The Same Warnings That Preceded the 2008 Global Financial Crisis Have Been Appearing Again

warning signs of coming global financial collapse

For the past year, we have been increasingly observing the same events that preceded the 2008 global financial crisis. Four months ago, the UK Guardian reported that a well-known mutual fund manager in the UK, Neil Woodford had blocked redemptions of his flagship Woodford Equity Income Fund after it lost £600M in valuation, including £187M in redemptions over a one-month period. At the end of June, Woodford told his clients that redemptions would be suspended until the end of July, and in July, he stated that they would be suspended until the end of August. Last month, he still had not lifted the suspension on redemptions, and informed his clients that redemptions would likely be suspended until the end of this year, at which time, his clients may very possibly collectively lose hundreds of millions more based upon their inability to liquidate their investments, as his fund has already plunged by another near 13% since he suspended all redemptions. And this is not an isolated case. In August, Argentine government officials announced that they were seeking to delay payments on $7 billion of short-term bills coming due by year-end, $20 billion of local-law bonds and $30 billion of foreign-law bonds. In addition, given the severe economic stresses on the Argentine economy, many of Argentina’s largest mutual funds had decided to block redemption to their funds, fearing a run of redemptions would cause the mutual fund share prices to collapse. In an article I wrote earlier this week on my blog, I discussed how a series of bank runs around the world have been happening this year, though not well publicized by the mainstream media.

And though these bank runs have been happening in developing nations for the most part thus far, this should not be reason for complacency against the materialization  of bank runs in  developed nations.  I still believe that the world’s largest global banks have not financially recovered since they were bailed out during the 2008 global financial crisis and that bank executives at the world’s largest banks are still using accounting tricks to disguise their poor financial health. In fact, in a recent post to my patrons, I discussed specific put option strategies on three stocks, one of which either yielded slight gains or ended up as break-even, and the two others that yielded returns of approximately 70% and 115% in a two-week timeframe. One of these shorts I suggested to my patrons was opening up a short position in Deutsche Bank stock on 18 September, at a specific suggested strike price and expiration date, after which the share price promptly tumbled by 14.5% to less than $7 a share, yielded big profits for this put option. My other suggested put option at a specific suggested strike price and expiration date, that yielded even larger profits than the very short-term Deutsche Bank put, was a put on CB Richard Ellis stock. (Since this guidance is no longer of value since it was provided on 18 September 2018, if you wish to take a look at this patron-only post, you may do so using the password: noExcuses822 to access it at this link.)

In any event, one of the reasons I suggested that my patrons consider a short position against Deutsche Bank shares on 18 September 2019 was because its stock had just soared by more than 30% over a few weeks’ time in antithesis to its continuing operational problems and poor quality assets, and its likelihood of becoming worthless in the future without another massive bailout or a miracle turnaround. The run on banks that I discussed above that happened in India, Ghana and China this past year is an event that we typically believe can never happen in developed nations, which only proves how quickly the memories of the 2008 global financial crisis have faded. Furthermore, bankers have been using the façade of “stress tests” for the world’s largest banks, and then have publicized the fact that banks passed their “stress tests” to sell the world on the delusion that everything is fine in the global banking system. For anyone that is truly interested in poring through the current shenanigans global bankers are employing on their balance sheets, here are the literally dozens of updates regarding accounting standards for US banks delivered by FASB (Financial Accounting Standards Board) since the 2008 financial crisis. As far as I can tell through a brief perusal of these updates, many items on banks’ balance sheets are still not being marked to market, so what good is an administered “stress test”, if they are administered on items at false valuations? For example, the ABA Banking Journal stated, “The final FASB classification and measurement standard” that was effective as of 2018 did “not require MTM (mark-to-market valuations) for loans or debt securities.”

Consequently, back in 2008, I predicted that a US Money Market Fund, typically believed to be the safest vehicle for which to park one’s savings in a bank, would “break the buck” before it happened later that year. So, don’t be surprised at some point after 2020, when a US MMF again breaks the buck and its NAV descends below $1 again, because I think such an incident is inevitable given the fragility of the global banking system at the current time.

J. Kim

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