I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday. I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already. Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low. Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine. In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates. Of course the truth is that there is no “economic recovery” on the horizon. In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis. This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.
Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months. Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this. If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…
A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).
The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.
It is also known as the “Dry Bulk Index”.
Much of the decline of the Baltic Dry Shipping Index is being blamed on China. The following comes from a Bloomberg report that was posted on Thursday…
The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.
The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.
So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes. Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis. Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…
The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.
Just look at the price of U.S. oil. It just keeps on falling, and as I write this article it is sitting at $40.40.
The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.
And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.
So don’t be fooled by the temporary “stock market recovery” that we have witnessed. The underlying economic fundamentals continue to decline. We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.
At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.
And such an event may be coming sooner than you may think.
We live at a time when global terrorism is surging, relationships between nations are deteriorating and our planet is shaking in wild and unpredictable ways.
It wouldn’t take much to push the financial world into full-blown panic mode. A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.
The global financial system has never been more primed for another 2008-style crisis. Thanks to the fragility of the system, it could literally happen any day now.
So keep your eyes open – within weeks our world could be completely and totally different.
The biggest bank in the western world has just come out and declared that the global economy is “already in a recession”. According to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent. So those that are waiting for the next worldwide economic recession to begin can stop waiting. It is officially here. As you will see below, money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun. Just a few days ago, I explained that the IMF, the UN, the BIS And Citibank were all warning that a major economic crisis could be imminent. They aren’t just making this stuff up out of thin air, but most Americans still seem to believe that everything is going to be just fine. The level of blind faith in the system that most people are demonstrating right now is absolutely astounding.
The numbers say that the global economy has not been in this bad shape since the devastating recession that shook the world in 2008 and 2009. According to HSBC, “we are already in a dollar recession”…
Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. As can be seen in Chart 3 on the following page, global GDP expressed in US dollars is already negative to the tune of USD 1,37trn or -3.4%. That is, we are already in a dollar recession.
Here is the chart that Zero Hedge posted along with the quote above. As you can see, the only time global GDP expressed in U.S. dollars has fallen faster in recent years was during the horrible recession of seven years ago…
But there are still a whole lot of incredibly clueless people running around out there claiming that “nothing is happening” even though more signs of trouble are erupting all around us every single day.
For instance, just today CNBC published an article entitled “The US is closer to deflation than you think“, and Twitter just announced that it plans to lay off 8 percent of its entire workforce.
But of course the biggest problems are happening in “emerging markets” right now. The following is an excerpt from an article that was just published in a major British news source entitled “The world economic order is collapsing and this time there seems no way out“…
Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.
China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.
Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.
It is one thing for The Economic Collapse Blog to warn that “the world economic order is collapsing”, but this is one of the biggest newspapers in the UK.
I was writing about these emerging market problems back in July, but at that time very few really understood the true gravity of the situation. But now giant banks such as Goldman Sachs are calling this the third stage of the ongoing global financial crisis. The following comes from a recent CNBC piece entitled “Is EM turmoil the third wave of the financial crisis? Goldman thinks so“…
Emerging markets aren’t just suffering through another market rout—it’s a third wave of the global financial crisis, Goldman Sachs said.
“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week.
The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.
You know that it is late in the game when Goldman Sachs starts sounding exactly like The Economic Collapse Blog. I have been warning about a “series of waves” for years.
When will people wake up?
What is it going to take?
The crisis is happening right now.
Of course many Americans will refuse to acknowledge what is going on until the Dow Jones Industrial Average collapses by several thousand more points. And that is coming. But let us all hope that day is delayed for as long as possible, because all of our lives will become much crazier once that happens.
And the truth is that many Americans do understand that bad times are on the horizon. Just check out the following numbers that were recently reported by CNBC…
The CNBC All-America Economic Survey finds views on the current state of the economy about stable, with 23 percent saying it is good or excellent and 42 percent judging it as fair. About a third say the economy is poor, up 3 points from the June survey.
But the percentage of Americans who believe the economy will get worse rose 6 points to 32 percent, the highest level since the government shutdown in 2013. And just 22 percent believe the economy will get better, 2 points lower than June and the lowest level since 2008, when the nation was gripped by recession.
If you want to believe that everything is going to be just fine somehow, then go ahead and believe that.
All I can do is present the facts. For months I have been warning about this financial crisis, and now it is playing out as a slow-motion train wreck right in front of our eyes.
We are moving into a period of time during which events are going to start to move much more rapidly, and life as we know it is about to change in a major way for all of us.
Hopefully you have already been preparing for what is about to come.
If not, I wouldn’t want to be in your position.
The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…
Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.
Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.
This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.
The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.
But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.
The Bank of England, the UN and the Bank for International Settlements have all issued similar ominous warnings. The following is an excerpt from a recent article in the Guardian…
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.
I particularly like Andy Haldane’s likening our current situation to a “three-part crisis trilogy”. I think that is perfect. And if you are familiar with movie trilogies, then you know that the last episode is usually the biggest and the baddest.
Citigroup economist Willem Buiter also believes that big trouble is on the horizon. In fact, he is publicly warning of a “global recession” in 2016…
Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.
“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”
Usually when we are plunged into a new crisis there is some sort of “trigger event” that creates widespread panic. Yesterday, I wrote about the ongoing problems at commodity giants such as Glencore, Trafigura and The Noble Group. The collapse of any of them could potentially be a new “Lehman Brothers moment”.
But something else happened just yesterday that is also extremely concerning. Just a couple of weeks ago, I warned that the biggest bank in Germany, Deutsche Bank, was on the verge of massive trouble. Well, on Wednesday the bank announced a loss of more than 6 billion dollars for the third quarter of 2015…
Deutsche Bank’s new boss John Cryan set about cleaning up Germany’s biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut.
Write downs, impairments and litigation costs all contributed to the loss, the bank said.
Cryan became chief executive in July with a promise to cut costs. The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to ax about 23,000 jobs, or a quarter of the bank’s staff, sources told Reuters last month.
Keep an eye on Germany – the problems there are just beginning.
Something else that I am closely watching is the fact that major exporting nations such as China that used to buy up lots of U.S. government debt are now dumping that debt at an unprecedented pace. The following comes from Wolf Richter…
Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.
For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.
China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion.
Yes, I know, the stock market went up once again on Thursday, and all of the irrational optimists are once again telling us that everything is going to be just fine.
The truth, of course, is that everything is not going to be just fine. Ever since I started the Economic Collapse Blog, I have never wavered in my belief that the greatest economic crisis that the United States has ever seen is coming, and I have written well over 1000 articles setting forth the case for the coming collapse in excruciating detail. Nobody is going to be able to say that I didn’t try to warn them.
Those that have blind faith in Barack Obama, Wall Street, the Federal Reserve and the other major central banks around the planet will continue to mock the idea that a major collapse is coming for as long as they can.
But when the day of reckoning does arrive and crisis coming knocking at their doors, what will they do then?
There is so much confusion out there. On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I “nailed” my call for the second half of this year. But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down. Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down. A perfect example of this is what we experienced during the financial crisis of 2008. 9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year. If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.
On Tuesday, the Dow surged several hundred points. There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag. And we saw this volatility carry over into Wednesday. The Dow was up 171 points early in the day before ending down 239 points.
By themselves, those two days don’t mean a whole lot. The key is to look at them in context. And in context, we have already witnessed the most dramatic stock market crash since the last financial crisis.
There will be more days when the stock market absolutely plummets and there will be more days when it absolutely soars. No stock market crash in U.S. history has ever gone in just one direction continually. There are always giant waves of momentum that cause panic selling and panic buying.
There is one thing that could change that. A major “black swan event” such as a historic natural disaster, an unprecedented terror attack, or the outbreak of war could potentially be enough to chase all of the buyers out of the marketplace. And considering the times that we are moving into, those things should not be ruled out.
But minus some type of event like that, we should expect lots of wild swings in both directions.
Over the past couple of years, I have repeatedly attempted to explain the general principle that markets tend to go up when they are calm and they tend to go down when they are volatile.
If you want the bull market to return, you should be rooting for lots of really, really boring days on Wall Street.
When things are boring, investors make money.
Days that are “exciting” are really bad for Wall Street. Investors like a world that is predictable, and when conditions start changing rapidly they get very, very nervous.
In the months ahead, trillions of dollars are going to be lost in stock markets all over the planet. Feel bad for the retirees and the hard working families that are going to get wiped out by this, but don’t feel bad for the banksters. They have been laughing it up while most of the country has been suffering during our ongoing economic decline. If you don’t believe me, just check out this YouTube clip.
A lot of people are going to be paralyzed during this time, because they won’t know what to do. They didn’t heed the warnings up until now, and they thought that they would be able to safely get out of the market when things started getting crazy. The big ups and big downs in the markets will confuse them, and the mainstream media will be telling them that everything is just fine.
If you have been waiting for the market to send you “warning signals”, then you can stop waiting because it is happening right in front of your eyes.
Now is not a time for fear. Personally, I seek to live my live in a constant state of peace without any fear even though I write about some very hard realities almost every day.
This is part of the reason why I so adamantly encourage people to prepare for what is ahead. Knowledge and preparation can help eliminate fear.
If you already know what is coming and you are already prepared for it, you won’t be freaking out like the rest of the general population will be when things start really going crazy.
I want to share something with you that Brandon Smith wrote recently…
Panic betrays and fear kills. The preparedness culture is built upon the ideal that one must defeat fear in order to live. How a person goes about removing uncertainty from the mind is really up to the individual. For me, combat training and mixed martial arts is a great tool. If you get used to people trying to hurt you in a ring, it’s not quite as surprising or terrifying when it happens in the real world. If you can handle physical and mental trauma in a slightly more controlled environment, then fear is less likely to take hold of you during a surprise disaster.
Six months may be enough time to enter a state of mental preparedness, it may not be, but more than anything else, this is what you should be focusing on. All other survival actions depend on it. Your ability to function personally, your ability to work with others, your ability to act when necessary, all rely on your removal of fear. Take the precious time you have now and ensure you are ready to handle whatever the future throws at you.
Life in America in the years ahead is going to look dramatically different from what life in America looks like right now.
Do you have some specific tips on getting prepared for what is coming that you would like to share with the rest of us? Please feel free to join the discussion by posting a comment below…
You can stop waiting for a global financial crisis to happen. The truth is that one is happening right now. All over the world, stock markets are already crashing. Most of these stock market crashes are occurring in nations that are known as “emerging markets”. In recent years, developing countries in Asia, South America and Africa loaded up on lots of cheap loans that were denominated in U.S. dollars. But now that the U.S. dollar has been surging, those borrowers are finding that it takes much more of their own local currencies to service those loans. At the same time, prices are crashing for many of the commodities that those countries export. The exact same kind of double whammy caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.
As you read this article, almost every single stock market in the world is down significantly from a record high that was set either earlier this year or late in 2014. But even though stocks have been sliding in the western world, they haven’t completely collapsed just yet.
In much of the developing world, it is a very different story. Emerging market currencies are crashing hard, recessions are starting, and equity prices are getting absolutely hammered.
Posted below is a list that I put together of 23 nations around the world where stock market crashes are already happening. To see the stock market chart for each country, just click the link…
6. South Korea
Of course this is just the beginning. The western world is going to feel this kind of pain as well very soon. I want to share with you an excerpt from an article that just appeared in the Telegraph entitled “Doomsday clock for global market crash strikes one minute to midnight as central banks lose control“. You see, the Telegraph is not just one of the most important newspapers in the UK – it is truly one of the most important newspapers in the entire world. When it speaks on financial matters, millions of people listen very carefully. So for the Telegraph to declare that the countdown to a “global market crash” is “one minute to midnight” is a very, very big deal…
When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.
Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
I encourage you to read the rest of that excellent article right here. It contains lots of charts and graphs, and it discusses many of the exact same things that I have been hammering on for months.
When one of the newspapers of record for the entire planet starts sounding exactly like The Economic Collapse Blog, then you know that it is late in the game.
Others are sounding the alarm about an imminent global financial crash as well. For example, just consider what Egon von Greyerz recently told King World News…
Eric, I fear that this coming September – October all hell will break loose in the world economy and markets. A lot of factors point to that, both fundamental and technical indicators and this indicates that we could have a number of shocks this autumn.
Sadly, most investors will hold stocks, bonds and property and will see any decline in value as an opportunity. It will be a long time and a very big fall before they realize that the system will not help them this time because the central bankers have run out of ammunition to save the global financial system one more time. Yes, we will see more massive money printing, but it will just make things worse. And at some stage, which could be quite soon, real fear will set in, a fear of a magnitude the world has not experienced before.
Hmm – there is another example of someone talking about September. It is funny how often that month keeps coming up.
And of course most of the major stock market crashes in U.S. history have been in the fall. Just go back and take a look at what happened in 1929, 1987, 2001 and 2008.
The “smart money” has been pulling their money out of stocks for quite a while now, and at this point a lot of others have hopped on the bandwagon. The following comes from CNBC…
The flight of investor money from U.S. stocks has turned into a stampede.
In fact, the $78.7 billion leaving domestic equity-focused funds has been worse in 2015 than it was even during the financial crisis years, when the S&P 500 tumbled some 60 percent, according to data released Friday by Morningstar. The total is the highest since 1993.
Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Even a strong flow of money into passively managed exchange-traded funds has been unable to offset the stream to the exit among retail investors, who generally focus more on mutual funds than ETFs.
A global financial crisis has already begun.
So those that were claiming that one would not happen in 2015 are already wrong.
Over the coming months we will find out how bad it will ultimately be.
Sometimes I get criticized for talking about these things. There are a few people out there that don’t like all of the “doom and gloom” that I discuss on my website. Apparently it is a bad thing to talk about the things that really matter and we should all just be “keeping up with the Kardashians” instead.
I consider myself just to be another watchman on the wall. From our spots on the wall, watchmen such as myself all over the nation are sounding the alarm about what we clearly see coming.
If we saw what was coming and we did not warn the people, their blood would be on our hands. But if we do warn the people, then we have done our duty.
Every day I just do the best that I can with what I have been given. And there are many others just like me that are doing exactly the same thing.
Those that do not like the warning message are going to feel really stupid when things start falling apart all around them and they finally realize how wrong they truly were.
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…