Pozsar: “We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis”
In his latest not published late on Friday, the Credit Suisse strategist Zoltan Pozsar admits that “Yes, we got central banks’ need to step in to calm funding market pressures this week wrong (still no need yet)” but he counters that “we got the direction of spreads right – on February 24th we warned about an imminent sentiment shift in funding markets. There was no premium last week but there is some funding premium now, and it feels that things can get worse still.” So net-net, he concludes, “our call was absolutely right.”
But how was he “absolutely right” if the funding squeeze he predicted did not materialize? Well, as Zoltan explains in the bulk of his note, what is happening right now is something that nobody really understands, and what is yet to happen may be a combination of the worst parts of the 2008, 2018 and 2020 crises, as a result of one thing: the collapse of commodity-based collateral (something China understands very well after it learned – on more than one occasion – that its thousands of tons of its commodity stockpile, especially copper and aluminum, had been rehypothecated, i.e., used as collateral repeatedly).
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What is important in the above statements?
the collapse of commodity-based collateral
Replace commodity-based collateral with paper gold. What happens if Russia and China release a digital blockchain currency based on their central banks’ gold reserves? The physical gold supplies in the West have been rehypothecated on a much larger scale than what happened in China’s commodity collapse. While the true paper to physical gold is not known, it is over 100:1.
Consider the following information:
What Does a Dollar or Federal Reserve Note Represent?
What does a dollar or Federal Reserve note represent now that gold and silver no longer back any of the currency printed in the U.S.?
A dollar bill used to say “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.” Look at a dollar bill today. It simply says; “This note is legal tender for all debts, public and private.” In other words, you can’t redeem it for “lawful money.”
Guess what folks? A dollar bill is not lawful money, but rather “legal tender.”
As I write this, the US national debt is $30.3 trillion.
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The current S&P500 10-year P/E Ratio is 34.5. This is 72% above the modern-era market average of 19.6, putting the current P/E 1.8 standard deviations above the modern-era average. This suggests that the market is Overvalued.
https://www.currentmarketvaluation.com/models/price-earnings.php
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http://www.shadowstats.com/alternate_data/inflation-charts
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As I write this, gold broke $2000/ounce tonight, oil is $139/barrel and the stock futures are down 400 points.
What is important is not the above information. What is important is what you will do when your life savings are wiped out in an instant. You may have cash but it will not be fungible. You will find yourself in a barter economy where people who had the foresight to prepare will have no reason to barter with you for anything.
Good luck and return to the Lord.
David DeGerolamo
