Marc Faber Issues A Stunning Warning That A Gigantic 50 Percent Stock Market Crash Could Be Coming

Danger Button - Public DomainAre we about to witness one of the largest stock market crashes in U.S. history?  Swiss investor Marc Faber is the publisher of the “Gloom, Boom & Doom Report”, and he has been a regular guest on CNBC for years.  And even though U.S. stocks have been setting new record high after new record high in recent weeks, he is warning that a massive stock market crash is in our very near future.  According to Faber, we could “easily” see the S&P 500 plunge all the way down to 1,100.  As I sit here writing this article, the S&P 500 is sitting at 2,181.74, so that would be a drop of cataclysmic proportions.  The following is an excerpt from a CNBC article that discussed the remarks that Faber made on their network on Monday…

The notoriously bearish Marc Faber is doubling down on his dire market view.

The editor and publisher of the Gloom, Boom & Doom Report said Monday on CNBC’s “Trading Nation” that stocks are likely to endure a gut-wrenching drop that would rival the greatest crashes in stock market history.

I think we can easily give back five years of capital gains, which would take the market down to around 1,100,” Faber said, referring to a level 50 percent below Monday’s closing on the S&P 500.

Of course Faber is far from alone in believing that the market is heading for hard times.  Just recently, I wrote about how legendary investor Jeffrey Gundlach is warning that “stocks should be down massively” and that he believes this is the time to “sell everything“.

And on Tuesday, Donald Trump told Fox News that the stock market is “a big bubble”

“If rates go up, you’re going to see something that’s not pretty,” the billionaire businessman told Fox News during a Tuesday morning phone interview. “It’s all a big bubble.”

Worries that the Fed has created a market bubble have shadowed the second-longest bull market in history as the central bank has kept its key rate near zero and expanded its balance sheet by $3.8 trillion in order to pump liquidity into the financial system.

Trump actually has a vested interest in seeing the stock market go down, because that would help his chances in November.

In a previous article on The Most Important News, I explained that the stock market has indicated who would win the presidential election 86 percent of the time since 1928.  During the final three months before election day, if the stock market goes up the incumbent party almost always wins.  But if the stock market goes down, the incumbent party almost always loses.  The only times this correlation has not held up since 1928 were in 1956, 1968 and 1980.

For the moment, the stock market is defying the laws of economics, and that is a very good thing for Hillary Clinton.  But if this bubble suddenly bursts and the market starts catching up with economic reality, that is going to turn out to be very favorable for Donald Trump.

And without a doubt, the fundamental economic numbers just continue to get worse.  Earlier today, we learned that productivity in the U.S. has now been falling for three quarters in a row

Productivity, a sore spot for the U.S. economy over the past few years, has now declined in three straight quarters, according to data released Tuesday.

Productivity in the second quarter unexpectedly fell 0.5%, well below expectations, the Labor Department said. Economists surveyed by MarketWatch had forecast a 0.3% gain in productivity in the quarter.

Productivity is down 0.4% from a year earlier, the first year-over-year decline since the second quarter of 2013.

On Tuesday we also learned that real estate sales in Las Vegas were down about 10 percent in July compared to the same period a year ago, and things are not looking so good in San Francisco either.  Just check out what has been going on at Twitter

Twitter is shaking up San Francisco. It’s the city’s 10th largest employer, and second largest tech employer, after Salesforce. But it hasn’t yet figured out, despite a decade of trying, how to make money. Last October, it announced that it would lay off 8% of its workforce. A couple of weeks ago, it reported a second-quarter net loss of $107 million along with disappointing user metrics and lousy projections. Its shares have lost 74% since their miracle-IPO-hype peak at the end of December 2014.

And now Twitter is dumping nearly one third of its total office space on the San Francisco sublease market.

Las Vegas and San Francisco are both prone to huge “booms” and “busts”.  So the fact that it appears that both cities are starting to move into the “bust” end of the cycle is a very ominous sign.

Conditions are changing, and now is the time to position yourself for the exceedingly challenging times that are coming.  As I end this article today, I want to share with you something written by Jim Quinn.  He recently went out to visit his son Kevin in Colorado for a couple of weeks, and the following is how he ended his article about that trip…

After spending a week in this stunning paradise, it’s tougher than you know to go back to my two and half hour daily round trip commute into the slums of West Philly. John Muir’s words were right 100 years ago and they are right today. I am losing precious days and my days are spent trying to make money. I’ve got responsibilities. I’ve got bills to pay. I’ve got kids to get through college. We’ve got aging parents to help. I work because I have to.

I’m not learning anything in this trivial world of distractions and iGadgets. I don’t fit into this materialistic society. I don’t do small talk. I have no patience for fools. I prefer solitude. If I can survive this despicable rat race for seven more years, I’ll be joining Kevin in Colorado and living the life I’d like to live. The sun is setting and time is slipping away. Those mountains are calling me home.

I can definitely identify with what Jim is going through, because I once experienced similar emotions.

To Jim and everyone else that hopes that someday in the future they will be able to live the lives that they would like to be living right now, I would say this…

Don’t put it off.

Seize the day and find a way to make your dreams a reality.

Things are rapidly changing in this country, and if you keep putting off the life you want to be living for too long it may end up slipping away for good.

Lowest Ever: The Baltic Dry Index Plunges To 394 As Global Trade Grinds To A Standstill

Container Ship - Public DomainFor the first time ever, the Baltic Dry Index has fallen under 400.  As I write this article, it is sitting at 394.  To be honest, I never even imagined that it could go this low.  Back in early August, the Baltic Dry Index was sitting at 1,222, and since then it has been on a steady decline.  Of course the Baltic Dry Index crashed hard just before the great stock market crash of 2008 too, but at this point it is already lower than it was during that entire crisis.  This is just more evidence that global trade is grinding to a halt and that 2016 is going to be a “cataclysmic year” for the global economy.

If you are not familiar with the Baltic Dry Index, here is a helpful definition from Wikipedia

The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.”

The BDI is one of the key indicators that experts look at when they are trying to determine where the global economy is heading.  And right now, it is telling us that we are heading into a major worldwide economic downturn.

Some people try to dismiss the recent drop in the Baltic Dry Index by claiming that shipping rates are down because there is simply too much capacity out there these days.  And I don’t dispute that.  Without a doubt, too many vessels were built during the “boom years”, and now shipbuilders are paying the price.  For example, Chinese shipyards reported a 59 percent decline in orders during the first 11 months of 2015…

Total orders at Chinese shipyards tumbled 59 percent in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry. Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building Co. last month became the first state-owned shipbuilder to go bankrupt in a decade.

But that doesn’t explain everything.  The truth is that exports are way down all over the world.  China, the United States, South Korea and many other major exporting nations have all been reporting extremely dismal export numbers.  Global trade is contracting quite rapidly, and I don’t see how anyone could possibly dispute that.

The global economy is a mess, but many people are not paying any attention to the economic fundamentals because they are too busy looking at the stock market.

The stock market does not tell us how the economy is doing.  If the stock market is up today that does not mean that the economy is doing well, and if the stock market is down tomorrow that does not mean that it is doing poorly.

Yes, the health of the financial markets can greatly affect the overall economy.  We saw this back in 2008.  When there is a tremendous amount of panic, that can cause a credit crunch and make it very difficult for money to flow through our system.  The end result is a rapid slowdown of economic activity, and it is something that we will be experiencing again very soon.

But don’t let the day to day fluctuations of the stock market fool you.  Just because the Dow was up 227 points today does not mean that the crisis is over.  It is important to remember that stocks are not going to go down every single day.  On Thursday, the Dow didn’t even regain two-thirds of what it lost on Wednesday.  Even in bear markets there are up days, and some of the biggest up days in stock market history were right in the middle of the crash of 2008.

It is critical that we take a long-term view of things and not let our vision be clouded by every tick up and down in the financial markets.  Initial jobless claims just hit their highest level in about six months, and companies like Macy’s and GoPro are laying off thousands of workers.  Things are already bad, and they are rapidly getting worse.

And let us not forget the great amount of financial carnage that has already happened so far this year.  According to CNBC, approximately 3.2 trillion dollars of stock market wealth was wiped out globally during the first 13 days of 2016…

Almost $3.2 trillion has been wiped off the value of stocks around the world since the start of 2016, according to calculations by a top market analyst.

It has also been the worst-ever start to a year for U.S. equities, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, as both the S&P 500 and the blue-chip Dow Jones industrial average have posted their steepest losses for the first eight days trading of a year.

Over the past six months, there have now been two 10 percent “corrections” for U.S. stocks.  The only other times we have seen multiple corrections like this were in 1929, 2000 and 2008.  If those years seem familiar to you, that is because they should.  In all three years, we witnessed historic stock market crashes.

The stunning collapse of the Baltic Dry Index is just more evidence that we have entered a global deflationary crisis.  Goods aren’t moving, unemployment is rising all over the planet, and commodity prices have fallen to levels that we have not seen in over a decade.

Around the globe, there have been dramatic stock market crashes to begin the year, and we should expect to see much more market turmoil during the weeks and months to come.

If the markets have calmed down a bit for the moment, we should be very thankful for that, because we could all use some additional time to prepare for what is coming.

The debt-fueled standard of living that so many of us are enjoying today is just an illusion.  And many of us won’t even understand what we have been taking for granted until it is taken away from us.

A great shaking is coming to the global economy, and the pain is going to be unimaginable.  So let us enjoy every single day of relative “normalcy” while we still can, because there aren’t too many of them left.

20th Largest Bank In The World: 2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’

Royal Bank Of ScotlandThe Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”.  This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet.  Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market.  The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe.  And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters.

It amazes me that the Royal Bank of Scotland is essentially saying the exact same thing that I have been saying for months.  Just like I have been telling my readers, RBS has observed that global markets “are flashing the same stress alerts as they did before the Lehman crisis in 2008″

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.

The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.

So what should our response be to these warning signs?

According to RBS, the logical thing to do is to “sell everything” excerpt for high quality bonds…

“Sell everything except high quality bonds,” warned Andrew Roberts in a note this week.

He said the bank’s red flags for 2016 — falling oil, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation — had all been seen in just the first week of trading.

We think investors should be afraid,” he said.

And of course RBS is not the only big bank issuing these kinds of ominous warnings.

The biggest bank in America, J.P. Morgan Chase, is “urging investors to sell stocks on any bounce”

J.P. Morgan Chase has turned its back on the stock market: For the first time in seven years, the investment bank is urging investors to sell stocks on any bounce.

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

Aside from technical indicators, expectations of anemic corporate earnings combined with the downward trajectory in U.S. manufacturing activity and a continued weakness in commodities are raising red flags.

Major banks have not talked like this since the great financial crisis of 2008/2009.  Clearly something really big is going on.  Trillions of dollars of financial wealth were wiped out around the world during the last six months of 2015, and trillions more dollars have been wiped out during the first 12 days of 2016.  As I noted above, the collective market value of the S&P 500 is down by about a trillion dollars all by itself.

One of the big things driving all of this panic is the stunning collapse in the price of oil.  U.S. oil was trading as low as $29.93 a barrel on Tuesday, and this was the first time that oil has traded under 30 dollars a barrel since December 2003.

Needless to say, this collapse is absolutely killing energy companies.  The following comes from USA Today

There aren’t many people who feel bad for oil companies. But the implosion in oil prices is causing a profit decline that almost invokes pity.

The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ. That’s a $124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008.

If we are to avoid a major global deflationary crisis, we desperately need the price of oil to get back above 50 dollars a barrel.  Unfortunately, that does not appear to be likely to happen any time soon.  In fact, Dallas Fed President Robert Kaplan says that the price of oil is probably going to stay very low for years to come

You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018.

The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….”

The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.”

In recent articles I have discussed so many of the other signs that indicate that there is big trouble ahead, but today I just want to quickly mention another one that has just popped up in the news.

The amount of stuff being shipped across the U.S. by rail has been dropping dramatically.  The only times when we have seen similar large drops has been during previous recessions.  The following comes from Bloomberg

Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren’t looking good for the new year.

“We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009.”

BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter).

The “next economic downturn” is already here, and it is starting to accelerate.

Yes, the financial markets are starting to catch up with economic reality, but they still have a long, long way to go.  It is going to take another 30 percent drop or so just for them to get to levels that are considered to be “normal” or “average” by historical standards.

And the markets are so fragile at this point that any sort of a major “trigger event” could cause a sudden market implosion unlike anything that we have ever seen before.

So let us hope for the best, but let us also heed the advice of RBS and get prepared for a “cataclysmic” year.

Does China Plan To Back The Yuan With Gold And Make It The Primary Global Reserve Currency?

Chinese Renminbi Yuan - Photo by MiLu24What in the world is China up to?  Why are the Chinese hoarding so much gold?  Does China plan to back the yuan with gold and turn it into a global reserve currency?  Could it be possible that China actually intends for the yuan to eventually replace the U.S. dollar as the primary reserve currency of the planet?  Most people in the western world assume that China just wants a “seat at the table” and is content to let the United States run the show.  But that isn’t the case at all.  The truth is that China doesn’t just want to compete with the United States.  Rather, China actually plans to replace the United States as the dominant economic power on the planet.  In fact, China already accounts for more global trade than the United States does.  So what would happen one day if China announced that it was backing the yuan with gold and that it would no longer be using the U.S. dollar in international trade?  It would cause a financial shift so cataclysmic that it is hard to even imagine.  Most of those that write about the “death of the U.S. dollar” usually fail to point out that China is holding a lot of the cards as far as the fate of the dollar is concerned.  China owns about a trillion dollars of our debt, China is the second largest economy on the planet, and nobody uses the dollar in international trade more than China does except for the United States.  Up until now, China has had to use the U.S. dollar in international trade because there has not been an attractive alternative.  But a gold-backed yuan would change all of that very rapidly.

And without a doubt, the Chinese government has already been very busy promoting the use of the yuan in international trade.  In a recent note, John McCormick of RBS Group stated the following…

Financial crises in the US and Europe mean the world needs a new, more stable global reserve currency, and trade in RMB is growing rapidly. In the FX market, for example, our figures show that volumes are now worth around USD 5-6 billion daily – double what they were a year ago.

A number of factors suggest that the Chinese authorities want to make RMB internationalisation happen by 2015.

For China, having a global reserve currency is not just about economics.  It is also about power.

McCormick ended his recent note this way…

China’s new leadership faces a number of problems. The country’s economy is slowing and, although we would expect the rate of GDP growth to pick up a little, it is unlikely to be a steep rebound.

But promoting RMB as a global reserve currency, with all the economic benefits that will bring in addition to exerting more political influence on the global stage, clearly remains high on their agenda.

Similar sentiments were echoed in a recent article in the Wall Street Journal

Beijing is undertaking a long, gradual campaign to establish the yuan as a more market-oriented, international currency. China’s State Council, or cabinet, said in a statement this month that the country would draft a plan to allow the yuan to become fully convertible. Meanwhile, the People’s Bank of China is guiding the currency higher and set the median point of its permitted daily trading band last week at the strongest level ever.

We don’t hear much about these sorts of things in the western media, but the convertibility of the Chinese yuan is a very big deal.  Up until recently, the yuan was only directly convertible into dollars and yen.  But now that is rapidly changing.  So far this year, the Chinese government has entered into currency convertibility agreements with Australia and New Zealand.

So instead of having to change yuan into U.S. dollars to trade with Australia and New Zealand, now China can cut U.S. dollars completely out of the process.

But right now there is nothing that really gives the Chinese yuan a significant competitive edge over the U.S. dollar.  If Chinese authorities truly want the yuan to end up replacing the U.S. dollar as the primary reserve currency of the planet, they need to do something that will make the rest of the world want to use it.

And they could do that by backing the yuan with gold.  In fact, there are persistent rumors that China has been busily preparing for that.

For example, the Economic Policy Journal recently pointed out that Dr. Pippa Malmgren, the President and founder of Principalis Asset Management who once worked in the White House as an adviser to President Bush, is claiming that China has plans to turn the yuan into “a hard, gold-backed currency” that will have a distinct competitive edge over the rapidly depreciating paper currencies that the rest of the globe is currently using…

The most interesting piece of the puzzle is that the Chinese have emerged as the biggest buyers of gold, mainly off-market. They want the yuan to emerge as a hard, gold-backed currency in a world where everyone else has chosen to inflate and devalue.

The recent bilateral currency deals with Australia, France, Russia and Singapore, and many others, reflect this desire to displace the USD as the world’s reserve currency.

It may be an interesting and long race between the Chinese reaching for convertibility and the Western central banks straining credibility.

Other analysts are also fully convinced that the goal of the Chinese is a gold-backed yuan.  The following is what money manager Stephen Leeb told King World News recently

Countries have been battling each other in order to cheapen their currencies. The problem with a cheaper currency is that commodities cost more. So China has decided to opt for a higher currency.

The move in the yuan overnight was one of the most significant upticks I have seen. Like I said, the yuan moved to an all-time high. The yuan has advanced roughly 5% against the US dollar in just nine months. China also imported over 200 tons of gold for the most recent month. That is an extraordinary number. At that rate that’s over 2,400 tons of gold per year on an annualized basis.

This simply speeds up the point at which China will be the largest gold holder in the world. China saw gold come down and they didn’t just buy on the dip, instead they bought as much as the market would give them. And, again, you see the yuan going up so that is making the price of gold even cheaper for the Chinese.

It’s only a matter of time before the Chinese back the yuan with gold. This will push the yuan front and center as a key element in terms of being part of the world’s reserve currency basket. China gets the message. They are doing whatever it takes to establish their dominance in the world, particularly in the commodity arena. Their currency is flying and they are importing as much gold as they possibly can.

And without a doubt, China has been hoarding massive amounts of gold.  Everyone agrees on that.  But what nobody knows is exactly how much gold China currently has stockpiled, because China is not telling anybody.

One recent estimate put China’s gold reserves at more than 7,000 tons of gold, but it could potentially be far higher than that.  When China does finally tell the rest of us how much gold they have, they will probably be just a move or two away from checkmate.

What we do know is that China is importing absolutely enormous amounts of gold right now even though China is also the number one gold producer on the planet.

According to Reuters, more than 223 tons of gold was imported into China from Hong Kong in March.  That smashed the previous record of 114 tons in December.

Overall, Chinese imports of gold from Hong Kong tripled in 2012, and the final number for 2013 is going to absolutely smash what we saw in 2012.

Obviously something is happening.

China is massively hoarding gold at the same time that it is trying to substantially raise the international influence of the yuan.

It doesn’t take a genius to see where all of this is headed.

If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy.  Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar.  At that point you could forget about cheap gasoline or cheap Chinese imports.  Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively.  If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living.  Today, most U.S. currency is actually used outside of the United States.  If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.

So keep an eye on China, and look out for any news about the yuan.

It won’t happen next week or next month, but eventually we could see China back the yuan with gold.

When that happens, it is going to be a complete and utter financial disaster for the United States.

 

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