As bad as the month of January was for the global economy, the truth is that the rest of 2016 promises to be much worse. Layoffs are increasing at a pace that we haven’t seen since the last recession, major retailers are shutting down hundreds of locations, corporate profit margins are plunging, global trade is slowing down dramatically, and several major European banks are in the process of completely imploding. I am about to share some numbers with you that are truly eye-popping. Each one by itself would be reason for concern, but when you put all of the pieces together it creates a picture that is hard to deny. The global economy is in crisis, and this is going to have very serious implications for the financial markets moving forward. U.S. stocks just had their worst January in seven years, and if I am right much worse is still yet to come this year. The following are 22 signs that the global economic turmoil that we have seen so far in 2016 is just the beginning…
1. The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.
2. The Baltic Dry Index just hit yet another brand new all-time record low. As I write this article, it is sitting at 303.
3. U.S. factory orders have now dropped for 14 months in a row.
4. In the U.S., the Restaurant Performance Index just fell to the lowest level that we have seen since 2008.
5. In January, orders for class 8 trucks (the big trucks that you see shipping stuff around the country on our highways) declined a whopping 48 percent from a year ago.
6. Rail traffic is also slowing down substantially. In Colorado, there are hundreds of train engines that are just sitting on the tracks with nothing to do.
7. Corporate profit margins peaked during the third quarter of 2014 and have been declining steadily since then. This usually happens when we are heading into a recession.
8. A series of extremely disappointing corporate quarterly reports is sending stock after stock plummeting. Here is a summary from Zero Hedge of a few examples that we have just witnessed…
- SHARES OF LIONS GATE ENTERTAINMENT FALL 5 PCT IN EXTENDED TRADE AFTER QUARTERLY RESULTS – RTRS
- TABLEAU SOFTWARE SHARES TUMBLE 40 PCT IN AFTER HOURS TRADING – RTRS
- YRC WORLDWIDE SHARES DOWN 16.4 PCT AFTER THE BALL FOLLOWING RESULTS – RTRS
- SPLUNK INC SHARES DOWN 7.6 PCT IN AFTER HOURS TRADING – RTRS
- LINKEDIN SHARES EXTEND DECLINE, DOWN 24 PCT AFTER RESULTS, GUIDANCE – RTRS
- HANESBRANDS SHARES FURTHER ADD TO LOSSES IN EXTENDED TRADE, LAST DOWN 14.9 PCT – RTRS
- OUTERWALL SHARES FALL 11 PCT IN EXTENDED TRADING AFTER QUARTERLY RESULTS – RTRS
- GENWORTH SHARES DOWN 16.5 PCT AFTER THE BELL FOLLOWING RESULTS, RESTRUCTURING PLAN
9. Junk bonds continue to crash on Wall Street. On Monday, JNK was down to 32.60 and HYG was down to 77.99.
10. On Thursday, a major British news source publicly named five large European banks that are considered to be in very serious danger…
Deutsche Bank, Credit Suisse, Santander, Barclays and RBS are among the stocks that are falling sharply sending shockwaves through the financial world, according to former hedge fund manager and ex Goldman Sachs employee Raoul Pal.
11. Deutsche Bank is the biggest bank in Germany and it has more exposure to derivatives than any other bank in the world. Unfortunately, Deutsche Bank credit default swaps are now telling us that there is deep turmoil at the bank and that a complete implosion may be imminent.
12. Last week, we learned that Deutsche Bank had lost a staggering 6.8 billion euros in 2015. If you will recall, I warned about massive problems at Deutsche Bank all the way back in September. The most important bank in Germany is exceedingly troubled, and it could end up being for the EU what Lehman Brothers was for the United States.
13. Credit Suisse just announced that it will be eliminating 4,000 jobs.
14. Royal Dutch Shell has announced that it is going to be eliminating 10,000 jobs.
15. Caterpillar has announced that it will be closing 5 plants and getting rid of 670 workers.
16. Yahoo has announced that it is going to be getting rid of 15 percent of its total workforce.
17. Johnson & Johnson has announced that it is slashing its workforce by 3,000 jobs.
18. Sprint just laid off 8 percent of its workforce and GoPro is letting go 7 percent of its workers.
19. All over America, retail stores are shutting down at a staggering pace. The following list comes from one of my previous articles…
-Wal-Mart is closing 269 stores, including 154 inside the United States.
-K-Mart is closing down more than two dozen stores over the next several months.
-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.
20. According to the New York Times, the Chinese economy is facing a mountain of bad loans that “could exceed $5 trillion“.
21. Japan has implemented a negative interest rate program in a desperate attempt to try to get banks to make more loans.
22. The global economy desperately needs the price of oil to go back up, but Morgan Stanley says that we will not see $80 oil again until 2018.
It is not difficult to see where the numbers are trending.
Last week, I told my wife that I thought that Marco Rubio was going to do better than expected in Iowa.
How did I come to that conclusion?
It was simply based on how his poll numbers were trending.
And when you look at where global economic numbers are trending, they tell us that 2016 is going to be a year that is going to get progressively worse as it goes along.
So many of the exact same things that we saw happen in 2008 are happening again right now, and you would have to be blind not to see it.
Hopefully I am wrong about what is coming in our immediate future, because millions upon millions of Americans are not prepared for what is ahead, and most of them are going to get absolutely blindsided by the coming crisis.
Something has just happened that has signaled a recession every single time that it has occurred since World War I. 16 times since 1919 there have been at least 8 month-over-month declines in industrial production during the preceding 12 month period, and in each of those 16 instances the U.S. economy has plunged into recession. Now that it has happened again, will the U.S. economy beat the odds and avoid a major economic downturn? I certainly wouldn’t count on it. As I have written about repeatedly, there are a whole host of other numbers that are screaming that a new recession is here, and global financial markets are crumbling. It would take a miracle of epic proportions to pull us out of this tailspin, and yet there are many people out there that are absolutely convinced that it will happen.
John Hussman is not one of them. In his most recent weekly comment, he examined this stunning correlation between month-over-month declines in industrial production and recessions. To me, what Hussman has presented is overwhelmingly conclusive…
Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough.
After looking at that chart, is there anyone out there that still doubts that the U.S. economy is in significant trouble?
Many estimates of U.S. GDP growth for the fourth quarter of 2015 are already just a small fraction of one percent. It would not be a surprise at all to see a negative number posted once it is all said and done.
And of course more bad news for the economy just keeps pouring in. So far this week we have learned that the growth rate of federal withholding taxes has turned negative, Johnson & Johnson plans has announced that it is eliminating 3,000 jobs, and BP has announced that it is eliminating 4,000 jobs.
Of course it is not exactly a surprise that BP is cutting jobs. At this point the entire energy industry is absolutely hemorrhaging workers. As I wrote about yesterday, 130,000 good paying energy jobs have been lost in the United States since the beginning of last year.
But now we are seeing major firms outside the energy industry cutting payrolls. Even financial giants such as Morgan Stanley are looking for ways to cut costs…
Morgan Stanley just announced fourth-quarter earnings, and it is providing detail to investors on a cost-saving plan called Project Streamline.
During a conference call, CEO James Gorman uttered a sentence that will most likely make the bank’s staff shudder.
“Too many employees based in high-cost centers are doing work that can sensibly be done in lower-cost centers,” he said.
The whole environment is changing.
When things start to get tough, big corporations start to get rid of people. We saw this back in 2008, and it is starting to happen again right now.
And just like last time around, we are going to see millions of Americans lose their jobs during the hard years that are ahead of us.
But thankfully for the moment there is a brief lull in the action. The financial turmoil that has gripped the planet was calmed on Tuesday when China announced that their economy grew at a rate of 6.8 percent during the fourth quarter of 2015. This was right in line with expectations, and markets around the world responded positively to the news.
There is just one huge problem. Everyone knows that GDP figures coming out of China are essentially meaningless. If you believe that the Chinese economy actually grew at a 6.8 percent rate during the fourth quarter of 2015, then I have a bridge to sell you. Virtually every other number coming out of China over the past several months tells us that the Chinese economy is shrinking, and so that 6.8 percent figure is extremely questionable at best.
Do you want to know the last time the communist Chinese admitted to having a recession?
It was in 1976.
Over the past four decades, economic growth figures have become a source of great national pride for China. To admit that the economy is now imploding would bring great shame on the Chinese government and the nation as a whole, and so that must be avoided at all costs.
Yes, the numbers are fraudulent in the U.S. too. According to John Williams of shadowstats.com, if the U.S. was actually using honest numbers the last recession never would have technically ended.
But in China they take this to ridiculous extremes. The Chinese economy is fueled by exports, and Chinese exports have been down on a year over year basis for six months in a row. And the primary reason why commodity prices have been absolutely collapsing is because of the economic contraction in China.
Of course if China had released a GDP number that was honest, global markets would have crashed hard. So their lies are making everyone else feel a bit better for the moment, and every day of relative stability that we can enjoy from here on out is something to be thankful for.
As you read this article, markets all over Asia, Europe, South America and the Middle East are already in bear market territory. More than 30 percent of the market has been wiped out in Brazil and Hong Kong, more than 40 percent of the market has been wiped out in China and Italy, and about 50 percent of the market has been wiped out in Saudi Arabia.
We are already experiencing a major global financial crisis.
The only question remaining is how bad it will eventually become.
Let us hope for more days like this one that are relatively calm. But I wouldn’t count on things turning around significantly any time soon, because the economic fundamentals are telling us that big trouble is ahead.
For 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.
The world didn’t completely fall apart in 2015, but it is undeniable that an immense amount of damage was done to the U.S. economy. This year the middle class continued to deteriorate, more Americans than ever found themselves living in poverty, and the debt bubble that we are living in expanded to absolutely ridiculous proportions. Toward the end of the year, a new global financial crisis erupted, and it threatens to completely spiral out of control as we enter 2016. Over the past six months, I have been repeatedly stressing to my readers that so many of the exact same patterns that immediately preceded the financial crisis of 2008 are happening once again, and trillions of dollars of stock market wealth has already been wiped out globally. Some of the largest economies on the entire planet such as Brazil and Canada have already plunged into deep recessions, and just about every leading indicator that you can think of is screaming that the U.S. is heading into one. So don’t be fooled by all the happy talk coming from Barack Obama and the mainstream media. When you look at the cold, hard numbers, they tell a completely different story. The following are 58 facts about the U.S. economy from 2015 that are almost too crazy to believe…
#1 These days, most Americans are living paycheck to paycheck. At this point 62 percent of all Americans have less than 1,000 dollars in their savings accounts, and 21 percent of all Americans do not have a savings account at all.
#2 The lack of saving is especially dramatic when you look at Americans under the age of 55. Incredibly, fewer than 10 percent of all Millennials and only about 16 percent of those that belong to Generation X have 10,000 dollars or more saved up.
#3 It has been estimated that 43 percent of all American households spend more money than they make each month.
#4 For the first time ever, middle class Americans now make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.
#5 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.
#6 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.
#7 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.
#8 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.
#9 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.
#10 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.
#11 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.
#12 Since hitting a peak of 69.2 percent in 2004, the rate of homeownership in the United States has been steadily declining every single year.
#13 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.
#14 Traditionally, entrepreneurship has been one of the primary engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low.
#15 For each of the past six years, more businesses have closed in the United States than have opened. Prior to 2008, this had never happened before in all of U.S. history.
#16 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.
#17 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.
#18 If you have no debt and you also have ten dollars in your pocket, that gives you a greater net worth than about 25 percent of all Americans.
#19 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.
#20 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.
#21 According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.
#22 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.
#23 According to Kathryn J. Edin and H. Luke Shaefer, the authors of a new book entitled “$2.00 a Day: Living on Almost Nothing in America“, there are 1.5 million “ultrapoor” households in the United States that live on less than two dollars a day. That number has doubled since 1996.
#24 46 million Americans use food banks each year, and lines start forming at some U.S. food banks as early as 6:30 in the morning because people want to get something before the food supplies run out.
#25 The number of homeless children in the U.S. has increased by 60 percent over the past six years.
#26 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.
#27 Police in New York City have identified 80 separate homeless encampments in the city, and the homeless crisis there has gotten so bad that it is being described as an “epidemic”.
#28 If you can believe it, more than half of all students in our public schools are poor enough to qualify for school lunch subsidies.
#29 According to a Census Bureau report that was released a while back, 65 percent of all children in the U.S. are living in a home that receives some form of aid from the federal government.
#30 According to a report that was published by UNICEF, almost one-third of all children in this country “live in households with an income below 60 percent of the national median income”.
#31 When it comes to child poverty, the United States ranks 36th out of the 41 “wealthy nations” that UNICEF looked at.
#32 An astounding 45 percent of all African-American children in the United States live in areas of “concentrated poverty”.
#33 40.9 percent of all children in the United States that are being raised by a single parent are living in poverty.
#34 There are 7.9 million working age Americans that are “officially unemployed” right now and another 94.4 million working age Americans that are considered to be “not in the labor force”. When you add those two numbers together, you get a grand total of 102.3 million working age Americans that do not have a job right now.
#35 According to a recent Pew survey, approximately 70 percent of all Americans believe that “debt is a necessity in their lives”.
#36 53 percent of all Americans do not even have a minimum three-day supply of nonperishable food and water at home.
#37 According to John Williams of shadowstats.com, if the U.S. government was actually using honest numbers the unemployment rate in this nation would be 22.9 percent.
#38 Back in 1950, more than 80 percent of all men in the United States had jobs. Today, only about 65 percent of all men in the United States have jobs.
#39 The labor force participation rate for men has plunged to the lowest level ever recorded.
#40 Wholesale sales in the U.S. have fallen to the lowest level since the last recession.
#41 The inventory to sales ratio has risen to the highest level since the last recession. This means that there is a whole lot of unsold inventory that is just sitting around out there and not selling.
#42 The ISM manufacturing index has fallen for five months in a row.
#43 Orders for “core” durable goods have fallen for ten months in a row.
#44 Since March, the amount of stuff being shipped by truck, rail and air inside the United States has been falling every single month on a year over year basis.
#45 Wal-Mart is projecting that its earnings may fall by as much as 12 percent during the next fiscal year.
#46 The Business Roundtable’s forecast for business investment in 2016 has dropped to the lowest level that we have seen since the last recession.
#47 Corporate debt defaults have risen to the highest level that we have seen since the last recession. This is a huge problem because corporate debt in the U.S. has approximately doubled since just before the last financial crisis.
#48 Holiday sales have gone negative for the first time since the last recession.
#49 The velocity of money in the United States has dropped to the lowest level ever recorded. Not even during the depths of the last recession was it ever this low.
#50 Barack Obama promised that his program would result in a decline in health insurance premiums by as much as $2,500 per family, but in reality average family premiums have increased by a total of $4,865 since 2008.
#51 Today, the average U.S. household that has at least one credit card has approximately $15,950 in credit card debt.
#52 The number of auto loans that exceed 72 months has hit at an all-time high of 29.5 percent.
#53 According to Dr. Housing Bubble, there have been “nearly 8 million homes lost to foreclosure since the homeownership rate peaked in 2004″.
#54 One very disturbing study found that approximately 41 percent of all working age Americans either currently have medical bill problems or are paying off medical debt. And collection agencies seek to collect unpaid medical bills from about 30 million of us each and every year.
#55 The total amount of student loan debt in the United States has risen to a whopping 1.2 trillion dollars. If you can believe it, that total has more than doubled over the past decade.
#56 Right now, there are approximately 40 million Americans that are paying off student loan debt. For many of them, they will keep making payments on this debt until they are senior citizens.
#57 When you do the math, the federal government is stealing more than 100 million dollars from future generations of Americans every single hour of every single day.
#58 An astounding 8.16 trillion dollars has already been added to the U.S. national debt while Barack Obama has been in the White House. That means that it is already guaranteed that we will add an average of more than a trillion dollars a year to the debt during his presidency, and we still have more than a year left to go.
What we have seen so far is just the very small tip of a very large iceberg. About six months ago, I stated that “our problems will only be just beginning as we enter 2016″, and I stand by that prediction.
We are in the midst of a long-term economic collapse that is beginning to accelerate once again. Our economic infrastructure has been gutted, our middle class is being destroyed, Wall Street has been transformed into the biggest casino in the history of the planet, and our reckless politicians have piled up the biggest mountain of debt the world has ever seen.
Anyone that believes that everything is “perfectly fine” and that we are going to come out of this “stronger than ever” is just being delusional. This generation was handed the keys to the finest economic machine of all time, and we wrecked it. Decades of incredibly foolish decisions have culminated in a crisis that is now reaching a crescendo, and this nation is in for a shaking unlike anything that it has ever seen before.
So enjoy the rest of 2015 while you still can.
2016 is almost here, and it is going to be quite a year…
On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.
The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…
One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…
“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.
“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”
Analysts at Goldman Sachs are even more pessimistic than that. According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…
At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.
After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.
That may sound really good to you, especially if you fill up your gas tank frequently. But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…
“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”
Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.
“This was a devastating blow for the U.S. oil industry,” Cramer said.
On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.
I watch a high yield bond ETF known as JNK very closely. On Monday, JNK broke below 35 for the first time since the financial crisis of 2008. Just like 40 dollar oil, this is a key psychological barrier.
So why is this important?
As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again. If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.
Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016. Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…
Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.
In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.
On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.
“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.
What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started. The evidence is all around us, and yet so many choose to be willingly blind.
Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt. And of course all of this manipulation just made our long-term problems even worse. I really like how Peter Schiff put it recently…
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.
Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.
One of the most important banks in the western world says that the 7th largest economy on the entire planet has entered a full-blown economic depression. Brazil’s economy has now contracted for three quarters in a row, and many analysts believe that things are going to get far worse before they have a chance to get any better. Earlier this year, I warned about “the South American financial crisis of 2015“, and now it is in full swing. The surging U.S. dollar is absolutely crushing emerging markets such as Brazil, and if the Fed raises interest rates this month that is going to make the pain even worse. The global financial system is more interconnected than ever before, and the decisions made by the Federal Reserve truly do have global consequences. So much of the “hot money” that was created by the Fed poured into emerging markets such as Brazil during the good times, but now the process is starting to reverse itself. At this point, it is hard to see how much of South America is going to avoid a complete and total economic disaster.
It is one thing for Michael Snyder from the Economic Collapse Blog to say that the Brazilian economy has entered a “depression”, but it is another thing entirely when Goldman Sachs comes out and publicly says it. The following comes from a Bloomberg article that was just posted entitled “Goldman Warns of Brazil Depression After GDP Plunges Again“…
Latin America’s largest economy shrank more than analysts forecast, as rising unemployment and higher inflation sapped domestic demand, pulling the nation deeper into what Goldman Sachs now calls “an outright depression.”
Gross domestic product in Brazil contracted 1.7 percent in the three months ended in September, after a revised 2.1 percent drop the previous quarter, the national statistics institute said in Rio de Janeiro. That’s worse than all but three estimates from 44 economists surveyed by Bloomberg, whose median forecast was for a 1.2 percent decline. It also marks the first three-quarter contraction since the institute’s series began in 1996, and a seasonally adjusted annual drop of 6.7 percent.
And when you look deeper into the numbers they become even more disturbing.
Unemployment is rising, consumer spending is way down, and investment spending is absolutely collapsing. Here is some of the data that Goldman Sachs just released that comes via Zero Hedge…
Private consumption has now declined for three consecutive quarters (at an average quarterly rate of -8.5% qoq sa, annualized), and investment spending for nine consecutive quarters (at an average rate of -10.0% qoq sa, annualized). Overall, gross fixed investment declined by a cumulative 21% from 2Q2013. The declining capital stock of the economy (declining capital-labor ratio) hurts productivity growth and limits even further potential GDP. The sharp contraction of real activity during 3Q was broad-based: both on the supply and final demand side. Final domestic demand weakened sharply during 3Q2015 (-1.7% qoq sa and -6.0% yoy) with private consumption down 1.5% qoq sa (-4.5% yoy) and gross fixed investment down 4.0% qoq sa (-15.0% yoy). Finally, on the supply side, we highlight that the large labor intensive services sector retrenched again at the margin (-1.0% qoq sa; -2.9% yoy).
The term “economic depression” is not something that should be used lightly, because it conjures up images of the Great Depression of the 1930s. And the Brazilian economy is very important to the global economic system. As I mentioned above, there are only six countries in the entire world that have a larger economy, and Brazil accounts for more than 242 billion dollars worth of exports every year.
So if Brazil is feeling pain, it is going to affect all of us.
Up to this point, everyone had been calling what has been going on in Brazil a “recession”, but now Goldman Sachs is the first major bank to label it “an outright economic depression”…
“What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a report Tuesday.
Of course Brazil is far from alone. The third largest economy on the globe, Japan, has also now slipped into recession territory. So has Russia. And just today we learned that Canadian GDP is plunging…
Who could have seen that coming? It appears, for America’s northern brethren, low oil prices are unequivocally terrible. Against expectations of a flat 0.0% unchanged September, Canadian GDP plunged 0.5% – its largest MoM drop since March 2009 and the biggest miss since Dec 2008.
It is just a matter of time before this global economic downturn catches up with us here in the U.S. too.
In fact, there is evidence that this is already happening.
According to brand new numbers that just came out, manufacturing activity in the U.S. is contracting at the fastest pace that we have seen since the last recession…
Manufacturing in the U.S. unexpectedly contracted in November at the fastest pace since the last recession as elevated inventories led to cutbacks in orders and production.
The Institute for Supply Management’s index dropped to 48.6, the lowest level since June 2009, from 50.1 in October, a report from the Tempe, Arizona-based group showed Tuesday. The November figure was weaker than the most pessimistic forecast in a Bloomberg survey. Readings less than 50 indicate contraction.
Another indicator that I am watching is the velocity of money.
When an economy is healthy, money tends to flow fairly freely. I buy something from you, and then you buy something from someone else, etc.
But when economic conditions start to get tough, people start to hold on to their money. That means that money doesn’t change hands as quickly and the velocity of money goes down. As you can see below, the velocity of money has declined during every single recession since 1960…
When a recession ends, the velocity of money normally starts going back up.
But a funny thing happened when the last recession ended. The velocity of money ticked up slightly, but then it started going down steadily. In fact, it has kept on declining ever since and it has now hit a brand new all-time record low.
This is not normal. Yes, Wall Street is temporarily flying high for the moment, but the underlying economic fundamentals are all screaming that something is horribly wrong.
A global crisis has begun, and the U.S. will not be immune from it. I truly believe that we are heading toward the worst economic downturn that any of us have ever experienced.
But there are many out there that insist that nothing is the matter and that happy times are ahead.
So who is right and who is wrong?
We will just have to wait and see…
The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.
Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…
As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.
And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…
“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”
Many “experts” seem mystified by all of this, but the explanation is very simple.
For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…
Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.
The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.
The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.
Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.
But it looks like they are going to do it anyway.
It has been said that those that refuse to learn from history are doomed to repeat it.
And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.
A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.
But that is not true at all.
The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.
Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.
Because if they do, it will just make the global crisis that is now emerging much, much worse.
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.