"Low Volatility Everywhere" - BIS Sounds Alarm Alert On Pervasive Complacency Masking Systemic Shocks

by Tyler Durden

Here comes another BIS report, and another stark warning by the central banks' central bank, the Bank of International Settlements, best known for selling gold at key inflection points, that not only are asset prices are at "elevated" levels but that market volatility remains "exceptionally subdued" thanks to ultra-loose central bank policies around the world. In other words: pervasive complacency boosting the asset bubble to unseen levels and masking the threat of systemic shocks.

First, a flashback: this is what the BIS warned back in June 2014.

"... it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.... Despite the euphoria in financial markets, investment remains weak. Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions.

As history reminds us, there is little appetite for taking the long-term view. Few are ready to curb financial booms that make everyone feel illusively richer.  Or to hold back on quick fixes for output slowdowns, even if such measures threaten to add fuel to unsustainable financial booms. Or to address balance sheet problems head-on during a bust when seemingly easier policies are on offer. The temptation to go for shortcuts is simply too strong, even if these shortcuts lead nowhere in the end.

This follows a just as solemn warning back in June 2013, when it warned that the monetary Kool-aid party is coming to an end:

Can central banks now really do “whatever it takes”? As each day goes by, it seems less and less likely... Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. If there were an easy path to that goal, we would have found it by now.

Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment. 

Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity. 

Continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system.

Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure...in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits.

Which brings us to today, and the just released latest quarterly reviews, whose topic is summarized by the title of the chart below:

In today's release, instead of discussing leverage, or asset levels, this time the BIS' take on the global asset bubble, the same one decried by Deutsche Bank last week, is by way of collapsing volatility: i.e., the #1 specialty of the VIX-selling team at Libery 33, where Kevin Henry is such an instrumental part. Some exceprts:

After the spell of volatility in early August, the search for yield – a dominant  theme in financial markets since mid-2012 – returned in full force. Volatility fell back to exceptional lows across virtually all asset classes, and risk premia remained  compressed. By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to support elevated asset price valuations and  exceptionally subdued volatility.

Here, in addition to pointing out the obvious, the BIS highlights something that everyone else has been scratching their heads over: how with a world on the edge of war the global markets are just shy of all time highs:

Increased geopolitical stress had surprisingly little effect on energy markets. In  the spot market, oil prices actually fell by around 11% between end-June and early  September (Graph 1, right-hand panel). Market expectations for oil demand were revised down, largely on disappointing growth in the euro area and Japan. Incoming data from China were mixed, with that country’s manufacturing PMI registering an 18-month high in July, but falling back in August. All in all, demand factors seemingly offset concerns over potential short-run supply disruptions.

So how does the BS explain this paradox? Simple: hopes for even more easing, this time from the ECB:

The spell of market volatility proved to be short-lived and financial markets resumed their rally soon afterwards. By early September, global equity markets had recouped their losses and credit risk spreads once again consolidated at close to historical lows. While geopolitical worries kept weighing on financial market developments, these were ultimately superseded by the anticipation of further monetary policy accommodation in the euro area, providing support for asset prices.

In other words, central banks are now perceived to be more powerful even that the threat of regional or not so regional war.

Yet the core BIS' warning this time is one about complacency, as Reuters notes: "There were several references in the report to the "extraordinarily" and "exceptionally" low levels of volatility, suggesting the BIS feels markets may be getting too complacent and therefore vulnerable - and therefore ill-equipped to a shock."

To summarize: the bank that supervises all central banks has first warned about new and disturbing all time highs in leverage, then a global asset bubble driven largely by companies investing in stock buybacks instead of growth, and now about widespread unsustainable complacency. Surely this reiteration of everything that Zero Hedge has been warning about for years should be sufficient to send the e-mini comfortable above 2000 as soon as futures are open for trading.

Finally, here are the key BIS charts:

Finally, a quick annotation by us on one of today's key BIS charts showing when and where things changed:

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Why U.S. Equities Are Hitting All-Time Highs

by Roman Chuyan

The U.S. equity market has continued its uninterrupted bull run for three years in a row. The last significant correction occurred in July-October of 2011, and was -18% from peak to trough.

Source: Ycharts

This has been especially surprising to some observers given all the geopolitical problems around the world. Triggered by several armed conflicts (Ukraine, Gaza, the ISIS) the recent dip in stocks in July-August nonetheless ended up being minor - just -3.9% from peak to trough. Equities recovered strongly in August, with the S&P 500 (NYSEARCA:SPY) up 3.95% in the month (a total return of 9.9% YTD), reaching new all-time highs and crossing the psychologically-important 2000 level.

Audiences are bombarded with bearish opinions by the financial media and on the web (including here on Seeking Alpha), while we rarely see a bullish one. This is a known phenomenon - people react more strongly to bad news than good. The media, that are in the business of attracting and engaging the broadest audience possible, know this. As the old newspaper men used to say, "when it bleeds, it leads." Bearish voices get louder during market declines, as it did in August when perma-bears ranging from Marc Faber to Jim Grant, to Peter Schiff, were featured in the financial media to present their always-bearish cases. While bearish opinions get all the prominence in the media, the case of strong economic fundamentals gets little notice.

Economic Fundamentals

But why are U.S. stocks doing so well? It's because U.S. economic fundamentals are very strong - I provide just a few examples below. Fundamentals drive markets, not geopolitics.

At Model Capital Management, we monitor over 20 fundamental factors that influence equity index returns, according to our tactical investment research. We categorize these factors into Economic, Valuation, and Market groups. In this article, I cover some of the purely-economic factors. I will write about non-economic fundamentals that belong to Valuation and Market groups in a follow-up article, so please stay tuned.

Durable Goods Orders surged 22.6% in July to $300.1 billion, according to the Commerce Department. This was by far the sharpest monthly increase, and the highest monthly order volume, in the history of the series, dating back to 1992. Orders were fueled by aircraft and automobiles; excluding transportation, orders are still close to an all-time high (see chart).

Source: Commerce Department

Employment was slow to recover from the Great Recession. But it has now not just recovered - it is, in fact, quite strong, both historically and compared to other developed economies. Initial jobless claims are at 304,000 (on a 4-week-average basis). In the past 40 years, claims reached this low level only three times: in 1988, in 1999-2000, and briefly in 2006 (see chart). Unemployment rate lags jobless claims; it took some time to for it to recover to the current level of 6.1%, as it did after the previous severe recession of 1981-82. However, with claims this low and with strong job openings, it's only a matter of time before unemployment and workforce participation rate recover as well.

Consumer sentiment and spending are healthy as well. For example, a measure of Consumer Sentiment just released today rose to 84.6, the second-highest monthly reading since 2007 (after July-2013). Of course, not all is perfect yet in the economy, which the bearish observers are quick to point out - income and unemployment rate are lagging (as they typically do). We must be realistic - it's a process that takes time. The strength in most areas of the economy (housing, jobless claims, job openings, consumption) should lift those lagging factors over time.

Based on fundamental factors, our tactical investment management models expected strength in U.S. equities all of this year, which gave us at Model Capital confidence to keep our portfolios in full risk-on position - and they did well. While data may change at any time, our models expect strength in U.S. equities to continue in the near term. Based on that, we recommend to overweight U.S. equities and underweight bonds. Allocate the maximum amount allowed by an investor's risk tolerance (or institution's investment policy) to broad U.S. equities - example ETFs are SPY, the Vanguard Total Stock Market ETF (NYSEARCA:VTI), and the iShares Core S&P 500 ETF (NYSEARCA:IVV). We also currently recommend an overweight to Growth factor (the iShares S&P 500 Growth ETF (IVW), the Guggenheim S&P 500 Pure Growth ETF (RPG), and the PowerShares QQQ Trust ETF (QQQ) are some examples).

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Low volatility is a sign of high risk-taking, BIS official says

By Steve Goldstein

WASHINGTON (MarketWatch) — Low volatility and compressed risk spreads are signs of high risk-taking, a Bank for International Settlements official said as part of the group’s quarterly review.

The BIS is often referred to as a central bank for central banks, and it’s been warning for years of the dangers of very low interest rates.

The chart above shows the implied volatility of the S&P 500, Euro Stoxx 50, FTSE 100 and Nikkei 225, weighed by market cap.

“A common mistake is to take unusually low volatility and risk spreads as a sign of low risk when, in fact, they are a sign of high risk-taking,” said Claudio Borio, head of the monetary and economic department at the BIS.

“It all looks rather familiar. The dance continues until the music eventually stops. And the longer the music plays and the louder it gets, the more deafening is the silence that follows.”

Borio told reporters that volatility is low because of “muted uncertainty” about the economic outlook and unusually accommodative monetary policy. “People may not necessarily like what they see, but they seem to think they see it more clearly,” he said. Borio added that the last time uncertainty was this low was in 2007 — just before one of the largest forecast errors the economics profession has ever made.

Debt issuance has picked up markedly from companies headquartered in emerging market countries, the BIS notes.

Hyun Shin, an economic adviser and head of research at the BIS, says there’s good and bad in that development.

“On the one hand, developing countries have large capital needs, so mobilizing the savings of the rich countries to harness these opportunities is clearly welcome,” he said. But leverage also has increased significantly.

Emerging-market companies also have extended the maturity of their obligations.

“Yes, the share of debt to be refinanced every year has fallen, but longer maturities make fixed rate bonds more sensitive to interest rate movements, which makes them riskier for investors,” he said.

There’s evidence of “herding” by asset managers in asset markets. Widespread benchmarking and short-term performance assessment limit the willingness of portfolio managers to depart from the norm.

During last year’s taper tantrum, retail investors withdrew from funds when prices were falling and re-entered when prices were rising. That forced funds to do much the same.

The BIS took a look at house prices across several countries. Based on comparing prices to income and rent, Canada could see a reversal or a slowing in growth, and Belgium and France could see a further deterioration.

At 17%, the U.S. is near the top in terms of real house price growth over the last three years. Spain, by contrast, has seen a 21.5% slide.

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It's Hard To Ignore George Soros' SPY Put Position Anymore

by David White

George Soros is a multi-billionaire hedge fund manager. He is perhaps most famous for his role in the Quantum Fund - a fund he established in 1969. A $1000 investment then would have made you $4 million by 2000. This fund has been one of the most successful hedge funds in history, and George Soros has the consequent reputation as a pre-eminent money manager.

On August 15, 2014, MarketWatch reported that Soros Fund Management had increased its put position on the S&P 500 (NYSEARCA:SPY) from 1.28% of its holdings to 4.79% in Q1 2014. It had then roughly tripled that in Q2 2014 to 13.54% of its holdings. According to Whalewisdom.com, Soros' put position in the SPDR S&P 500 ETF amounted to 16.6513% (about $2.21B) of his total portfolio value of $13.27B as of June 30, 2014. It is Soros' top portfolio holding. George Soros doesn't usually make bets this big on a whim and he has historically been correct on a lot of his big bets. Investors should consider following his example. Such a bet would provide a hedge against a large downside move by the US equities market, which many are increasingly worried is coming.

Since I am sure a few readers will ask about Soros' new positions on June 30, 2014, the major new ones are: CONSOL Energy Inc. (NYSE:CNX) - 1.7664%, Google Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) Class C - 0.8431%, Level 3 Communications Inc. (NYSE:LVLT) - 0.5914%, Time Warner Cable Inc. (NYSE:TWC) - 0.491%, and New Oriental Education & Technology Group (NYSE:EDU) - 0.4823%.

Back to the main topic. Soros seems to be sure that the S&P 500 will eventually fall dramatically. His actions have been a doubling down at each new interval recently. Will this mean he is definitely right? No one could say that for sure. However, the S&P 500 has not had a strong pullback since July 18, 2011-August 15, 2011. The bull market has been in effect since early March 2009. That's about 66 months. The average length of a bull market since 1871 has been 67 months. The median length has been only 50 months. We are starting to become very overdue for a bear market. The median bear market drops about 38% in roughly two years. Soros may be planning on this. He may be planning on just a strong pullback, which also seems overdue.

Soros may also play both of the above possibilities. That is, he may take some profits if he gets a strong pullback before he gets a bear market. For instance, many pundits feel that we are overdue for a strong pullback; that could occur almost immediately. However, many feel that a bear market will not start until after the midterm elections. They feel that the politicians will not allow that. After the midterm elections, there would likely be the Christmas rally. That is something that has been historically hard to stop. Then, there is typically a small cap rally in January. However, if the overall market performs poorly in January, that often signals a bad year. Such a signal could easily be the start of the bear market that is increasingly overdue. It is easy to see Soros' logic. It may be wise to hedge the market to the short side along with him at this point. Besides you would be getting short at a point where he has already doubled down twice. Your odds of success should then be better than his.

I am suggesting following Soros, but it is not just his reputation or just the long in the tooth bull market that makes me think he may turn out to be right. The following are further indicators that we may see a negative turn in the market soon:

1. The margin debt level for the NYSE is incredibly high. When the selling starts, there may be a huge rush to the door and prices may overshoot to the downside due to the large amount of fear that the rush to the exit engenders (see chart below).

2. As investors can see, the large negative credit balances have marked the ends of the previous two bull markets rather dramatically. The current negative credit balance is notably bigger than either that of the tech bubble or that of the pre-Great Recession bubble. We may see a dramatic fall. I'm sure Soros has seen this chart or one like it.

3. The CAPE (Cyclically Adjusted PE) for the S&P 500 is abnormally high at 26.27 as of September 12, 2014. The mean is 16.55 and the median is 15.93, so the current reading is significantly higher than normal. This indicates that the S&P 500 is over priced. It needs to sell off for many investors to think they are getting a bargain when they buy.

4. The US GDP growth rate for Q2 2014 was 4.2%; but for Q1 2014, it was only -2.1%. This averages out to a weak GDP growth for 1H 2014 of +1.05%. Many expect growth in 2H to be as high or higher than the Q2 2014 growth, but the Trading Economics figures are lower than that at +3.0% for Q3 2014 and +2.8% for Q4 2014. Further these are just forecasts. The actual numbers could easily underperform (or outperform) the forecasts.

5. Russia is in a recession, according to the IMF, and the increasing sanctions by the EU and the US over the situation in the Ukraine are only likely to make that recession worse. Further Russian retaliatory sanctions against the US and the EU are bound to hurt both of those economies as well.

6. The final Chinese HSBC/Markit Purchasing Managers' Index (PMI) fell to 50.2 in August 2014. This is almost to the contraction point of less than 50.0. The August Chinese PPI was -1.2% year over year. This was slightly worse than expected and a negative value is usually interpreted as a sign of a slowing economy. Reinforcing this thesis was the Chinese Industrial Production year-over-year gain of only 6.9% for July 2014 compared to the previous month's 9.0% gain. The Foreign Direct Investment year over year for July was also down -0.4% - the first fall in 17 months.

7. If China's economy slows too much, there is the very real possibility of a massive credit crisis in China. I have seen estimates for bad debts as high as $4T; but they may be much more. For instance, one report issued by the National Audit Office December 30, 2013 said that just the borrowing by provinces, counties, and townships reached roughly $3T as of June 2013. This was up 63% since the end of 2010 and it has surely gone up more since June 2013. Much of the Chinese "local government debt" is bad debt already. They have no way of paying it back. On top of this debt, there is the national debt, the business debts, and debts of individuals. The more the economy slows, the more debt will go bad. My estimate is that a critical level may be the 5%-6% GDP growth range for China. Chinese GDP growth was 7.5% in Q2 2014, which is still far above that. However, it is wise to remember that Chinese GDP growth was 10.4% in 2010 and it was over 10% for many of the years from 2003-2010. This allowed credit based on a 10%+ growth level to build up considerably, and China may be in for a severe credit crisis as its economy continues to slow. Plus don't forget it is the world's second largest economy. It is no longer some small isolated economy that the US can ignore.

8. The trouble in the Ukraine seems to be escalating rather than abating. Israel is having trouble with the Palestinians again. Iraq is in a state of Civil War, and Obama is now overtly helping the sitting Iraqi government with US air power. Many are starting to carp that he is starting a new war without Congressional approval. This is a bit of a fuzzy area for the moment. However, over the longer term, Obama probably needs Congressional approval and it is not clear he will get it. What will happen then? The uncertainty of this situation, even more than the possibility of another US war in Iraq (and possibly Syria), could derail the bull market.

9. Argentina defaulted on its debt.

10. Brazil may be in a new recession. Its GDP shrank -0.6% in Q2 2014, and its Q1 GDP growth was revised downward to -0.2%.

11. Italy is in recession again; and the 18-country Euro Area GDP growth was flat at 0.0% for Q2 2014. Portugal's Banco Espirito Santo needed a 4.9B Euro bailout. Austria's largest bank, Erste Bank, saw its stock crash after it revealed a 40% surge in bad debt provisions, which led to a -$2.2B loss. The IMF thinks Europe's financial sector has $2T in bad debt on its books, so there is probably a lot more bad news to come. Draghi's recent QE moves would seem to confirm this thesis. Then there are the roughly 25% unemployment rates in both Greece and Spain. Plus, youth unemployment in Europe is greater than 50% in Spain and Greece, and it is over 40% in Italy and Croatia. The overall picture is ugly; and the sanctions by Russia can seemingly only lead the EU further down the rabbit hole. If the EU economy goes into another recession, which it seems close to doing, that will in turn have negative effects on the US and Chinese economies.

12. There are many more economic data points that I have left out, but the above ought to be enough to give readers an idea of the perils of the current world economic situation. The above does not mean that the sky is falling. However, it does mean that investors need to keep a close eye on the world economic situation. It could deteriorate easily; and if it does, we could be in for some very hard times.

All told, the rationale behind Soros' bet on a down move in the S&P 500 seems sound. That doesn't mean we will get one immediately or even with the new year. However, it probably does mean that investors may want to start to hedge their portfolios as Soros is doing. If you decide to do so, keep in mind that he still has only 16.6513% of his portfolio in this negative bet as of June 30, 2014. It may be roughly $2.2B, but that is only because Soros manages a lot of money. Consider also that Soros may be averaging into his position. He has already doubled down twice. Meanwhile, the S&P 500 is up 8.86% for 2014 through the market close on Friday September 12, 2014. He has lost money on this bet thus far, but he is a seasoned investor. He does not believe he can time the market perfectly. Investors who decide to follow his strategy should keep in mind that they likely cannot time the market perfectly either. Their strategies should recognize that reality. Any put position should be long dated.

If you consider that a bear market is usually a 2+ year event, you should be able to find an appropriate strategy for you. A 38% fall from the recent SPY closing high of $201.11 would be to $124.69 per unit of the SPY ETF. If you don't believe this large a fall will occur, you can bet on a lesser fall. For instance, the SPY January 2016 $195 put options are $14.62. They would become profitable at any price below roughly $180. If you did a put spread, you might use $180 as the bottom. You could sell these $180 puts for $9.50, or you could sell the $170.00 puts for $6.98, etc. (to partner with the $195 puts you bought). The spread would cost you less than simply buying the $195 January 2016 puts, but it would also limit your profits.

Some people will just want to short the SPY ETF itself, but investors should keep in mind that they must pay the dividends (about 1.78% annually) on any SPY units that they are short. Plus, you will be losing money for all of the distance the SPY goes up. If you are sure of a downturn, this is not a huge issue. However, remember the old adage, "the stock market can stay irrational longer than you can stay solvent." With options your risk is at least defined. This is one reason some investors such as Soros prefer to use puts. Further, the options control many more shares with much less money. That allows Soros to still bet many things to the upside, while using options as downside protection.

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Buying Stocks Based on How Other People Feel

By Barry Ritholtz

One of my favorite pastimes is dissecting accepted Wall Street wisdom to see if it contains any value for investors or traders. Often, upon examination, the widely held beliefs turn out to be closer to magical thinking than financial acumen.

One of the more recent examples is the way some analysts use data on sentiment to determine how much an investor should allocate to equities. The problem is that the sentiment data is inconclusive and sometimes contradictory. There is no signal within the noisy data.

Sentiment is extremely difficult to use as an indicator because it is only rarely at the extreme readings needed to generate a reliable trading signal. Recall the March 2009 low, where every measure of sentiment was deep in the red. Or October 2002, by which time the Nasdaq Composite Index had fallen almost 80 percent from its high and everyone hated tech stocks. These extreme events are rare.

One of the analysts who has observed these phenomena for many decades is Laszlo Birinyi, formerly of Salomon Brothers, and now of Birinyi Associates. In this weekend’s Masters in Business interview, Birinyi describes why so many sentiment measures are worthless. There is no usable signal in the American Association of Individual Investors bull/bear survey, Birinyi says. Many other such polls also lack a consistent methodology or are otherwise flawed. They are useless to investors, he says.

Lately, I have been seeing a spate of articles and blog posts that try to make the claim otherwise. Many of these are either inconsistent in their understanding of sentiment or misstate the significance.

ZeroHedge is one such site. Known for its insightful analysis of derivatives and flash trading, its ventures into sentiment readings have been less successful during the course of the 200 percent rally in the Standard & Poor's 500 Index. But one recent post on the site contained a surprisingly bullish subtext. A post headlined “CNBC Viewership Plunges To 21 Year Lows” shed light on the persistent apathy of individual investors toward equities. High levels of investor attention to financial media often accompany market bubbles -- or crises.

Data confirm this lack of enthusiasm. The Federal Reserve’s Survey of Consumer Finance found that “only 48.8 percent of Americans held stock either directly or indirectly in 2012.” According to CNBC, this is the lowest level since 1995. The Wall Street Journal also noted that mutual fund investors were “stepping back” from U.S. equities.

There is lots of anecdotal evidence that suggests the markets have become too frothy and that sentiment has become too bullish. Lately, many bears who fought the tape the entire way up have abandoned the cause. As the Journal's blog Moneybeat reported, Gina Martin Adams, senior analyst at Wells Fargo Securities, threw in the bearish towel. This was months after Morgan Stanley’s Adam Parker capitulated. And longtime bear David Rosenberg famously turned bullish more than two years ago.

However, as the old saw goes, the plural of anecdote is not data. Until we can quantify what various strategists who have missed a huge rally turning bullish actually means to future market action, it's best to take all sentiment data with many grains of salt. No one has the ability to consistently forecast any of the inevitable market corrections (despite being told the trick). Instead, I have found it best to ignore the short-term action and concentrate on being on the right side of the long-term trend.

Rest assured, as soon those extremes in sentiment appear, you will be reading about them in this space.

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Vote YES On Scottish Independence – Scotland Finally Has A Chance To Get Free From The British

By Michael Snyder

Scottish voters finally have the opportunity to fulfill William Wallace's dream of a Scotland that is free and independent of England forever.  All they have to do is vote yes next week.  Without a doubt, a divorce from the British would be quite messy, and life would probably be more comfortable in the short-term if Scotland remains part of the United Kingdom.  But hopefully the people of Scotland are looking beyond short-term concerns.  Today, the United Kingdom is a horribly repressive Big Brother police state that is dominated by bureaucratic control freaks.  You can hardly even sneeze without violating some kind of law, rule or regulation.  And the London banking establishment is at the very heart of the debt-based global financial system which is enslaving so much of the planet.  Scotland finally has a chance to get free from all of this.  All it is going to take is a yes vote on Scottish independence.

It looks like it is going to be an incredibly close vote.  Recent polls show that the result could go either way.  Needless to say, this is causing the British establishment to freak out quite a bit.

For example, a couple of large banks have attempted to sway the vote during this past week by publicly declaring that they will have to move to England if the vote for Scottish independence is successful...

The Royal Bank of Scotland announced Thursday that it is making contingency plans to move its legal incorporation to England in the event of a “yes” vote. In addition, Lloyds Banking Group said it had made arrangements to establish “new legal entities” in England should voters in Scotland decide to sever ties with Britain.

And there have been lots of other warnings of "economic disaster" for Scotland if it does not remain part of the United Kingdom...

Standard Life, the pensions company, disclosed that it was planning to move part of its business to England to protect its customers, while BP and Shell backed expert predictions that North Sea oil will have all but run out by 2050. It also emerged that nearly $2-billion has flowed out of U.K. equity funds in the past two months amid heightened uncertainty over what separation would mean for the economy.

Honestly, it is probably true that there would be some short-term economic disruptions for Scotland.

But in the long run the Scottish would probably be in quite good shape considering how much of the North Sea oil they would own.  Just check out the following excerpt from a recent Bloomberg article...

The discovery of North Sea riches in the 1970s planted the seed of modern-day Scottish nationalism as supporters of independence cried “It’s our oil!”

Four decades later, nothing will be more important to the economic future of Scotland than the oil industry should the country vote to end the 307-year union with the rest of the U.K.

Reserves of oil and gas would be split, possibly along the so-called median line, already used to allocate fishing rights. The division would hand the Scots about 96 percent of annual oil production and 47 percent of the gas, according to estimates for 2012 by the University of Aberdeen’s Alex Kemp and Linda Stephen cited by the Scottish government.

What most British politicians won't tell you is that it would probably be the British that would suffer the most economically in the short-term and in the long-term.

In fact, if there is a yes vote for Scottish independence it is being projected that the value of the British pound will fall substantially and we could see a "negative shock" in British financial markets...

Adam Memon, the head of economic research at the Centre for Policy Studies, said: “The principal immediate threat would be to sterling and the stability of the financial markets. The recent selloff is a mere warning of what may come if the Scots actually do vote for independence.”

Threadneedle Investments said: “Given the constitutional and economic uncertainties attached to a potential break-up of the UK, a vote for independence would be likely to deliver a negative shock to UK financial assets and lead to meaningful currency weakness.”

And actually, the Scottish are not going nearly far enough with this vote for independence.  For example, according to Yes Scotland a newly-independent Scottish government would continue to have allegiance to the Queen...

The Scottish Government’s proposal is that the Queen remains Head of State in Scotland, in the same way as she is currently Head of State in independent nations such as Canada, Australia and New Zealand.

This would be the position for as long as the people of Scotland wished our country to remain a monarchy.

Speaking as an American, let me say that getting rid of the British monarchy has worked out exceptionally well for us.

Hopefully the Scottish people will make a similar decision sooner rather than later.

If Scotland does indeed end up voting for independence, it could give momentum to similar movements all over Europe.

Just this week, hundreds of thousands of Catalans took to the streets in Barcelona to demand the right to vote on independence from Spain...

Thousands of Catalans have rallied in Barcelona, Spain, demanding the right to hold a referendum on independence.

Participants, waving Catalan flags and wearing the flag's red and yellow colours, stood in a V-shape formation, indicating their desire for a vote.

Protesters were energised by Scotland's forthcoming independence referendum - and many also waved the Scottish flag.

The regional government has called a referendum for 9 November. The Spanish government says the vote is illegal.

Could we end up seeing a number of new nations emerging from the chaos that is about to engulf Europe?

This is clearly not what the establishment wants.  In fact, George Soros says that "this is the worst possible time" for Scottish independence.

That alone is a really good reason to vote yes.

Personally, I am rooting for the Scottish people on this one.  I truly hope that they are finally able to win their freedom.

The people of Scotland have been pushed around by the British for centuries.

Now they finally have a chance to stand up to the tyranny of London.

They finally have a chance to get free.

Let us hope that they take it.

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