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BLACK MONDAY: The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

New York City Empire State Building - Public DomainOn Monday, the Dow Jones Industrial Average plummeted 588 points. It was the 8th worst single day stock market crash in U.S. history, and it was the first time that the Dow has ever fallen by more than 500 points on two consecutive days. But the amazing thing is that the Dow actually performed better than almost every other major global stock market on Monday.  In the U.S., the S&P 500 and the Nasdaq both did worse than the Dow. In Europe, almost every major index performed significantly worse than the Dow.  Over in Asia, Japanese stocks were down 895 points, and Chinese stocks experienced the biggest decline of all (a whopping 8.46 percent). On June 25th, I was not kidding around when I issued a “red alert” for the last six months of 2015. I had never issued a formal alert for any other period of time, and I specifically stated that “a major financial collapse is imminent“. But you know what? As the weeks and months roll along, things will eventually be even worse than what any of the experts (including myself) have been projecting. The global financial system is now unraveling, and you better pack a lunch because this is going to be one very long horror show.

Our world has not seen a day quite like Monday in a very, very long time. Let’s start our discussion where the carnage began…

Asian Markets

For weeks, the Chinese government has been taking unprecedented steps to try to stop Chinese stocks from crashing, but nothing has worked. As most Americans slept on Sunday night, the markets in China absolutely imploded

As Europe and North America slept on Sunday night, Chinese markets went through the floor — the Shanghai Composite index of stocks fell by 8.49%, the biggest single-day collapse since 2007.

It wasn’t alone. Hong Kong’s Hang Seng fell 5.17%, and Japan’s Nikkei fell 4.61%. Stocks in Taiwan, the Philippines, Singapore, and Thailand also tumbled.

Things would have been even worse in China if trading had not been stopped in most stocks. Trading was suspended for an astounding 2,200 stocks once they hit their 10 percent decline limits.

Overall, the Shanghai Composite Index is now down close to 40 percent from the peak of the market, and the truth is that Chinese stocks are still massively overvalued when compared to the rest of the world.

That means that they could very easily fall a lot farther.

European Markets

The selling momentum in Asia carried over into Europe once the European markets opened. On a percentage basis, all of the major indexes on the continent declined even more than the Dow did

In Europe, the bloodbath from Friday continued unabated. The German Dax plunged 4.7%, the French CAC 40 5.4%, UK’s FTSE 100 dropped 4.7%. Euro Stoxx 600, which covers the largest European companies, was down 5.3%.

But wait… Europe is where the omnipotent ECB and other central banks have imposed negative deposit rates. The ECB is engaged in a massive ‘whatever it takes” QE program to inflate stock markets. But it’s not working. Omnipotence stops functioning once people stop believing in it.

U.S. Markets

Even before U.S. markets opened on Monday morning, the New York Stock Exchange was already warning that trading would be halted if things got too far out hand, and it almost happened

The thousands of companies listed by the New York Stock Exchange and Nasdaq Stock Market will pause for 15 minutes if the Standard & Poor’s 500 Index plunges 7 percent before 3:25 p.m. New York time. The benchmark got close earlier, falling as much as 5.3 percent.

There were other circuit breakers in place for later in the day if too much panic selling ensued, but fortunately none of those were triggered either. Here is more from Bloomberg

Another circuit breaker kicks in if the S&P 500 extends its losses to 13 percent before 3:25 p.m. If the plunge reaches 20 percent at any point during today’s session, the entire stock market will shut for the rest of the day.

When the U.S. markets did open, the Dow plunged 1,089 points during the opening minutes of trading. If the Dow would have stayed at that level, it would have been the worst single day stock market crash in U.S. history by a wide margin.

Instead, by the end of the day it only turned out to be the 8th worst day ever.

And in case you are wondering, yes, investors are losing a staggering amount of money. According to MarketWatch, the total amount of money lost is now starting to approach 2 trillion dollars

As of March 31, households and nonprofits held $24.1 trillion in stocks. That’s both directly, and through mutual funds, pension funds and the like. That also includes the holdings of U.S.-based hedge funds, though you’d have to think that most hedge funds are held by households.

Using the Dow Jones Total Stock Market index DWCF, -4.21% through midmorning trade, that number had dropped to $22.32 trillion.

In other words, a cool $1.8 trillion has been lost between now and the first quarter — and overwhelmingly, those losses occurred in the last few days.

Unfortunately, U.S. stock prices are still nowhere near where they should be. If they were to actually reflect economic reality, they would have to fall a lot, lot lower.

For example, there is usually a very strong correlation between commodity prices and the S&P 500, but in recent times we have seen a very large divergence take place. Just check out the chart in this article. At this point the S&P 500 would have to fall another 30 to 40 percent or commodities would have to rise 30 or 40 percent in order to close the gap. I think that the following bit of commentary sums up where we are quite nicely

“Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertain about Fed and PBoC policy — what they will do and what the impact will be,” Societe Generale’s Kit Juckes wrote on Monday. “The divergence between global commodity prices and equities is not a new theme but the danger now is that they begin to re-correlate – as they did when the dotcom bubble burst in 2000 and what had previously been an emerging market crisis became a US recession.”

And commodities were absolutely hammered once again on Monday.

For instance, the price of U.S. oil actually fell below 38 dollars a barrel at one point.

What we are watching unfold is incredible.

Of course the mainstream media is bringing on lots of clueless experts that are talking about what a wonderful “buying opportunity” this is. Even though those of us that saw this coming have been giving a detailed play by play account of the unfolding crisis for months, the talking heads on television still seem as oblivious as ever.

What is happening right now just doesn’t seem to make any sense to the “experts” that most people listen to. I love this headline from an article that Business Insider posted on Monday: “None of the theories for the Black Monday market crash add up“. Yes, if you are willingly blind to the long-term economic and financial trends which are destroying us, I guess these market crashes wouldn’t make sense.

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

But don’t be fooled by that. Just because stocks go up on any particular day does not mean that everything is fine. We are in the midst of a financial meltdown that is truly global in scope. This is going to take time to fully play out, and there will be good days and there will be bad days.  The three largest single day increases for the Dow were right in the middle of the financial crisis of 2008. So one very good day for stocks is not going to change the long-term analysis one bit.

It isn’t complicated. Those that follow my writing regularly know that I have repeatedly explained how things were setting up in textbook fashion for another global financial crisis, and now one is unfolding right in front of our eyes.

At this point, everyone should be able to very clearly see what is happening, and yet most are still blind.

Why is that?

Why Are So Many People Freaking Out About A Stock Market Crash In The Fall Of 2015?

Manhattan Stock Market Crash In 2015 - Public DomainIs the stock market going to crash by the end of 2015?  Of course stock market crashes are already happening in 23 different nations around the planet, but most Americans don’t really care about those markets.  The truth is that what matters to people in this country is the health of their own stock portfolios and retirement accounts.  There are a lot of people out there that are very afraid of what could happen if the money that they have worked so hard to save gets wiped out in a sudden financial collapse.  And right now there is an unprecedented amount of buzz about the potential for a giant stock market crash by the end of this calendar year.  In fact, I don’t think that I have ever seen more experts come out with bold predictions that a stock market crash will happen within a very specific period of time.

The following is a sampling of some of the experts that have made very bold proclamations about the rest of this year over the past few weeks.  Many of these individuals are putting their credibility on the line by proclaiming that a stock market crash is just around the corner…

-Tom McClellan says that we are heading for an “ugly decline” and that there will be “nothing good for bulls for the rest of the year”

Tom McClellan loves doing what financial advisers tell you not to do. He tries to time the financial markets — to the exact day, if his charts align just right.

At the moment, they are telling him to be bullish on the stock market for all of his trading time frames, including those that trade every few days, weeks and months. But bulls should be ready to flee, as soon as this week.

That’s because McClellan said his timing models suggest “THE” top in stocks will be hit some time between Aug. 20 and Aug. 26. He expects “nothing good for the bulls for the rest of the year,” he said in a phone interview with MarketWatch.

McClellan doesn’t have a strong view on how far stocks could fall, just that it will probably be an “ugly decline” lasting into early 2016.

-Harry Dent recently stated that we are just “weeks away” from a “global financial collapse“.

-Gerald Celente says that “the global economy has collapsed” and he is “predicting that we are going to see a global stock market crash before the end of the year“.

-Larry Edelson insists that he is “100% confident” that a global financial crisis will be triggered “within the next few months”…

On October 7, 2015, the first economic supercycle since 1929 will trigger a global financial crisis of epic proportions. It will bring Europe, Japan and the United States to their knees, sending nearly one billion human beings on a roller-coaster ride through hell for the next five years. A ride like no generation has ever seen. I am 100% confident it will hit within the next few months.”

-Jeff Berwick, the editor of the Dollar Vigilante, says that there is “enough going on in September to have me incredibly curious and concerned about what’s going to happen“.

-Egon von Greyerz recently explained that he fears “that this coming September – October all hell will break loose in the world economy and markets“.

-Even the mainstream media is issuing ominous warnings now.  Just a few days ago, one of the most important newspapers in the entire world published a major story about the coming crisis under this headline: “Doomsday clock for global market crash strikes one minute to midnight as central banks lose control“.

-The Bank for International Settlements and the IMF have jumped on the prediction bandwagon as well.  The following comes from a recent piece by Brandon Smith

The BIS warns that the world is currently defenseless against the next market crisis. I would point out that the BIS has a record of predicting economic crashes, including back in 2007 just before the derivatives and credit crisis began. This ability to foresee fiscal disasters is far more likely due to the fact that the BIS is the dominant force in global central banking and is the cause of crisis, rather than merely a predictor of crisis. That is to say, it is easy to predict disasters you yourself are about to initiate.

It is no mistake that the warnings from the BIS and the IMF tend to come too little too late, or that they are beginning to compose cautionary press releases today that sound much like what alternative analysts were saying a few years ago. The goal of these globalist organizations is not to help people prepare, only to set themselves up as Johnny-come-lately prognosticators so that after a collapse they can claim they warned us all, which can then be used as a rationalization for why they are the best people to administrate the economies of the planet as a whole.

So why are so many prominent voices now warning that a global financial crisis is imminent?

The answer is actually very simple.

A global financial crisis is imminent.

Back on June 25th, I issued a red alert for the last six months of 2015 before any of these other guys issued their warnings.

When I first issued my alert, things were still seemingly very calm in the financial world, and a lot of people out there thought that I was nuts.

Well, here we are just a couple of months later and all hell is breaking loose.  23 global stock markets are crashing, the price of oil has been imploding, a new currency war has erupted, industrial commodities are plunging just like they did prior to the market crash of 2008, a full-blown financial crisis has gripped South America with fear, and junk bonds are sending some very ominous signals.

In the U.S., things are beginning to slowly unravel.  The Dow was down another 162 points on Wednesday, and overall we are now down almost 1000 points from the peak of the market.  At this point, it isn’t going to take much to push us into a bear market.

So enjoy what is left of August.

September is right around the corner, and if the experts that I mentioned above are correct, then it is likely to be one wild month.

8 Financial Experts That Are Warning That A Great Financial Crisis Is Imminent

Earth Clock Pocketwatch - Public DomainWill there be a financial collapse in the United States before the end of 2015?  An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis.  Of course that doesn’t mean that it will happen.  Experts have been wrong before.  But without a doubt, red flags are popping up all over the place and things are lining up in textbook fashion for a new financial crisis.  As I write this article, U.S. stocks have declined four days in a row, the Dow is down more than 750 points from the peak of the market in May, and one out of every five U.S. stocks is already in a bear market.  I fully expect the next several months to be extremely chaotic, and I am far from alone.  The following are 8 financial experts that are warning that a great financial crisis is imminent…

#1 During one recent interview, Doug Casey stated that we are heading for “a catastrophe of historic proportions”

“With these stupid governments printing trillions and trillions of new currency units,” says investor Doug Casey, “it’s building up to a catastrophe of historic proportions.”

Doug Casey, a wildly successful investor who’s the head of the outfit Casey Research, is predicting doom and gloom for the global economy.

“I wouldn’t keep significant capital in banks,” he told Reason magazine Editor-in-Chief Matt Welch. “Most of the banks in the world are bankrupt.”

#2 Bill Fleckenstein is warning that U.S. markets could be headed for calamity in the coming months

Noted short seller Bill Fleckenstein, who correctly predicted the financial crisis in 2007, says he is one step closer to opening up a short-focused fund for the first time since 2009. In the meantime, Fleckenstein says the entire market could be heading for calamity in the coming months.

The market is uniquely crash-prone,” Fleckenstein told CNBC’s “Fast Money” this week. “I think the market is very brittle because of high-frequency trading, ETFs, a lot of momentum investors. I don’t think there’s going to be any painless back door.”

#3 Richard Russell believes that the bear market that is coming “will tear apart the current economic system”

From my standpoint, this is the strangest period that I have gone through since the 1940s. The Industrials are declining faster than the Transports. If this continues, at some point the Industrials will touch the Transports. When that happens, I believe a bear market will be signaled, as both Industrials and Transports accelerate on the downside.

I expect a brief period of higher prices which will draw in the amateurish retail public. This brief breather will be followed by an historic bear market that will tear apart the current economic system.

#4 Larry Edelson is “100% confident” that a global financial crisis will be triggered “within the next few months”…

On October 7, 2015, the first economic supercycle since 1929 will trigger a global financial crisis of epic proportions. It will bring Europe, Japan and the United States to their knees, sending nearly one billion human beings on a roller-coaster ride through hell for the next five years. A ride like no generation has ever seen. I am 100% confident it will hit within the next few months.”

#5 John Hussman is warning that market conditions such as we are observing right now have only happened at a few key moments throughout our history

In any event, this is no time to be on autopilot. Look at the data, and you’ll realize that our present concerns are not hyperbole or exaggeration. We simply have not observed the market conditions we observe today except in a handful of instances in market history, and they have typically ended quite badly (see When You Look Back on This Moment in History and All Their Eggs in Janet’s Basket for a more extended discussion of current conditions). In my view, this is one of the most important moments in a generation to examine all of your risk exposures, the extent to which you believe historical evidence is informative, your tolerance for loss, your comfort or discomfort with missing out on potential rallies even in a wickedly overvalued market, and your true investment horizon.

#6 During a recent appearance on CNBC, Marc Faber suggested that U.S. stocks could soon plummet by up to 40 percent

The U.S. stock market could “easily” drop 20 percent to 40 percent, closely followed contrarian Marc Faber said Wednesday—citing a host of factors including the growing list of companies trading below their 200-day moving average.

In recent days, “there were [also] more declining than advancing stocks, and the list of 12-month new lows was very high on Friday,” the publisher of The Gloom, Boom & Doom Report told CNBC’s “Squawk Box.”

“It shows you a lot of stocks are already declining.”

#7 In a previous article, I noted that Henry Blodget of Business Insider is suggesting that U.S. stocks could soon drop by up to 50 percent

As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.

I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!

#8 Egon von Greyerz is even more bearish.  He recently told King World News that we are heading for “the most historic wealth destruction ever”…

Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.

So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.

So are they right?

We’ll know soon.

And of course they are not the only ones with a bad feeling about what is ahead.  A recent WSJ/NBC News survey found that 65 percent of all Americans believe that the country is currently on the wrong track.

Also, Gallup’s Economic Confidence Index just plunged to the lowest level that we have seen so far in 2015

Americans confidence in the US economy dropped sharply in July to its lowest level in 2015, according to a new US Economic Confidence Index rating released by Gallup on Tuesday.

“Gallup’s Economic Confidence Index declined to an average of —12 in July from —8 in June. This is the lowest monthly average since last October, and is a noticeable departure from the +3 average in January,” the polling company said.

Gallup said that “unsettled economic” conditions, including tumult in Chinese markets and uncertainty in Europe over a Greek debt deal, as well as US stock market volatility are factors driving lower confidence in the US economy.

These “bad feelings” are also reflected in the hard economic data.  U.S. consumer spending has declined for three months in a row, and U.S. factory orders have fallen for eight months in a row.

The numbers are screaming that we are heading for another major recession.

But could it be possible that this is just another false alarm?

Could it be possible that the blind optimists are right and that everything will work out okay somehow?

Please feel free to join the discussion by posting a comment below…

4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent

four asphalt - public domain
When financial markets crash, they do not do so in a vacuum.  There are always patterns, signs and indicators that tell us that something is about to happen.  In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008.  These four signs are very strong evidence that a deflationary financial collapse is right around the corner.  Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation.  The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later.  What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse.  The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…

#1 Commodities Are Crashing

In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard.  Well, now it is happening again.  In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…

#2 Oil Is Crashing

On Monday, the price of oil dipped back below $50 a barrel.  This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.

In early 2014, the price of a barrel of oil was sitting above $100 a barrel and the future of the industry looked very bright.  Since that time, the price of oil has fallen by more than 50 percent.

There is only one other time in all of history when the price of oil has fallen by more than $50 a barrel in such a short period of time.  That was in 2008, just before the great financial crisis that erupted later that year.  In the chart posted below, you can see how similar that last oil crash was to what we are experiencing right now…

Oil Price 2015

#3 Gold Is Crashing

Most people don’t remember that the price of gold took a very serious tumble in the run up to the financial crisis of 2008.  In early 2008, the price of gold almost reached $1000 an ounce, but by October it had fallen to nearly $700 an ounce.  Of course once the stock market finally crashed it ultimately propelled gold to unprecedented heights, but what we are concerned about for this article is what happens before a crisis arrives.

Just like in 2008, the price of gold has been hit hard in recent months.  And on Monday, the price of gold absolutely got slammed.  The following comes from USA Today

The yellow metal has tumbled to a five-year low amid a combination of diminishing investor fears related to foreign headwinds in Greece and China, and stronger growth in the U.S. which is leading to a stronger dollar and coming interest rate hikes from the Federal Reserve. Investors have been dumping shares of gold-related investments as other bearish signs, such as less demand from China and the breaking of key price support levels, add up.

Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010. Gold peaked around $1,900 an ounce back in 2011.

For years, I have been telling people that we were going to see wild swings in the prices of gold and silver.

And to be honest, the party is just getting started.  Personally, I particularly love silver for the long-term.  But you have got to be able to handle the roller coaster ride if you are going to get into precious metals.  It is not for the faint of heart.

#4 The U.S. Dollar Index Is Surging

Before the U.S. stock market crashed in the fall of 2008, the U.S. dollar went on a very impressive run.  This is something that you can see in the chart posted below.  Now, the U.S. dollar is experiencing a similar rise.  For a while there it looked like the rally might fizzle out, but in recent days the dollar has started to skyrocket once again.  That may sound like good news to most Americans, but the truth is that a strong dollar is highly deflationary for the global financial system as a whole for a variety of reasons.  So just like in 2008, this is not the kind of chart that we should want to see…

Dollar Index 2015

If a 2008-style financial crisis was imminent, these are the kinds of things that we would expect to see happen.  And of course these are not the only signs that are pointing to big problems in our immediate future.  For example, the last time there was a major stock market crash in China, it came just before the great U.S. stock market crash in the fall of 2008.  This is something that I covered in my previous article entitled “Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

As an attorney, I was trained to follow the evidence and to only come to conclusions that were warranted by the facts.  And right now, it seems abundantly clear that things are lining up in textbook fashion for another major financial crisis.

But even though what is happening right in front of our eyes is so similar to what happened back in 2008, most people do not see it.

And the reason why they do not see it is because they do not want to see it.

Just like with most things in life, most people end up believing exactly what they want to believe.

Yes, there is a segment of the population that are actually honest truth seekers.  If you have felt drawn to this website, you are probably one of them.  But overall, most people in our society are far more concerned with making themselves happy than they are about pursuing the truth.

So even though the signs are obvious, most people will never see what is coming in advance.

I hope that does not happen to you.

The Economic Collapse Blog Has Issued A RED ALERT For The Last Six Months Of 2015

Red Alert ButtonI have never done anything like this before.  Ever since I started The Economic Collapse Blog in late 2009, I have never issued any kind of “red alert” for any specific period of time.  As an attorney, I was trained to be level-headed and to only come to conclusions that were warranted by the evidence.  So this is not something that I am doing lightly.  Based on information that I have received, things that I have been told, and thousands of hours of research that have gone into the publication of more than 1,300 articles about our ongoing economic collapse, I have come to the conclusion that a major financial collapse is imminent.  Therefore, I am issuing a RED ALERT for the last six months of 2015.

To clarify, when I say “imminent” I do not mean that it will happen within the next 48 hours.  And I am not saying that our problems will be “over” once we get to the end of 2015.  In fact, I believe that the truth is that our problems will only be just beginning as we enter 2016.

What I am attempting to communicate is that we are right at the door of a major turning point.  About this time of the year back in 2008, my wife and I went to visit her parents.  As we sat in their living room, I explained to them that we were on the verge of a major financial crisis, and of course the events that happened a few months later showed that I was right on the money.

This time around, I wish that I could visit the living rooms of all of my readers and explain to them why we are on the verge of another major financial crisis.  Unfortunately, that is not possible, but hopefully this article will suffice.  Please share it with your friends, your family and anyone else that you want to warn about what is coming.

Let’s start with a little discussion about the U.S. economy.  Most of the time, when I use the term “economic collapse” what most people are actually thinking of is a “financial collapse”.  And we will talk about the imminent “financial collapse” later on in this article.  But just because stocks have recently been hitting all-time record highs does not mean that the overall economy has been doing well.  This is a theme that I have hammered on over and over again.  It is my contention that we are in the midst of a long-term economic collapse that has been happening for many years, that is happening as you read this article, and that will greatly accelerate over the coming months.

Let me give you just one quick example.  When an economy is healthy, money tends to circulate fairly rapidly.  I buy something from you, then you take that money and buy something from someone else, etc.  In a stable and growing economy, people generally feel good about things and they are not afraid to spend.  But during hard times, the exact opposite happens.  That is why the velocity of money almost always slows down during a recession.  As you can see from the chart below, the velocity of money has indeed gone down during every recession since 1960.  Once a recession is over, the velocity of money is supposed to go back up.  But a funny thing happened after the last recession ended.  The velocity of money continued to go down, and it has now hit an all-time record low…

Velocity Of Money M2

This is the kind of chart that you would expect from a very sick economy.  And without a doubt, our economy is sick.  Even the official government numbers paint a picture of an economy that is deeply troubled.  Corporate profits have declined for two quarters in a row, U.S. exports plunged by 7.6 percent during the first quarter of 2015, U.S. GDP contracted by 0.7 percent during the first quarter, and factory orders have declined year over year for six months in a row.

If the stock market was connected to reality, it would be going down.  But instead, it has just kept going up.  As I discussed yesterday, this is a classic case of an irrational financial bubble.  If I was writing an economic textbook and I wanted to include an example of what a run up to a major financial crash looks like, it would be hard to come up with anything more ideal than what we have watched unfold over the last six months.  Just about every pattern that has popped up prior to previous stock markets crashes is happening again, and this is something that I have written about so much that many of my readers are sick of it.

And without a doubt, our financial markets are primed for a crash.

Only two times before has the S&P 500 been up by more than 200 percent over a six year time frame.

The first was in 1929, and the stock market subsequently crashed.

The second was in 2000, right before the dotcom bubble burst.

And by just about any measure that you can possibly imagine, stocks are massively overvalued right now.

For instance, just check out the chart posted below.  It comes from Doug Short, and it shows that the ratio of corporate equity prices to GDP has only been higher one time since 1950.  That was in 2000 just before the dotcom bubble burst…

The Buffett Indicator from Doug Short

Let’s take a look at another chart.  This one comes from Phoenix Capital Research, and it shows that the CAPE ratio (cyclically adjusted price-to-earnings ratio) has rarely been higher.  In fact, the only times that it has been higher we have seen stock market crashes immediately afterwards…

CAPE - Phoenix Capital Research

Yale economics professor Robert Shiller is also deeply concerned about the CAPE ratio

I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.

But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what’s going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, “Do you think the stock market is overvalued, undervalued, or about right?” Lately, what I call “valuation confidence” captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000.

Other valuation indicators produce similar results.  This next chart is another one from Doug Short, and it shows the average of four of his favorite valuation indicators.  As you can see, there is only one other time when stocks have been more overvalued than they are today according to the average of his four favorite indicators, and that was just before the stock market crashed when the dotcom bubble burst…

Four Valuation Indicators - Doug Short

Another one of the things that indicates that a financial bubble is happening is the level of margin debt.  Whenever margin debt has gone over 2.25% of GDP a stock market crash has always followed, and today it is far above that level.  As you can see from the chart below, there have been three major peaks in margin debt in modern U.S. history.  One was just before the dotcom bubble burst, one was just before the financial crisis of 2008, and the third is happening right now…

Margin Debt - Doug Short

Something else that we would expect to see prior to a major financial crisis is a decoupling of high yield debt and stocks.  This is something that happened just prior to the stock market crash of 2008, and it is happening again right now.  The following chart comes from Zero Hedge, and it demonstrates this brilliantly…

S&P 500 HY Credit

Are you starting to get the picture?

And as I discussed yesterday, the smart money is beginning to pull their money out of stocks while they still can.  According to USA Today, mutual fund investors have pulled more money out of stocks than they have put into stocks for 16 weeks in a row

In a sign of stock market nervousness on Main Street, mutual fund investors have yanked more money out of U.S. stock funds than they put in for 16 straight weeks.

The last time domestic stock funds had positive net cash inflows was in the week ending Feb. 25, according to data from the Investment Company Institute, a mutual fund trade group.

In the week ended June 17, the most recent data available, mutual funds that invest in U.S. stocks suffered net outflows of $3.45 billion, according to the ICI.

Since late February, U.S. stock funds have suffered estimated outflows of nearly $55 billion. Those net withdrawals come despite the fact the benchmark Standard & Poor’s 500 hit a fresh record high of 2130.82 on May 21 and the Dow Jones industrial average notched a fresh record on May 19.

But it isn’t just stocks that are going to crash during the next financial crisis.  Bonds are going to crash as well, but what I am concerned about most of all are derivatives.

Derivatives are going to play a starring role in the next major financial crisis.  I cannot emphasize this enough.  In fact, if you want to listen for just one word on the news that will let you know that things have started to really unravel, just listen for the word “derivatives”.  This form of legalized gambling is going to crush “too big to fail” banks all over the planet during the next major financial downturn.  The “too big to fail” banks in the U.S. alone have 278 trillion dollars of total exposure to derivatives, but they only have 9.8 trillion dollars in total assets.  To say that they are being “reckless” is a massive understatement.

For much more on the coming derivatives crisis, please see my previous article entitled “Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’“.

Of course I am not the only one that is sounding the alarm about what is coming.  Just consider what some very prominent individuals have been saying recently…

Ron Paul has just released a new video in which he warned all of us to “prepare for a bear market in bonds“.

Carl Icahn says that financial markets are “extremely overheated—especially high-yield bonds“.

Max Keiser recently told Alex Jones that a great financial collapse is coming.

Martin Armstrong says that his Economic Confidence Model predicts that the “Big Bang” is coming in “2015.75“.

Jeff Berwick of the Dollar Vigilante says that “we’re getting very, very close to the next crisis collapse” and he has specifically pointed to the month of September.

James Howard Kunstler has predicted that stocks are going to “crater in Q3 as faith in paper and pixels erodes“.

Lindsey Williams recently sent out an email alert in which he warned that his elite friend has told him that “they have a World Wide Financial Collapse scheduled between September and the end of December 2015“.

Gerald Celente has warned about “the Great Panic of 2015“.

Bill Fleckenstein has said that 2015 could be the year of the “big accident“.

Ray Gano has stated that we will see a financial collapse “probably starting in the third quarter of 2015″.

Legendary investor Jim Rogers recently said that he believes that “we will see some kind of major, major problems in the world financial markets” within the next year or two.

Alex Jones recently released a video in which he explained that he recently received “two different calls” from “extremely prominent wealthy people” warning him about what is coming by the end of this year and asking him why he isn’t leaving the United States “before October”.

Bible prophecy expert Joel C. Rosenberg has posted an ominous message on his personal blog in which he warned that “something is coming” and that “we must be ready”…

I feel a tremendous sense of urgency about this column.

The United States is hurtling towards severe trouble, and the events of the past few months — and what may be coming over the next few months — grieves me a great deal.

Something is coming. I don’t know what. But we all must be ready in every possible way.

When I read what Rosenberg wrote, it struck me that it was precisely how I have been feeling too.

In my entire life, I have never had such an ominous feeling about any period of time as I have about the last six months of 2015.  Like Rosenberg, I feel a “tremendous sense of urgency”, and I feel a great need to warn as many people as I can.

And it isn’t just a financial collapse that I am concerned about.  In a previous article, I detailed seven key events that we are going to witness before the end of this September…

Late June/Early July – It is expected that this is when the U.S. Supreme Court will reveal their gay marriage decision.  Most believe that the court will rule that gay marriage is a constitutional right in all 50 states.  There are some that believe that this will be a major turning point for our nation.

July 15th to September 15th – A “realistic military training exercise” known as “Jade Helm” will be conducted by the U.S. Army.  More than 1,000 members of the U.S. military will take part in this exercise.  The list of states slated to be involved in these drills includes Texas, Colorado, New Mexico, Arizona, Nevada, Utah, California, Mississippi and Florida.

July 28th – On May 28th, Reuters reported that countries in the European Union were being given a two month deadline to enact “bail-in” legislation.  Any nation that does not have “bail-in” legislation in place by that time will face legal action from the European Commission.  So why is the European Union in such a rush to get this done?  Are the top dogs in the EU anticipating that another great financial crisis is about to erupt?

September 13th – This is Elul 29 on the Biblical calendar – the last day of the Shemitah year.  Many are concerned about this date because we have seen giant stock market crashes on the last day of the previous two Shemitah cycles.

On September 17th, 2001 (which was Elul 29 on the Biblical calendar), we witnessed the greatest one day stock market crash in U.S. history up until that time.  The Dow plummeted 684 points, and it was a record that held for exactly seven years until the end of the next Shemitah cycle.

On September 29th, 2008 (which was also Elul 29 on the Biblical calendar), the Dow fell by an astounding 777 points, which still today remains the greatest one day stock market crash of all time.

Now we are approaching the end of another Shemitah year.  So will the stock market crash on September 13th, 2015?  Well, no, because that day is a Sunday.  So I guarantee that the stock market will not crash on that particular day.  But as Jonathan Cahn has pointed out in his book on the Shemitah, sometimes stock market crashes happen just before the end of the Shemitah year and sometimes they happen within just a few weeks after the end of the Shemitah.  So we are not just looking at one particular date.

September 15th – The 70th session of the UN General Assembly begins on this date.  It is being reported that France plans to introduce a resolution which would give formal UN Security Council recognition to a Palestinian state.  Up until now, the United States has always been the one blocking such a resolution, but Barack Obama is indicating that things may be much different this time around.

September 25th to September 27th – The United Nations is going to launch a brand new sustainable development agenda for the entire planet.  Some have called this “Agenda 21 on steroids”.  But this new agenda is not just about the environment.  It also includes provisions regarding economics, agriculture, education and gender equality.  On September 25th, the Pope will travel to New York to give a major speech kicking off the UN conference where this new agenda will be unveiled.

September 28th – This is the date for the last of the four blood moons that fall on Biblical festival dates during 2014 and 2015.  This blood moon falls on the very first day of the Feast of Tabernacles, it will be a “supermoon”, and it will actually be visible in the city of Jerusalem.  There are many that dismiss the blood moon phenomenon, but we have seen similar patterns before.  For example, a similar pattern of eclipses happened just before and just after the destruction of the Jewish temple by the Romans in 70 AD.

In addition to everything above, quite a number of economic cycle theories that were developed by secular economists all point to big trouble for America between the years of 2015 and 2020.  For more on this, please see my previous article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

Earlier today, I publicly announced that I was issuing a RED ALERT for the last six months of 2015 on the Alex Jones radio show.  You can watch video of that interview right here.  In this article (which is about three times as long as one of my normal articles) I have only shared a small fraction of the information that has led me to issue this red alert.  But if you want to know more, and you are not afraid to really go down the rabbit hole, I would encourage you to check out a full two hour presentation that I did down in Dallas, Texas on the nightmarish years that are coming.

The period of relative stability that we have been enjoying is ending.  What comes next is going to lead us into the worst period of time in modern American history.  I wish that I was wrong about this.

But the goal is not to scare you.  My wife and I live our lives with absolutely no fear, and that is my desire for all of my readers.  There is hope in understanding what is happening and there is hope in getting prepared.  Personally, my wife and I believe that the greatest chapters of our lives are ahead of us, and I hope that you have a similar outlook.

We need a generation of people that are willing to rise up and do great things even in the midst of all the chaos and darkness that is coming.  It is when times are the darkest that the greatest heroes are needed.

So what will you choose to do when the next crisis comes?

Will you cower in fear, or will you rise up to meet the challenge?

Please feel free to tell us what you think by posting a comment below…

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Those words turned out to be quite prophetic.  Derivatives have definitely multiplied in variety and number since that time, and it has become abundantly clear how toxic they are.  Derivatives played a substantial role in the financial meltdown of 2008, but we still haven’t learned our lessons.  Today, the derivatives bubble is even larger than it was just before the last financial crisis, and it could absolutely devastate the global financial system at any time.

During one recent interview, Buffett was asked if he is still convinced that derivatives are “weapons of mass destruction”.  He told the interviewer that he believes that they are, and that “at some point they are likely to cause big trouble”

Thirteen years after describing derivatives as “weapons of mass destruction” Warren Buffett has reaffirmed his view that they pose a threat to the global economy and financial markets.

In an interview with Chanticleer this week, Buffett said that “at some point they are likely to cause big trouble“.

“Derivatives, lend themselves to huge amounts of speculation,” he said.

Most of the time, the big banks that do most of the trading in these derivatives do very well.  They use extremely sophisticated computer algorithms that help them come out on the winning end of these bets most of the time.

But when there is some sort of unforeseen event that suddenly causes a massive shift in the marketplace, that can cause tremendous problems.  This is something that Buffett discussed during his recent interview

“The problem arises when there is a discontinuity in the market for some reason or another.

“When the markets closed like it was for a few days after 9/11 or in World War I the market was closed for four or five months – anything that disrupts the continuity of the market when you have trillions of dollars of nominal amounts outstanding and no ability to settle up and who knows what happens when the market reopens,” he said.

So if the markets behave fairly calmly and predictably, the derivatives bubble probably will not burst.

But no balancing act of this nature ever lasts forever.  Just remember what happened in 2008.  Lehman Brothers collapsed and then the financial system virtually froze up.  According to Forbes, at that time almost everyone was afraid to deal with the big banks because nobody was quite sure how much exposure they had to these risky derivatives…

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?

The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

After the crisis, we were promised that something would be done about the “too big to fail” problem.

But instead, the problem of “too big to fail” is now larger than ever.

Since the last financial crisis, the four largest banks in the country have gotten approximately 40 percent larger.  Today, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.  Without those banks, we would not have much of an economy left at all.

Meanwhile, smaller banks have been going out of business or have been swallowed up by the big banks at a staggering rate.  Incredibly, there are 1,400 fewer small banks in operation today than there were when the last financial crisis erupted.

So we cannot afford for these “too big to fail” banks to actually fail.  Even the failure of a single one would cause a national financial nightmare.  The “too big to fail” banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you total up the exposure to derivatives that all of them currently have, it comes to a grand total of more than 278 trillion dollars.  But when you total up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, the “too big to fail” banks have exposure to derivatives that is more than 28 times the size of their total assets.

I have shared the following numbers with my readers before, but it is absolutely crucial that we all understand how exceedingly vulnerable our financial system really is.  These numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is almost beyond words…

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

Since the United States was first established, the U.S. government has run up a total debt of a bit more than 18 trillion dollars.  It is the biggest mountain of debt in the history of the planet, and it has grown so large that it is literally impossible for us to pay it off at this point.

But the top five banks in the list above each have exposure to derivatives that is more than twice the size of the national debt, and several of them have exposure to derivatives that is more than three times the size of the national debt.

That is why I keep saying that there will not be enough money in the entire world to bail everyone out when this derivatives bubble finally implodes.

Warren Buffett is entirely correct about derivatives – they truly are weapons of mass destruction that could destroy the entire global financial system at any time.

So as we move into the second half of this year and beyond, you will want to watch for terms like “derivatives crisis” or “derivatives crash” in news reports.  When derivatives start making front page news, that will be a really, really bad sign.

Our financial system has been transformed into the largest casino in the history of the planet.  For the moment, the roulette wheels are still spinning and everyone is happy.  But sooner or later, a “black swan event” will happen that nobody expected, and then all hell will break loose.

The Next Great European Financial Crisis Has Begun

European Financial CrisisThe Greek financial system is in the process of totally imploding, and the rest of Europe will soon follow.  Neither the Greeks nor the Germans are willing to give in, and that means that there is very little chance that a debt deal is going to happen by the end of June.  So that means that we will likely see a major Greek debt default and potentially even a Greek exit from the eurozone.  At this point, credit default swaps on Greek debt have risen 456 percent in price since the beginning of this year, and the market has priced in a 75 percent chance that a Greek debt default will happen.  Over the past month, the yield on two year Greek bonds has skyrocketed from 20 percent to more than 30 percent, and the Greek stock market has fallen by a total of 13 percent during the last three trading days alone.  This is what a financial collapse looks like, and if Greece does leave the euro, we are going to see this kind of carnage happen all over Europe.

Officials over in Europe are now openly speaking of the need to prepare for a “state of emergency” now that negotiations have totally collapsed.  At one time, it would have been unthinkable for Greece to leave the euro, but now it appears  that this is precisely what will happen unless a miracle happens…

Greece is heading for a state of emergency and an exit from the euro following the collapse of talks to agree a bailout deal, senior EU officials warned last night.

Europe must be prepared to step in otherwise Greek society would face an unprecedented crisis with power blackouts, medicine shortages and no money to pay for police, they said.

In the past, the Greeks have always buckled under pressure.  But this new Greek government was elected with a mandate to end austerity, and so far they have shown a remarkable amount of resolve.  In order for a debt deal to happen, one side is going to have to blink, and at this point it does not look like it will be the Greeks

The world’s financial markets are facing up to the possibility that Greece could soon become the first country to crash out of Europe’s single currency. Talks between Athens and its eurozone creditors have collapsed in acrimony just days before a final deadline for Greece to unlock the €7.2bn (£5.2bn) in bailout funds it needs to avoid a catastrophic debt default.

The Greek Prime Minister, Alexis Tsipras, accused the creditor powers of hidden “political motives” in their demands that Greece make further cuts to public pension payments in return for the financial aid. “We are shouldering the dignity of our people, as well as the hopes of the people of Europe,” Mr Tsipras said in a defiant statement. “We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy.”

As we approach the point of no return, both sides are preparing for the endgame.

In Greece, members of parliament have been studying what happened in Iceland a few years ago.  Many of them believe that a Greek debt default combined with a nationalization of Greek banks and a Greek exit from the euro could set the nation back on the path to prosperity fairly rapidly.  The following comes from the Telegraph

The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers.

Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum. It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be.

Meanwhile, in a desperate attempt to get the Greeks to give in at the last moment, Greek’s creditors are preparing to pull out all the stops in order to put as much financial pressure on Greece as possible

Germany’s Suddeutsche Zeitung reported that the creditors are drawing an ultimatum to the Greeks, threatening to cut off Greek access to the European payments system and forcing capital controls on the country as soon as this weekend. The plan would lead to the temporary closure of the banks, followed by a rationing of cash withdrawals.

For a long time, most in the financial world assumed that a debt deal would eventually happen.  But now reality is setting in.  As I mentioned at the top of this article, the cost to insure Greek debt has risen by an astounding 456 percent since the beginning of this year

Given these dramatic stakes, the risk of a Greek default has gone way up. One way to measure that risk is by looking at the skyrocketing price of insurance policies that would pay out if Greek bonds go bust. The cost to insure Greek debt for one year against the risk of default has skyrocketed 456% since the start of the 2015, according to FactSet data.

These insurance-like contracts, known as credit default swaps, imply there is a 75% to 80% probability of Greece defaulting on its debt, according to Jigar Patel, a credit strategist at Barclays.

The probability of a Greek default soars to a whopping 95% for five-year CDS, Patel said.

“Default is looking more and more likely,” Peter Boockvar, chief market analyst at The Lindsey Group, wrote in a note to clients on Tuesday.

And in recent days, we have also seen Greek stocks and Greek bonds totally crash.  The following comes from CNN

The Greek stock market has plummeted 13% over the past three trading days, including a 3% drop on Tuesday alone.

In the bond market, the yield on Greek two-year debt has skyrocketed to 30.2%. A month ago, the yield was only 20%. Yields rise as bond prices fall.

Of course if there is a Greek debt default and Greece does leave the euro, it won’t just be Greece that pays the price.

As I have written about previously, there are tens of trillions of dollars in derivatives that are directly tied to currency exchange rates and 505 trillion dollars in derivatives that are directly tied to interest rates.  A “Grexit” would cause the euro to drop like a rock and interest rates all over the continent would start to go crazy.  The financial chaos that a “Grexit” would cause should not be underestimated.

And there are signs that some of Europe’s biggest banks are already on the verge of collapse.  For example, just consider what has been going on at the biggest bank in Germany.  Both of the co-CEOs at Deutsche Bank recently resigned, and it is increasingly looking as if it could soon become Europe’s version of Lehman Brothers.  The following summary of the recent troubles at Deutsche Bank comes from an article that was posted on NotQuant

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

  • In April of 2014,  Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure.  Why?
  • 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount.   Why again?  It was a move which raised eyebrows across the financial media.  The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity.  Something was decidedly rotten behind the curtain.
  • Fast forwarding to March of this year:   Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
  • In April,  Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR.   The bank is saddled with a massive $2.1 billion payment to the DOJ.  (Still, a small fraction of their winnings from the crime). 
  • In May,  one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors.  We guess that this is a “crisis move”.  In times of crisis the power of the executive is often increased.
  • June 5:  Greece misses it’s payment to the IMF.   The risk of default across all of it’s debt is now considered acute.   This has massive implications for Deutsche Bank.
  • June 6/7:  (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company.  (Just one month after Jain is given his new expanded powers).   Anshu Jain will step down first at the end of June.  Jürgen Fitschen will step down next May.
  • June 9: S&P lowers the rating of Deutsche Bank to BBB+  Just three notches above “junk”.  (Incidentally,  BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now.  How bad is it?  We don’t know because we won’t be permitted to know.  But these are not the moves of a healthy company.

For a very long time, I have been warning that a major financial crisis was coming to Europe, and for a very long time the authorities in Europe have been able to successfully kick the can down the road.

But now it looks like we have reached the end of the road, and a day of reckoning is finally here.

Nobody is quite sure what is going to happen next, but almost everyone agrees that it isn’t going to be pretty.

So you better buckle up, because it looks like we are all in for a wild ride as we enter the second half of this year.

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