Troubling Indicators

As long time readers know, we have some serious concerns about the fragile state of the banking system and its impact on the debt levels of many Western Democracies.
As such, we watch for of signs of improvement or decline in financial indicators. Our present assortment of gauges point to trouble with a capital T on the horizon:
Notice that the 50 day MA seems to be acting as an upper limit to the movement of the S&P 500 and that the slope is pointing steeply downward.
Note that the volatility index VIX has been elevated and that the 50 day MA has been tested twice and bounced upward. Increasing volatility is not a sign of improving health in the financial system or stock market.
The Treasury Euro Dollar spread (Ted Spread) is steadily rising. The Ted Spread is best described as a thermometer in the mouth of a patient. The temperature is rising and the patient is getting increasingly ill.
3 month LIBOR - the rate at which banks lend to each other - is another health indicator for our patient the banking system.
It is rising steeply, indicating the banks are trusting each other less and less. Not a happy thought.
The gold to long bond ratio (US 30 year bond). What does a rising ratio mean?
It means that gold, an asset that pays no interest or dividends, is outperforming the "safest" asset in the world, the 30 year US treasury bond that has about 3% yield presently.
I consider any reading above 10 to be in the danger zone. We are at 11.6 and rising, while we were as high as 13 plus a month ago.
This is equivalent to revving the engine of your car about 1000 rpm past the 6000 rpm redline to see how long it will last.
You don't get any more power out of the engine, but you might just blast a piston through the block!

So overall, not a very happy picture in the world of finance.

For further consideration, view the video from STRATFOR below and read their thoughts on a disorderly Greek exit from the Euro.

The following quote is from STRATFOR. Follow this link to a video about the European Crisis.
Enough states — including even Germany — could balk at the potential cost of the EFSF's expansion. It is easy to see why. Increasing the EFSF's capacity to 2 trillion euros represents a potential 25 percent increase by GDP of each contributing state's total debt load, a number that will rise to 30 percent of GDP should Italy need a rescue (states receiving bailouts are removed from the funding list for the EFSF). That would push the national debts of Germany and France — the eurozone heavyweights — to nearly 110 percent of GDP, in relative size more than even the United States' current bloated volume. The complications of agreeing to this at the intra-governmental level, much less selling it to skeptical and bailout-weary parliaments and publics, cannot be overstated.

If Greek authorities realize that Greece will be ejected from the eurozone anyway, they could preemptively leave the eurozone, default, or both. That would trigger an immediate sovereign and banking meltdown, before a remediation system could be established.

An unexpected government failure could prematurely trigger a general European debt meltdown. There are two leading candidates. Italy, with a national debt of 120 percent of GDP, has the highest per capita national debt in the eurozone outside Greece, and since Prime Minister Silvio Berlusconi has consistently gutted his own ruling coalition of potential successors, his political legacy appears to be coming to an end. Prosecutors have become so emboldened that Berlusconi is now scheduling meetings with top EU officials to dodge them. Belgium is also high on the danger list. Belgium has lacked a government for 17 months, and its caretaker prime minister announced his intention to quit the post Sept. 13. It is hard to implement austerity measures — much less negotiate a bailout package — without a government.

The European banking system — already the most damaged in the developed world — could prove to be in far worse shape than is already believed. A careless word from a government official, a misplaced austerity cut or an investor scare could trigger a cascade of bank collapses.
Stay well, and by all means continue with your personal preparations as we are not even close to being out of the woods from this banking crisis.


  1. Excellent post PWB!

    I have recently completed a transaction of buying a defensible property, complete with it's own water source(tested good), sanitary system, utility electricity, with backup by batteries, PV, and generator, and 2 heating sources that are completely independent of any utility.

    Also close geographically to real friends of like mind who have the ability, knowledge, and gumption to take whatever action needed in a Madmax world.

    This I think comes barely in time, yet now it is mine.

  2. Well done Steveo!
    My own "plan B" if you want to call it that, is also coming close to completion. It has taken longer than I expected, but at least there is a place to go if (when?)things really go to pot.



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