Wednesday, September 18, 2013

Are You Sure You Understand What Your Financial Advisor Has You Invested In?

“This looks like to me like 2007 all over again, but even worse,” said William White, the BIS’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.  - Article Link
That short article is a must-read, by the way.  For those who don't know, the BIS is the global Central Bank of Central Banks.  In the U.S., banks are supposedly supervised by the Fed (we know that's b.s. though).  But the Central Banks in each country are ultimately controlled by the BIS.  Some think the BIS is ultimately hidden "heart beat" of the global power structure.

The quote above is from a former chief economist of the BIS, who was there when the U.S. banking system hit the wall - a de facto collapse that was "stick-saved" by massive Fed printing and a  massive amount of Taxpayer dollars.  You can thank Hank Paulson, Tim Geithner, Ben Bernanke and Barack Obama for handing your tax dollars over the big banks.

At any rate, there were a couple of troubling indicators in that article that might directly affect any of you who have turned your retirement nest-egg over to your "trusted' financial advisor, in some cases probably someone who calls you a "best friend forever" (in the superficial sense, of course).  Truth be told, 90% of all of the financial advisors I've known in my time are nothing more that glorified car salesmen who somehow managed to pass some exams that I passed without studying and could have done in my sleep.

Here's the first extremely troubling thing - aside from the quote above - that Mr. White said:
The BIS said in its quarterly review that the issuance of subordinated debt -- which leaves lenders exposed to bigger losses if things go wrong -- has jumped more than threefold over the last year to $52bn in Europe, and jumped tenfold to $22bn in the US.
What's the big deal there?  You see that $22 billion of subordinated (i.e. risky) debt number for the U.S.  Who do you think funds that?  Most of that is funded indirectly YOU - either via your "safe" 401k bond fund or your "safe" IRA, in which your Einstein-esque BFF-advisor probably has told you he has you well-diversified into U.S. and European corporate bond funds.  Please see what happened to Drexel Burnham to understand what can happen to the price of subordinated debt - hint: it can go to near-zero.   And that number cited by the BIS, in the absence of any meaningful growth in anything other than the global money supply tells me that most of the subordinated debt that your portfolio is invested in is really just junk bonds in disguise.

Worried yet?  If not, this do the trick:
The share of “leveraged loans” used by the weakest borrowers in the syndicated loan market has jumped to an all-time high of 45pc, ten percentage points higher than the pre-crisis peak in 2007-2008...The BIS said investors are snapping up “covenant-lite” loans that offer little protection to creditors.
Let me translate that:  What it means is that the amount of low quality bank debt being issued by an expanding universe of risky companies is now at a level that is 10% higher than it was just before the financial collapse of 2008.  Think about that for a minute.  The "covenant-lite" adjective means that the bank debt and bonds that are being issued offer a lot less protection to investors in the event that the issuer (the company borrowing from you) gets into financial trouble.  By the way, in the search for yield, I can guarantee you that your bond portfolio has exposure to this debt.

In other words, the actual leverage - i.e. financial risk - embedded in the financial system, and therefore embedded in your "diversified, safe bond portfolio" is even greater now than it was in 2008 before the financial crisis hit.  Better think about that one a littler longer and harder.

Finally, Mr. White issued this warning - and it's something you will NEVER hear from your BFF-advisor because it's something that is well beyond his ability to intellectually comprehend - and even if he did he would assure you that it's not the case now:
Mr White said the five years since Lehman have largely been wasted, leaving a global system that is even more unbalanced, and may be running out of lifelines.
"Running out of lifelines."  There's no question we are almost at that point on the global collapse time curve.  The last remaining "lifeline" we be for the Central Banks to engage in outright hyper-printing of their respective currencies.  Oh wait, Japan is already doing that.  I may be wrong about this - and if I am  then it means our system here in the U.S. will soon completely collapse - but the U.S. Fed is probably not too far away from following Japan's footsteps with the printing press.  Or, as Ben Bernanke would say - in a perverted distortion of Milton Friedman's original proposition - "drop money from helicopters.

The engines on the whirly-birds are warming up, regardless of the what the FOMC announces today.  The ONLY way you can protect yourself is to load up on physical gold and silver that you safekeep in your own possession or with a money manager who keeps the gold outside of the banking and financial system.  Capire a tutti?


  1. Seems everyone is dealing with.....

    What Is a 'Credibility Trap'

    Groupthink rationalizes it, and the fear of ostracism and missing the big payday keeps everyone in line. And once you are part of this system, it owns you, whether you are a politician, a journalist, an economist, or a parasitic enabler. If you are in business, not to join in is a competitive disadvantage. Bad behaviour drives out the good.

    A credibility trap is when both parties pledges themselves to the monied interests, thereby putting the business of business ahead of the business of the people. The society becomes out of balance, and cannot bring itself to right.

  2. Daddy's Girl: How An African 'Princess' Banked $3 Billion In A Country Living On $2 A Day

    LAST DECEMBER Isabel dos Santos commemorated her tenth wedding anniversary to Congolese businessman Sindika Dokolo with a party. Subtlety wasn’t on the menu. She jetted in dozens of friends and relatives from as far as Germany and Brazil, who joined with hundreds of local guests in Angola for three days of lavishness, including a bash at the Fortress of Sao Miguel in the capital city of Luanda and a beachside Sunday brunch on the posh Mussulo peninsula. The invitation, according to one attendee, came in a sleek white box, promising a celebration of “a decade of passion/ a decade of friendship/ a decade worth a hundred years. …”

    A decade worth $3 billion is more like it. At 40 Dos Santos is Africa’s only female billionaire, and also the continent’s youngest. She has quickly and systematically garnered significant stakes in Angola’s strategic industries–banking, cement, diamonds and telecom–making her the most influential businessperson in her homeland. More than half of her assets are held in publicly traded Portuguese companies, adding international credibility. When FORBES outed her as a billionaire in January the government disseminated the news as a matter of national pride, living proof that this country of 19 million has arrived.

    The real story, however, is how Dos Santos–the oldest daughter of Angolan President José Eduardo dos Santos–acquired her wealth. For the past year FORBES has been tracing Isabel dos Santos’ path to riches, reviewing a score of documents and speaking with dozens of people on the ground. As best as we can trace, every major Angolan investment held by Dos Santos stems either from taking a chunk of a company that wants to do business in the country or from a stroke of the president’s pen that cut her into the action. Her story is a rare window into the same, tragic kleptocratic narrative that grips resource-rich countries around the world.

    For President Dos Santos it’s a foolproof way to extract money from his country, while keeping a putative arm’s-length distance away. If the 71-year-old president gets overthrown, he can reclaim the assets from his daughter. If he dies in power, she keeps the loot in the family. Isabel may decide, if she is generous, to share some of it with her seven known half-siblings. Or not. The siblings are known around Angola for despising one another.

    Finally, a representative of Mrs. Dos Santos said that any allegations of illegal wealth transfers between her and the government are “groundless and completely absurd.” That could well be. When your father runs the show, and can dictate which national assets are sold and at what price, what’s theft of public resources in one country can be rendered legal with a swipe of the pen.

  3. As a west coast resident I certainly have not forgotten about a very large sum of money that was supposedly to go to the chinese through the BIS. That did not happen and was held back or routed differently....the very same day a cruise ship in international waters gets hit with some issue, most likely and EMP weapon IMO. And the coup de grace......a cruise missle launched off our coast pointing out to sea. Which was then 'explained' as a flight from phoenix to hawaii.
    Of course our media couldn't explain the difference between a jet contrail and plume of exhaust from a launched missle. Having been employed in the defense industry it was all too obvious to me what we saw that early evening in 2010.

    Bureau of International Shit is a more apt title

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