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Asset Bubbles

Extend & Pretend: Hitting the Maturity Wall

In frank and disturbing terms, author Gordon T. Long proffers a more sanguine outlook than most would dare towards the looming debt bubble just ahead for the “developed” nations of the Western world. The tables provided below are just the tip of the proverbial  iceberg as they were compiled at research departments of firms considered to be the among the most market friendly stalwarts to be found anywhere- Morgan Stanley and S&P, firms not noted to date for groundbreaking truth-telling. So pardon me if I am pleasantly surprised that their analysis of top-line macro trends reported here are reasonably well-conceived and founded.

Their findings suggest that the mighty debt-rollover machine in place for years could be toast in the coming years. Why? Because there is presently a confluence of debt maturity in the next few years the likes of which have never been seen before by any society at any time in world history. This dilemma is all the more vexing because of two conditions that are presently not factored in by most “experts” because their models just won’t accept them. The first is an  acceptance that any and all debt at the sovereign level can always be rolled over and the next is that these global central bankers can effectively contain the so-called bond vigilantes. I expect soon they will finally call their bluff on the ponzi scheme at the root of the modern fiat currency system effected through exponential expansion of intangible paper assets that is the the modern day monster roaming the countryside. Believe in their ever-living autocracy at your peril, my friends. These evils- fiat currency and the Fed reserve system of leverage are doomed.

But why will it come to pass now when these conditions have been in place for so many years- why now?  Just look at the numbers. The data included here reveals that over $14 trillion in junk debt needs to be rolled over between late 2011 and late 2014.  Modern or ancient capital markets have never faced such a daunting challenge with so much debt maturing in such a narrow window. Author Long refers to this narrow window as the “maturity wall”, and surely no such wall in history has ever been scaled.

Further compounding this dilemma is the very nature of the securities that must be re-financed in the short term. Almost all of the maturing debt could be considered to be junk- even Us govt bonds whose maturities exceed one year. So not only is there so many trillion maturing in such a tight window until 2014, but consider that it’s mostly junk. Once the tipping point is reached and the gig is up, the default rate on this junk debt could mushroom in a very short period. There is just not enough savings or hard currency reserves in the world to absorb the voracious risk appetites of the bankrupt sovereign nations in the west nor the debt laden corps or individual speculators who have all been living beyond their means for so long.

I could go on in making the case, but that would take away from the great work done here by author Gordon T. Long. Read on and ask yourself just one question to your heart- if these numbers are even remotely accurate, don’t you think the capital markets will soon (finally) price in what is so evident to most of us? Remember that debt maturity schedules do not lend themselves to hyperbole but instead to a sheer reality unlike what most would prefer. I would just like to suggest that our readers take full stock of this “maturity wall” author Long refers to and ask themselves in their hearts if they think it can be contained. He points out that one very large pool of capital once available can no longer be counted on as a source of liquidity- the once mighty shadow banking system. How ironic that it’s demise, which is no doubt good on balance, could possibly now be revered for its ability to provide stopgap funding for endeavors now known to be ross mal investment largely responsible for the mess that still stinks today?

If and when these sovereign defaults begin to occur, when will the capital markets begin to forward price the looming bubble? In recent years we have seen the widening of credit spreads for cos believed to be on the brink (i.e. Bear Stearns, Lehman) became a self-fulfilling prophecy once the ball got rolling. It seems likely to me that any sovereign default would likely take on the same “ death spiral” attributes of the past doomed deals.

And if so, I suspect this so-called “maturity wall” could detonate much sooner than it’s projected 2012-2014 date if investors smell the slightest whiff of a “managed default”.  That could never happen, right? Right?

MUST READ! Extend and Pretend: Hitting the Maturity Wall


I found this article by noted bear Marc Faber to be a wonderful narrative on the fragile nature of stock bubbles. They are fueled by the same features evident today in the US and global financial markets – easy money from fiat currency, complacency and greed on behalf of an ignorant public, and the slick money-changers (banksters) directing it all. Not much has changed in 300 years except the scale upon which the fraud is perpetrated.

Faber traces the two great bubble frauds of the 18th century- John Law’s Mississippi Scheme and the Great South Seas bubble and how easily so many investors were duped. Amazingly, both happened at the exact same time yet were completely unrelated. Why? Because they both occurred at the tail end of the economic winter of the last grand super-cycle (early 18th century). These weren’t ordinary bubbles- they both began and ended in just a few years, soaring 10,000% before imploding in 1720 with 100% losses to all investors holding the bag. What happened?

Simple, Faber says- confidence dried up in a matter of days. Panic selling of shares lead to a classic death-spiral where the selling pressure fed on itself. A tipping point had occurred – a voila moment – when most everyone knew the scheme was unsustainable. Of course, before the crash, anyone dissenting publicly about such a scheme was ridiculed as a fool as public sentiment about these schemes was in lockstep with herd mentality. But much like every other fiat currency ponzi scheme in history, these imploded faster than anyone could have imagined. Read on to see just how eerily similar the circumstances of the bubbles of this period were to our present condition. It will then be easier to see why bubbles built during the tail ends of grand super-cycles are so much greater and extravagant. Given that under the K-Wave theory we are now also at the end of another grand super-cycle, is it a stretch to believe we may soon see 1720 all over again? Hardly.

MUST READ!! The South Sea Bubble and Law’s Mississippi Scheme

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