Posted December 28th, 2016 at 9:52 AM (CST) by Bill Holter & filed under General Editorial.
The end of one year and the beginning of another is always the time to reflect and look forward. 2016 was a tale of two separate years. The first half (which followed the Fed’s rate hike) saw unsettled markets. Equities around the world looked like they were unravelling in Jan. and early February. Sovereign credit markets were generally firm while gold and silver took off like scalded dogs.
Then in the middle of the year, equities rebounded, interest rates started to rise while the gold and silver rallies were contained. Interestingly, the mining shares which were at one point in May, up 150% ytd, are still up roughly 50% but have been crushed anew. The second half and in particular the last quarter has seen interest rates all over the globe begin to rise fiercely. I believe this is THE most important event of 2016, the end of a 35 year bull market in “credit”!
As we end the year, there is nearly no “RISK premium” anywhere to be found. In fact, the mainstream explanation for higher rates is the “reflation” trade, I disagree. I believe the higher interest rates are a function of liquidity tightness. The old debt/growth leading to more debt/more growth circle has been broken because “debt saturation” levels have been reached. The central banks are stuck as they have cornered too much collateral and are now being forced to look at other markets (including equities) to onload to their balance sheets. Risk premium serves a very important purpose in “pricing” assets. Central banks have tried to negate this concept and have only created a scenario of “premium” nowhere and “risk” everywhere. In a world with more debt and the worst debt ratios ever, risk is unaccounted for.
2016 also saw the rise of the populist movement. We saw it in Britain, the U.S. and then Italy. Globalism is in the process of being rebuked and will again be tested in France and Germany next year. The movement has clearly gained traction as the globalist policies have not and are not working. People can “feel” this and see it with their own eyes.
2016 may have been the tipping point, 2017 could very well be the year the tipping point is widely known and understood. The French and German elections are slated, the validity of the “European Union” stands in the balance. It will be quite interesting to see, should the EU begin to unravel what will happen with the ECB? Who guarantees the ECB and what happens with their giant balance sheet? Of course, the same questions need to be asked about the euro itself and how sovereign currencies will be reintroduced?
“Truth” was also a key topic in 2016 thanks to WikiLeaks. Globalist propaganda “truth” versus the actual truth has come out into the open and become a battleground. In fact, several nations are trying to “legislate” truth, the latest being Obama Quietly Signs The “Countering Disinformation And Propaganda Act” Into Law. This is obviously quite dangerous and sews the seeds of potential conflict. The last quarter of 2016 saw some extremely interesting “truths” come out. Some that we certainly already knew, some we could not even imagine. What was interesting, nothing WikiLeaks put forth was denied, only their “methods” and thus the shots fired at messengers only.
It is hoped 2017 will be different and President elect does “drain the swamp”. Many do not believe this will happen. Many are either scared stiffless into their snowflake shelters while many others believe him to be a Trojan horse set in place to continue the pillaging. I personally do not believe this, we will find out shortly after his arrival. Either Mr. Trump is real or he is not. If he is not, what we have lived with over the last many years will continue into a lawless hyperinflation. It is with the assumption that Mr. Trump is real and truly a patriot that I will look at 2017.
First, I believe we will see some clues almost immediately as to whether Mr. Trump is real or not. Who will he nominate to replace Justice Scalia? Will he negate the many ridiculous (unconstitutional) executive orders? How will Jeff Sessions proceed? These are just a few questions but correct answers I believe will suffice to at least knowing the direction we are headed.
Maybe the following is wishful thinking, maybe not but I do believe 2017 has the potential to be the year of the truth bombs (plural)! Interest rates have already risen and will begin to expose the over leveraged in a fashion often described by Warren Buffett as the “tide going out”. We already see signs of this with various cities (Detroit, Chicago, Dallas), various states (Illinois, California, Puerto Rico), and even on a federal level. Higher rates will undermine bond values and thus pension/retirement funds. This is an ugly truth that will affect the general population and cannot be ignored.
The “rule of law” is another area. No one was prosecuted after the 2008 debacle, will Wall St. finally be held accountable? Will crooks go to jail or will it be smoothed over with monetary fines? What about these firms who have already paid fines, will they be successfully sued in civil courts? Will trustees be held accountable as pension plans/benefits fail? What about election fraud? Will there be investigations into cities who returned more votes for Hillary than were cast in total? Will the Podesta e-mails be investigated for Clinton foundation tax fraud amongst other misdoings? What about the pedophilia information, will this be a string they pull on or does it get a pass? Banking is obviously another topic, how are the “insolvents” handled? Will bail ins prevail in 2017 as per new legislation?
These are all tough questions and by no means totally inclusive as fraud prevails throughout every nook and cranny. It is my belief we will see early on this coming year as to the “mechanics”. One thought process to explore and likely in my opinion is a plan exists to dump it all on Mr. Trump. In other words and as Jim has asked, “will the machine even operate for him or do they just shut down and let the roof cave in”?
Thinking this through, if the Trump administration does actually pull on a few threads, do they unravel the whole system? If they don’t pull on various threads, will the “machine” (ESF) actually function for Trump? I guess it boils down to whether or not he is “one of them”. As stated, I do not believe he is “paid for” so it will be game over one way or another. Either the administration digs under the wrong rock or the fuse is lit before he even takes office.
I have written and offered proof that we are past the point of no return financially. The collapse is already carved in stone, higher rates will expedite the process. The question as I saw the election is whether we would deal with the coming financial, economic and social ramifications under a true rule of law or not. I suspect we will end 2017 “knowing” many things as “fact” that we only know in our gut now. In fact, if I was asked advice for Mr. Trump, I would advise he contact John Williams and go to the American people with his findings.
If Mr. Trump was smart (and gave no fear for his life), he would go to the American people with “benchmark” revisions going back some 30 or more years. Yes, the entire system will come down (as it will anyway) on his watch but coming clean is the best way to do it. Show true inflation, growth and unemployment numbers …during each previous administration and where we are truly now! This would be one heck of a truth bomb but the easiest way to avoid blame AND clear the slate to go forward.
To finish, yes there was much speculation and even “hope” in this writing. But one thing is for sure, we will one way or another see more “truth” than we have for many years. The truth will come because as Ricky used to tell Lucy, “you got a lot of ‘splaining to do”!
The conditions now exist that the “old truth” cannot be stretched any further, recent elections are proof the common man is no longer being fooled. Whether they be internal, external, international, financial, economic, social and of course criminal, truths of all sorts will most likely circle the globe like a flock of black swans in 2017!
That will do it for the remainder of the week unless something big comes up and needs commentary. We wish you a safe, healthy, happy and prosperous New Year!
Bill and Jim