One of my favorite lines is "I'm not the kind of guy to say I told you so - but if I was, I'd sure be saying it now."
As far as saying "I told you so," back in the summer of 2008, in my "Friday Night Illumination" emails to my banker and trader friends, I screamed, "SELL EVERYTHING!"
People thought I was nuts. Literally, that I'd lost my mind. Sell everything - no one ever says that, ever.
But I said it, over and over: SELL EVERYTHING! It was an insanely bold call. At least that's what everyone said to me after the fact.
But it wasn't a bold call - it was telegraphed. And I wasn't the only one who read it right.
Now for the really bad news. It's going to happen again. The time to sell everything is approaching. It's not here yet.
And we're not inching forward. Nor are we dashing.
We're jogging.
Today I'm going to show you how it will not only be different - but also a lot worse...
Casino Capitalism in Action
That's because the rescuing armies this time - the U.S. Federal Reserve and the globe's other central banks - are the ones going under. If that happens, we're going to have a global depression of biblical proportions.
There is time to stop it. However, those central banks are stoking the locomotive's furnace to the tune of "Old Charlie stole the handle, and the train, it won't slow down."
The crash is coming because central banks have engineered low-to-no interest rate policies that grossly distort free markets. That makes true price discovery impossible, and front-running, financed by flimsy carry trades, has become a perpetual-motion trade.
If you don't get that, don't worry - you're not alone. The central banks don't get it, but they're starting to. It's not complicated at all. It is what it is. It's about casino capitalism.
Here's the game that's being played, plain and simple. And here's how it's going to end.
Central banks artificially lowered interest rates, which causes market distortions, which leads banks and households to leverage themselves up, up, and away. When the housing market and mortgage securities imploded, the pain spread around the world.
But the pain wasn't all about mortgages.
It was all about "credit" in the system and how easy credit, courtesy of low interest rates, facilitated cheap financing of real estate and heavily margined and leveraged securities positions. Easy credit also aided and abetted counterparties wagering trillions of dollars on bilateral derivatives contracts that they folded up and tossed about like paper airplanes.
Confidence in the system collapsed when credit evaporated and players crapped out.
The credit crisis was a global phenomenon. That's because credit stems from banks. Banks everywhere were in trouble. By trouble, I mean insolvent. Central banks had to rescue them.
That's where "stimulus" came in. Zero interest rates don't matter if you're a bank with zero money to lend. So what if you can borrow from the Fed at zero interest? If there's no one borrowing from you and you can't make money by lending, you're toast.
That's where quantitative easing came in. QE was a desperate measure. Plain and simple, if you're a central bank and your banks don't have any money and you work for them, you find a way to give them money so they don't have to close down for good.
The Fed and other central banks (using different names, though the European Central Bank just went ahead and called its latest $1 trillion giveaway QE) printed money and steered it directly onto banks' balance sheets so they wouldn't be insolvent.
Stay with me here, because this is the part that will blow your mind if you don't know it.
This Year's "Front-Runners"
The Fed and the world's other central policymakers manage this balance-sheet bloating trick by buying bonds from banks. But there's no difference inside the bank if they have bonds (which are worth something) on their balance sheets that they sell for cash. It's just a switch. There's no addition to the balance sheet.
What really happens is that banks (I'm talking about big banks, the too-big-to-fail banks that all failed in the credit crisis) buy government bonds from governments that always have to roll over their debts. Sure, they pay full price for the bonds, but they don't put up the full amount. They buy them on margin.
It's done with clicks on electronic ledgers, so don't sweat the mechanics. Anyway, central banks then buy those bonds from the banks and pay in full (credit them in full on another electronic ledger). And presto!
The Fed stuffed its big banks with more than $4 trillion. That's enough to make them not only solvent but very profitable again. And the folks in the government? They love it because they don't have to worry about selling their debt. They've got a readymade syndicate to take all they have to offer - at very low rates mind you!
Bank balance-sheet bloating has been going on around the world.
And, as if not a single lesson was learned from the last credit crisis, speculators have leveraged up their "risk-on" positions because they can finance them for next to nothing.
Almost all of the big bets being made, in the tens of trillions of dollars, are front-running bets. Front-running central banks, that is.
Take any example you like, the front-running trade works the same everywhere.
Let's take Europe, because it's only the latest example of massive front-running...
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
God bless you for this priceless information, because this is exactly what I want to know about when to get out of the market. Is now a good time to buy gold/silver?? Again, God bless you for your help and advice!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I enjoy reading your articles.
So then what….cash in and leave money in bank…? If I buy Gold coins by the time a new, probably total electronic system is in place would the government allow me to cash in the coins…?
This is an one-sided story. Central banks make lots of money doing QE. US Federal Reserve just handed in $79 billions to the government. That what the Fed made last year. By winding down the QE and raise the rate in the future, the Fed will make money again. Low rate cannot continue forever. I believe the rate of inflation in the US will creep up gradually. It is about 1.9% annually now. When the rate of inflation goes up to 2% or higher, the federal fund rate will start to go up a little, perhaps in the range 25 to 50 basis points. The market volatility will increase before the rate goes up just because of the expectation of it. When the rate hike becomes a reality, the volatility will decrease substantially.
I'm 24 years old and wanted to start a global index universal policy for retirement. Is this still a good idea after reading this or will I be wasting my money? I curious with Dennis B's question too. I stopped buying 10 ounce and 100 ounce silver bars to invest in stocks instead for a little bit. I bought at $29, then $25, then $21, and finally stooped at $16.25, only to see it go back up a little. It irritates me, but I'm silver for the long run, so I try to imagine that it would just be sitting in the bank anyway, (but knowing I could have have more, still bugs me). I've been interested in finance and investing my entire life, but slowing see my income grow every year while my investments diminish slowly. Advice?
Joseph, I admire you. I wish that when I was 24 I was stacking silver. If I was, I would be a very rich man today!!
A little advice, we are at a time like no other time in history. We are standing at the door of global financial reset, where the entire world is in the beginning stages of going bankrupt. Get your money out of the stock market! My feeling is the stock market is coming down, and when it comes down, you do not want to be anywhere near it.
I am estimating a DOW 6000 by the time this first round of crisis is over. That is when the bond market falls apart, and the real SHTF. I truly believe you will see investors run for gold and silver, at that point. I predict gold will see $2,000 by the end of 2015 and silver will see between $60-70 by year end.
Good Luck!
Surely, it matters not that currency value is not based on anything …like Gold. As far as I can see currency seems to be inter valuing itself going up and down regularly in response to economic announcements from various sources mostly eco stats and bank plans