The globally known analyst of geopolitical and financial cycles Charles Nenner, a man who has connected his name with successful predictions for major market movements, rings the alarm bell for the next great turmoil which, as he claims, is at the gates.
Charles Nenner has proven in the past that he often moves against the current.
When no one was interested in silver at 29 dollars, he was buying.
When a few months later the market had been overcome by enthusiasm and silver had skyrocketed to 120 dollars, he proceeded with sales.
Now, the analyst warns that the markets are entering a period of extreme reversals, with investors being called to prepare for major changes.
At the time when many analysts predict a skyrocketing of the oil price above 200 dollars a barrel, and even President Donald Trump has referred to such a possibility, Charles Nenner has a completely different view.
As he claims, his own cycles and analysis models show weakness in the crude oil market for the coming period.
"The strange thing is that, based on all my analyses, crude oil appears weak for the next year.
I am not sure what this means," he stated characteristically.
According to him, the global energy market may be led to a new balance, as countries that do not want to depend on the strategic passage of the Strait of Hormuz seek alternative solutions.
Charles Nenner claims that new infrastructures, pipelines and increased production from other countries could lead to a flood of oil supply, pushing prices lower.
"If the world believes that there will be an oversupply of oil from other countries, then the price will retreat.
There is only a small probability that oil will reach 101 dollars a barrel," he noted.
Precious metals
Despite the intense volatility that gold has presented, Charles Nenner estimates that the precious metal is near a turning point.
As he explains, the cycles he monitors show that the recent correction is approaching its end.
"The cycle of gold reached lower near 5,300 dollars per ounce. The cycles are now approaching their bottom. Soon there should be a new upward movement for gold," he stated.
He notes that the correction target he had set was approximately at 3,800 dollars per ounce and he considers that gold is starting to become attractive again with a horizon of 2027.
In fact, he estimates that the next major upward cycle of gold starts already from August.
For silver, Charles Nenner appears equally optimistic, despite the recent intense correction.
As he mentioned, the silver market was led to exaggerations when the cycle peaked at 121 dollars per ounce, as many investors remained trapped.
"Silver was a disaster, because we had a cycle peak at 121 dollars and we could not remove the people from the market," he stated.
However, he estimates that the precious metal is entering a new upward cycle and does not exclude a return to the previous highs of 120 dollars.
Alarm for stocks
The most dramatic warning of Charles Nenner concerns the stock markets.
The analyst claims that today's stock market cycles present alarming similarities with the period before the 1929 crash.
"The cycles of 1926 and 1927 align as happened before the crash of 1929.
We are almost in August and major investors have time to become very defensive.
I want to repeat my prediction for a very large drop in the stock market," he warned.
His estimation comes at a period where the valuations of many markets are at historically high levels, while concerns about interest rates, debt and geopolitical tensions remain intense.
Charles Nenner appears particularly cautious towards the banking sector and the real estate market.
He recommends increased caution and favors the retention of cash, warning that losses may appear in major banks that until today have not become widely known.
"Real estate is a bad investment. I know large pension funds that have properties in New York and are selling them at a loss. Other banks have losses and no one is talking about them yet," he emphasized.
And he added: "There are many things happening and the average person does not know them. I know this because I work with these people and things do not look safe. I believe that we may have a banking crisis."
The predictions of Charles Nenner constitute one of the most pessimistic scenarios for the markets, as they combine a possible drop in the stock markets, turbulence in the banking sector and large changes in the commodity markets.
If his estimates are confirmed, the coming months could constitute a period of intense testing for investors, banks and global economies.
A 26 trillion dollar crash is erupting, a disgraceful pyramid will destroy the banks
In parallel, according to the Levy Economics Institute eighteen years after the greatest financial crisis of modern history, the global economy appears to be walking on a minefield again.
But not where everyone expects.
It is not the banks, nor the government bonds, not even the stock markets that concentrate the greatest risk today.
The real time bomb is located in the shadow market of Private Markets, a space that has swelled explosively in recent years and now manages capital that exceeds 26 trillion dollars.
According to the extensive analysis of the economist Éric Tymoigne of the Levy Economics Institute, the global financial system is reproducing almost one by one the same pathogens that led to the collapse of Lehman Brothers and to the Great Recession of 2008.
The only difference is that this time the problem is located far from the spotlight, in a market much less transparent and much more difficult to control.
After the crisis of 2008 the banks found themselves faced with stricter regulations and increased capital requirements.
The gap that was created in the financing of small and medium enterprises was rushed to be covered by the private equity funds and the private debt funds.
Their growth was rapid.
Today private equity manages approximately 24 trillion dollars, while private debt funds another 2.6 trillion dollars, creating a massive parallel banking mechanism, which operates with much less supervision compared to the traditional banks.
The problem, according to Éric Tymoigne, is not only the size of this market.
It is the way in which it is developing.
All the practices that led to 2008 are returning
The economist identifies a series of extremely alarming developments.
Credit criteria are relaxing.
Credit ratings are becoming increasingly lenient.
The real leverage is concealed through complex financial structures.
The valuation of assets is based on models and not on real market prices.
Companies are refinancing even the interest on their loans instead of paying them.
In parallel, the regulatory authorities in the US are promoting deregulation, limitation of audits and a significant relaxation of supervision.
As Éric Tymoigne notes, all these dangerously resemble the environment that prevailed shortly before the outbreak of the financial crisis of 2008.
Perhaps the most alarming development is the attempt of the large investment groups to open the private markets to retail investors.
Companies such as Blackstone, Apollo, KKR and BlackRock claim that private investors should gain access to investment products that until today were intended only for institutional managers.
The argument is that in this way savings will be directed to productive investments with higher yields.
Éric Tymoigne sees exactly the opposite.
In his view, the influx of massive quantities of new capital will inevitably lead to further relaxation of credit criteria, as the funds will constantly seek new borrowers to place the money of the investors.
Thus a vicious cycle is created that fuels ever greater risks.
The ratings that become better on demand.
Particular concern is caused by the extensive use of the so-called Private Letter Ratings (PLRs).
These ratings are not made public and often end up presenting a much lower risk compared to the conventional ratings.
According to data cited by Éric Tymoigne, in 97% of the cases the companies received a better credit rating through the PLRs.
The result was that insurance companies drastically reduced their capital requirements, gaining access to even larger high-risk investments.
Another characteristic of the private markets is that they are investments which, by nature, cannot be easily liquidated.
However, the market has created a series of complex financial structures that promise investors that they will be able to exit relatively easily.
Continuation Vehicles, secondary private loan markets, special investment vehicles and securitizations create the impression that there is abundant liquidity.
According to Éric Tymoigne however, this is an illusion.
The liquidity is maintained only as long as new investors constantly enter who buy the assets of the previous ones.
The new Ponzi of the global financial system
The analysis of the Levy Economics Institute uses a particularly heavy characterization.
It claims that a significant part of the private debt market now operates with Ponzi Finance characteristics.
Many businesses do not essentially service their debt.
Instead, they continuously borrow new capital to pay interest and to refinance their previous loans.
This process can continue only as long as the asset values increase and as long as there is a continuous influx of new capital.
If the valuations stop rising or the investors start withdrawing, the entire chain is in danger of breaking within a minimal period of time.
Éric Tymoigne also gives special weight to the Level 3 type valuations.
These are valuations that are not based on real transactions but on mathematical models and assumptions.
This means that the real values of many investments may be significantly lower than those that appear on the balance sheets.
If the markets are forced at some point to value these assets at real prices, the losses may prove massive.
The banks are already preparing
Some of the largest financial organizations in the world seem to have already perceived the growing risk.
According to Éric Tymoigne, banks such as JPMorgan, Barclays and Citigroup have started to develop risk hedging strategies through credit derivatives (Credit Default Swaps) that are related to large private market funds such as Apollo, Ares and Blackstone.
This move is interpreted as an indication that even top players of Wall Street consider a serious episode of turbulence in the space of private markets probable.
Éric Tymoigne is not limited to criticism towards the markets.
He also attributes significant responsibilities to the American authorities.
He claims that in recent years audits are being reduced, supervisory organizations are being weakened, prosecutions for financial crimes are being limited and the perception that the markets themselves can self-regulate is being reinforced.
According to him, history has already proven that this logic failed before 2008 and is in danger of failing again.
The scenario of the great domino
If the system begins to collapse, the transmission mechanism can be extremely violent.
The fall of the valuations will make the refinancing of the businesses difficult.
The downgrades of the credit ratings will accelerate.
The investors will massively seek liquidity.
The private funds will be forced to sell assets.
The pressures will be transmitted to the banks, to the insurance companies, to the pension funds and ultimately to the public markets.
The result could strongly resemble the dynamic that followed the collapse of Lehman Brothers.
Éric Tymoigne does not claim that the private markets already constitute a systemic threat.
But he warns that all the conditions for the creation of a new major financial crisis are gradually gathering.
The increasing leverage, the non-transparent valuations, the securitizations, the continuous refinancing of the debt, the relaxation of the credit criteria and the expansion of the private markets towards the retail investors create, as he mentions, a flammable mixture that can act as a catalyst of the next major crisis.
His main conclusion is clear: as long as the markets continue to rely on the perpetual influx of new capital and on the belief that the prices of assets will rise forever, so the risk of an abrupt reversal increases.
And when the "music" stops, as the former head of Citigroup Chuck Prince had prophetically warned, the exit might prove too narrow for everyone.
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