What’s Coming Will Be Much Much Worse Than 2008!

• What’s Coming Will Be Much Much Worse Than 2008! 
  by Phoenix Capital Research, http://www.zerohedge.com/ 
  Last week we touched upon the “white elephant” in the room: that the biggest, most important bubble investors should worry about is in bonds, NOT stocks. Consider the following…
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  The financial system is based on debt. US Treasuries, the benchmark for an allegedly “risk free” rate of return, is the asset against which all other assets are priced based on their relative riskiness. This “risk free” rate has been falling steadily for over 25 years.
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  The Wall Street Journal estimates that a third of traders have never witness a rate hike. However, the real problem is far greater than this.
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  Bonds have been in a bull market for over 30 years. Forget rate hikes… an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper.
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  This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital.
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  The ultimate example of this is the derivatives market, which is now over $700 trillion in size. This entire mess is backstopped by about $100 trillion (at most) in bonds posted as collateral.
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  This formula of ever increasing leverage works relatively well when the underlying asset backstopping a trade is rising in value (think of the housing bubble, which worked fine as long as housing prices rose). However, if the asset ever loses value, you very quickly run into trouble because you need to post more as collateral to backstop your trade. If you can’t do this easily, the margin calls start coming and you can find yourself having to unwind a massive position in a hurry.
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  This is how crashes occur. This is what caused 2008. And it’s what will cause the next crisis as well.
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  read more!

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