An epidemic of creepy clown sightings is sweeping America, and authorities don’t know who or what is behind it. In some instances, clowns with horrific expressions painted on their faces have been spotted standing on the side of the road, lurking near the edge of the woods or just roaming about town staring at random people. But in other instances there have been reports of clowns actually attempting to lure children with gifts, and there have even been some reports of children running away from creepy clowns that were chasing after them. While doing research for this article, I came across recent creepy clown sightings from South Carolina, North Carolina, Ohio, Florida, Wisconsin, California, Alabama, Georgia and West Virginia. This is truly a nationwide phenomenon, and many believe that it will get even worse as Halloween approaches.
This creepy clown trend appears to have begun with a very disturbing case at an apartment complex in South Carolina…
Donna Arnold, one of the people residing at the complex who received the letter, said she called the Greenville County Sheriff’s Office to come out to Fleetwood Manor after her son and others reported seeing clowns behind the basketball court.
“I thought my child was seeing things,” Arnold said. “And then the next day I had about 30 kids come up to me and say, ‘Did you see the clown in the woods?”
Community activist Bruce Wilson said he is getting involved at the apartments to make sure children are safe, even if the sightings turn out to be harmless.
Authorities say that their investigation into this incident found that the clowns were approaching children with the intent “to persuade them into the woods further by displaying large amounts of money“.
At least one child that personally interacted with these clowns testified “that they had candy and they would give it to them if they came there“.
Whether people are dressed as clowns or not, attempting to abduct children in no joke.
Unsurprisingly, this case made national headlines, and at that point it appears that a whole host of copycats started to come out of the woodwork. The following is how an article in the Week summarized what happened next…
A week later, a boy at an apartment ten miles away reported seeing a man in a clown mask in the woods near his home. Later that night, a boy at an apartment just three miles from Fleetwood Manor reported seeing another clown. That apartment also sits on the edge of a wooded area. There was another local sighting the next day. The following day, a woman told police she saw a clown standing outside a Greenville laundromat, simply staring at her.
By then, the clowns had begun to mobilize. The previous day, a 14-year-old boy in Columbus, Ohio, said that a man wearing a clown mask chased him with a knife while the boy was walking to his school bus stop. Less than a week later, on Sept. 5, two children in Winston-Salem, N.C., claimed a clown was offering candy, as long as they would follow him into the woods. Later that night, a woman in the area claimed that a clown tried to coax her into the woods, except this one was carrying a machete. He wore black gloves and a black tie. The next morning, in the nearby town of Greensboro, a man said he saw a clown in the woods behind his apartment. Yellow polka-dotted shirt, blue pants.
Since that time the creepy clown sightings have not stopped, and one of the most alarming incidents of all just took place in McDuffie County, Georgia…
“It was this morning at 6:30 when we were leaving at the house,” said Cameron Frails, who saw the clown.
But as Frails and his neighbor, Hannah Rice, started walking, they noticed something.
“I was standing over there,” said Rice. “And I was like, ‘who’s that guy following Cameron?'”
“We saw a man with all black on, clown mask and a red wig,” said Frails.
They said they saw at least two men dressed in all black coming toward them between two trailers, so they started running.
But that isn’t the only report of these creepy clowns trying to chase down children. Here is another one from Georgia…
According to the police report, the woman said the children told her they were leaving the community center as it was getting dark Monday evening when five people dressed as clowns and wearing masks emerged from a white panel van and began chasing them.
The 48-year-old woman also told police she saw a white panel van slowly driving past her home prior to the supposed incident at the community center around the corner, on McKinley Drive.
A lot of the copycats out there may be doing this sort of thing as a prank, but law enforcement authorities are beginning to take this threat very seriously.
In fact, Time Magazine is reporting that two schools in Alabama “were put on lockdown” on Friday due to threats from a group known as “Flomo Clowns”…
Two southern Alabama schools were put on lockdown Friday because of threatening Facebook messages and emojis posted on the now-deleted page of a group called the ‘Flomo Klowns.’
The sinister Facebook messages said “It’s going down tonight,” followed by revolver emojis, and “I love kids.” A parent also contacted the Flomaton Police Department to say her child had been sent threatening messages by the group.
The entrances to Flomaton High School, which has around 400 students, and Flomaton Elementary School, which has about 300, were locked, as well as internal doors. Local officers and sheriff deputies secured the school grounds and searched the area, AL reports.
I think that this is another example of how sick and twisted our society has become. There are a lot of unbalanced people out there that get a thrill from spreading terror, and the initial clown stories have inspired them to capitalize on this trend.
If you are able to take a photograph or some video of these creepy clowns, please feel free to contact me. “Killer clown” costumes are always extremely popular during the Halloween season, and I have a feeling that this wave of terror is only going to intensify as we approach the end of October.
One photograph of a creepy clown that was taken on Simmons River Road near Duhring, West Virginia has gotten a lot of attention on social media. It was originally posted by Karen Mann Hicks on Facebook, and you can view it right here…
Hopefully this creepy clown craze will soon fade, but it is a quick way for deeply disturbed individuals to “get on the news”, and so it seems likely that there will be even more copycats.
But those that are tempted to dress up like creepy clowns and terrorize children should be aware that police all over the nation are taking this very seriously, and arrests will likely be made at the first sign of trouble.
More stock market wealth was lost on Friday than on any other day in world history. As you will see below, global investors lost two trillion dollars on the day following the Brexit vote. And remember, this is on top of the trillions that global investors have already lost over the past 12 months. It is important to understand that the Brexit vote was not the beginning of a new crisis – it has simply accelerated a global financial crisis that started last year and that was already in the process of unfolding. As I noted on Friday, we have been waiting for “the next Lehman Brothers moment” that would really unleash fear and panic globally, and now we have it. The next six months should be absolutely fascinating to watch.
According to CNBC, the total amount of money lost on global stock markets on Friday surpassed anything that we had ever seen before, and that includes the darkest days of the financial crisis of 2008…
Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.
The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.
And of course many of the wealthiest individuals on the planet got absolutely hammered. According to Bloomberg, the 400 richest people in the world lost a total of $127.4 billion dollars on Friday…
The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.
Could you imagine losing a billion dollars on a single day?
I am sure that Bill Gates and Jeff Bezos are not shivering in their boots quite yet, but what if the markets keep on bleeding like they did in 2008?
On the other hand, globalist magnate George Soros made a ton of money on Friday because he had positioned himself for a Brexit ahead of time. The following comes from the London Independent…
The billionaire who predicted Brexit would bring about “Black Friday” and a crisis for the finances of ordinary people appears to have profited hugely from the UK’s surprise exit from the EU.
George Soros is widely known as the man who “broke” the Bank of England in 1992, when he bet against the pound and made a reported £1.5bn.
Although the exact amount Mr Soros has gained after Brexit is not known, public filings show he doubled his bets earlier this year that stocks would fall.
So what will happen on Monday when the markets reopen?
Personally, I don’t think that it will be as bad as Friday.
But I could be wrong.
In early trading, Dow futures, S&P 500 futures and Nasdaq futures are all down…
Dow futures fell by 90 points in early trading, while S&P 500 futures slipped 11 points, and NASDAQ futures dipped 24 points. Gold futures rose, in a reflection of sustained demand for safe-haven assets.
And at this moment, the British pound is getting absolutely crushed. It is down to 1.33, and I would expect to see it fall a lot lower in the weeks and months to come.
Well, the truth is that now that the British people have voted to leave the EU, the globalists have to make it as painful as possible on them in order to send a warning to other nations that may consider leaving. I think that a recent article by W. Ben Hunt explained this very well…
What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain). Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.
The elite need a crisis now in order to show everyone that globalism is the answer and not the problem. If the British people were allowed to thrive once they walked away, that would only encourage more countries to go down the exact same path. This is something that the elite are determined to avoid.
The Brexit vote has barely sunk in, and Bank of America and Goldman Sachs are already projecting a recession for the United Kingdom. Sadly, I believe that this is what we will see happen.
But it won’t just be the British that suffer.
On Friday, European banking stocks had their worst day ever. In particular, Deutsche Bank fell an astounding 17.49 percent to an all-time record closing low of 14.72. I have warned repeatedly about the implosion of Deutsche Bank, and this crisis could be the catalyst for it.
In addition, I have repeatedly warned about the slow-motion meltdown that is happening in Japan. On Friday, Japanese stocks lost 1286 points, and the yen surged in the exact opposite direction that the government is trying to send it…
Tokyo, we have a problem.
Last week, market tumult stemming from the U.K.’s vote to quit the European Union drove the British pound to its weakest levels in three decades.
Yet it also sent investors flocking to traditional safe haven assets like the U.S. dollar, gold and the yen, the latter surging against every major currency as the results of Brexit became clear: Dollar/yen spiked from a Thursday high near 107 to a two-year low near 99.
Just like in 2008, there will be days when global markets will be green. When that happens, it will not mean that the crisis is over.
If you follow my work closely, then you know that it is imperative to look at the bigger picture. Over the past 12 months, there have been some very nice market rallies around the world, but investors have still lost trillions of dollars overall.
What happens on any one particular day is not the story. Rather, the key is to focus on the long-term trends.
And without a doubt, this Brexit vote could be “the tipping point” that greatly accelerates our ongoing woes…
“Brexit is the biggest global monetary shock since 2008,” said David Beckworth, a scholar at the Mercatus Center at George Mason University, in a blog post on Friday. “This could be the tipping point that turns the existing global slowdown of 2016 into a global recession.”
We were already dealing with a new global economic crisis without the Brexit vote. But what this does is it introduces an element of panic and fear that had been missing up until this current time.
And markets do not like panic and fear very much. In general, markets tend to go up when things are calm and predictable, and they tend to go down when chaos reigns.
Unfortunately, I believe that we are going to see quite a bit more chaos for the rest of 2016, and the trillions that were lost on Friday may turn out to be just the tip of the iceberg.
Has the next Lehman Brothers moment arrived? Late Thursday night we learned that the British people had voted to leave the European Union, and this could be the “trigger event” that unleashes great financial panic all over the planet. Of course stocks have already been crashing all over the globe over the past year, but up until now we had not seen the kind of stark fear that the crash of 2008 created following the collapse of Lehman Brothers. The British people are certainly to be congratulated for choosing to leave the tyrannical EU, and if I could have voted I would have voted to “leave” as well. But just as I warned 10 days ago, choosing to leave will “throw the entire continent into a state of economic and financial chaos”. And “Black Friday” was just the beginning – the pain from this event is going to continue to be felt for months to come.
The shocking outcome of the Brexit vote caught financial markets completely off guard, and the carnage that we witnessed on Friday was absolutely staggering…
-The Dow Jones Industrial Average plunged 610 points, and this represented the 9th largest one day stock market crash in the history of the Dow.
-The Nasdaq was hit even harder than the Dow. It declined 4.12 percent which was the biggest one day decline since 2011.
-Overall, Black Friday erased approximately 800 billion dollars of stock market wealth in the United States.
-Thursday was the worst day ever for the British pound, and investors were stunned to see it collapse to a 31 year low.
-Friday was the worst day ever for European banking stocks.
-Friday was the worst day for Italian stocks since 1997.
-Friday was the worst day for Spanish stocks since 1987.
-Japan experienced tremendous chaos as well. The Nikkei fell an astounding 1286 points, and this was the biggest drop that we have seen in more than 16 years.
-Banking stocks all over the planet got absolutely pummeled on Black Friday. The following comes from USA Today…
Stocks of some British-based banks suffered double-digit losses in heavy U.S. trading. Barclays (BCS) shares plunged 20.48% to close at $8.89. HSBC (HSBC) shares closed down 9.04% at $30.68. And shares of Royal Bank of Scotland (RBS) plummeted 27.5% to a $5.43 close.
Top U.S. banks also suffered from the Brexit fallout, although not as badly as their British counterparts.
Shares of JPMorgan Chase (JPM) closed down 6.95% at $59.60. Bank of America (BAC) shares fell 7.41% to a $13 close. Citigroup (C) shares dropped 9.36% to close at $40.30. And Wells Fargo (WFC) closed 4.59% lower at $45.71.
-Friday was the best day for gold since the collapse of Lehman Brothers.
-George Soros made a killing on Black Friday because he had already positioned his company to greatly benefit from the Brexit vote ahead of time.
But please don’t think that “Black Friday” was just a one day thing. As I warned before, the Brexit vote “could be the trigger that changes everything“. And if you don’t believe me on this, perhaps you will listen to former Federal Reserve Chairman Alan Greenspan. This is what he told CNBC on Friday…
“This is the worst period, I recall since I’ve been in public service,” Greenspan said on “Squawk on the Street.”
“There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away.”
I completely agree with Greenspan on this point. This “corrosive effect” on global markets is not going to go away any time soon. Sure there will be days when the markets are green just like there were after the collapse of Lehman Brothers, but overall the trend will be down.
Now that the United Kingdom has decided to leave the EU, financial markets have been gripped by fear and uncertainty, and there is a great deal of concern that this Brexit “could harm the economies of everyone involved”…
Important British trading partners — including India and China — indicated they were worried that an exit would create regulatory and political volatility that could harm the economies of everyone involved.
The U.K.’s Treasury itself reported that its analysis showed the nation “would be permanently poorer” if it left the EU and adopted any of a number of likely alternatives. “Productivity and GDP per person would be lower in all these alternative scenarios, as the costs would substantially outweigh any potential benefit of leaving the EU,” a summary of the report said.
This threat even extends to the United States. CNN just published an article that lists four ways the U.S. could be significantly affected by all of this…
1. Fears that the EU may be falling apart
2. Volatile markets slow down the engine of U.S. growth
3. Brexit triggers a strong dollar, which hurts U.S. trade
4. Brexit forces the Fed to rewrite its rate hike playbook
Fortunately we are now heading into the weekend, and that might have a calming effect on the markets.
Or it might just cause financial tension to build up to an extremely high level which will subsequently be released on Monday morning.
We shall see.
RCB’s Charlie McElligott is warning that Black Friday was just the beginning and that “today is the appetizer for Monday”.
And UBS derivatives strategist Rebecca Cheong says that we could see more than a hundred billion dollars of selling over the next two to three trading days…
Strategies designed to mitigate risk will actually add to downward pressure in the S&P 500 over the next week as computerized selling ramps up to keep pace with falling prices. It reminds Cheong of the rapid stock selling that roiled markets in August, when the S&P 500 fell 11 percent to a 10-month low while facing similar behavior from algorithmic traders.
“The bigger the down move today, the more they have to sell, which would basically create a vicious cycle,” Cheong, head of Americas equity derivatives strategy at UBS, said in a phone interview. “We’ll see front-loaded selling in the range of $100 billion to $150 billion over the next two to three days. It could be very similar to August in terms of model-based selling.”
Personally, I am hoping for calm when the markets open on Monday. But without a doubt, something has now shifted as a result of this Brexit vote, and things have suddenly become a whole lot more serious.
So what do you believe we will see happen next week?
Please feel free to tell us what you think by posting a comment below…
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
Mainstream news outlets are already starting to use the phrase “economic collapse” to describe what is going on in some areas of our world right now. For many Americans this may seem a bit strange, but the truth is that the worldwide economic slowdown that began during the second half of last year is starting to get a lot worse. In this article, we are going to examine evidence of this from South America, Europe, Asia and North America. Once we are done, it should be obvious that there is absolutely no reason to be optimistic about the direction of the global economy right now. The warnings of so many prominent experts are now becoming a reality, and what we have witnessed so far are just the early chapters of a crushing economic crisis that will affect every man, woman and child in the entire world.
Let’s start with Brazil. It has the 7th largest economy on the entire planet, and it is already enduring its worst recession in 25 years. In fact, at the end of last year Goldman Sachs said that what was going on down there was actually a “depression“.
But now the crisis in Brazil has escalated significantly.
I want to share with you an excerpt from a recent article entitled “Brazil: Economic collapse worse than feared“. I know, that title sounds like it comes directly from The Economic Collapse Blog, but I didn’t write it.
It actually comes from CNN…
Amid political chaos, Brazil’s economic collapse is worse than its government once believed.
In the midst of rising calls to impeach President Dilma Rousseff, Brazil’s central bank announced Thursday that it now expects the country’s economy to shrink 3.5% this year.
That’s worse than the central bank’s previous estimate for a 1.9% contraction. The darker forecast matches what the International Monetary Fund projected for Brazil — Latin America’s largest country — and what many independent economists have suspected.
It is one thing for Michael Snyder to tell you that Brazil is in the midst of “economic collapse”, but it is another thing entirely for CNN to say it.
And of course I have been warning about the crisis down in Brazil for quite some time now. For much more on this, please see my previous article entitled “The Economic Collapse Of South America Is Well Underway“.
Meanwhile, things are actually much worse in Venezuela than they are in Brazil. Food and basic supplies are in short supply, the inflation rate has hit 720 percent, and crime is completely out of control.
The following is from an article in the Independent entitled “Venezuela is on the brink of complete economic collapse“…
The only question now is whether Venezuela’s government or economy will completely collapse first.
The key word there is “completely.” Both are well into their death throes. Indeed, Venezuela’s ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it’s hard to see that getting any better for them any time soon — or ever.
Incumbents, after all, don’t tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It’s no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.
Once again we see a very respected mainstream publication using the phrase “economic collapse” to describe what is happening in South America.
You can find some stunning video of the “economic Armageddon” that is taking place in Venezuela right here. I would encourage you to watch that video, because what is happening down there will eventually be happening here.
Meanwhile, over in Europe the collapse of the Italian banking system has entered a disturbing new chapter. Italy’s finance minister has called a meeting in Rome for Monday that will be focusing on a “last resort” bailout plan for the troubled banks…
Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.
Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks.
Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.
As Italy descends into financial chaos, the rest of the continent better be paying attention.
Do you remember how hard it was for the rest of Europe to rescue Greece?
Well, Greece has the 44th largest economy on the planet.
Italy has the 8th.
It would be hard to overstate the seriousness of what is going on over in Europe, and it is not just Italy we are talking about. All over the continent major banks are in deep trouble, and the chairman of France’s second largest retail bank recently told reporters that “I am much more worried than I was in 2009“.
And there is very good reason for concern. On Sunday, we learned that a major “bail-in” had just been announced for one of Austria’s most prominent banks. The following comes from Zero Hedge…
And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.
The highlights from the announcement:
Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz über die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:
- a 100% bail-in for all subordinated liabilities,
- a 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities,
- the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,
- as well as a harmonisation of the maturities of all eligible liabilities to 31.12.2023.
According to the current resolution plan for HETA, the wind-down process should be concluded by 2020, although the repayment of all claims as well as the legally binding conclusion of all currently outstanding legal disputes will realistically only be concluded by the end of 2023. Only at that point will it be possible to finally distribute the assets and to liquidate the company.
The dominoes are starting to fall in Europe, and I would expect even bigger announcements in the weeks and months to come.
Over in Asia, economic chaos is beginning to prevail as well.
In China, the stock market is already down more than 40 percent from the peak, Chinese exports were down 25.4 percent on a year over year basis in February, and Chinese economic numbers overall have not been this poor since the depths of the last global recession.
At the same time, the Japanese economy is really struggling right now. As I wrote about the other day, Japanese GDP has shrunk for two out of the last three quarters, we just saw Japanese industrial production experience the biggest one month decline that we have witnessed since the tsunami of 2011, and business sentiment has fallen to a three year low. The Nikkei has dropped by about 5,000 points from where it was last summer, and some analysts believe that Japanese markets “are being destroyed” due to massive intervention by the Bank of Japan.
Here in the United States, we haven’t been hit quite as hard as the rest of the world just yet, but there are lots of very disturbing warning signs all around us.
At the end of last week, we learned that it is being projected that U.S. GDP will have grown by just 0.1 or 0.2 percent during the first quarter of 2016. And on Monday corporate earnings reporting season begins, and it is expected to be a very, very bad one. The following comes from Business Insider…
We are about to get confirmation that earnings growth for America’s biggest companies was negative in the first quarter, compared to the same period a year ago.
When aluminum giant Alcoa releases its results on Monday, it will mark the unofficial start of the heaviest reporting season for S&P 500 companies.
The final scoreboard is expected to show a 9.1% earnings drop for the quarter, according to FactSet senior earnings analyst John Butters.
If these projections turn out to be accurate, it will be the fourth quarter in a row of earnings declines. This is something that we never see outside of a recession.
And for a whole bunch more numbers which indicate that the U.S. economy is in very serious trouble, please see my previous article entitled “19 Facts That Prove Things In America Are Worse Than They Were Six Months Ago“.
Of course I am just another voice in the crowd when it comes to predicting that the U.S. economy is headed for rough times. For example, just check out what Societe Generale economist Albert Edwards is saying…
A tidal wave is coming to the US economy, according to Albert Edwards, and when it crashes it’s going to throw the economy into recession.
…the profit recession facing American corporations is going to lead to a collapse in corporate credit.
“Despite risk assets enjoying a few weeks in the sun our fail-safe recession indicator has stopped flashing amber and turned to red”
Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.
As you can see, it isn’t just one nation or one region of the world that we need to be concerned about.
Economic chaos is erupting literally all over the planet, and global leaders are starting to panic.
Unfortunately, they have had seven years to try to fix things since the last global recession, and they didn’t get the job done. Anyone that believes that by some miracle they will be able to pull us out of the fire this time and that everything will somehow be okay is simply engaged in wishful thinking.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price. We witnessed this during the last financial crisis, and it is starting to happen again. Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews. In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up. Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint. In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now.
I should start out by disclosing that my wife and I have been able to put away a little bit of silver over the years. I wish that it could have been a lot more, but so often there are other priorities that need to be addressed. For example, I have always said that people need to take care of their emergency food storage first before even thinking about any kind of investments.
But if you have money left over after taking care of the basics, I am fully convinced that silver is a wonderful investment for the mid to long term. In this article, I am going to explain why this is the case. However, I have always warned that you have got to be ready for a rollercoaster ride if you get into precious metals. So if you can’t handle the ups and downs, you should probably avoid them altogether.
As I write this article, the price of gold is sitting at $1254.30 an ounce.
Meanwhile, the price of silver is sitting at just $15.81 an ounce.
That means that the price of gold is currently more than 79 times higher than the price of silver. For the ratio between gold and silver to be this high is truly unusual.
You see, the truth is that there is only about 17 times as much silver as there is gold in the Earth’s crust. And currently silver is being mined at about an 11 to 1 ratio to gold.
So it makes sense that throughout history gold has typically sold at about a 15 to 1 ratio to silver.
During the years to come, I do believe that gold will multiply in price.
But I am also convinced that the price of silver will go up much, much faster.
As they both skyrocket in price, the price ratio between gold and silver will shift very quickly from 79 to 1 in the direction of 15 to 1.
Perhaps we may never even get all the way back to 15 to 1, but if we even got to 40 to 1 or 30 to 1, what that would mean for silver would be history making.
Let us also keep in mind that unlike gold, silver is constantly being used up in thousands of different industrial applications. The following comes from Jeff Nielson…
Over the past quarter century, more silver-based patents have been created than with any other metal on the planet. But not only does silver have unparalleled versatility, it is an extremely potent metal, meaning that in many of its commercial applications it is used in only trace amounts.
Why is this of significance? Because in such tiny quantities it is economically impractical to ever recycle any of this silver, at prices anywhere near the (absurd) levels of recent decades. Thus this silver is being consumed in tiny amounts, but in billions and billions of consumer products, over a span of decades.
Unlike gold, our stockpiles of silver are disappearing. As previously mentioned, for at least the last thirty years, the only way that our strong demand for silver could be satisfied has been through consuming portions of these stockpiles.
It has been estimated that approximately one billion ounces of silver have been used in consumer products over the past ten years alone.
Even if the world could somehow avoid the great financial turmoil that has already begun, the truth is that eventually a great demand crunch for silver would come just based on how much of it we are steadily consuming.
At less than 16 dollars an ounce right now, silver is ridiculously undervalued.
Those that are wise see this, and they are stocking up on silver coins at an unprecedented level. Just check out these numbers…
Silver Eagle sales will likely jump by 25% in the first quarter due to deteriorating market conditions. During the first three months last year the U.S. Mint sold 12 million Silver Eagles. Already, sales of Silver Eagles have reached 13 million. There are two weeks remaining in March and the U.S. Mint will likely sell another two million. This will put total Silver Eagle sales for the first quarter at 15 million….. the highest ever.
I have always said that I believe that the price of silver will eventually go over $100 an ounce.
When that happens, those that got in today will be exceedingly happy with their returns.
Others are projecting even greater gains. For instance, investing legend Egon von Greyerz believes that the price of silver could ultimately go as high as $660 an ounce, and Jeff Nielson believes that $1,000 an ounce for silver would be a fair price.
But once again, don’t even think about getting into precious metals until you have the basics squared away. It is often said that you can’t eat gold or silver, and that is very true.
In our new television show, my wife and I are always going to tell it to you straight. A lot of people out there are relaxing right now because they think that the recent stock market rally means that the crisis is over. What they don’t understand is that this new financial crisis is just in the very early chapters. There are going to be more ups and more downs, and the shaking that we have seen so far is just the beginning.
Many of you may not want to believe me at this moment, but by the end of 2016 life in America is going to look dramatically different than it does right now. So please get prepared while you are still able to do so.
Millions of women in Europe are now deathly afraid to walk outside their own homes at night, and with each passing day more news reports of absolutely horrific rapes and sexual assaults come pouring in from all over the continent. So who is to blame for this epidemic of rape? I think that the answer might surprise you, because a very famous politician in the United States is at least partially responsible. But first, let’s examine why women all over Europe are living in such fear right now. I have written previously about this rape epidemic, but since that time it has gotten even worse. At this point, this plague is even affecting small towns in the far northern portions of the continent. For example, just consider what is happening in a small town in northern Sweden known as Ostersund…
Women in a town in northern Sweden have been warned not to walk alone at night in the wake of a spike in violent assaults and attempted rapes.
Police in Östersund made the unusual move to ask women not to go out unaccompanied after dark, after reports of eight brutal attacks, some by ‘men of foreign appearance’, in just over two weeks.
Speaking at a press conference on Monday, police said they ‘have never seen anything like it in Östersund’, a small town in the north of Sweden with a population of just 45,000.
Of course things were not always this way in Sweden.
At one time, Sweden had some of the lowest rates of violent crime in the world, but now the number of reported rapes in Sweden has risen by more than 1,000 percent since the mid-1970s.
So what is causing this?
A massive influx of immigrants from the Middle East and other third world nations is fundamentally changing Swedish society. During 2015, Sweden brought in an additional 163,000 migrants and refugees, and that was the highest level in all of Europe per capita.
Politically-correct Swedish citizens have opened up their arms to warmly welcome their new friends, but all of this kindness has not prevented an absolutely chilling wave of sexual crime. In particular, public pools have quickly gained a reputation as places where young Swedish women are very likely to be raped or sexually assaulted. The following is an excerpt from an outstanding article by Ingrid Carlqvist…
In 2015, when roughly 163,000 asylum seekers came to Sweden, the problems at public pools increased exponentially. More than 35,000 young people, so-called “unaccompanied refugee children,” arrived — 93% of whom are male and claim to be 16-17 years old. To prevent complete idleness, many municipalities give them free entrance to the public pools.
During the past few months, the number of reports of sexual assaults and harassment against women at public pools has been overwhelming. Most of the “children” are from Afghanistan, widely considered among the most dangerous places in the world for women. When the daily Aftonbladet visited the country in 2013, 61-year-old Fatima told the paper what it is like to be a woman in Afghanistan: “What happens if we do not obey? Well, our husbands or sons beat us of course. We are their slaves.”
In her article, Carlqvist lists example after example of sex attacks by immigrants at public pools. This is just one of those examples…
On January 21, there were reports that the number of sexual assaults had increased dramatically at the Aquanova adventure pool in Borlänge. In 2014, one case was reported; in 2015, about 20 cases were reported. The incidents involved women having their bikinis ripped off, being groped in the water slide and sexually assaulted in the restrooms. Ulla-Karin Solum, the CEO of Aquanova, told the public broadcaster Sveriges Television that many incidents “are due to cultural clashes.”
And this kind of sexual violence is not just limited to Sweden. Wherever there has been a large influx of refugees we are seeing the same things happen.
Here is one recent example from Belgium…
HORRIFIC footage has emerged of a group of young men, including five migrants, laughing, dancing and singing in Arabic as they gang rape an unconscious 17-year-old girl.
It is believed the attack happened after the girl passed out after drinking at a party.
One of the rapists later told police: “She can’t complain. Women must obey men.”
Next, here is an example from Germany…
An Algerian man who almost killed his 25-year-old student victim shouted out ‘if Allah wills it’ in Arabic as he raped her in a darkened alley, a court has heard.
The man, identified only by his first name Rheda, is accused of following the student as she walked home from a nightclub at 5am in Hannover, Germany.
Afterwards, with his victim badly beaten, he is alleged to have climbed off her and asked her if she enjoyed it.
Finally, here is a particularly disturbing example from Austria…
An Iraqi migrant has admitted to raping a ten year old boy in a Viennese swimming pool so ferociously that the boy had to be hospitalised for his injuries. The man said he knew it was wrong but couldn’t help himself as he hadn’t had sex in months.
Police investigators have ascertained that the 20 year old man entered Austria on the 13th September, travelling into the country via the Balkans.
Because most European leaders are so politically correct, they simply cannot face the truth.
In fact, some top European politicians have resorted to blaming the victims in a desperate attempt to maintain the fiction that these immigrants are responsible citizens…
One particularly divisive issue is the extent to which officials have tended to “blame the victim”, so to speak. For instance, Cologne mayor Henriette Reker drew sharp criticism for suggesting that it was German womens’ duty to prevent assaults by keeping would-be assailants “at arm’s length.”
Then there was the now infamous case of the 17-year-old Danish girl who faced a fine from police after she allegedly used “illegal” pepper spray to deter an attacker.
Okay, I promised that I would reveal a top politician in the United States that is at least partially responsible for this epidemic of rape. So let me try to explain how I arrived at my conclusion.
Most of the immigrants that are flooding into Europe are coming from areas that have been ravaged by war. In particular, more immigrants are flooding into Europe from Syria than anywhere else.
If we go back five years ago, Syria was actually a very peaceful place. In the early portions of 2011, the Arab Spring was raging, and leaders all over the Middle East were being deposed. At that time, a decision was made by officials in the Obama administration that it would be an ideal opportunity to overthrow the Assad regime in Syria as well.
Saudi Arabia, Turkey and their Sunni allies in the region were quite eager to get rid of Assad. Syria is part of “the Shiite crescent” that stretches across the Middle East, but 74 percent of all Syrians are actually Sunni. So the idea was to create a “popular uprising” that would overthrow Assad, and Syria would then be transformed into a full-fledged Sunni nation and the balance of power in the Middle East would be fundamentally altered.
This effort was spearheaded by U.S. Secretary of State Hillary Clinton. Huge protests were organized against Assad in Syria, and those protests rapidly turned violent. A civil war began, and members of “the coalition” poured millions upon millions of dollars into jihadist groups that were attempting to overthrow Assad. And at first the plan was working well. The “resistance” was taking lots of ground and it looked like they were going to be able to push all the way to Damascus and topple Assad.
But then Assad enlisted the help of Iran, Hezbollah, Shiite militias from Iran and most importantly the Russians.
Russian air power has completely turned the tide of the war, and now the Sunni militant groups are being routed. This is why Saudi Arabia and Turkey are in such a panic, and they are looking to the Obama administration to finish what it started.
Of course all of this has brought us to the brink of World War 3, and most Americans have absolutely no idea how we got here.
And it is this horrific conflict in Syria which Hillary Clinton played such a key role in starting that has caused the worst refugee crisis that Europe has experienced since World War 2.
So how will Hillary Clinton be rewarded for her fine work?
Well, it appears quite likely that she is going to become the next president of the United States, and that is a very, very depressing thought.
Can you feel the panic in the air? CNN Money’s Fear & Greed Index measures the amount of fear in the financial world on a scale from 0 to 100. The closer it is to zero, the higher the level of fear. Last Monday, the index was sitting at a reading of 36. As I write this article, it has fallen to 7. The financial turmoil which began last week is threatening to turn into an avalanche. On Sunday night, we witnessed the second largest one day stock market collapse in China ever, and this pushed stocks all over the planet into the red. Meanwhile, the twin blades of an emerging market currency crisis and a commodity price crash are chewing up economies that are dependent on the export of natural resources all over the globe. For a long time, I have been warning about what would happen in the second half of 2015, and now it is here. The following is a summary of the financial carnage that we have seen over the past 24 hours…
-On Sunday night, the Shanghai Composite Index plunged 8.5 percent. It was the largest one day stock market crash in China since 2007, and it was the second largest in history. The Chinese government is promising to directly intervene in order to prevent Chinese stocks from going down even more.
-Over 1,500 stocks in China fell by their 10 percent daily maximum. This list includes giants such as China Unicom, Bank of Communications and PetroChina.
-Ever since peaking in June, the Shanghai Composite Index has dropped by a total of 28 percent.
-Even Chinese stocks that are listed on U.S. stock exchanges are being absolutely hammered. The following comes from USA Today…
The 144 China-based stocks with primary listings on major U.S. exchanges have erased nearly $40 billion in paper wealth since the Shanghai Composite index peaked on June 12. It’s an enormous destruction of wealth that in effects wipes out the market value of a company the size of cruise ship operator Carnival.
-The Chinese stock market crash pushed European stocks significantly lower on Monday…
The pan-European FTSEurofirst 300 provisionally closed 2.1 percent lower, while the Germany’s DAX and France’s CAC closed respectively 2.4 percent and 2.5 percent lower.
The U.K.’s benchmark FTSE outperformed its euro zone peers, but still closed unofficially down 1.0 percent.
-Overall, European stocks have been falling steadily since the beginning of last week. To get an idea of how much damage has been done already, just check out this chart.
-As I mentioned above, an emerging market currency crisis is causing havoc for economies all over the planet. The following comes from an article that was published by the Telegraph…
The currencies of Brazil, Mexico, South Africa and Turkey have all crashed to multi-year lows as investors flee emerging markets and commodity prices crumble.
The drastic moves came as fears of imminent monetary tightening by the US Federal Reserve combined with shockingly weak figures from China, which stoked fears that the country may be sliding into a deeper downturn and sent tremors through East Asia, Latin America and Africa.
-The government of Puerto Rico has announced that it does not have enough cash to make a scheduled debt payment of 169 million dollars on August 1st. The Obama administration says that there are no plans in the works to bail out Puerto Rico.
-On Monday, the Dow was down another 127 points. It was the fifth day in a row that the Dow and the S&P 500 have both declined.
-Overall, the Dow is now down more than 650 points since July 20th.
-480 stocks on the New York Stock Exchange have hit new 52-week lows. Many analysts consider this to be a very, very ominous sign.
-I have repeatedly written about the danger of the commodity collapse that we are currently witnessing, and the Bloomberg Commodity Index fell another 1.22 percent on Monday to a fresh low of 92.1493.
-On Monday, the price of U.S. oil hit a 52-week low of $46.92.
-So far, the price of U.S. oil has fallen about 20 percent this month.
-Back in June 2014, the price of a barrel of West Texas Intermediate crude was above 107 dollars. Since then, the price of U.S. oil has fallen an astounding 56 percent.
-Thanks in large part to the collapse in energy prices, junk bonds are cratering. This is something that happened just before the financial crisis of 2008, and now it is happening again. The following comes from Wolf Street…
Among the bonds: Cliffs Natural Resources down 27.6%, SandBridge down 30%, Murray Energy down 21.2%, and Linn Energy down 22.3%, according to Bloomberg.
For example, Linn Energy 6.25% notes due in 2019 were trading at 78 cents on the dollar at the beginning of July and at 58 on Friday, according to LCD. There was bloodshed beyond energy, such as AK Steel’s 7.625% notes due in 2021. They were trading at 62 cents on the dollar, down 22% from the beginning of July.
“The performance is a disappointment to investors who purchased about $40 billion of junk-rated bonds from energy companies this year, thinking that the worst of the slump was over,” Bloomberg noted.
This is exactly what we would expect to see during the early stages of a financial crisis.
Of course global financial markets may bounce back somewhat tomorrow. If you will remember, some of the largest one day gains in stock market history happened right in the middle of the stock market collapse of 2008. So don’t get fooled by what happens on any one particular day.
With so much fear in the air, literally anything could happen in the weeks and months ahead of us. One month ago, I issued a red alert for the last six months of this year. I warned that a major financial crisis was imminent and that people needed to start protecting themselves immediately.
As I write this article on Monday evening, financial markets are already opening up over in Asia. Japanese stocks are already down 251 points even though the market has only been open for about an hour over there.
We have entered a time when what is happening to global stock markets will once again be headline news. We are right on the precipice of another great financial crisis, only this one is going to ultimately end up being much worse than the last one.
Now is the time.
Please get prepared while you still can.
Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again. For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down. Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow. This works great as long as stocks go up. Once they start going down, the losses can be absolutely staggering.
That is why Chinese authorities are stepping in before this bubble gets even worse. Here is more about what has been going on in China from Bloomberg…
China’s trusts boosted their investments in equities by 28 percent to 552 billion yuan ($89.1 billion) in the fourth quarter. The higher leverage allowed by the products exposes individuals to larger losses in the event of stock-market drops, which can be exaggerated as investors scramble to repay debt during a selloff.
In umbrella trusts, private investors take up the junior tranche, while cash from trusts and banks’ wealth-management products form the senior tranches. The latter receive fixed returns while the former take the rest, so private investors are effectively borrowing from trusts and banks.
Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.
Overall, China has seen more debt growth than any other major industrialized nation since the last recession. This debt growth has been so dramatic that it has gotten the attention of authorities all over the planet…
Wolfgang Schaeuble, Germany’s finance minister says that “debt levels in the global economy continue to give cause for concern.”
Singling out China in particular, Schaeuble noted that “debt has nearly quadrupled since 2007″, adding that it’s “growth appears to be built on debt, driven by a real estate boom and shadow banks.”
According to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia.
This credit boom in China has been one of the primary engines for “global growth” in recent years, but now conditions are changing. Eventually, the impact of what is going on in China right now is going to be felt all over the planet.
Over in Europe, the Greek debt crisis is finally coming to a breaking point. For years, authorities have continued to kick the can down the road and have continued to lend Greece even more money.
But now it appears that patience with Greece has run out.
For instance, the head of the IMF says that no delay will be allowed on the repayment of IMF loans that are due next month…
IMF Managing Director Christine Lagarde roiled currency and bond markets on Thursday as reports came out of her opening press conference saying that she had denied any payment delay to Greece on IMF loans falling due next month.
Unless Greece concludes its negotiations for a further round of bailout money from the European Union, however, it is not likely to have the money to repay the IMF.
And we are getting reports that things are happening behind the scenes in Europe to prepare for the inevitable moment when Greece will finally leave the euro and go back to their own currency.
For example, consider what Art Cashin told CNBC on Friday…
First, “there were reports in the media [saying] that the ECB and/or banking authorities suggested to banks to get rid of any sovereign Greek debt they had, which suggests that maybe the next step will be Greece exiting,” Cashin told CNBC.
Also, one of Greece’s largest newspapers is reporting that neighboring countries are forcing subsidiaries of Greek banks that operate inside their borders to reduce their risk to a Greek debt default to zero…
According to a report from Kathimerini, one of Greece’s largest newspapers, central banks in Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk — including bonds, treasury bills, deposits to Greek banks, and loans — down to zero.
Once Greece leaves the euro, that is going to create a tremendous credit crunch in Europe as fear begins to spread like wildfire. Everyone will be wondering which nation will be “the next Greece”, and investors will want to pull their money out of perceived danger zones before they get hammered.
In the past, other European nations have been willing to bend over backwards to accommodate Greece and avoid this kind of mess, but those days appear to be finished. In fact, the finance minister of France openly admits that the French “are not sympathetic to Greece”…
Greece isn’t winning much sympathy from its debt-wracked European counterparts as the country draws closer to default for failing to make bailout repayments.
“We are not sympathetic to Greece,” French Finance Minister Michael Sapin said in an interview at the International Monetary Fund-World Bank spring meetings here.
“We are demanding because Greece must comply with the European (rules) that apply to all countries,” Sapin said.
Yes, it is possible that another short-term deal could be reached which could kick the can down the road for a few more months.
But either way, things in Europe are going to continue to get worse.
Meanwhile, very disappointing earnings reports in the U.S. are starting to really rattle investors.
For example, we just learned that GE lost 13.6 billion dollars in the first quarter…
One week following the announcement that it would dismantle most of its GE Capital financing operations to instead focus on its industrial roots, General Electric reported a first quarter loss of $13.6 billion.
The results were impacted by charges relating to the conglomerate’s strategic shift. A year ago GE reported a first quarter profit of $3 billion.
That is a lot of money.
How in the world does a company lose 13.6 billion dollars in a single quarter during an “economic recovery”?
Other big firms are reporting disappointing earnings numbers too…
In earnings news, American Express Co. late Thursday said its results were hurt by the strong U.S. dollar, which reduced revenue booked in other countries. Chief Executive Kenneth Chenault reiterated the company’s forecast that 2015 earnings will be flat to modestly down year over year. Shares fell 4.6%.
Advanced Micro Devices Inc. said its first-quarter loss widened as revenue slumped. The company said it was exiting its dense server systems business, effective immediately. Revenue and the loss excluding items missed expectations, pushing shares down 13%.
And just like we saw just before the financial crisis of 2008, Americans are increasingly having difficulty meeting their financial obligations.
For instance, the delinquency rate on student loans has reached a very frightening level…
More borrowers are failing to make payments on their student loans five years after leaving college, painting a grim picture for borrowers, according to the Federal Reserve Bank of New York.
Student debt continues to increase, especially for people who took out loans years ago. Those who left school in the Great Recession, which ended in 2009, had particular difficulty with repayment, with many defaulting, becoming seriously delinquent or not being able to reduce their balances, the New York Fed said today.
Only 37 percent of borrowers are current on their loans and are actively paying them down, and 17 percent are in default or in delinquency.
At this point, the American consumer is pretty well tapped out. If you can believe it, 56 percent of all Americans have subprime credit today, and as I mentioned above, we just witnessed the biggest spike in credit application rejections ever recorded.
We have reached a point of debt saturation, and the credit crunch that is going to follow is going to be extremely painful.
Of course the biggest provider of global liquidity in recent years has been the Federal Reserve. But with the Fed pulling back on QE, this is creating some tremendous challenges all over the globe. The following is an excerpt from a recent article in the Telegraph…
The big worry is what will happen to Russia, Brazil and developing economies in Asia that borrowed most heavily in dollars when the Fed was still flooding the world with cheap liquidity. Emerging markets account to roughly half of the $9 trillion of offshore dollar debt outside US jurisdiction.
The IMF warned that a big chunk of the debt owed by companies is in the non-tradeable sector. These firms lack “natural revenue hedges” that can shield them against a double blow from rising borrowing costs and a further surge in the dollar.
So what is the bottom line to all of this?
The bottom line is that we are starting to see the early phases of a liquidity squeeze.
The flow of credit is going to begin to get tighter, and that means that global economic activity is going to slow down.
This happened during the last financial crisis, and during this next financial crisis the credit crunch is going to be even worse.
This is why it is so important to have an emergency fund. During this type of crisis, you may have to be the source of your own liquidity. At a time when it seems like nobody has any cash, those that do have some will be way ahead of the game.
Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead. As you will read about below, the big banks are warning that the price of oil could soon drop as low as 20 dollars a barrel, that a Greek exit from the eurozone could push the EUR/USD down to 0.90, and that the global economy could shrink by more than 2 trillion dollars in 2015. Most of the time, very few people ever actually read the things that the big banks write for their clients. But in recent months, a lot of these bankers are issuing such ominous warnings that you would think that they have started to write for The Economic Collapse Blog. Of course we have seen this happen before. Just before the financial crisis of 2008, a lot of people at the big banks started to get spooked, and now we are beginning to see an atmosphere of fear spread on Wall Street once again. Nobody is quite sure what is going to happen next, but an increasing number of experts are starting to agree that it won’t be good.
Let’s start with oil. Over the past couple of weeks, we have seen a nice rally for the price of oil. It has bounced back into the low 50s, which is still a catastrophically low level, but it has many hoping for a rebound to a range that will be healthy for the global economy.
Unfortunately, many of the experts at the big banks are now anticipating that the exact opposite will happen instead. For example, Citibank says that we could see the price of oil go as low as 20 dollars this year…
The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February.
Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.
The oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range — after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.
Even though rigs are shutting down at a pace that we have not seen since the last recession, overall global supply still significantly exceeds overall global demand. Barclays analyst Michael Cohen recently told CNBC that at this point the total amount of excess supply is still in the neighborhood of a million barrels per day…
“What we saw in the last couple weeks is rig count falling pretty precipitously by about 80 or 90 rigs per week, but we think there are more important things to be focused on and that rig count doesn’t tell the whole story.”
He expects to see some weakness going into the shoulder season for demand. In addition, there is an excess supply of about a million barrels of oil a day, he said.
And the truth is that many firms simply cannot afford to shut down their rigs. Many are leveraged to the hilt and are really struggling just to service their debt payments. They have to keep pumping so that they can have revenue to meet their financial obligations. The following comes directly from the Bank for International Settlements…
“Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets, for example, more production is sold forward,” BIS said.
“Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments. Debt service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market.”
In the end, a lot of these energy companies are going to go belly up if the price of oil does not rise significantly this year. And any financial institutions that are exposed to the debt of these companies or to energy derivatives will likely be in a great deal of distress as well.
Meanwhile, the overall global economy continues to slow down.
On Monday, we learned that the Baltic Dry Index has dropped to the lowest level ever. Not even during the darkest depths of the last recession did it drop this low.
And there are some at the big banks that are warning that this might just be the beginning. For instance, David Kostin of Goldman Sachs is projecting that sales growth for S&P 500 companies will be zero percent for all of 2015…
“Consensus now forecasts 0% S&P 500 sales growth in 2015 following a 5% cut in revenue forecasts since October. Low oil prices along with FX headwinds and pension charges have weighed on 4Q EPS results and expectations for 2015.”
Others are even more pessimistic than that. According to Bank of America, the global economy will actually shrink by 2.3 trillion dollars in 2015.
One thing that could greatly accelerate our economic problems is the crisis in Greece. If there is no compromise and a new Greek debt deal is not reached, there is a very real possibility that Greece could leave the eurozone.
If Greece does leave the eurozone, the continued existence of the monetary union will be thrown into doubt and the euro will utterly collapse.
Of course I am not the only one saying these things. Analysts at Morgan Stanley are even projecting that the EUR/USD could plummet to 0.90 if there is a “Grexit”…
The Greek Prime Minister has reaffirmed his government’s rejection of the country’s international bailout programme two days before an emergency meeting with the euro area’s finance ministers on Wednesday. His declaration suggested increasing minimum wages, restoring the income tax-free threshold and halting infrastructure privatisations. Should Greece stay firm on its current anti-bailout course and with the ECB not accepting Greek T-bills as collateral, the position of ex-Fed Chairman Greenspan will gain increasing credibility. He forecast the eurozone to break as private investors will withdraw from providing short-term funding to Greece. Greece leaving the currency union would convert the union into a club of fixed exchange rates, a type of ERM III, leading to further fragmentation. Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90.
If that happens, we could see a massive implosion of the 26 trillion dollars in derivatives that are directly tied to the value of the euro.
We are moving into a time of great peril for global financial markets, and there are a whole host of signs that we are slowly heading into another major global economic crisis.
So don’t be fooled by all of the happy talk in the mainstream media. They did not see the last crisis coming either.