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The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

We have not seen a “leadership reversal”, a “Hindenburg Omen” and a “Titanic Syndrome signal” all appear simultaneously since just before the last financial crisis.  Does this mean that a stock market crash is imminent?  Not necessarily, but as I have been writing about quite a bit recently, the markets are certainly primed for one.  On Wednesday, the Dow fell another 138 points, and that represented the largest single day decline that we have seen since September.  Much more importantly, the downward trend that has been developing over the past week appears to be accelerating.  Just take a look at this chart.  Could we be right on the precipice of a major move to the downside?

John Hussman certainly seems to think so.  He is the one that pointed out that we have not seen this sort of a threefold sell signal since just before the last financial crisis.  The following comes from Business Insider

On Tuesday, the number of New York Stock Exchange companies setting new 52-week lows climbed above the number hitting new highs, representing a “leadership reversal” that Hussman says highlights the deterioration of market internals. Stocks also received confirmation of two bearish market-breadth readings known as the Hindenburg Omen and the Titanic Syndrome.

Hussman says these three readings haven’t occurred simultaneously since 2007, when the financial crisis was getting underway. It happened before that in 1999, right before the dot-com crash. That’s not very welcome company.

In fact, every time we have seen these three signals appear all at once there has been a market crash.

Will things be different this time?

We shall see.

If you are not familiar with a “Hindenburg Omen” or “the Titanic Syndrome”, here are a couple of pretty good concise definitions

  • Hindenburg Omen: A sell signal that occurs when NYSE new highs and new lows each exceed 2.8% of advances plus declines on the same day. On Tuesday, they totaled more than 3%.
  • Titanic Syndrome: A sell signal triggered when NYSE 52-week lows outnumber 52-week highs within seven days of an all-time high in equities. Stocks most recently hit a record on November 8.

You can see the other times in recent decades when these three signals have appeared simultaneously on this chart right here.

Once again, past patterns do not guarantee that the same thing will happen in the future, but if the market does crash it should not surprise anyone.

10 days ago, I published an article entitled “The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History”.  I pointed out that this stock market bubble was created by unprecedented central bank intervention, and now global central banks are reversing the process that created the bubble in unison.  There is no possible way that stock prices can stay at these absolutely absurd levels without central bank help, and if global central banks stay on the sidelines a market decline would seem to be virtually inevitable.

Meanwhile, we are also witnessing a very alarming flattening of the yield curve

Hogan said the market is nervous about the “flattening” difference between the 2-year yield and the 10-year Treasury yield, which have been moving closer together. The curve dipped to 68 basis points Tuesday, a 10-year low. Hogan said 70 has become a line in the sand, and when it falls below that traders get nervous.

A flattening curve can signal that the curve will invert, which historically means a recession is on the horizon.

If the yield curve does end up inverting, that will be a major red flag.

But the experts assure us that we have nothing to worry about.

For example, just check out what Karyn Cavanaugh of Voya Financial is saying

“Now that the earnings season is wrapped up, markets are more beholden to macro data. Weakness in oil prices and skepticism about the passing of the tax bill are also weighing on sentiment,” said Karyn Cavanaugh, senior market strategist at Voya Financial.

Despite the drop on the day, major indexes remain within 1.5 percentage points of record levels.

Any pullback at this stage should be viewed as an opportunity to buy, however. Earnings outlook for U.S. stocks, especially with the synchronized global growth environment is still good,” Cavanaugh said.

And U.S. consumers continue to pile on more debt as if there is no tomorrow.  This week we learned that U.S. household debt has almost reached the 13 trillion dollar threshold

Americans’ debt level rose during the third quarter, driven by an increase in mortgage loans, according to a Federal Reserve Bank of New York report published on Tuesday.

Total U.S. household debt was $12.96 trillion in the three months to September, up $116 billion from the prior three months. Debt levels were $605 billion higher than during the third quarter of 2016.

The fundamentals do not support this kind of irrational optimism.

What the fundamentals have been telling us is that in the absence of central bank support we should see the markets start to decline, and that it is quite likely that a painful recession is on the horizon.

As the next crisis erupts, the mainstream media is going to respond with shock and horror.  But the only real surprise is that this ridiculous bubble lasted for as long as it did.

The truth is that a market decline is way overdue.  If central banks had not pumped trillions upon trillions of dollars into the global financial system, there is no possible way that stock prices would have ever gotten so high, and now that the central banks are removing the artificial life support we shall see how the markets do on their own.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History

Why have stock prices risen so dramatically since the last financial crisis?  There are certainly many factors involved, but the primary one is the fact that the Federal Reserve has been creating trillions of dollars out of thin air and has been injecting all of that hot money into the financial markets.  But now the Federal Reserve is starting to reverse course, and this has got to be the greatest sell signal for financial markets in modern American history.  Without the artificial support of the Federal Reserve and other global central banks, there is no possible way that the massively inflated asset prices that we are witnessing right now can continue.

The chart below comes from Sven Henrich, and it does a great job of demonstrating the relationship between the Fed’s quantitative easing program and the rise in stock prices.  During the last financial crisis the Fed began to dramatically increase the size of our money supply, and they kept on doing it all the way through the end of October 2017…

Unfortunately for stock traders, the Federal Reserve has now decided to change course, and that means that the process that has created these ridiculous stock prices is beginning to go in reverse.  In fact, according to Wolf Richter this reversal just started to go into motion within the past few days…

On October 31, $8.5 billion of Treasuries that the Fed had been holding matured. If the Fed stuck to its announcement, it would have reinvested $2.5 billion and let $6 billion (the cap for the month of October) “roll off.” The amount of Treasuries on the balance sheet should then have decreased by $6 billion.

And that’s what happened. This chart of the Fed’s Treasury holdings shows that the balance dropped by $5.9 billion, from an all-time record 2,465.7 billion on October 25 to $2,459.8 billion on November 1, the lowest since April 15, 2015

Does anyone out there actually believe that the immensely bloated balance sheet that the Fed has accumulated can be unwound without having an enormous negative impact on Wall Street?

And even more frightening is the fact that central banks all over the planet appear to be acting in coordinated fashion.  I really like how Brandon Smith made this point…

An observant person, however, might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.  The Bank of England raised rates this past week, as the Federal Reserve indicated yet another rate hike in December.  The Europeans Central Bank continues to prep the public for coming rate hikes, while the Bank of Japan has assured the public that “inflation” expectations have been met and no new stimulus is necessary.  If all of this appears coordinated, that is because it is.

When interest rates are low and central banks are injecting money directly into the financial system, that tends to promote economic activity.

But when they raise interest rates and pull money out of the financial system, the exact opposite is true.

At this point Americans are more optimistic about the stock market than they have ever been before, and it is at this exact moment that the Fed is pulling the financial markets off of life support.

And it isn’t as if the “real economy” ever recovered in any meaningful way.  Most American families are still living paycheck to paycheck, and a new economic crisis would push millions more out of the middle class.

For a long time I have been warning that the only reason why stock prices ever got this high was because of the central banks, and I have also been warning that they could crash the markets if they wanted to do so.

Hopefully there is nothing nefarious going on, but I do find it very strange that all of the major global central banks are moving toward tightening at the exact same time.

If things go south for the global economy in the months ahead, we will know exactly where to point the blame…

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Top Financial Expert Warns Stocks Need To Drop ‘Between 30 And 40 Percent’ As Bankruptcy Looms For Toys R Us

Will there be a major stock market crash before the end of 2017?  To many of us, it seems like we have been waiting for this ridiculous stock market bubble to burst for a very long time.  The experts have been warning us over and over again that stocks cannot keep going up like this indefinitely, and yet this market has seemed absolutely determined to defy the laws of economics.  But most people don’t remember that we went through a similar thing before the financial crisis of 2008 as well.  I recently spoke to an investor that shorted the market three years ahead of that crash.  In the end his long-term analysis was right on the money, but his timing was just a bit off, and the same thing will be true with many of the experts this time around.

On Monday, I was quite stunned to learn what Brad McMillan had just said about the market.  He is considered to be one of the brightest minds in the financial world, and he told CNBC that stocks would need to fall “somewhere between 30 and 40 percent just to get to fair value”…

Brad McMillan — who counsels independent financial advisors representing $114 billion in assets under management — told CNBC on Monday that the stock market is way overvalued.

The market probably would have to drop somewhere between 30 and 40 percent to get to fair value, based on historical standards,” said McMillan, chief investment officer at Massachusetts-based Commonwealth Financial Network.

McMillan’s analysis is very similar to mine.  For a long time I have been warning that valuations would need to decline by at least 40 or 50 percent just to get back to the long-term averages.

And stock valuations always return to the long-term averages eventually.  Only this time the bubble has been artificially inflated so greatly that a return to the long-term averages will be absolutely catastrophic for our system.

Meanwhile, trouble signs for the real economy continue to erupt.  As noted in the headline, it appears that Toys R Us is on the brink of bankruptcy

Toys R Us has hired restructuring lawyers at Kirkland & Ellis to help address looming $400 million in debt due in 2018, CNBC had previously reported, noting that bankruptcy was one potential outcome.

Kirkland declined to comment.

Earlier Monday, Reorg Research, a news service focused on bankruptcy and distressed debt, reported Toys R Us could file for bankruptcy as soon as Monday.

This is yet another sign that 2017 is going to be the worst year for retail store closings in U.S. history.  I don’t know how anyone can look at what is happening to the retail industry (or the auto industry for that matter) and argue that the U.S. economy is in good shape.

But most Americans seem to base their opinions on how the economy is doing by how well the stock market is performing, and thanks to relentless central bank intervention, stock prices have just kept going up and up and up.

In so many ways, what we are watching today is a replay of the dotcom bubble of the late 1990s, and this is something that McMillan also commented on during his discussion with CNBC…

Part of McMillan’s thesis is rooted in his belief that the lofty levels of the so-called FANG stocks — Facebook, Amazon, Netflix and Google-parent Alphabet — seem reminiscent of the dot-com bubble in the late 1990s.

“I’ve been saying for about the past year, this year looks a lot like 1999 to me,” McMillan said on “Squawk Box.” “If you look at the underlying economics [and] if look at the stock market, the similarities are remarkable.”

I am amazed that so many big names continue to issue extremely ominous warnings about the financial markets, and yet most Americans seem completely unconcerned.

It is almost as if 2008 never happened.  None of our long-term problems were fixed after that crisis, and the current bubble that we are facing is far larger than the bubble that burst back then.

I don’t know why more people can’t see these things.  It has gotten to a point where “even Goldman Sachs is getting worried”

The stock market bubble is now so massive that even Goldman Sachs is getting worried.

Let’s be clear here: Wall Street does best and makes the most money when stocks are roaring higher. So in order for a major Wall Street firm like Goldman to start openly worrying about whether or not the markets are going to crash, there has to be truly MASSIVE trouble brewing.

On that note, Goldman’s Bear Market indicator just hit levels that triggered JUST BEFORE THE LAST TWO MARKET CRASHES.

When things fall apart this time, it is going to be even worse than what we went through in 2008.  In the aftermath, we are going to need people that understand that we need to fundamentally redesign how our system works, and that is something that I hope to help with.  We cannot base our financial system on a pyramid of debt, and we cannot allow Wall Street to operate like a giant casino.  Our entire economy has essentially become a colossal Ponzi scheme, and it is inevitable that it is going to come horribly crashing down at some point.

But for now, the blind continue to lead the blind, and most Americans are not going to wake up until we have gone over the edge.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Former Fed Chairman Alan Greenspan Ominously Warns That The Biggest Bond Bubble In History Is About To Burst

Are we right on the verge of one of the greatest financial collapses in American history?  I have been repeatedly warning that our ridiculously over-inflated stock market bubble could burst at any time, but former Federal Reserve Chairman Alan Greenspan believes that the bond bubble actually presents an even greater danger.  When you look at the long-term charts, you will see that an epic bond bubble has been growing since the early 1980s, and when it finally collapses the financial carnage is going to be unlike anything we have ever seen before.

Since the last financial crisis, global central banks have purchased trillions of dollars worth of bonds, and this has pushed interest rates to absurdly low levels.  But of course this state of affairs cannot go on indefinitely, and Greenspan is extremely concerned about what will happen when interest rates start going in the other direction…

Former Federal Reserve Chairman Alan Greenspan issued a bold warning Friday that the bond market is on the cusp of a collapse that also will threaten stock prices.

In a CNBC interview, the longtime central bank chief said the prolonged period of low interest rates is about to end and, with it, a bull market in fixed income that has lasted more than three decades.

“The current level of interest rates is abnormally low and there’s only one direction in which they can go, and when they start they will be rather rapid,” Greenspan said on “Squawk Box.”

And of course Greenspan is far from alone.  In recent months there have been a whole host of prominent voices warning about the devastation that will take place when the bond market begins to shift.  For example, the following comes from Nasdaq.com

Advisors and investors beware, the long-swelling bubble in the bond market looks set to pop. Major bond investors are as worried as they have ever been, mostly because of the reduction in easing that is finally coming to markets. Central banks are letting off the gas pedal for the first time in almost a decade, which could have a devastating effect on the bond market. According to the head of fixed income at JP Morgan Asset Management, who oversees almost half a trillion in AUM, “The next 18 months are going to be incredibly challenging. I am not an equity investor, but I can just imagine how equity investors felt in 1999, during the dotcom bubble”. He continued, “Right now, central banks are printing money at a rate of around $1.5tn per year. That is a lot of money going into bonds. By this time next year, we think this will turn negative”.

So how will we know when a crisis is imminent?

Some analysts are telling us to watch the 30-year yield.  When it finally moves above its “mega moving average” and stays there, that will be a major red flag

It’s still too soon to tell, but this could be the beginning of a realignment with both rates getting in sync again. This will not be confirmed, however, until the 30-year yield rises and stays above its mega moving average, currently at 3.18%.

As you know, this moving average is super important.

It’s identified and confirmed the mega downtrend in long-term interest rates ever since the 1980s. In other words, it doesn’t change often. So, if this trend were to change and turn up, it would be a huge deal.

Today, the 30-year yield moved up to 2.83 percent, and so we aren’t too far away.

There are so many prominent voices that are warning of imminent financial disaster, but there are others that believe that we have absolutely nothing to be concerned about.  In fact, Jim Paulsen just told CNBC that he believes that this current bull market “could continue to forever”…

The stock market “has an awful good gig going,” with the economic recovery reaching all corners of the globe and U.S. inflation and interest rates still at historic lows, Leuthold Chief Investment Strategist Jim Paulsen told CNBC on Friday.

“We’ve got a fully employed economy, rising real wages. We restarted the corporate earnings cycle. We’ve got strong confidence among business and consumers,” he said on “Squawk Box.”

“The kick is we can do all of this without aggravating inflation and interest rates,” he said. “If that’s going to continue, I think the bull market could continue to forever.”

I think that Paulsen will end up deeply regretting those words.

No bull market lasts forever, and analysts at Goldman Sachs are warning that there is a 99 percent chance that stock market returns will be sub-optimal over the next decade.

But most people believe what they want to believe no matter what the facts may say, and Paulsen apparently wants to believe that things will never be bad for the financial markets ever again.

In the aftermath of the financial crisis of 2008, the powers that be decided to patch the old system up.  Instead of addressing the root causes of the crisis, they chose to paper over our problems instead, and now we are in the terminal phase of the biggest financial bubble in history.

This time around, it is absolutely imperative that we do things differently.  The Federal Reserve is the primary reason why our economy is on an endless roller coaster ride.  We have had 18 distinct recessions or depressions since 1913, and now another one is about to begin.  By endlessly manipulating the system, they have caused these cycles of booms and busts, and it is time to get off of this roller coaster once and for all.

Like Ron Paul, I believe that we need to shut down the Federal Reserve and get our banks under control.  I also believe that we should abolish the federal income tax and go to a much fairer system.  From 1872 to 1913, there was no central bank and no federal income tax, and it was the greatest period of economic growth in U.S. history.  If we rebuild our financial system on sound principles, we could actually have a shot at a prosperous future.  If not, the long-term future for our economy looks exceedingly bleak.

If you believe in what I am trying to do, I would like to ask for your help.  I am running for Congress in Idaho’s First Congressional District, and since there is no incumbent running for this seat the race is completely wide open.  Every time I share my message, more voters are coming over to my side, and if I am able to get my message out to every voter in this district I will win.

And I would like to encourage like-minded people to run for positions all over the country on the federal, state and local levels.  Individually, there is a limit to what we can do, but if we work together we can build a movement which could turn this nation completely upside down.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

We Are Getting Very Close To An Inverted Yield Curve – And If That Happens A Recession Is Essentially Guaranteed

If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too?  Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis.  For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U.S. Treasury bond yields.  Normally, long-term rates are higher than short-term rates, but when investors get spooked about the economy this can reverse.  Just before every single recession since 1960 the yield curve has “inverted”, and now we are getting dangerously close to it happening again for the first time in a decade.

On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points.  According to Business Insider, this is almost the tightest that the yield curve has been since 2007…

The spread between the yields on two-year and 10-year Treasurys fell to 79 basis points, or 0.79%, after Wednesday’s disappointing consumer-price and retail-sales data. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007.

Perhaps more notably, it is on a path to “inverting” — meaning it would cost more to borrow for the short term than the long term — for the first time since the months leading up to the financial crisis.

So why is an inverted yield curve such a big event?  Here is how CNBC recently explained it…

An inverted yield curve, which has correctly predicted the last seven recessions going back to the late 1960’s, occurs when short-term interest rates yield more than longer-term rates. Why is an inverted yield curve so crucial in determining the direction of markets and the economy? Because when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.

What is truly alarming is that the Federal Reserve can see what is happening to the yield curve, and they can see all of the other indications that the economy is slowing down, but they decided to raise rates anyway.

Raising rates in a slowing economy is a recipe for disaster, but the Fed has gone beyond that and has declared that it intends to start unwinding the 4.5 trillion dollars of assets that have accumulated on the Fed’s balance sheet.

Janet Yellen is trying to tell us that this will be a smooth process, but many analysts are far from convinced.  For instance, just consider what Peter Boockvar recently told CNBC

“They desperately want this to be an easy, smooth, paint-drying type of process, but there’s no chance,” said Peter Boockvar, chief market analyst at The Lindsey Group. “The whole purpose of quantitative easing was to inflame the markets higher. Why shouldn’t the reverse happen when we do quantitative tightening?”

I hope that there are no political motivations behind the Fed’s moves.  During the Obama era, interest rates were pushed all the way to the floor and the financial system was flooded with new money by the Fed.  But now the Fed is completely reversing the process now that Donald Trump is in office.

When the inevitable stock market crash comes, Trump will get most of the blame, but it will actually be the Federal Reserve’s fault.  If the Fed had not injected trillions of dollars into the system, stocks would not have ever gotten this high.  And now that they are reversing the process that created the bubble, a whole lot of innocent people out there are going to get really hurt as stock prices come crashing down.

And if you thought that the last recession was bad for average American families, wait until you see what happens this time around.  As Kevin Muir has noted, it is utter madness for the Fed to hit the breaks in a rapidly slowing economy…

There are a million other little signs the US economy is rolling over, but that’s not important. What is important is the realization that until financial conditions back up, the Fed will not ease off the brake.

To top it all off, the Fed is not only braking, but they are also preparing the market for a balance sheet unwind. This is like QE in reverse.

It’s a perfect storm of negativity. An overly tight Fed that is determined to withdraw monetary stimulus even in the face of a declining economy.

Even if the Fed ultimately decides not to unwind their balance sheet very rapidly, rising rates will still significantly slow down economic activity.

Rising mortgage rates are going to hit the housing market hard, rising rates on auto loans are horrible news for an auto industry that is already having a horrendous year, and rising rates on credit cards will mean higher credit card payments for millions of American families.

And this comes at a time when indicator after indicator is already screaming that the next recession is dead ahead.

Today, an unelected, unaccountable central banking cartel has far more power over our economy than anyone else, and that includes President Trump and Congress.  The more manipulating they do, the bigger our economic booms and busts become, and this next bust is going to be a doozy.

There have been 18 distinct recessions or depressions since the Federal Reserve was created in 1913, and if we finally want to get off of this economic roller coaster for good we need to abolish the Federal Reserve.

As many of you may have heard, I am very strongly leaning toward running for Congress here in Idaho, and one of the key things that is going to set me apart from any other candidate is that I am very passionate about shutting down the Federal Reserve.  I recently detailed why it is imperative that we do this in an article entitled “The Federal Reserve Must Go”.  Central banks are designed to create government debt spirals, and the size of the U.S. national debt has gotten more than 5000 times larger since the Fed was initially established.

If we ever want to do something about our national debt, and if we ever want to get our economy back on track on a permanent basis, we have got to do something about the Federal Reserve.

Anyone that would suggest otherwise is just wasting your time.

Central Banks Now Own Stocks And Bonds Worth Trillions – And They Could Crash The Markets By Selling Them

Have you ever wondered why stocks just seem to keep going up no matter what happens?  For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense.  In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since.  In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone.  At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms.  These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.

Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”.  If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank.  Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.

But of course what they have done is essentially destroy the marketplace.  A “free market” for stocks basically no longer exists because of all this central bank manipulation.  I really like how Bruce Wilds made this point

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion.

According to Business Insider, global central banks are on pace to purchase an astounding 3.6 trillion dollars in stocks and bonds in 2017.

Overall, the five largest global central banks now collectively have 14.6 trillion dollars in assets on their balance sheets.

You can call this a lot of things, but it certainly isn’t free market capitalism.

The Swiss National Bank is one of the biggest offenders.  During just the first three months of this year, it bought 17 billion dollars worth of U.S. stocks, and that brought the overall total that the Swiss National Bank is currently holding to more than $80 billion.

Have you ever wondered why shares of Apple just seem to keep going up and up and up?

Well, the Swiss National Bank bought almost 4 million shares of Apple during the months of January, February and March.

And as I mentioned above, the Swiss National Bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg”

Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.

The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.

It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show.

But as shameless as the Swiss National Bank has been, the Bank of Japan is even worse.

Today, the Nikkei is essentially a giant sham.  The Bank of Japan regularly goes in and just starts buying up everything in sight, and according to Bloomberg they are on pace to become the largest shareholder in dozens of the most prominent Japanese corporations by the end of 2017…

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

If global central banks have the power to pump up these markets, they also have the power to crash them.

Why would they want to do such a thing?

I can answer that question with just two words…

Donald Trump.

If the Comey angle doesn’t work, the elite could try to destroy Trump by engineering an absolutely devastating stock market crash.  Close to half the U.S. population dislikes Trump anyway, and so it would be fairly easy to get them to believe that Trump’s policies have caused a new financial crisis.  Of course that would be complete nonsense, but in our society today the truth often doesn’t really matter.

And without a doubt, evidence continues to mount that the real economy is starting to slow down substantially.  For example, we just learned that bankruptcies surged once again in May.  The following comes from Wolf Richter

So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

And there’s another concern: Bankruptcy filings are highly seasonal. They peak in tax season – March or April – and then fall off. The decline in April after the peak in March was within that seasonal pattern. Over the past years, filings dropped in May. But not this year.

Without unprecedented intervention by global central banks, financial markets would have crashed long ago.

And if they keep increasing their purchases of stocks and bonds, the central banks may be able to prop things up for a while longer.

Who knows?  Perhaps with enough financial engineering they would be able to keep this bubble going for years.  Of course things would start to get really awkward once they eventually owned virtually everything, but I have a feeling that things will never get that far.

I have a feeling that global central banks will eventually find an excuse to start “unwinding their balance sheets”, and I have a feeling that it will be at a time that is highly inconvenient for President Trump.

Global Financial Markets Plunged Into Chaos As Italy Overwhelmingly Votes ‘No’

italy-flag-map-public-domainItalian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos.  The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday.  It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result.  When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone.  In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe.  Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.

I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.

This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.

Just look at what has already happened.  All of the votes haven’t even been counted yet, and the euro is absolutely plummeting

The euro dropped 1.3 percent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.

A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.

In early 2014, there were times when one euro was trading for almost $1.40.  For a very long time I have been warning that the euro was eventually heading for parity with the U.S. dollar, and now we are almost there.

Meanwhile, Italian government bonds are going to continue to crash following this election result.  This is going to make it even more difficult for the Italian government to borrow money, and that will only aggravate their ongoing financial troubles.

But the big problem in Italy is the banks.  At this moment there are eight banks in imminent danger of collapsing, and virtually all of the rest of them are in some stage of trouble.  The following comes from a Bloomberg article about the crisis that Italian banks are facing right at this moment…

They’re burdened with a mountain of bad loans. Their stocks have cratered. And they have to operate in an economy prone to recession and political upheaval.

Signs have been mounting for months that Italy’s weakest lenders, and in particular Banca Monte dei Paschi di Siena SpA, were sliding toward the precipice, threatening to reignite a broader crisis.

And we may get some news regarding the fate of Banca Monte dei Paschi di Siena as early as Monday morning if what the Sydney Morning Herald is reporting is correct…

A last-gasp rescue for Monte dei Paschi di Siena, the world’s oldest surviving bank, has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday.

MPS and advisers JPMorgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a €5bn recapitalisation, the FT reports, citing people informed of the plan.

Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expected to nationalise the bank, say senior bankers.

If Banca Monte dei Paschi di Siena fails, major banks all over Italy (and all over the rest of Europe) could start going down like dominoes.

So what were Italians voting on anyway?

Well, the truth is that the constitutional reforms that were proposed actually sound quite boring

“The changes involve sharply reducing the size of one of the chambers of Parliament — the Senate — shifting its powers to the executive, and eliminating the Senate’s power to bring down government coalitions.

“The amendments also shift some powers now held by the regions to the central government, thereby reducing frequent and lengthy court battles between Rome and the regional governments.”

The reason why this vote was ultimately so important is because it became a referendum on Renzi’s administration.  The fact that he announced in advance that he would resign if it did not get approved gave a tremendous amount of fuel to the opposition.

So now Beppe Grillo’s Five-Star Movement stands poised to come to power, and that could be very bad news for those that are hoping to hold the common currency together.

The following is how NPR recently summarized the main goals of the Five-Star Movement…

“It calls for a government-guaranteed, universal income, abolishing Italy’s fiscal commitments to the European Union and a referendum on Italy’s membership in the Euro — a prospect that could unravel the entire single currency Eurozone.”

If Italy chooses to leave the euro, it will probably mean the end of the common currency, and the continued existence of the entire European Union would be called into question.

So this vote on Sunday was huge.  The Brexit had already done a tremendous amount of damage to the long-term prospects for the European Union, and now the crisis in Italy is sending political and financial shockwaves throughout the entire continent.

Over the next few weeks, keep a close eye on the euro and on Italian government bonds.

If they both continue to crash, that will be a sign that a major European financial crisis is now upon us.

And what happens in Europe definitely does not stay in Europe.

If Europe goes down, we are going to go down too.

At this point we still have almost a month left in 2016, but 2017 is already shaping up to be a very troubling year.  As always, let us hope for the best, but let us also keep preparing for the worst.

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

bear-market-bull-market-public-domainSince Donald Trump’s victory on election night we have seen the worst bond crash in 15 years.  Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead.  The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates.  Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown.  And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money.  The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down.  And when bond prices go down, that is bad news for economic growth.

So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes.  Just look at what is happening to mortgages.  As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”

If mortgage rates continue to shoot higher, there will be another housing crash.

Rates on auto loans, credit cards and student loans will also be affected.  Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.

Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon

In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.

And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.

Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down.  It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.

The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge.  The following comes from Lance Roberts

With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.

Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.

Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.

If you look at history, a stock market crash almost always follows a major bond crash.  So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.

And history has also shown us that no bull market can survive a major recession.  If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.

The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.

Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.

Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.

That is an enormous mistake.

A shaking has already begun in the financial world, and this shaking could easily become an avalanche.

Now is not a time to party.  Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.

All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.

So get prepared while you still can, because time is running out.

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

donald-trump-and-barack-obama-in-the-oval-office-public-domainThe election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system.  Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up.  But not all of the economic news is good news.  Unlike stocks, bonds have reacted very negatively to Trump’s election victory.  The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe.  As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

As interest rates rise, virtually everyone in our society is going to feel the pain.

Those that need an auto loan in order to purchase a vehicle are going to find that loan payments are significantly higher than they were before.

Credit card rates will also go up, and those just getting out of school will discover that their student loan payments are even more suffocating.

But the biggest impact will be felt in the housing market.  The average rate on a 30-year fixed mortgage just hit the psychologically-important 4 percent barrier, and that could mean big trouble for the housing market in 2017

The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn’t expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.

“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”

Rising interest rates was one of the key factors that precipitated the financial crisis of 2008, and many fear that it could happen again.

And without a doubt, this rise in rates is going to affect the affordability of homes that are already on the market

“If you’re going to buy a house and your mortgage payment went up by $200 or $300, you may buy a smaller house. There’s impact on interest rate sensitive sectors, like autos and housing, and also corporate bonds themselves, where financial engineering has helped juice up the equity market,” said George Goncalves, head of rate strategy at Nomura.

In addition, rising rates will make it more difficult for those with adjustable rate mortgages to keep their homes.  Foreclosure activity was already up 27 percent during the month of October, and many are projecting that we could see another giant spike in foreclosures during the months ahead that is similar to what we saw during the last financial crisis.

Many Trump supporters don’t really care what the rest of the world thinks of our new president, but this is an area where what the rest of the world thinks really, really matters.

The truth is that the rest of the planet is not all too fond of Trump, and if that makes them a lot less eager to lend us money that is a major problem.

The only way that we can maintain our massively inflated debt-fueled standard of living is to continue to borrow gigantic mountains of money from the rest of the world at ultra-low interest rates.

If the rest of the world starts demanding higher rates of return now that Trump is president, we are going to experience economic pain on a scale that most Americans don’t believe is possible.

One of our big lenders has been China, and right now they are deeply concerned about what a Trump presidency might mean.  Trump has talked very tough about trade with China, and the Chinese are gearing up for a major trade war.  The following comes from CNBC

During his election campaign this year, Trump spoke of a 45 percent import tariff on all Chinese goods while failing to outline how it would work. Should any such policy come into effect, China will take a “tit-for-tat approach”, according to an opinion piece in the Global Times, a newspaper backed by the Communist party.

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.,” the Global Times article read.

Most Trump supporters assume that since Trump has been a very successful businessman that he will be able to strengthen the U.S. economy.

But it isn’t that simple.

The only reason we are able to live the way that we live today is because we have been able to borrow trillions upon trillions of dollars at irrationally low interest rates.

The moment the rest of the world decides that they are not going to loan us money at irrationally low interest rates any longer the game is over, and it won’t really matter who is in the White House at that point.

So watch interest rates very carefully.  If they keep going up, it is inevitable that a major economic slowdown will follow no matter what economic policies the new Trump administration implements.

Guess What Happened The Last Time Junk Bonds Started Crashing Like This? Hint: Think 2008

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The extreme carnage that we are witnessing in the junk bond market right now is one of the clearest signals yet that a major U.S. stock market crash is imminent.  For those that are not familiar with “junk bonds”, please don’t get put off by the name.  They aren’t really “junk”.  They simply have a higher risk and thus a higher return than other bonds of the same type.  And yesterday, I explained why I watch them so closely.  If stocks are going to crash, you would expect to see a junk bond crash first.  This happened in 2008, and it is happening again right now.  On Monday, a high yield bond ETF known as JNK crashed through the psychologically important 35.00 barrier for the very first time since the last financial crisis.  On Tuesday, high yield bonds had their worst day in three months, and JNK plummeted all the way down to 34.44.  When I saw this I was absolutely stunned.  This is precisely the kind of junk bond crash that I have been anticipating that we would soon witness.

Normally, stocks and junk bonds track one another very closely, but just like before the 2008 crash, they have become decoupled in recent months.  Anyone that even has an elementary understanding of the financial world knows that this cannot continue indefinitely.  And when they start converging once again, the movement could be quite violent.

When I chose to use the word “carnage” to open this article, I was not exaggerating what is going on in the junk bond market one bit.  On Tuesday evening, Jeffrey Gundlach used the exact same word to describe what is happening…

Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, said on a webcast on Tuesday that the junk bond market has come under severe selling pressure ahead of the Federal Reserve’s policy meeting next week.

We are looking at real carnage in the junk bond market,” Gundlach said. Gundlach also said it was too early to buy high-yield junk bonds and energy debt securities. “I don’t like things when they go down every single day.”

Sometimes a chart can be extremely helpful in understanding what is going on.  The following chart was posted by Zero Hedge on Tuesday, and it shows that yields on the riskiest junk bonds are heading into the stratosphere…

High Yield Debt - from Zero Hedge

And for those that are not familiar, it is important to note that when yields go up, bond prices go down.  So the chart above is what a “crash” looks like.

Another “leading indicator” that I watch is the behavior of Dow Transports.

Dow Transports started crashing before the Dow Jones Industrial Average did back in August, and now it is happening again

Dow Transports are in reverse. Down over 3% today, the biggest drop since the Black Monday collapse, Trannies are now below the lows of the Bullard bounce from October 2014 and down a shocking 16% in 2015. This would be the first four-quarters-in-a-row drop in Transports since 1994 and the worst year since 2008…

In addition, we are also seeing trouble signs erupt at major financial institutions just like we did during the run up to the 2008 crash.  For example, I have been concerned about Morgan Stanley for quite a while, and on Tuesday we learned that they have just laid off more than a thousand workers

Struggling Morgan Stanley slashed 1,200 jobs around the world in recent days, a person familiar with the matter told CNNMoney.

The cuts were broad-based and eliminated 25% of the positions within the fixed income and commodities businesses, the person said. Those divisions are grappling with tumbling trading revenue and shrinking fees.

Morgan Stanley also eliminated about 730 back-office jobs like human-resources and IT positions.

Virtually all of the things that we would expect to see just prior to a 2008-style stock market crash are happening right now.

If just two or three leading indicators were flashing red, we could have a really good debate about what they might mean.

But the fact that virtually all of the numbers are screaming a warning at us should mean that the debate is over.  Anyone with an open mind should be able to very clearly see what is coming next.

Very quickly, let me give you just 10 signs that indicate that we are right on the precipice of a major recession and a very substantial financial downturn…

1. Global GDP growth has gone negative for the first time since 2009.

2. Corporate earnings growth has turned negative.

3. S&P 500 net profit margins are steeply declining.  According to Tony Sagami, “since 1973, there has been only one 60 bps decline in S&P 500 net profit margin that didn’t lead to a recession.”

4. In October, U.S. imports of goods declined by 6.6 percent on a year over year basis.

5. In October, U.S. exports of goods declined by 10.4 percent on a year over year basis.

6. U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.

7. Corporate debt defaults have risen to the highest level that we have seen since the last recession.

8. Credit card numbers that were recently released show that holiday sales have gone negative for the first time since the last recession.

9. The velocity of money in the United States has dropped to the lowest level ever recorded.

10. Of the 93 largest stock market indexes in the entire world, 47 of them (slightly more than half) have already plunged at least 10 percent year to date.

Just like in 2008, other global financial markets are imploding ahead of a U.S. collapse.

On Tuesday, the Dow Jones Industrial Average was down another 162 points, but we are still within 1000 points of the market peak that was set earlier this year.  We are still in far better shape than most of the rest of the world, but that will soon change.

I can’t think of a single leading indicator that is telling us that everything is going to be okay.  All of the numbers are pointing to major trouble ahead.  So I hope that you are being smart and doing what you can to get prepared while there is still time.

Finca Bayano

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