Every great con game eventually comes to an end. For years, global central banks have been manipulating the financial marketplace with their monetary voodoo. Somehow, they have convinced investors around the world to invest tens of trillions of dollars into bonds that provide a return that is way under the real rate of inflation. For quite a long time I have been insisting that this is highly irrational. Why would any rational investor want to put money into investments that will make them poorer on a purchasing power basis in the long run? And when any central bank initiates a policy of “quantitative easing”, any rational investor should immediately start demanding a higher rate of return on the bonds of that nation. Creating money out of thin air and pumping into the financial system devalues all existing money and creates inflation. Therefore, rational investors should respond by driving interest rates up. Instead, central banks told everyone that interest rates would be forced down, and that is precisely what happened. But now things have shifted. Investors are starting to behave more rationally and the central banks are starting to lose control of the financial markets, and that is a very bad sign for the rest of 2015.
And of course it isn’t just bond yields that are out of control. No matter how hard they try, financial authorities in Europe can’t seem to fix the problems in Greece, and the problems in Italy, Spain, Portugal and France just continue to escalate as well. This week, Greece became the very first nation to miss a payment to the IMF since the 1980s. We’ll discuss that some more in a moment.
Over in Asia, stocks are fluctuating very wildly. The Shanghai Composite Index plunged by 5.4 percent on Thursday before regaining all of those losses and actually closing with a gain of 0.8 percent. When we see this kind of extreme volatility, it is a very bad sign. It is during times of extreme volatility that markets crash.
Remember, stocks generally tend to go up during calm markets, and they generally tend to go down during choppy markets. So most investors do not want to see lots of volatility. Unfortunately, that is precisely what we are witnessing all over the world right now. The following comes from the Wall Street Journal…
“Volatility over the last days has been breathtaking, especially in bond markets,” said Wouter Sturkenboom, senior investment strategist at Russell Investments. He said that it rippled through equity and currency markets, which overreacted.
The yield on the benchmark German 10-year bond touched 0.99%, its highest level since September, before erasing the day’s rise and falling back to 0.84%. The 10-year U.S. Treasury yield, which hit a fresh 2015 high of 2.42% earlier Thursday, recently fell back to 2.33%. Yields rise as prices fall.
After watching the Federal Reserve be able to successfully use quantitative easing to drive down interest rates, the European Central Bank decided to try the same thing. Unfortunately for them, investors are starting to behave more rationally. The central banks are starting to lose control of the financial markets, and bond yields are soaring. I think that Peter Boockvar summarized where we are currently at very well when he stated the following…
One thing that could accelerate the global bond crash is the crisis in Greece. Negotiations between the Greeks and their creditors have been dragging on for four months, and no agreement has been reached. Now, Greece has missed the loan payment that was due to the IMF on June 5th, and it is asking the IMF to bundle all of the payments that are due this month into one giant payment at the end of June…
And with each passing day, a deal seems less and less likely. At this point, the package of “economic reforms” that the creditors are demanding from Greece is completely unacceptable to Syriza. The following comes from an article in the Guardian…
Without a deal, the value of the euro is going to absolutely plummet and bond yields over in Europe will go through the roof. I am fully convinced that this is the beginning of the end for the eurozone as it is currently constituted, and that we stand on the verge of a great European financial crisis.
And of course the financial crisis that is coming won’t just be in Europe. The global financial system is more interconnected than ever, and there are tens of trillions of dollars in derivatives that are tied to foreign exchange rates and 505 trillion dollars in derivatives that are tied to interest rates. When this giant house of cards collapses, the central banks won’t be able to stop it.
In the end, could we eventually see the entire central banking system itself totally collapse?
That is what Phoenix Capital Research believes is about to happen…
Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.
What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.
However, this process will not be fast by any means.
Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).
There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.
We stand at the precipice of the greatest economic transition that any of us have ever seen.
Even though things may seem very “normal” to most people right now, the truth is that the global financial system is fundamentally flawed, and cracks in the system are starting to appear all over the place.
When this system does collapse, it will take most people entirely by surprise.
But it shouldn’t.
All con games eventually fall apart in the end, and we are about to learn that lesson the hard way.
Greece asked on Thursday (4 June) to bundle its four June IMF payments in one to be paid on 30 June.
This move surprised EU and IMF leaders who expected Greece to pay this Friday a €300 million installment and triggered questions over the Greek government real intentions.
Greece was due to repay €1.6 billion to the IMF this month on 5, 12, 16 and 19 June.
It asked to benefit from a IMF provision from the 1970s allowing countries to bundle several payments in one in case of "administrative difficulty of making multiple payments in a short period".
Only one country bundled its payment in the past, Zambia in the 1980s.
The new IMF deadline on 30 June coincides with the end of the current bailout programme.
After Thursday night's meeting in Brussels between Greek PM Alexis Tsipras, EU Commission president Jean-Claude Juncker and Eurogroup president Jeoren Dijsselbloem, there was optimisim about the possibility of a quick agreement and there were talks of a new meeting on Friday night.
But it appears that Tsipras needs more time to convince his government and majority in Parliament to accept a compromise with Greece's lenders.
Tsipras will address the Parliament Friday afternoon about the ongoing negotiations and debate is expected to be heated with MPs from his Syriza party.
The Greek decision not to repay the IMF on Friday can also be interpreted as an implicite threat to default in case creditors do not compromise on Greek demands.
After Wednesday's meeting in Brussels, Tsipras said that "the only realistic proposal is our proposal".
And on Thursday, after the IMF move, he posted on Twitter a message saying that "the government [would] not accept extreme proposals. Our people have suffered enough during the past five years".
The tactical IMF move comes as Greece is putting forward demand on debt restructuration.
The delay in the IMF payment and the uncertainties over the Greek parliament's support for a deal also raises the prospect of an accidental Greek exit from the Eurozone.
A leaked document attributed to investor George Soros outlines the billionaire's plan for Ukraine, which essentially boils down to an ambitious idea to use Kiev to topple Russian President Vladimir Putin, investigative historian Eric Zuesse said.
The confidential document, allegedly part of communications between Soros and Ukrainian authorities, was published by hacktivists from CyberBerkut, known for releasing embarrassing revelations with regard to the US meddling in Ukraine.
"Soros wants Ukrainians to get rid of Vladimir Putin, and this requires heavily arming Ukraine," Zuesse commented. Billionaire's logic is simple: Ukraine should receive lethal weapons from the West as a preparation for an offensive on Crimea.
The Ukrainian invasion of the Russian peninsula will not take place, "however the threat of it happening is important to Soros," Zuesse underscored, adding that the European Union, especially Germany and France will never support the US initiative of arming Ukrainians.
Germany has been the fiercest critic of the idea, insisting that it will shatter hopes for peace and ensure that violence escalates. Moscow has also been a vocal opponent of sending lethal aid to Kiev, instead promoting the Minsk II agreements as the surest way to lasting peace in the region.
Washington apparently intends to weaken Russian economy through the restrictive measures imposed in 2014 in response to Russia's alleged meddling in the Ukrainian affairs. Moscow has persistently denied the groundless claims.
Meanwhile, Ukraine will turn into a functioning and thriving democracy so lucrative for Russians that they would wish to overthrow Putin. That's how Soros sees it, the investigative historian said.
Reality begs to differ with Soros. Miraculous economic recovery in a war-stricken country plagued by widespread corruption and lack of fundamental reforms is unlikely to happen. In the meantime, Ukraine is on the verge of economic collapse and Soros is likely aware of that.
Around 50 vessels from 17 countries, involving overall 5,600 troops, will be taking part in US-led exercise BALTOPS in the Baltic Sea starting June 5. In 15 days, NATO allies will show their eagerness and ability to protect the region.
Featuring anti-submarine warfare, air defense, interception of suspect vessels and amphibious landings, the annual BALTOPS will run through June 20.
This year’s excursive will see 49 ships, 61 aircraft, a submarine and an amphibious landing force of 700 troops participating.
The total number of servicemen involved in BALTOPS or Baltic Operations will reach 5,600 people, NATO’s website said.
NATO member states Belgium, Canada, Denmark, Estonia, France, Germany, Latvia, Lithuania, the Netherlands, Norway, Poland, Turkey, UK and the US are sending their naval forces to take part in the drill.
They’ll be joined by three NATO partners – Finland and Sweden, which both have access to the Baltic Sea, and also Georgia.
Meanwhile, the war games will be taking place just miles off the Russian coastal exclave of Kaliningrad, a gulf area sandwiched between Poland and Lithuania.
Since Russia’s reunion with Crimea and the start of the military conflict in eastern Ukraine last spring, NATO forces have stepped up military exercises along the Russian border – in the Baltic States and Eastern Europe.
Russia responded with an increased number of flights of its Russian long-range ‘Bear’ or Tu-95 bombers in the vicinity of the airspace of NATO members and large-scale drills on own territory.
Despite failing to provide any proof, the West blames Russia for masterminding the Ukrainian unrest and supporting the rebels in country’s eastern Donetsk and Lugansk Regions.
The US and its Western allies are well aware of all the ceasefire violations in eastern Ukraine but, deliberately turn a blind eye to Kiev’s actions, hackers said after obtaining the emails of top Ukrainian official overseeing the truce.
The anti-Kiev hacktivist group, CyberBerkut, claims to have hacked the emails of Major-General Andrey Taran, Chief of the Joint Centre for Ceasefire Control and Coordination in Ukraine.
The correspondence contained satellite images proving multiple violations of the Minsk peace agreements between Kiev and the rebels by the Ukrainian military, they said.
The pictures, dating March, April and May 2015, showed Kiev’s heavy artillery stationed in the immediate vicinity of the borders of the Donetsk and Lugansk People’s Republics.
Ukrainian 100-millimeter field artillery guns, 122-millimeter D-30 and 2S1 Gvozdika howitzers, 152-millimeter Hyacinth-S howitzers and Grad multiple rocket launchers were placed less than 20 kilometers away from the contact line, CyberBerkut said.
The hacktivists stressed that Washington knew of the violations by Kiev as the hacked emails came from a staff member of the US Embassy in Ukraine, Tetyana Podobinska-Shtyk.
“[I am] sending you pictures which can become a serious problem for you! Think about how you can explain them, if the [OSCE] monitoring mission obtains them. Consult the team leader and think about a possible action plan, how you can justify them or present them as fake,” Podobinska-Shtyk wrote in a hacked email.
The Minsk peace deal, which was brokered by the leaders of Russia, Germany and France, led to a significant decrease in fighting in eastern Ukraine, which saw over 6,000 killed since April 2014.
But large-scale fighting resumed in the Donetsk People’s Republic (DNR) on Wednesday, with Kiev and the rebels putting blame on each other for violating the ceasefire.
Germany's foreign minister has expressed "grave concern" over the escalation of violence in eastern Ukraine. A flare-up in fighting is threatening to dismantle an already fragile cease-fire brokered four months ago.
German Foreign Minister Frank-Walter Steinmeier warned Thursday that there had been "serious violations" of the truce deal, which could lead eastern Ukraine closer to full-scale war.
"I've always said the situation is not so stable that it couldn't veer out of control any day," Steinmeier told reporters in Berlin, following a meeting with his Ukrainian counterpart Pavlo Klimkin.
At least 26 people were killed after fresh clashes erupted Wednesday between government forces and pro-Russian separatists outside the rebel stronghold of Donetsk.
Steinmeier called on both sides to return to the basis of the February cease-fire brokered by France and Germany in Minsk, which requires heavy weapons to be pulled back from the front line to create a buffer zone.
"The truce is fragile, the violations can lead to us again falling back into a state of military escalation… We must prevent that," Steinmeier said.
According to Kyiv, Wednesday's fighting - the deadliest seen in months - was set off by a large-scale rebel assault on the government-held town of Marinka, about 30 kilometers (19 miles) west of Donetsk. The rebels, however, blamed Ukrainian forces for starting the attack.
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