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A Mystery Investor Has Made A 262 Million Dollar Bet That The Stock Market Will Crash By October July 23, 2017

One mystery trader has made an extremely large bet that the stock market is going to crash by October, and if he is right he could potentially make up to 262 million dollars on the deal.  Fortunes were made and lost during the great financial crisis of 2008, and the same thing will happen again the next time we see a major stock market crash.  But will that stock market crash take place before 2017 is over?  Without a doubt, we are in the midst of one of the largest stock market bubbles in U.S. history, and many prominent investors are loudly warning of an imminent stock market collapse.  It doesn’t take a genius to see that this stock market bubble is going to end very badly just like all of the other stock market bubbles throughout history have, but if you could know the precise timing that it will end you could set yourself up financially for the rest of your life.

I want to be very clear about the fact that I do not know what will or will not happen by the end of October.  But one mystery investor is extremely convinced that market volatility is going to increase over the next few months, and if he is correct he will make an astounding amount of money.  According to Business Insider, the following is how the trade was set up…

  • To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.
  • The trader then used those proceeds to buy a VIX 1×2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.
  • For reference, bullish call spreads are used when a moderate rise in the underlying asset is expected. Traders buy call options at a specific strike price while selling the same number of calls of the same asset and expiration date at a higher strike.
  • In a perfect scenario, where the VIX hits but doesn’t exceed 25 before October expiration, the trader would see a whopping $262 million payout.

I will be watching to see what happens.  If this mystery investor is correct, it will essentially be like winning the lottery.

But just because he has made this wager does not mean that he has some special knowledge about what is going to happen.

For example, just look at what Ruffer LLP has been doing.  They are a $20 billion investment fund based in London, and they have been betting tens of millions of dollars on a stock market crash which has failed to materialize so far.  But even though they have lost so much money already, they continue to make extremely large bearish bets

As of earlier this week, Ruffer had spent $119 million this year betting on a stock market shock, $89 million of which had expired worthless, according to data compiled by Macro Risk Advisors. The investor has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion expired at a loss.

Blame a subdued VIX for the futility. The fear gauge was locked in a range of 10 to 14 for the first three months of 2017, and while it has since climbed to as high as 15.96, it has been stuck well below 14 since a single-day plunge of 26% nine days ago. Earlier this week, the index closed at its lowest level since February 2007.

But that doesn’t mean Ruffer is giving up. Already loaded up on May contracts, the firm has continued to buy cheap VIX calls expiring later in the year — wagers costing about 50 cents.

I can understand why Ruffer has been making these bets.  In a rational world, stocks would have already crashed long ago.

The only way that stock prices have been able to continue to rise is because of unprecedented intervention by global central banks.  They have been pumping trillions of dollars into the financial markets, and this has essentially completely destroyed normal market forces.  The following comes from David Stockman

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

In the “bizarro world” that we are living in today, many companies are trading at prices that are more than 100 times earnings, and some companies are actually trading at prices that are more than 200 times earnings.

Stock prices have become completely and totally disconnected from economic reality.  As I discussed the other day, U.S. GDP has only risen at an average yearly rate of just 1.33 percent over the past 10 years, but meanwhile stock prices have been soaring into the stratosphere.

Nobody in their right mind can claim that makes any sense at all.  Just like in 2000, and just like in 2008, this absolutely ridiculous stock market bubble will have a horribly tragic ending as well.

Once again, I don’t know what the exact timing will be.  Stocks could start crashing tomorrow, but then the Swiss National Bank could swoop in and buy 4 million shares of Apple just like they did during the months of January, February and March earlier this year.

The biggest players in this ongoing charade are the global central banks.  If they decide to keep pumping trillions of dollars into global financial markets, they may be able to keep the bubble going for a little while longer.

But if at any point they decide to withdraw their artificial assistance, those that have placed huge bets against the market are going to make absolutely enormous piles of cash.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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Janet Yellen Says A New Financial Crisis Probably Won’t Happen ‘In Our Lifetimes’ But The BIS Says One Could Soon Hit ‘With A Vengeance’ June 28, 2017

Federal Reserve Chair Janet Yellen is quite convinced that the United States will not experience another financial crisis for a very long time to come.  In fact, she is publicly saying that she does not believe that another one will happen “in our lifetimes”.  But there are other central bankers that see things very differently.  In fact, a new report that was just released by the Bank for International Settlements is warning that a new financial crisis could soon strike “with a vengeance”.  So who is right?

It would be nice if it turned out that Yellen was right.  Nobody should want to see a repeat of what happened in 2008, and Yellen seems extremely confident that she will never see another crisis of that magnitude

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London.

Even though the U.S. national debt has roughly doubled since the start of the last financial crisis, and even though corporate debt has roughly doubled since then as well, and even though U.S. consumers are more than 12 trillion dollars in debt, and even though the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives, Yellen believes that our financial system “is much safer and much sounder” than it was in 2008…

“I think the system is much safer and much sounder,” she said. “We are doing a lot more to try to look for financial stability risks that may not be immediately apparent but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging.”

I have a feeling that these words may come back to haunt her, and the fact that she has more power over the performance of the U.S. economy than anyone else does is more than just a little bit frightening.

The truth is that signs of a major new economic downturn are emerging all around us, and many are warning that the next great financial crisis is just around the corner.  For example, just consider what a new report from the Bank for International Settlements is saying.  The Bank for International Settlements is widely regarded as “the central bank of central banks”, and this new report is warning that we could be heading for “a financial boom gone wrong”

A new financial crisis is brewing in the emerging economies and it could hit “with a vengeance”, an influential group of central bankers has warned.

Emerging markets such as China are showing the same signs that their economies are overheating as the US and the UK demonstrated before the financial crisis of 2007-08, according to the annual report of the Bank for International Settlements (BIS).

Claudio Borio, the head of the BIS monetary and economic department, said a new recession could come “with a vengeance” and “the end may come to resemble more closely a financial boom gone wrong”.

And of course many of the most trusted analysts in the financial world agree with the BIS.  In fact, Dr. Doom Marc Faber is predicting that stocks could soon decline “by 40 percent or more”

If the man often hailed as the original “Dr. Doom” is right, the stock market could see another “lurch” higher — at which point investors may want to cash out quickly and run for cover.

Marc Faber, the editor of “The Gloom, Boom & Doom Report’ and a perennial bear, isn’t backing down from his latest dire prediction that would send stocks plummeting by 40 percent or more.

A drop of that size could take the S&P 500 Index down from Friday’s closing price of 2,438 to 1,463.

In the end, we shall see who is right and who is wrong.

And let us certainly hope that another crisis like the one we saw in 2008 does not happen any time soon, because tens of millions of Americans are completely unprepared for one.

According to a brand new survey that was just released, almost half the country currently spends as much or more money than they make each month…

Nearly half of Americans say their expenses are equal to or greater than their income, according to a new study from the Center for Financial Services Innovation. And for those 18 to 25 the percentage is over half, up to 54%.

“Half of America has no financial cushion,” says Jennifer Tescher, president and CEO of CFSI, which released the study. “They are living really close to the edge.”

And another recent survey discovered that 69 percent of all Americans do not have an adequate emergency fund.

With so many of us living on the edge, our society is extremely vulnerable to a major financial shock.  And when one finally does happen, a lot of people are going to get knocked out of the ranks of the middle class very rapidly.

Even though things seem relatively stable for the moment, poverty is on the rise all over the country.  For example, according to the Daily Mail the number of homeless people in Los Angeles has risen by 23 percent over the last year…

According to a new count released in May, the number of homeless people in the Los Angeles area jumped by 23 percent in the last year to reach nearly 58,000. Of those, some 5,000 are veterans, the highest number of homeless veterans of any city in the country and a near 60 percent increase over the previous year.

And we are seeing similar things in cities all over the nation.

The United States is in the midst of a long-term economic decline that goes back for decades.  Our economic infrastructure has been gutted, our middle class is now a minority of the population, and we have piled up the biggest mountain of debt in the history of the world in a desperate attempt to maintain a standard of living that we have not earned.

Hopefully Janet Yellen is right and hopefully the next major financial crisis will be put off for as long as possible.

But whether the next financial crisis comes quickly or not, the truth is that the U.S. economy is going to continue to decline if we continue to make the same kinds of incredibly poor decisions that we have been making for a very long time.

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The Worst Financial Nightmare In Illinois History Erupts As State Comptroller Declares ‘We Are In Massive Crisis Mode’ June 18, 2017

Margaret Thatcher once said that the big problem with socialist governments is that “they always run out of other people’s money”, and unfortunately we are witnessing this play out in a major way in the state of Illinois right now.  At this point, the Illinois state government has more than 15 billion dollars of unpaid bills.  Yes, you read that correctly.  They are already 15 billion dollars behind on their bills, and they are on pace to take in 6 billion dollars less than they are scheduled to spend in 2017.  It is the worst financial crisis in the history of Illinois, and State Comptroller Susana Mendoza sounds like she is about ready to tear her hair out in frustration

“I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,” said Mendoza, a Chicago Democrat. “The magic tricks run out after a while, and that’s where we’re at.”

It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to “junk” if there’s no budget before the next fiscal year begins July 1.

Would you continue to do work for the Illinois state government if you knew that they were this far behind on their bills and that it is doubtful that you would be paid any time in the foreseeable future?

Of course the answer to that question is quite obvious.  As contractual relationships break down, social services are starting to suffer, and there is not much hope that things will take a turn for the better any time soon.

At this point things have gotten so bad that the Illinois Department of Transportation is planning to cease all roadwork starting on July 1st, and even the Powerball lottery is threatening to cut all ties with the state

As reported previously, the state Transportation Department said it would stop roadwork by July 1 if Illinois entered its third consecutive fiscal year without a budget – the longest such stretch of any US state – while the Powerball lottery said it may be forced to dump Illinois over its lack of budget. For now, state workers have continued to receive pay because of court orders, but school districts, colleges and medical and social service providers are under increasing strain.

So what has caused this unprecedented crisis?

At the core, the problem is political.  A tense standoff between a Republican governor and a Democratic legislature has resulted in the state going 700 days without a budget

On May 31, Illinois will have gone 700 days without a budget, an unprecedented political failure. Also on May 31, if a budget is not passed, it could mean that the state could go until 2019—an unimaginable idea, except that senators have already imagined it.

How does a state, led by a successful businessman as governor, a brilliant political strategist in the House, and a consummate dealmaker in the Senate, end up in this kind of political disorganization? Bad political errors led to bad political incentives, and as the problem worsened, so did the political risk of solutions—and what politicians had to ask of their constituents.

This is another example of how deeply divided we are as a nation right now.  Democrats hate Republicans and Republicans hate Democrats, and it is getting to the point where the two parties cannot work together on even the most basic things.

In the end, the state of Illinois is either going to have to cut spending dramatically, raise taxes substantially or some combination of both.  And since the Democrats have very large majorities in both chambers of the state legislature, I wouldn’t count on spending being cut that much.

This is the thing with big government – it always has a tendency to get even bigger.  And the bigger government gets, the more of our money and the more of our freedom it takes away.

That is why I am a huge advocate of dramatically shrinking the size of government on the federal, state and local levels.  Like Rand Paul has often said, I want a government so small that I can barely see it.

When you let government get out of control, what you end up with is a ravenous beast that has an endless appetite for more of your money.  In Illinois, the money is all gone and the beast is desperately hungry for more.

Sadly, what is happening in Illinois is just the tip of the iceberg.  If stock prices start declining from these massively inflated levels, state pension funds all over America are going to be in crisis mode very rapidly.  And a new recession would greatly accelerate the financial problems of a whole bunch of states that are already dealing with huge budget shortfalls.

Unfortunately, experts all over the country are warning that the next major downturn is coming very quickly.  For example, just consider what Bernard Arnault just told CNBC

A financial crisis could be just around the corner, according to the chief executive of LVMH, who has described the global economic outlook as “scary”.

“For the economic climate, the present situation is…mid-term scary,” Bernard Arnault told CNBC Thursday.

“I don’t think we will be able to globally avoid a crisis when I see the interest rates so low, when I see the amounts of money flowing into the world, when I see the stock prices which are much too high, I think a bubble is building and this bubble, one day, will explode.”

There is always a price to pay for going into too much debt.

A financial day of reckoning can be delayed for a while, but eventually bad financial decisions are going to catch up with you.  The state of Illinois is learning this lesson in a very harsh manner right now, and the country as a whole is on the exact same path as Illinois.

I am often criticized for endlessly warning about America’s coming day of reckoning, but you can’t pile up the biggest mountain of debt in the history of the world without paying a price.

Just like the state of Illinois, we will pay for decades of exceedingly foolish decisions, and unfortunately this is going to cause severe economic pain throughout our entire society.

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