couple weeks ago, I am only interested in hard assets that will always be a store of value. In the last 7 months, over $14 trillion has been lost in the equity markets. That amount is close to 7 times the size of the Canadian economy. I have said it before and I will say it again; currency wars, trade wars and war are to be expected. You will notice that peripheral countries such as Venezuela will be hit first and slowly the rot will make its way into core countries such as the US. The International Monetary Fund estimates that Venezuela will have an inflation rate of 720% in 2016. Hyperinflation and severe deflation feel the same for the average person. Either way, life becomes more difficult and the systems that we all rely upon begin to fail or at the very least service levels decline.