This week, Barack Obama sent a guided missile destroyer into disputed waters in the South China Sea to see if the Chinese would start shooting at it. Yes, this is what he actually did. Fortunately for us, the Chinese backed down and did not follow through on their threats to take military action. Instead, the Chinese have chosen to respond with very angry words. The Chinese ambassador to the United States, Cui Tiankai, says that what Obama did was “a very serious provocation, politically and militarily.” And as you will see below, a state-run newspaper stated that China “is not frightened to fight a war with the US in the region”. So why in the world would Obama provoke the Chinese like this? Yes, the Chinese claims in the South China Sea are questionable. But there are other ways to resolve things like this. My friend Rick Wiles began his radio broadcast yesterday by suggesting that these kinds of actions show that Barack Obama has become “mentally unstable”, and I would have to agree. You don’t risk military confrontations that could potentially spark World War III unless you have a really good reason to do so.
The Global Times is a Chinese state-run newspaper that has very close ties to the Communist party. After Obama’s provocation in the South China Sea, it published an editorial entitled “After the show, it’s time for US destroyer to leave“. The following is the most alarming portion of that editorial…
In face of the US harassment, Beijing should deal with Washington tactfully and prepare for the worst. This can convince the White House that China, despite its unwillingness, is not frightened to fight a war with the US in the region, and is determined to safeguard its national interests and dignity.
Beijing ought to carry out anti-harassment operations. We should first track the US warships. If they, instead of passing by, stop for further actions, it is necessary for us to launch electronic interventions, and even send out warships, lock them by fire-control radar and fly over the US vessels.
Another major Chinese newspaper also responded very angrily…
The People’s Liberation Army Daily, China’s leading military newspaper, used a front-page editorial to accuse the US of sowing chaos in countries such as Afghanistan and Iraq.
“Cast-iron facts show that time and again the United States recklessly uses force and starts wars, stirring things up where once there was stability, causing the bitterest of harm to those countries directly involved,” the newspaper said, according to Reuters.
But the Obama administration is not backing down.
In fact, CNN is reporting that the decision has already been made to send even more patrols cruising by the disputed islands.
What do you think that will do to our delicate relationship with China?
Most Americans assume that an actual shooting war between the United States and China is not even within the realm of possibility, but many of our leaders see things very differently. For instance, just check out what CIA Deputy Director Michael Morell thinks…
The current posturing in the area has led to heightened tensions between the world’s preeminent military powers, and in May Former CIA Deputy Director Michael Morell told CNN that the confrontation indicates there is “absolutely” a risk of the U.S. and China going to war sometime in the future.
And Barack Obama’s good buddy George Soros has warned that the threat of a third world war involving the United States and China is very real…
Earlier this year, billionaire investor George Soros also cautioned that the ruling Communist Party may see fit to rally its population around an external threat in order to head off a societal collapse in the aftermath of an economic implosion.
“There is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real,” said Soros.
Needless to say, if our relationship with China breaks down that is going to be really, really bad for the global economy. China accounts for more global trade than anyone else in the world, and the U.S. is number two.
And already we are witnessing a slowdown in global trade which is more than just a little bit alarming. So far in 2015 total global trade is down 8.4 percent, U.S. exports are down 11 percent, and Chinese imports during the month of September were down a whopping 20.4 percent from a year earlier.
So what do you think that an actual shooting war between the two great economic superpowers would do?
Meanwhile, the Obama administration continues to move toward sparking World War III in the Middle East as well. On Tuesday, we learned that Obama has authorized “direct action on the ground” in Iraq and in Syria. That means that our boys and girls could potentially end up in combat in areas inside Syria where the Russians are currently conducting operations. The following comes from NBC News…
Defense Secretary Ashton Carter said Tuesday that the U.S. will begin “direct action on the ground” against ISIS forces in Iraq and Syria, aiming to intensify pressure on the militants as progress against them remains elusive.
“We won’t hold back from supporting capable partners in opportunistic attacks against ISIL, or conducting such missions directly whether by strikes from the air or direct action on the ground,” Carter said in testimony before the Senate Armed Services committee, using an alternative name for the militant group.
When pressed, Carter admitted that U.S. soldiers “will be in harm’s way, no question about it“.
Wasn’t Obama supposed to be the president that brought all of our troops home and ended all of the wars?
Instead, his arrogance just seems to grow by the day and he is threatening to plunge the entire planet into World War III.
So what do you think of Barack Obama’s recent “foreign policy decisions”?
Please feel free to share your perspective by posting a comment below…
Have you noticed that things have gotten eerily quiet in the month of October? After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine. Other “watchmen” that I highly respect have made the exact same observation. Even though the economic numbers are screaming that we have entered a global recession, they aren’t really make any headline news. A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet. And of course Barack Obama seems bound and determined to start World War III. On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea. The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care. But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.
To me, what we are experiencing at the moment would best be described as “the calm before the storm”. If you are not familiar with this concept, this is how it is defined by How Stuff Works…
Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.
After a few minutes, you feel a change in the air, and suddenly a line of clouds ominously appears on the horizon — clouds with a look that tells you they aren’t fooling around. You quickly dash in the house and narrowly miss the first fat raindrops that fall right before the downpour. At this moment, you might stop and ask yourself, “Why was it so calm and peaceful right before the storm hit?”
Like so many others, I believe that a great storm is coming, and yet right at this moment things seem so peaceful.
Unfortunately, this period of peace and quiet is not going to last for long, and most Americans know deep down that something is seriously wrong with our nation. In fact, a new WND/Clout poll has found that 85.3 percent of all likely voters in the United States believe that our country is going in the wrong direction…
The poll found 92.6 percent of those who identified themselves as conservative believe the nation is on the wrong track. Among those who call themselves liberal, 90.9 percent said it is going the wrong direction.
When asked what they think of the American economy after seven years of Obama’s leadership and economic policies, nearly 80 percent described it as “very fragile” or “somewhat fragile.”
Self-identified Democrats, Republicans, liberals and conservatives were in general agreement, with about 75 percent to 80 percent describing the economy as “somewhat fragile” or “very fragile.”
But even though we are steamrolling in the wrong direction, we haven’t suffered any incredibly serious consequences for it yet.
For the moment, this is allowing the mockers to have a field day. They are fully confident that Barack Obama and the Federal Reserve knew what they were doing after all, and they are gleefully taunting those of us that have been warning of the great disaster that is heading our way.
However, those that are wise are getting prepared.
I think that we could all learn some lessons from what Overstock.com Chairman Jonathan Johnson is doing. The following is an extended excerpt from a recent Zero Hedge article…
One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.
What did Johnson tell the UPMA? Here are some choice quotes:
We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.
So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.
We also happen to have three months of food supply for every employee that we can live on.
Why would such a seemingly intelligent and successful CEO of a large Internet company do such things?
It is because he can see the writing on the wall.
This period of calm will not last. A great storm is coming, and when it does arrive those that have not prepared for it are going to suffer tremendously.
Most people have no idea just how fragile our system really is. Today, some of these “too big to fail” banks supposedly have trillions of dollars in assets, but if you want to withdraw $10,000 or more in cash you have got to give them 24 hours notice to get enough money…
This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRILLIONS of dollars worth of assets on their books.
And with each passing day we see even more signs of the global economic slowdown that is emerging all around us. For example, we just learned that the China Containerized Freight Index has dropped to the lowest level ever recorded. China accounts for more global trade than anyone else, and so this is a very clear sign that global economic activity is slowing down dramatically…
By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels.
The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.
But for those that don’t want to believe that hard times are on the way, they can take comfort in the eerie period of calm that we are experiencing right now.
What they don’t realize is that this truly is “the calm before the storm”, and the global economic crisis that is ahead of us is going to be far beyond what most people ever dared to imagine was possible.
When the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down. It is just basic economics. Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge. Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now. But this is just part of a larger trend. As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent. The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.
For many years, China has been leading the revolution in global trade. But now we are witnessing something that is almost unprecedented. Chinese exports are falling, and Chinese imports are absolutely imploding…
Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’ Alpha Now puts it. Most of these exports are manufactured goods that are shipped by container to the rest of the world.
And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.
This week it was announced that Chinese GDP growth had fallen to the lowest level since the last recession, and that makes sense. Global economic activity is really slowing down, and this is deeply affecting China.
So what about the United States?
Well, based on the amount of stuff that is being shipped around in our country it appears that our economy is really slowing down too. The following comes from Wolf Richter, and I shared some of it in a previous article, but I think that it bears repeating…
September is in the early phase of the make-or-break holiday shipping season. Shipments usually increase from August to September. They did this year too. The number of shipments in September inched up 1.7% from August, according to the Cass Freight Index.
But the index was down 1.5% from an already lousy September last year, when shipments had fallen from the prior month, instead of rising. And so, in terms of the number of shipments, it was the worst September since 2010.
It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!
The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.
What major retailers such as Wal-Mart are reporting also confirms that we are in a major economic slowdown. Wal-Mart recently announced that its earnings would fall by as much as 12 percent during the next fiscal year, and that caused Wal-Mart stock to drop by the most in 27 years.
And of course this is going to have a huge ripple effect. There are thousands of other companies that do business with Wal-Mart, and Reuters is reporting that they are starting to get squeezed…
Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart Stores. Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week.
The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year.
“The ground is shaking here,” said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas. “Suppliers are going to have to help Wal-Mart get back on track.”
Similar things are going on at some of the other biggest companies in America as well.
For instance, things have gotten so bad for McDonald’s that one franchise owner recently stated that the restaurant chain is “facing its final days”…
“McDonald’s announced in April that it would be closing 700 ‘underperforming’ locations, but because of the company’s sheer size — it has 14,300 locations in the United States alone — this was not necessarily a reduction in the size of the company, especially because it continues to open locations around the world. It still has more than double the locations of Burger King, its closest competitor.”
However, for the franchisees, the picture looks much worse than simply 700 stores closing down.
“We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”
Why would things be so bad at Wal-Mart and McDonald’s if the economy was “recovering”?
Come on now – let’s use some common sense here.
All of the numbers are screaming at us that we have entered a major economic downturn and that it is accelerating.
CNBC is reporting that the number of job openings in the U.S. is falling and that the number of layoffs is rising…
Job openings fell 5.3 percent in August, while a 2.6 percent rise in layoffs and discharges offset a 0.3 percent gain in hires. Finally, the amount of quits — or what Convergex calls its “take this job and shove it” indicator because it shows the percentage of workers who left positions voluntarily — fell to 56.6 percent from 57.1 percent, indicating less confidence in mobility.
And as I discussed the other day, Challenger Gray is reporting that we are seeing layoffs at major firms at a level that we have not witnessed since 2009.
We already have 102.6 million working age Americans that do not have a job right now. As this emerging worldwide recession deepens, a lot more Americans are going to lose their jobs. That is going to cause the poverty and suffering in this country to spike even more, if you can imagine that.
Just consider what authorities discovered on the streets of Philadelphia just this week…
Support is flooding in for a homeless Philadelphia family whose two-year-old son was found wandering alone in a park in the middle of the night.
Angelique Roland, 27, and Michael Jones, 24, were sleeping with their children behind cardboard boxes underneath the Fairmount Park Welcome Center in Love Park when the toddler slipped away.
The boy was found just before midnight and handed over to a nearby Southeastern Pennsylvania Transportation Authority police officer, who took him to the Children’s Hospital of Philadelphia.
He was wearing a green, long sleeve shirt, black running pants and had a diaper on, but did not have shoes or socks.
Could you imagine sleeping on the streets and not even being able to provide your two-year-old child with shoes and socks?
These numbers that I write about every day are not a game. They affect all of us on a very personal level.
Just like in 2008 and 2009, millions of Americans that are living a very comfortable middle class lifestyle today will soon lose their jobs and will end up out in the streets.
In fact, there will be people that will read this article that this will happen to.
So no, none of us should be excited that the global economy is collapsing. There is already so much pain all around us, and what is to come is beyond what most of us would even dare to imagine.
Things continue to line up in textbook fashion for a major financial crisis by the end of 2015. This week, Wall Street has been buzzing about the first “death cross” that we have seen for the Dow since 2011. When the 50-day moving average moves below the 200-day moving average, that is a very important psychological moment for the market. And just like during the run up to the stock market crash of 2008, we are starting to witness lots of wild swings up and down. The Dow was up more than 200 points on Monday, the Dow was down more than 200 points on Tuesday, and it took a nearly 700 point roundtrip on Wednesday. This is exactly the type of behavior that we would expect to see during the weeks or months leading up to a crash. As any good sailor will tell you, when the waters start getting very choppy that is not a good sign. Of course what China is doing is certainly not helping matters. On Wednesday, the Chinese devalued the yuan for a second day in a row, and many believe that a new “currency war” has now begun.
So what does all of this mean?
Does this mean that the time of financial “shaking” has now arrived?
Let’s start with what is happening to the Dow. When the 50-day moving average crosses over the 200-day moving average, it is a very powerful signal. For example, as Business Insider has pointed out, if you would have got into stocks when the 50-day moving average moved above the 200-day moving average in December 2011, you would have experienced a gain of 43 percent by now…
The Dow Jones Industrial Average has been on an unrelenting upward trajectory since its October 2011 low.
The signal that convinced many traders that the market was now moving with a bullish bias was when the 50-day moving average of the index price rose above the 200-day moving average a couple of months later at the end of December.
Since then the market rallied 6,200 points to a high of 18,333 before pulling back to last night’s close of 17,404. That’s a gain of around 43% even though the market is 5% off its high.
But now a cross is happening in the other direction. That is why it is called a “death cross”. It is quite understandable why a lot of investors are freaking out about the fact that the 50-day moving average has moved below the 200-day moving average for the first time in four years. Every major stock market in history has been preceded by a death cross.
Of course no indicator is perfect. Sometimes these death crosses come just before market crashes, and other times nothing much seems to happen. The following comes from MarketWatch…
The 50-day moving average (or “MA”) crossed below a rising 200-day MA on July 7, 2010, when the Dow closed at 10,018.28. The Dow’s closing low for 2010 was actually hit two sessions earlier, at 9,686.48.
But the Dow fell another 5.9% over six weeks after the Aug. 24, 2011 death cross, and tumbled as much as 50% over 14 months after the one appearing on Jan. 3, 2008.
And keep in mind that when the January 2008 death cross appeared, the Dow had lost just 7.8% from its Oct. 9, 2007 peak. That means the bull market was still firmly in place, as the rule of thumb is a bear market is defined by a decline of at least 20% from a significant peak. In addition, the 200-day moving average didn’t turn lower until two weeks after the death cross appeared.
But this is not the only indicator pointing to trouble ahead. Even while we have many stocks hitting 52-week highs, we also have an extraordinary number hitting 52-week lows. This is called a “split market”, and this is a very ominous sign. In fact, according to Peter Boockvar 62 percent of all stocks on the New York Stock Exchange are already trading below their 200-day moving average…
Peter Boockvar, market strategist at Lindsey Group, said he believes the market is in a correction that began a few weeks ago, starting with commodities names getting hit. The small-cap Russell 2000 was also a leader of the declines. “The key is it’s infecting other areas of the market. You have every headwind and every reason to continue this correction,” he said.
“Going into today, 62 percent of the NYSE stocks were trading below the 200-day moving average,” said Boockvar. “More and more companies are dropping out of the bull market.”
At this point, we have already had more than 50 “split days” this year. King World News has just released an article which has pointed out this has only happened four times before, and a major stock market crash has followed each occurrence…
The only other times in history we’ve seen more than 50 split days during the past year were March 1968, August 1972, October 2000 and July 2006.
After all four of those, stocks lost more than a third of their value at some point during the next two years.
Are you starting to see?
A stock market crash is coming.
Another thing that has investors concerned is the fact that we have seen a large divergence between high yield credit and stocks. As Bloomberg has pointed out, when this happens a significant stock market decline follows more than 70 percent of the time…
While not without precedent, instances when anxiety in bonds didn’t seep into equities are rare. More than 70 percent of the time since 1996, as spreads widened as much as they have since April, the S&P 500 has fallen, with the average decline exceeding 10 percent, data compiled by Bloomberg show.
“This is something that sooner or later is going to impact the stock market,” said Russ Koesterich, global chief investment strategist at New York-based BlackRock Inc., which oversees $4.7 trillion. “Credit market conditions have not been benign and easy as where they were last summer.”
On top of everything else, it looks like a global currency war could be erupting.
According to USA Today, this desperate move by China to devalue the yuan may indicate that the Chinese economy is in far worse shape than most had thought…
One, China’s move suggests that its economy is in worst shape than believed. “It highlights the fragility of the global economy,” says Donald Luskin, chief investment officer at TrendMacro. Second, a weaker yuan means a stronger dollar, and a stronger dollar means U.S. products sold in China are more expensive, which means fewer sales of Apple iPhones, hotel rooms offered by Wynn Resorts and computer chips made by Micron Technology.
Lastly, there is a fear that other nations will respond to China by devaluing their own currencies to stay competitive.
“When people start talking about ‘currency wars,’ it’s never a good thing,” says Michael Farr, president of money-management firm Farr, Miller & Washington. “China’s move to devalue its currency could be the first shot across the bow towards a wider currency war.”
As I discussed yesterday, it seems like the phrase “currency war” has been thrown around a lot lately.
But what would that look like, and what would that mean for the global economy?
Well, former IMF economist Stephen Jen is suggesting that we could soon see major currencies all over the planet being devalued by up to 50 percent…
[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil’s real to Indonesia’s rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen.
Volatility measures were already signaling rising distress in emerging markets even before China’s shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months.
The surging U.S. dollar combined with crashing prices for commodity exports has already created a state of crisis in South America. If emerging markets such as Brazil are forced to devalue their currencies to stay competitive with nations such as China, that is going to just exacerbate the problems.
For a long time, things in the financial world were pretty quiet.
But now events are beginning to accelerate.
A lot of people are extremely concerned about what is going to happen in September, and I think that there are very good reasons to be concerned.
Throughout our history, the majority of our stock market crashes have happened in the fall. Just remember what happened in 1929, 1987 and 2008.
Now we are approaching that time of the year once again, and things are lining up perfectly for a major financial crisis.
So what do you personally think will happen? Please feel free to join the discussion by posting a comment below…
If you are looking for a “canary in a coal mine” type of warning for the entire global economy, you have a whole bunch to pick from right now. “Dr. Copper” just hit a six year low, Morgan Stanley is warning that this could be the worst oil price crash in 45 years, the Chinese economy is suddenly stalling out, and world trade is falling at the fastest pace that we have seen since the last financial crisis. In order not to see all of the signs that are pointing toward a global economic slowdown, you would have to be willingly blind. In recent months, I have been writing article after article detailing how the exact same patterns that happened just before the stock market crash of 2008 are playing out once again. We are watching a slow-motion train wreck unfold right before our eyes, and things are only going to get worse from here.
Copper is referred to as “Dr. Copper” because it does such an excellent job of indicating where economic conditions are heading next. We saw this in 2008, when the price of copper started crashing big time in the months leading up to the stock market implosion.
Well, now copper is crashing again. Just check out this chart. The price of copper plunged again on Wednesday, and it is now the lowest that it has been since the last financial crisis. Unfortunately, the forecast for the months ahead is not good. The following is what Goldman Sachs is saying about copper…
“Though we have been bearish on copper on a 12-mo forward basis for the past two and a half years, we have maintained a more bullish medium to long-term stance on the assumption of Chinese copper demand growth of 4% per annum and a major slowing in supply growth around 2017/2018 … we substantially lower our short, medium, and long-term copper price forecasts, on the back of lower Chinese copper demand growth forecasts (we have been highlighting that the risk has been skewed to the downside for some time), increased conviction in copper supply growth over the next three years, and increased conviction in the outlook for mining cost deflation in dollar terms.”
It is funny that Goldman mentioned China so prominently. Even though China’s fake GDP figures say that everything is fine over there, other numbers are painting a very dismal picture.
For instance, Chinese electrical consumption in June grew at the slowest pace that we have seen in 30 years, and capital outflows from China have reached a level that is “frightening”…
Robin Brooks at Goldman Sachs estimates that capital outflows topped $224bn in the second quarter, a level “beyond anything seen historically”.
The Chinese central bank (PBOC) is being forced to run down the country’s foreign reserves to defend the yuan. This intervention is becoming chronic. The volume is rising. Mr Brooks calculates that the authorities sold $48bn of bonds between March and June.
Charles Dumas at Lombard Street Research says capital outflows – when will we start calling it capital flight? – have reached $800bn over the past year. These are frighteningly large sums of money.
Just last month, the Chinese stock market started to crash, but the crash was interrupted when the Chinese government essentially declared a form of financial martial law.
And I don’t think that “financial martial law” is too strong of a term to use in this case. Just consider the following excerpt from a recent article in the Telegraph…
Half the shares traded in Shanghai and Shenzhen were suspended. New floats were halted. Some 300 corporate bosses were strong-armed into buying back their own shares. Police state tactics were used hunt down short sellers.
We know from a vivid account in Caixin magazine that China’s top brokers were shut in a room and ordered to hand over money for an orchestrated buying blitz. A target of 4,500 was set for the Shanghai Composite by Communist Party officials.
So a stock market crash was halted, but in doing so Chinese officials have essentially destroyed the second largest stock market in the world. China’s financial markets have lost all legitimacy, and foreigners are going to be extremely hesitant to put any money into Chinese stocks from now on.
Meanwhile, there is no hiding the fact that trade activity in China and in most of the rest of the planet is slowing down. In fact, world trade volume has now dropped by the most that we have seen since the last global recession. The following comes from Zero Hedge…
As goes the world, so goes America (according to 30 years of historical data), and so when world trade volumes drop over 2% (the biggest drop since 2009) in the last six months to the weakest since June 2014, the “US recession imminent” canary in the coalmine is drawing her last breath…
As Wolf Street’s Wolf Richter adds, this isn’t stagnation or sluggish growth. This is the steepest and longest decline in world trade since the Financial Crisis. Unless a miracle happened in June, and miracles are becoming exceedingly scarce in this sector, world trade will have experienced its first back-to-back quarterly contraction since 2009.
As you probably noted in the chart above, a decline in world trade is almost always associated with a recession.
That was certainly the case back in 2008 and 2009.
Another similarity between the last crisis and what is happening now is a crash in the price of oil.
According to Business Insider, we have just officially entered a brand new bear market for oil…
Oil is officially in a bear market.
On Thursday, West Texas Intermediate crude oil futures fell more than 1% to settle near $48.55 per barrel in New York.
A bear market is roughly defined as a 20% drop from highs. Crude has now fallen by about 20% in the last six weeks.
So what does all of this mean?
All of these signs are indicating that another great economic crisis is here, and that a global financial implosion is just around the corner.
At this point, even many of the “bulls” are sounding the alarm. For example, just consider what Henry Blodget of Business Insider is saying…
As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.
I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!
For those that don’t know, Henry Blodget is definitely not a bear. In fact, he is one of Wall Street’s biggest cheerleaders.
So for Blodget to suggest that we could see the stock market drop by half is a really big deal.
The closer that we get to this next crisis, the clearer that everything is becoming.
Where are things going to go from here? Please feel free to add to the discussion by posting a comment below…
The second largest stock market in the entire world is collapsing right in front of our eyes. Since hitting a peak in June, the most important Chinese stock market index has plummeted by well over 20 percent, and more than 3 trillion dollars of “paper wealth” has been wiped out. Of course the Shanghai Composite Index is still way above the level it was sitting at exactly one year ago, but what is so disturbing about this current crash is that it is so similar to what we witnessed just prior to the great financial crisis of 2008 in the United States. From October 2006 to October 2007, the Shanghai Composite Index more than tripled in value. It was the greatest stock market surge in Chinese history. But after hitting a peak, it began to fall dramatically. From October 2007 to October 2008, the Shanghai Composite Index absolutely crashed. In the end, more than two-thirds of all wealth in the market was completely wiped out. You can see all of this on a chart that you can find right here. What makes this so important to U.S. investors is the fact that Chinese stocks started crashing well before U.S. stocks started crashing during the last financial crisis, and now it is happening again. Is this yet another sign that a U.S. stock market crash is imminent?
Over the past several months, I have been trying to hammer home the comparisons between what we are experiencing right now and the lead up to the U.S. financial crisis in the second half of 2008. Today, I want to share with you an excerpt from a New York Times article that was published in April 2008. At that time, the Chinese stock market crash was already well underway, but U.S. stocks were still in great shape…
The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.
Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.
This sounds almost exactly like what is happening in China right now. First we witnessed a ridiculous Chinese stock market bubble form, and now we are watching a nightmarish sell off take place. This next excerpt is from a Reuters article that was just published…
Shanghai’s benchmark share index crashed below 4,000 points for the first time since April – a key support level that analysts said had been seen as a line in the sand that Beijing had to defend, below which more conservative investors would start ejecting from their leveraged positions, widening the rout.
Chinese markets, which had risen as much as 110 percent from November to a peak in June, have collapsed at an incredibly rapid pace in since June 12, losing more than 20 percent in jaw-dropping volatility as money surges in and out of the market.
That drop has wiped out nearly $3 trillion in market capitalization, more than the GDP of Brazil.
Did you catch that last part?
The amount of wealth that has been wiped out during this Chinese stock market crash is already greater than the entire yearly GDP of Brazil.
To me, that is absolutely incredible.
And now that the global financial system is more interconnected than ever, what goes on over in China has a greater impact on the rest of the globe than ever before. Today, China has the largest economy on the planet on a purchasing power basis, and the Chinese stock market “is the second largest in the world in terms of market capitalization”…
Just as in 1929, flighty retail investors make up the bulk of China’s stock market and, just as in 1929 in the U.S., they have heavily margined their accounts. The Financial Times puts the number of retail investors in the Chinese stock market at 80 to 90 percent of the total market. Retail investors, unlike sophisticated institutional investors, are prone to panic selling, which explains the wild intraday swings in the Shanghai Composite over the past week.
Last night, the Shanghai Composite broke a key technical support level, closing below 4,000 at 3,912.77. The index is now down 24 percent since it peaked earlier this month and has wiped out more than $2.4 trillion in value. China’s stock market is the second largest in the world in terms of market capitalization, with the U.S. ranking number one.
Making world markets even more worried about the situation in China, its regulators are showing a similar brand of leadership as Mario Draghi. After previously pledging to trim back risky margin lending, they have now done a complete flip flop and are permitting individual brokerage firms to avoid selling out accounts that miss margin calls by setting their own guidelines on the amount of collateral needed.
I know that a lot of Americans don’t really care about what happens over in Asia, but when the second largest stock market in the entire world crashes, it is a very big deal.
The great financial crisis of 2015 has now begun, and it is just going to get much, much worse. On Thursday, Ron Paul declared that “the day of reckoning is at hand“, and I agree with him.
So what comes next?
The following is what Phoenix Capital Research is anticipating…
By the time it’s all over, I expect:
1) Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.
2) The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).
3) Japan to have defaulted and very likely enter hyperinflation.
4) US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.
5) Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.
I tend to agree with most of that. I don’t agree that the euro is going to go away, but I do agree that the eurozone is going to break up and be reconstituted in a new form eventually. And yes, we are going to see tremendous inflation all over the world down the road, but I wouldn’t say that it is imminent in Japan or anywhere else. But overall, I think that is a pretty good list.
So what do you think is coming? Please feel free to join the discussion by posting a comment below…
As we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe. In Greece, a full blown bank run is happening right now. Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece. Meanwhile, Chinese stocks are absolutely crashing. The Shanghai Composite Index was down more than 13 percent this week alone. That was the largest one week decline since the collapse of Lehman Brothers. In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed. Slowly but surely, we are starting to see the smart money head for the exits. As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.
I don’t think that most people understand how serious things have gotten already. In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday…
The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.
Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.
All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks. Here is one example…
And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe. But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…
EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.
‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.
His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.
‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.
‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’
While all of this has been going on, the obscene stock market bubble in China has started to implode. Just check out the following numbers from Zero Hedge…
As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).
Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia. But these are not normal times. Even with these losses, stock prices in China are still massively overinflated. For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…
Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.
That is absolutely ridiculous. When a stock is trading at 25 or 30 times earnings it is overpriced. So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.
Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace. The following quote originally comes from Bank of America…
“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”
What this means is that big trouble is brewing in the bond markets. This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.
For the moment, U.S. stocks are doing fine. But just about everyone can see that we in a massive financial bubble that could burst at any time. Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”…
Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.“
Ron Paul also believes that this financial bubble is going to end very badly. Just check out what he told CNBC earlier this week…
Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.
“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”
In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”
Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.
And you know what they say – the bigger they come the harder they fall.
When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.