Corporate revenues in the United States have been falling for quite some time, but now some of the biggest companies in the entire nation are reporting extremely disappointing results. On Tuesday, Apple shocked the financial world by reporting that revenue for the first quarter had fallen 7.4 billion dollars compared to the same quarter last year. That is an astounding plunge, and it represents the very first year-over-year quarterly sales decline that Apple has experienced since 2003. Analysts were anticipating some sort of drop, but nothing like this. And of course last week we learned that Google and Microsoft also missed revenue and earnings projections for the first quarter of 2016. The economic crisis that began during the second half of 2015 is really starting to take hold, and even our largest tech companies are now feeling the pain.
This wasn’t supposed to happen to Apple. No matter what else has been going on with the U.S. economy, Apple has always been unshakeable. Even during the last recession we never saw a year-over-year decline like this…
Apple today announced financial results for the second fiscal quarter (first calendar quarter) of 2016. For the quarter, Apple posted revenue of $50.6 billion and net quarterly profit of $10.5 billion, or $1.90 per diluted share, compared to revenue of $58 billion and net quarterly profit of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. As expected, the year-over-year decline in quarterly revenue was the first for Apple since 2003.
I think that this announcement by Apple is waking a lot of people up. The global economic slowdown is real, and we can see this in iPhone sales. During the first quarter, Apple sold 16 percent fewer iPhones than it did during the same quarter in 2015. This is the very first year-over-year quarterly sales decline for the iPhone ever. Here are some of the specific sales figures from the Apple announcement…
Apple sold 51.1 million iPhones during the quarter, down from 61.2 million a year earlier, while Mac sales were 4.03 million units, down from from 4.56 million units in the year-ago quarter. iPad sales were also down once again, falling to 10.25 million from 12.6 million.
Once these numbers hit the wires, shares of Apple immediately began to plummet during after-hours trading. In fact, USA Today is reporting that Apple has already lost 43 billion dollars in market value since the annoucement…
Shares of Apple are getting hit roughly 8% in after-hours trading, tumbling to $96.67. They closed in regular trading at $104.35, or down 0.7%, putting them down 0.9% for the year. The downward move in after-hours trading means the company shed $43 billion in market value based on after-hours trading.
Meanwhile, shares of Twitter are crashing in after-hours trading after the social media giant also announced very disappointing results. The stock has now dripped below 16 dollars a share, and the company continues to lose tremendous amounts of money…
For all its other travails, Twitter is unprofitable. It narrowed its loss but still recorded a loss of $79.7 million, or 12 cents a share, compared with a loss of $162.4 million, or 25 cents a share, in the year-ago quarter.
Of course it isn’t just the tech giants that are troubled these days.
On Tuesday we learned that same-store sales for Chipotle declined by a whopping 29.7 percent during the first quarter, and appliance manufacturer Whirlpool has seen sales fall all over the planet…
Whirlpool, the world’s biggest appliance manufacturer, has become the poster child for the deep challenges facing multinational companies these days.
– Latin American sales plunged 22%.
– Revenue fell 8% in Europe, Middle East and Africa.
– Asia sales dipped 2%.
When is it finally going to sink in for most people? The global economy is slowing down significantly, and the next global economic crisis is already here.
Of course the oil companies are feeling more pain than anyone else. According to CNN, the crash in the price of oil has cost the 40 largest publicly-traded U.S. oil producers 67 billion dollars…
American oil companies are drowning in a sea of red ink.
The crash in crude oil prices caused a stunning $67 billion in combined losses by 40 publicly-traded U.S. oil producers last year, according Energy Information Administration research. And the bleeding is expected to continue at least early this year for many.
The losses surpassed $1 billion each from struggling oil companies like EOG Resources (EOG), Devon Energy (DVN) and Linn Energy (LINE) as well as SandRidge Energy (SD), the shale oil driller that recently admitted it’s exploring a bankruptcy filing.
That is an astounding amount of money.
These days we throw around terms like “millions” and “billions” so much that they almost lose their meaning.
But this is real money that we are talking about here.
You’ve got to remember that all of these governments and central banks all around the world have driven interest rates not just to zero, but to negative levels in some cases… and they are simultaneously printing up trillions of currency units. And even while they are desperately doing that the economy is falling apart in lots of different ways.
…They’ve created a super-bubble in bonds, a bubble in stocks, and meanwhile commodities have collapsed and are below production costs in many cases.
…The economy is going to be very, very bad… It’s the next stage of what I call the Greater Depression.
Whether you want to call it a “Great Depression”, a “Greater Depression” or “The Greatest Depression”, the truth is that we are heading into a period of time that will be unlike anything any of us have ever experienced before.
The greatest debt bubble in the history of the planet is starting to implode, and this time the central bankers and the politicians are not going to be able to put the pieces back together again.
But just like in 2008, the vast majority of the population will not recognize the warning signs until it is way too late.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
The Dow closed above 18,000 on Monday for the first time since July. Isn’t that great news? I truly wish that it was. If the Dow actually reflected economic reality, I could stop writing about “economic collapse” and start blogging about cats or football. Unfortunately, the stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even USA Today is reporting on it…
Get ready to step over some landmines, investors. The number of companies defaulting on their debt is hitting levels not seen since the financial crisis, and it’s not just a problem for bondholders.
So far this year, 46 companies have defaulted on their debt, the highest level since 2009, according to S&P Ratings Services. Five companies defaulted this week, based on the latest data available from S&P Ratings Services. That includes New Jersey-based specialty chemical company Vertellus Specialties and Ohio-based iron ore producer Cliffs Natural. Of the world’s defaults this year, 37 are of companies based in the U.S.
Meanwhile, coal producer Peabody Energy (BTU) and surfwear seller Pacific Sunwear (PSUN) this week filed plans for bankruptcy protection. Shares of Peabody have dropped 97% over the past year to $2 a share and Pacific Sunwear stock is off 98% to 4 cents a share.
A lot of big companies in this country have fallen on hard times, and it looks like bankruptcy attorneys are going to be absolutely swamped with work for the foreseeable future.
So why are stock prices soaring right now? After all, it doesn’t seem to make any sense whatsoever.
And it isn’t just a few bad apples that we are talking about. All across the spectrum, corporate revenues and corporate earnings are down. At this point, earnings for companies on the S&P 500 have plunged a total of 18.5 percent from their peak in late 2014, and it is being projected that corporate earnings overall will be down 8.5 percent for the first quarter of 2016 compared to one year ago.
As earnings decline, a lot of big companies are getting into trouble with debt, and we have already seen a very large number of corporate debt downgrades. In recent interviews, I have been bringing up the fact that the average rating on U.S. corporate debt has now fallen to “BB”, which is already lower than it was at any point during the last financial crisis.
A lot of people don’t seem to believe me when I share that fact, but it is absolutely true.
One of the big reasons why corporate debt is being downgraded is because a lot of these big companies have been going into enormous amounts of debt in order to buy back their own stock. The following comes from Wolf Richter…
Downgrades ascribed to “shareholder compensation,” as Moody’s calls share buybacks and dividends, have been soaring, according to John Lonski, Chief Economist at Moody’s Capital Markets Research. The moving 12-month sum of Moody’s credit rating downgrades of US companies, jumped from 32 in March 2015, to 48 in December 2015, and to 61 in March 2016, nearly doubling within a year.
The last time the number of downgrades attributed to financial engineering reached 61 was in early 2007. It would hit its peak of 79 in mid- 2007, a few months before the beginning of the Great Recession in Q4 2007. At the time, stocks were on the verge of commencing their epic crash.
When corporations go into the market and buy back their own stock, they are slowly cannibalizing themselves. But we have seen these stock buybacks soar to record levels for a couple of reasons. Number one, big investors want to see stock prices go up, and so big investors tend to really like these stock buybacks and will generally support corporate executives that wish to engage in doing this. Number two, if you are a greedy corporate executive that is heavily compensated by stock options, you very much want to see the stock price go up as well.
So the name of the game is greed, and stock buybacks have been fueling much of the rise in U.S. stock prices that we have been seeing recently.
However, the truth is that nothing in the financial world lasts forever, and this irrational bubble will ultimately come to an end as well.
Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between Jul-Oct 1998, when [Long-Term Capital Management] went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.
Like Hartnett, I definitely believe that a major “pop” is on the way, although I would like for it to be delayed for as long as possible.
Someday we will look back on these times with utter amazement. It has been absolutely incredible how the financial markets have been able to defy economic reality for so long.
In a new CNNMoney/E*Trade survey of Americans who have at least $10,000 in an online trading account, over half (52%) gave the U.S. economy as a “C” grade. Another 15% rated the economy a “D” or “F.”
This gloom persists despite the fact that the stock market is on the upswing again. The Dow topped 18,000 Monday for the first time since July 2015.
If some Americans think that the U.S. economy deserves a “D” or an “F” grade right now, just wait until they see what is in our immediate future.
Personally, I give our economy an “A” for being able to maintain our unsustainable debt-fueled standard of living for as long as it has. Somehow we have managed to consume far more than we produce for decades, and the largest debt bubble in the history of the planet just keeps getting bigger and bigger and bigger.
Of course we are very much living on borrowed time at this point, but I truly hope that the bubble economy can keep going for at least a little while longer, because nobody should want to see what is coming afterwards.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
Financial experts Robert Kiyosaki and Harry Dent are both warning that the next major economic crash is in our very near future. Dent is projecting that the Dow will fall to “5,500 to 6,000 by late 2017″, and Kiyosaki actually originally projected that a great crash was coming in 2016 all the way back in 2002. Of course we don’t exactly have to wait for things to get bad. The truth is that things are not really very good at the moment by any stretch of the imagination. Approximately one-third of all Americans don’t make enough money to even cover the basic necessities, 23 percent of adults in their prime working years are not employed, and corporate debt defaults have exploded to the highest level that we have seen since the last financial crisis. But if Kiyosaki and Dent are correct, economic conditions in this country will soon get much, much worse than this.
During a recent interview, Harry Dent really went out on a limb by staking his entire reputation on a prediction that we would experience “the biggest global bubble burst in history” within the next four years…
There will be… and I will stake my entire reputation on this… we are going to see the biggest global bubble burst in history in the next four years…
There’s only one way out of this bubble and that is for it to burst… all this stuff is going to reset back to where it should be without all this endless debt, endless printed money, stimulus and zero interest rate policy.
And of course he is far from alone. Without a doubt, we are currently in the terminal phases of the greatest financial bubble the world has ever known, and it is exceedingly difficult to see any way that it will not end very, very badly.
Ultimately, Dent believes that we could see U.S. stocks lose two-thirds of their value by late next year…
The Dow, I’m projecting, will hit 5,500 to 6,000 by late 2017… just in the next year and a half or so.
That’ll be most of the damage… then it will rally and there’ll be some aftershocks into 2020… my four cycles point down into early 2020 and then they start one after the other to turn up… I think the worst will be over by 2020, but the worst of that will be by the end of 2017.
If that does happen, it will be a far worse crash than what we experienced back in 2008, and the economic consequences will be absolutely terrifying.
Another highly respected financial expert that is making similar claims is Robert Kiyosaki. My wife is a big fan of his books, and I have always held him in high regard.
But what I didn’t realize is that he had actually predicted that there would be a major financial crash all the way back in 2002…
Fourteen years ago, the author of a series of popular personal-finance books predicted that 2016 would bring about the worst market crash in history, damaging the financial dreams of millions of baby boomers just as they started to depend on that money to fund retirement.
Broader U.S. stock markets are recovering from the worst 10-day start to a year on record. But Robert Kiyosaki — who made that 2016 forecast in the 2002 book “Rich Dad’s Prophecy” — says the meltdown is under way, and there’s little investors can do but buy gold or silver and hope the Federal Reserve slows the slide.
I agree with Kiyosaki that one way that investors can shield their wealth is by getting gold and silver. In a recent article, I explained exactly why I believe that silver in particular is ridiculously undervalued right now.
Kiyosaki also believes that the coming crash could be delayed a bit if the Federal Reserve decided to embark on another round of quantitative easing. But even if that happens, Kiyosaki is absolutely convinced that eventually “it’s all going to come down”…
Kiyosaki told MarketWatch that the combination of demographics and global economic weakness makes the next crash inevitable — but the Fed could stave it off with another round of quantitative easing, which might stimulate the economy.
The Fed turned more dovish at its March meeting, with the central bank penciling in fewer interest-rate hikes this year than were previously part of its implied framework. The Fed signaled those hikes would happen more slowly than had been anticipated earlier, owing to a weak global economic environment and a volatile stock market.
“The big question [whether] we do ‘QE4,’” said Kiyosaki. “If we do, the stock market will come roaring back, but it’s not rocket science. If we stop printing money, it crashes; if we print money, it goes up. But, eventually, it’s all going to come down.”
Another voice that I have come to respect is Jim Rickards. He is not quite as apocalyptic as Kiyosaki or Dent, but without a doubt he is deeply concerned about where the global economy is headed…
Global growth is slowing both because of weakness in developed economies like Europe and Japan, and weakness in some of the emerging markets champions such as China, Brazil and Russia. The limits of monetary policy have been reached.
The evidence is now clear that negative interest rates don’t stimulate spending; they are only good for devaluation in the ongoing currency wars. World trade is shrinking; a rare phenomenon usually associated with recession or depression.
And he is exactly right. The economic downturn that we are witnessing is truly global in scope. Brazil has plunged into an economic depression, the Italian banking system is in the process of completely melting down, and Japan has implemented negative interest rates in a desperate attempt to keep their Ponzi scheme going but it really isn’t working. In fact, Japanese industrial production just crashed by the most that we have seen since the tsunami of 2011.
Here in the United States, investors are generally feeling pretty good right now because stocks have rebounded substantially in recent weeks. However, Rickards is warning that this rebound is very temporary…
Stocks are clearly in a bubble. The stock market is ignoring the strong dollar, which in turn hurts exports and devalues overseas earnings. It is also ignoring declining corporate earnings, imminent defaults in the energy sector, and declining global growth in general.
Never mind. As long as money is cheap and leverage is plentiful, there’s no reason not to bid up stock prices, and wait for the greater fool to bid them up some more.
There is so much that we could learn from all these three men.
Sadly, just like we saw in 2008, most Americans are ignoring the warnings.
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering. After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out.
As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years.
Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“…
BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.
Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.
BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.
Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low.
And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent.
Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year.
But I just found out that the true number is much worse than that.
According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″…
Bankruptcy filings are flying in the American oil patch.
At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese.
That represents a 379% spike from the previous year when oil prices were substantially higher.
With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone.
A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported.
What we desperately need is for the price of oil to go back up.
Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon…
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
And of course all of this is incredibly bad news for financial institutions all over the world.
During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN…
It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.
Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks.
Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone.
This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet.
At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today…
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
I think that the author of this editorial is correct.
I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”.
In fact, I believe that is what we are steamrolling toward right now.
We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump.
But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts.
Many people believed that this day of reckoning would never come, but now it is here.
The “coming nightmare” is now upon us, and this is just the start.
The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008.
On Tuesday junk bonds continued to crash, the price of oil briefly dipped below 28 dollars a barrel, Deutsche Bank was forced to deny that it is on the verge of collapse, but the biggest news was what happened in Japan. The Nikkei was down a staggering 918 points, but that stock crash made very few headlines in the western world. If the Dow had crashed 918 points today, that would have been the largest single day point crash in all of U.S. history. So what just happened in Japan is a really big deal. The Nikkei is now down 23.1 percent from the peak of the market, and that places it solidly in bear market territory. Overall, a total of 16.5 trillion dollars of global stock market wealth has been wiped out since the middle of 2015. As I stated yesterday, this is what a global financial crisis looks like.
Just as we saw during the last financial crisis, the big banks are playing a starring role, and this is definitely true in Japan. Right now, Japanese banking stocks are absolutely imploding, and this is what drove much of the panic last night. The following numbers come from Wolf Richter…
Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
Nomura plunged a juicy 9.1%, down 42% since June 2015
A lot of analysts have been very focused on the downturn in China in recent months, but I think that it is much more important to watch Japan right now.
I have become fully convinced that the Japanese financial system is going to play a central role in the initial stages of this new global financial meltdown, and so I encourage everyone to keep a close eye on the Nikkei every single night.
Meanwhile, the stock price of German banking giant Deutsche Bank crashed to a record low on Tuesday. If you will recall, Deutsche Bank reported a loss of 7.6 billion dollars in 2015, and I wrote quite a bit about their ongoing problems yesterday.
Deutsche Bank co-CEO John Cryan moved to quell fears about the bank’s stability Tuesday with a surprise memo saying its balance sheet “remains absolutely rock-solid.”
The comments come as investors grow increasingly nervous about the health of European banks, which have taken a hit on the fall in energy prices and which face rising concerns over their cash levels.
Of course Lehman Brothers issued the same kind of denials just before they collapsed in 2008. Cryan’s comments did little to calm the markets, and even Jim Cramer saw right through them…
“You know, Deutsche Bank puts out a note saying, ‘listen, don’t worry, all good.’ Reminds me of JPMorgan saying if you have to say that you’re creditworthy then it’s already too late.”
Another thing that Lehman Brothers did just before they collapsed in 2008 was to lay off workers. We have seen a number of major banks do this lately, including Deutsche Bank…
Cryan, 55, has been seeking to boost capital buffers and profitability by cutting costs and eliminating thousands of jobs as volatile markets undermine revenue and outstanding regulatory probes raise the specter of fresh capital measures to help cover continued legal charges. The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while the shares have dropped about 42 percent.
The following chart comes from Zero Hedge. Nobody on the Internet does a better job with charts than Zero Hedge does. I would recommend visiting them right after you visit The Economic Collapse Blog each day (wink wink). This chart shows that Deutsche Bank stock has already fallen lower than it was during any point during the last financial crisis…
Deutsche Bank is the biggest and most important bank in the biggest and most important economy in the EU, and it has exposure to derivatives that is approximately 20 times Germany’s GDP.
If that doesn’t alarm you, I don’t know what will.
The biggest financial bubble in the history of the world has entered a terminal phase, and the parallels to the last financial crisis have become so apparent that just about anyone can see them at this point. Just consider some of the ominous warnings that we have seen recently…
Billionaire Carl Icahn, for example, recently raised a red flag on a national broadcast when he declared, “The public is walking into a trap again as they did in 2007.”
And the prophetic economist Andrew Smithers warns, “U.S. stocks are now about 80% overvalued.”
Smithers backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively.
Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to “Sell Everything” because “in a crowded hall, the exit doors are small.”
And let’s not forget that famous billionaire retail magnate Hugo Salinas Price has warned that the global economy “is going into a depression“.
The chaos that we have seen this week is simply a logical progression of the crisis that began during the second half of last year. If you were to create a checklist of all the things that you would expect to see during the initial stages of a new financial crisis, all of the boxes would be checked.
In the days ahead, keep your eyes on Germany and Japan.
Yes, the Italian banking system is completely collapsing right now, but I believe that what is happening in Germany is going to be the key to the meltdown of Europe, and I am convinced that Deutsche Bank is going to be the star of the show.
Meanwhile, don’t underestimate what is taking place in Japan.
The Japanese still have the third largest economy on the entire planet, and their financial system is essentially a Ponzi scheme built on top of a house of cards that has a rapidly aging population as the foundation.
As Japan falls, that will be a signal that financial Armageddon is now upon us.
And after last night, it appears that moment is a lot closer than a lot of us may have thought.
There is so much chaos going on that I don’t even know where to start. For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. Let’s start with Deutsche Bank. The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis. Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic. Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas. Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone. Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.
The collapse of the banks in Europe is dragging down stock prices all over the continent. At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year. That means that we only have four-fifths left. The following comes from USA Today…
The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.
These declines are being primarily driven by the banks. According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.
The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment. Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars. The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.
Similar scenes are being repeated all over the continent. On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…
Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.
This is what a financial crisis looks like.
Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.
One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans. This makes European banks even more sensitive to the price of oil than U.S. banks. The following comes from CNBC…
The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.
There is Deutsche Bank again.
It is funny how they keep coming up.
In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy. This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…
Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.
On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…
Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.
Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion. As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.
Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.
Do you remember how much stocks went down when the first dot-com bubble burst? Well, it is happening again, and tech stocks are already down more than half a trillion dollars since the middle of 2015. On Friday, the tech-heavy Nasdaq dropped to its lowest level in more than 15 months, and it has now fallen more than 16 percent from the peak of the market. But of course some of the biggest names have fallen much more than that. Netflix is down 37 percent, Yahoo is down 39 percent, LinkedIn is down 60 percent, and Twitter is down more than 70 percent. If you go back through my previous articles, you will find that I specifically warned about Twitter again and again. Irrational financial bubbles like this always burst eventually, and many investors that got in at the very top are now losing extraordinary amounts of money.
On Friday, tech stocks got absolutely slammed as the bursting of dot-com bubble 2.0 accelerated once again. The following is how CNBC summarized the carnage…
Also weighing on the index were Amazon and Facebook, which closed down 6.36 percent and 5.81 percent, respectively.
LinkedIn shares also tanked 43.63 percent after posting weak guidance on their quarterly results.
Overall, LinkedIn is now down a total of 60 percent from the peak of the market. But they are far from the only ones that have already seen their bubble burst.
Many of the biggest names in the tech world have gotten mercilessly hammered over the past six months of so. Just look at some of the famous brands that have already lost between 20 and 40 percent of their market caps…
Yahoo (YHOO) shares are off 39%, and Netflix (NFLX), the best-performing stock in the S&P 500 last year, is now off by 37% from its 52-week high.
Likewise, Priceline.com (PCLN) is off 31% and eBay (EBAY), 22%.
But there are other very big tech companies that have seen stock collapses that completely dwarf those numbers. Here are some more absolutely stunning statistics from USA Today…
Twitter and Groupon are the biggest dogs of this boom, both off 70% from 52-week highs and well below their IPO prices.
FitBit shares have collapsed 70%, while Yelp’s valuation has shrunk by two-thirds.
Hopefully people listened to those warnings and got out while the getting was good.
At the top of this article, I mentioned that tech stocks have already fallen in value by more than 500 billion dollars. The financial crisis that began in the middle of last year is now greatly accelerating, and Wall Street is starting to panic.
Some of the biggest names to get trounced include:
►Pershing Square Capital Management, the publicly traded investment vehicle of billionaire hedgie Bill Ackman, fell 11% last month following a 20% decline last year, data from the web site shows.
►Larry Robbins’ Glenview Capital, famous for picking stocks that could benefit from Obamacare, dropped 13.65% in January following a decline of 18% last year, according to data from HSBC’s Hedge Weekly report, a copy of which was obtained by USA TODAY.
►Marcato International, a well-known activist fund run by Ackman protege Mick McGuire, fell 12.1% last month following a 9% loss last year, according to HSBC.
When you lose more than 10 percent of your money in a single month, that is not good.
And of course I am far from the only one warning that big problems are on the horizon. In fact, analysts at Citigroup just made international headlines by warning that the global economy was now trapped in a “death spiral”…
Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.
“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.
“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”
Signs of a significant economic downturn are all around us, and so many of the exact same patterns that played out during the last two stock market crashes are happening again, and yet most people continue to refuse to acknowledge what is taking place.
If you are waiting for this new dot-com bubble to crash, you can stop waiting, because it has already happened.
When your stock falls by 50, 60 or 70 percent, the game is already over.
But just like 2001 and 2008, many people out there will end up being paralyzed by indecision. Once again the mainstream media is insisting that there is no reason for panic and that everything will be just fine, and once again millions upon millions of ordinary Americans will be wiped out as the financial markets implode.
This is now the third time this has happened since the turn of the century.
How clueless have we become? The exact same thing keeps happening to us over and over and yet we still don’t get it.
Only this time around there isn’t going to be any sort of a “recovery” afterwards.
This is essentially our “third strike”, and the years ahead are going to be extremely bitter and painful for most people.
But if you want to believe that one of these politicians is going to come along and save America, you go ahead and keep on believing that.
Most people believe what they want to believe, and the capacity that many Americans have demonstrated for self-delusion is absolutely remarkable.
As stocks continue to crash, you can blame the Federal Reserve, because the Fed is more responsible for creating the current financial bubble that we are living in than anyone else. When the Federal Reserve pushed interest rates all the way to the floor and injected lots of hot money into the financial markets during their quantitative easing programs, this pushed stock prices to wildly artificial levels. The only way that it would have been possible to keep stock prices at those wildly artificial levels would have been to keep interest rates ultra-low and to keep recklessly creating lots of new money. But now the Federal Reserve has ended quantitative easing and has embarked on a program of very slowly raising interest rates. This is going to have very severe consequences for the markets, but Janet Yellen doesn’t seem to care.
There is a reason why the financial world hangs on every single word that is issued by the Fed. That is because the massively inflated stock prices that we see today were a creation of the Fed and are completely dependent on the Fed for their continued existence.
Right now, stock prices are still 30 to 40 percent above what the economic fundamentals say that they should be based on historical averages. And if we are now plunging into a very deep recession as I contend, stock prices should probably fall by a total of more than 50 percent from where they are now.
The only way that stock prices could have ever gotten this disconnected from economic reality is with the help of the Federal Reserve. And since the U.S. dollar is the primary reserve currency of the entire planet, the actions of the Fed over the past few years have created stock market bubbles all over the globe.
But the only way to keep the party going is to keep the hot money flowing. Unfortunately for investors, Janet Yellen and her friends at the Fed have chosen to go the other direction. Not only has quantitative easing ended, but the Fed has also decided to slowly raise interest rates. The Fed left rates unchanged on Wednesday, but we were told that we are probably still on schedule for another rate hike in March.
So how did the markets respond to the Fed?
Well, after attempting to go green for much of the day, the Dow started plunging very rapidly and ended up down 222 points.
The markets understand the reality of what they are now facing. They know that stock prices are artificially high and that if the Fed keeps tightening that it is inevitable that they will fall back to earth.
In a true free market system, stock prices would be far, far lower than they are right now. Everyone knows this – including Jim Cramer. Just check out what he told CNBC viewers earlier today…
Jim Cramer was tempted to resurface his “they know nothing” rant after hearing the Fed speak on Wednesday. He was hoping that a few boxes on his market bottom checklist might be checked off, but it seems that the bear market has not yet run its course.
“The Fed’s wishy-washy statement on interest rates today left stocks sinking back into oblivion after a nice rally yesterday,” the “Mad Money” host said.
Without artificial help from the Fed, stocks will most definitely continue to sink into oblivion.
That is because these current stock prices are not based on anything real.
And so as this new financial crisis continues to unfold, the magnitude of the crash is going to be much worse than it otherwise would have been.
It has often been said that the higher you go the farther you have to fall. Because the Federal Reserve has pumped up stock prices to ridiculously high levels, that just means that the pain on the way down is going to be that much worse.
It is also important to remember that stocks tend to fall much more rapidly than they rise. And when we see a giant crash in the financial markets, that creates a tremendous amount of fear and panic. The last time there was great fear and panic for an extended period of time was during the crisis of 2008 and 2009, and this created a tremendous credit crunch.
During a credit crunch, financial institutions because very hesitant to lend to one another or to anyone else. And since our economy is extremely dependent on the flow of credit, economic activity slows down dramatically.
As this current financial crisis escalates, you are going to notice certain things begin to happen. If you own a business or you work at a business, you may start to notice that fewer people are coming in, and those people that do come in are going have less money to spend.
As economic activity slows, employers will be forced to lay off workers, and many businesses will shut down completely. And since 63 percent of all Americans are living paycheck to paycheck, many will suddenly find themselves unable to meet their monthly expenses. Foreclosures will skyrocket, and large numbers of people will go from living a comfortable middle class lifestyle to being essentially out on the street very, very rapidly.
At this point, many experts believe that the economic outlook for the coming months is quite grim. For example, just consider what Marc Faber is saying…
It won’t come as a surprise to market watchers that “Dr. Doom” Marc Faber isn’t getting any more cheerful.
But the noted bear at least found a sense of humor on Wednesday into which he could channel his bleakness.
The publisher of the “Gloom, Boom & Doom Report” told attendees at the annual “Inside ETFs” conference that the medium-term economic outlook has become “so depressing” that he may as well fill a newly installed pool with beer instead of water.
If the Federal Reserve had left interest rates at more reasonable levels and had never done any quantitative easing, we would have been forced to address our fundamental economic problems more honestly and stock prices would be far, far lower today.
But now that the Fed has created this giant artificial financial bubble, the coming crash is going to be much worse than it otherwise would have been. And the tremendous amount of panic that this crash will cause will paralyze much of the economy and will ultimately lead to a far deeper economic downturn than we witnessed last time around.
Once the Fed started wildly injecting money into the system, they had no other choice but to keep on doing it.
By removing the artificial support that they had been giving to the financial markets, they are making a huge mistake, and they are setting the stage for an economic tragedy that will affect the lives of every man, woman and child in America.