If you have not yet read Part 1: Is The Long-Anticipated Crash Now Upon Us?, available free to all readers, please click here to read it first.

How Close Are We To A Full-Blown Crash?

We’re always looking at the current market data for a reason to send out an ALERT. We send them out extremely rarely, so it takes a preponderance of evidence to convince us to issue one. 

At the end of Part 1, I walked through the tepid signals that junk bonds, US Treasurys, and gold are currently giving. There's no sign of panic (yet) in those bellwhether markets.

On the other hand, a rising dollar is what you’d expect to see if there’s some sort of a crisis going on. First because of the “flight to safety” aspect, and second because it represents speculator money fleeing foreign hands and coming home:

Given this, it’s somewhat encouraging that gold has not tanked over the past few weeks, because it has pretty much been trading as the "anti-dollar" up until now. But over the past two weeks, that correlation has broken, and both gold and the dollar have risen together.

Of interest to those of us holding gold is that there finally has been (…)

If you have not yet read Has “It” Finally Arrived?, available free to all readers, please click here to read it first.

What A “Market Crash” Really Means

The risk that comes from the bursting of a credit cycle is financial market disruption that causes prices to dislocate.  In 2008 that meant the utter inability to move certain credit and derivative products within the banking ecosystem which led to the downfall of Bear Stearns and Lehman Brothers. 

In turn those failures helped to nearly precipitate the systemic collapse of the banking system.  It got so bad that even high level bank CEOs were taking cash out of ATMs because they simply didn’t know if their won banks would be open in the morning.

Lots of changes were made to try and prevent such a thing from happening again, but many of these are counterproductive. 

In talking about Trump’s criticism of Powell, Chris Whalen of The Institutional Risk Analyst wrote several scathing critiques of the ways the Fed has indeed destroyed the markets, but it was his third point that really caught my attention:

Third is the real issuing bothering President Trump, even if he cannot find the precise words, namely liquidity.  We have the illusion of liquidity in the financial markets today.

Sell Side firms are prohibited by Dodd-Frank and the Volcker Rule from deploying capital in the cash equity and debt markets.  All bank portfolios are now passive.  No trading, no market making.  There is nobody to catch the falling knife.

The only credit being extended today in the short-term markets is with collateral.  There is no longer any unsecured lending between banks and, especially, non-banks.

As we noted in The Institutional Risk Analyst earlier this week, there are scores of nonbank lenders in mortgages, autos and consumer unsecured lending that are ready to go belly up.  Half of the non-bank mortgage lenders in the US are in default on their bank credit lines.  As in 2007, the model builders at the Fed in Washington have no idea nor do they care to hear outside opinions.

(Source)

There’s nobody to catch a falling knife.  Everybody has abdicated to the idea of an untested ecosystem of computer algorithms being first, last and only line of defense.  It’s kind of binary; it either works or it doesn’t.

It’s also untested. 

So the risk here, which is impossible to quantify, is that someday things go a bit haywire, something (or a whole lot of somethings) go out of parameter and the computers go dark.

What happens then?

First, we'll see………(Enroll to continue reading the full report)

If you have not yet read Bad Money, available free to all readers, please click here to read it first.

The longer all this goes on, the harder it is to stay on point, remaining focused and keeping preparation efforts moving forwards.

Some of you have done all the preparing you plan to do, and find that “keeping abreast” of all the discouraging news comes at a price, and have wisely decided to limit your intake of new news to preserve your happiness and in the interest of preserving your energy for other important matters. I get it.

For everybody else, this is all dragging on for much too long. Can’t we just get on with things already? How much more information do we really need that it’s time to stop our (self) harmful behavior, and begin doing a host of other entirely new, constructive and necessary things?

For example, stop attempting to grow at any cost. And begin investing in regenerative and life-supporting activities.

However, for many, the collapse has already arrived. It just hasn’t been called that yet in the newspapers and on TV, so people just lack the proper frame of reference. It’s really a matter of perspective.

For the people who are already struggling under mountains of student debt, or homeless, or unable to afford medical care, the collapse has already begun. For many, opportunities to advance have already evaporated; and they're stuck in a slow, steady, out-of-control decent into a future of "less".

What do we predict a long emergency style collapse will look like? It arrives with a slow erosion of dreams, a steady decline in the ability of the marginal bottom-of -the-monetary-pyramid players to survive.

In other words, it will look like this…

If you have not yet read The Whole System Is Rigged, available free to all readers, please click here to read it first.

An Emerging Nightmare

About the kindest thing I can say about the reckless $trillions the central banking cartel flooding the world with is that they gave us more time to get our preparations in order. I certainly hope you used that time wisely.

So what happens when every financial market around the globe has been dangerously inflated by massive money printing?

Those enormous flows that were virtuous on the way out will be vicious on the way back in. 

And don't forget: as a combined group, the big central banks are still expanding their balance sheets today.

Yet despite that, the weaker players on the board are beginning to flounder severely:

Every single country on that list that is the proud holder of US denominated debt is now facing serious difficulties.  Worse, the situation compounds itself as all of the debt holders have to sell their local currency in increasing amounts to buy the dollars with which they will pay off these debts. 

The more they sell, the weaker their local currency gets.  The weaker it gets the more they have to sell. It's this dynamic that then bleeds over into their local stock markets.  Companies being crushed by external dollar-denominated debts see their interest costs spike higher and higher.  Very rapidly this crushes their income stream, so their stocks fall in price.

The contagion is spreading, quite rapidly too.  It’s well beyond a single story that we can confine to the particulars of Turkey or Argentina.  It now involves India, for heaven’s sake!

Next up is the big kahuna – the debt crisis that results when the individuals and companies toss in the trowel and declare bankruptcy or simply stop paying off their loans or debts.  This is when the debt crisis starts.

The ramifications of all this are…

If you have not yet read Time For Some Climate Honesty, available free to all readers, please click here to read it first.

Truth be told, I would prefer to live in a world that is 3 degrees warmer than 3 degrees cooler. Ice ages and cooling are associated with crop failures and famines. In New England, where I live, there was a mile or two of ice overhead as recently as 10,000 years ago.

I love my garden here in western MA and know nothing at all about how to grow veggies on top of a mile-thick sheet of ice. I suspect it’s difficult.

So I guess that’s the best spin I can put on it. Warmer is better than colder, all things being equal.

However, beyond that there are a growing number of new risks that we need to take into account. Heat waves. Too much rain. Too little rain. Punishing arctic cold making winters long and delaying spring planting. Crop failures.

These are all things that I laid out in the Crash Course back in 2008. Here’s what I said about the convergence of dangerous trends in the…

If you have not yet read The FAANG-nary In The Coal Mine, available free to all readers, please click here to read it first. Note that this Part 2 is an updated version of a report first published in 2014.

In Part 1, we noted the eroding good options for investment capital in today's "Everything bubble" financial markets, as well as the dangerous risks that another 2008-style crisis is brewing. If markets are fractal, as argued by Benoit Mandelbrot, then we can anticipate more “once in a lifetime” crises than economists expect, and that such crises will be less predictable than expected.

In Part 2 of this report, we explain why the policies of the governments and central banks around the world that have boosted assets such as stocks, bonds and real estate to new bubble highs will cause a crisis that will be as damaging as 2008 — yet unfold quite differently, in ways the system is not prepared for.

Fighting the Wrong Battles

The outlines of the coming crisis were readily visible in 2007; the subprime domino was toppling the market for mortgage backed securities which in turn was toppling the market for credit defaults, collateralized debt obligations (CDOs) and a host of other exotic financial instruments.

Those of you who were actively following stock markets in 2007 and 2008 may recall the wild surges of euphoria that accompanied every Fed policy announcement. Stock indices shot up every time, only to falter once again as the liquidity injections failed to resolve the underlying collateral/valuation crisis.

When liquidity programs failed to fix the erosion of collateral, markets went into a free-fall.

We can anticipate that the Fed (and other central banks) will respond to a renewed collateral/valuation crisis in the same way they resolved the crisis in 2009—by buying assets directly in vast quantities.  The Fed’s option of buying stocks directly (for example, index contracts or funds) is sometimes referred to as the Nuclear Option, the ultimate backstop to a global meltdown.

But the nuclear option won't fix anything, because…