Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Bond Markets, Black Swans, and the Tiny Spirit of Santo

Interest-Rates / Credit Crisis 2014 Jul 25, 2014 - 12:21 PM GMT

By: Dr_Jeff_Lewis

Interest-Rates When The Bank Espirito Santo catches a cold, watch the world sneeze. If this evolving situation doesn't highlight the tight interconnectedness of the paper financial system, nothing else will.

This a direct hit and a potential trigger that could set of a daisy chain of events, ultimately calling into question the only market left large enough to back (unofficially) fiat or debt based currencies.


When the world of electronic finance catches the flu, the true nature is all systems fail.

Suddenly massive leverage would be suspended in a vacuum, (destroyed, incinerated, disintegrated) in a matter of seconds. And the pursuit of the real safe haven will begin.

It is just a matter of time.

Of course, no one knows for absolute certain.

This could be "the time" when the shorts get caught and panic-cover.

There are many reasons why this could trigger.

One type of event that could do it happened this month.

One of Portugal's largest banks, Espirito Santo, sent waves through the financial system when we learned they would default on a payment.

And they have been fighting against bankruptcy ever since.

From the Financial Times:

"The five strands of the family own their stake in BES, through Espírito Santo Financial Group, the company at the bottom of a complex network of holdings. Moody’s has slashed ESFG’s credit rating by three notches to “extremely speculative” and its shares have not been traded for more than a week. The risk to the Espírito Santos’s stake in BES is that ESFG could be forced to convert its bonds into equity if it cannot pay investors."

The FT also noted that Portugal's bond market has suffered further losses, as concerns over the country's biggest bank and its shareholders mount.

It noted that the benchmark 10-year yield climbed another 13 bps to 3.89%, the highest level since mid-May.

It said the concerns center on Banco Espirito Santo and its largest shareholder, Espirito Santo Financial Group, after the latter ran into financial difficulty. It highlighted comments from Deutsche Bank's Jim Reid, who warned that it has bought questions over the underlying health of peripheral banks and the still evolving mechanism for dealing with struggling institutions back into the spotlight.

And fast forward to this week:

President Anibal Cavaco Silva is the first high-profile politician to warn of a possible economic impact from the Espirito Santo crisis, after the family asked for creditor protection for one of its key holding companies on Friday.

Last week another of the family's companies failed to repay on time over $1 billion in debt owed to Portugal Telecom, which had a knock-on effect on the latter's merger with Brazil's Grupo Oi, forcing it to take a cut in its stake in the new entity.

"If some citizens, some investors suffer significant losses (from the Espirito Santo group) they may delay investment decisions, or some of them may find themselves in very big difficulties," Cavaco Silva said in comments during a visit to South Korea, which were aired on local television.

"We cannot ignore that there will be some impact on the real economy."

Portugal, which in May emerged from an EU/IMF bailout it had to take during the euro zone debt crisis, is expecting its economy to grow by 1 percent this year, the first year of growth since 2011.

The problem is contagion, exposure and mispriced risk.

Clearly default swaps and derivative contracts would be triggered on a default. The problem is no one has ready access to the entire chain of counterparties. Not only do the counter parties not expect to make payments, but no one knows if they have exposure -or for how much.

In a liquidity crisis, everything stops suddenly in one great instantaneous loss of confidence.

By the time it is all sorted out, it will be too late.

The system and the economies underlying them break beyond repair. No reflation. Though of course they will try in desperation.

THIS is what could potentially trigger a bigger run on the bond market and THIS is exactly the dynamic of which regulators in the U.S. are terrified.

This is why you see the sudden surge in big bank CEO's running around asking for derivative reforms.

It's the big one.  The one that terrifies the authorities.

Whether it is interest rates or precious metals, the charade can go on for only a little while.

The appearance of control fuels confidence for only so long. When the cycle breaks, and the wheels stop, it ends.

In the aftermath, loss of confidence and a wall of money.

A worldwide failure - a freeze - would do more damage to the already ailing patient.

Too many claims, not enough reality underlying.

And nowhere is this dichotomy more extreme than in commodities. And, in particular, the ones with monetary quality.

This is why price manipulation goes on.

It is another way of managing behavior. Keeping the masses quiet while lining and protecting the pockets of the too big to fail.

As for the precious metals:

As soon as intervention comes screaming in to save the day (whether by tax payer socializations or outright money printing), the metals will disappear along with every other real asset that isn't tied down.

Retail markets can go no bid in a matter of hours, despite the computers still functioning at the CME.

The more things change, the more they stay the same.

The financial system is bloated and a generation away from any real connection to an organic economy. The financial sector is essentially a whole misallocated paper backed by confidence. Paper claims to a dwindling tangible reality. Prices are manipulated across the board as a way of masking the underlying rot. Some assets are inflated, others are suppressed.

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2014 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules