Was last week a preview of things to come? There are quite a few people out there that believe that the stock market would begin to decline in July, and that appears to be precisely what is happening. Last week, the Dow Jones Industrial Average fell by more than 530 points. It was the biggest one week decline that we have seen so far in 2015, and some are suggesting that this could only be just the beginning. By just about any measurement that you might want to use, the stock market is overvalued. But we have been in this bubble for so long that many people have come to believe that this is “the new normal”. In fact, earlier today someone that I know dropped me a line and suggested that our financial overlords may be able to use the tools at their disposal to get this current bubble to persist indefinitely. Unfortunately, the truth is that no financial bubble ever lasts forever, and right now some very alarming things are starting to happen behind the scenes. Over the past couple of weeks, the smart money has been dumping stocks like crazy, and the lack of liquidity in the bond markets is beginning to become acute. Could it be possible that another great financial crisis is just around the corner?
Last week took a lot of investors by surprise. The following is how Zero Hedge summarized the carnage…
-Russell 2000 -3.1% – worst week since Oct 2014 (Bullard)
-Dow -2.8% – worst week since Dec 2014
-S&P -2.1% – worst week since Jan 2015
-Trannies -2.8% – worst week since Mar 2015
-Nasdaq -2.2% – worst week since Mar 2015
The talking heads on television were not quite sure what to make of this sudden downturn. On CNBC, analysts mainly blamed the usual suspects…
“I think the market’s very much concerned about the commodity (decline),” said John Lonski, chief economist at Moody’s. “The contraction in China manufacturing activity is gaining momentum and the credit market has yet to signal that rates are not about to go higher.”
He also noted a surprising decline in new home sales and continued lack of revenue growth in earnings. Nearly all the commodities are in a bear market and gold and crude settled at lows Friday.
“You’ve got some major growth concerns and that is what’s weighing on investors minds,” said Peter Boockvar, chief market strategist at The Lindsey Group.
And without a doubt, there are some new numbers that are deeply troubling for Wall Street. For example, it is being projected that S&P 500 companies will collectively report a 2.2 percent decline in earnings for the second quarter of 2015. If this comes to pass, it will be the first drop that we have seen since the third quarter of 2012.
The biggest reason for this decline in earnings is the implosion of U.S. energy companies due to the crash in oil prices. The following comes from CNBC…
Thanks to a collapse in the price of oil, the energy sector is slated to report a monster 54 percent drop in earnings and 28 percent swoon in revenue, compared to the second quarter in the year prior.
Hmm – unlike what so many others were saying initially, it turns out that the oil crash is bad for the U.S. economy after all.
But just like at this time of the year in 2008, most people fully expect that everything is going to be just fine. So many of the exact same patterns that we witnessed the last time around are playing out once again, and yet most of the “experts” refuse to see what is happening right in front of their eyes.
When things crash this time, it won’t just be stocks that collapse. As I have been writing about so frequently, we are also headed for an implosion of the bond markets as well. The following comes from Dr. David Eifrig…
In the U.S. Treasury securities market, financial-services giant JPMorgan Chase estimates that five years ago, you could move about $280 million worth of Treasury securities before your trades moved the market’s price. Now, that’s down to $80 million… a decline of more than 70%.
When a panic sets in, reduced liquidity can cause big swings in market prices.
There is that word “liquidity” again. This is something that I have repeatedly been taking about. Just check out this article from a little over a month ago. A bond is only worth what someone else is willing to pay for it, and if the market runs out of buyers that can cause seismic shifts in price very rapidly. Here is more from Eifrig…
In a run-of-the-mill bear market, you just have a downward trend… When enough investors are selling bonds, it drives down prices. Falling prices lead more investors to start selling. We see that all the time.
A liquidity crisis goes even further. It’s like a classic run on a bank… Without sufficient liquidity, the sellers don’t just see lower prices… they see no prices. Since no one wants to buy bonds at this particular time, the price for them effectively becomes zero.
There has been a lot of speculation about what will happen in the second half of 2015.
We only have a little over five months to go in the year, so it won’t be too long before we see who was right and who was wrong.
Our perceptions of the future are very much shaped by our worldviews. All the time, I get “Obamabots” that come to my website and leave comments on my articles telling me how Barack Obama has “turned the economy around” and has set the stage for a new era of prosperity in America.
Despite all the evidence to the contrary, they choose to believe that things are in great shape because that is what they want to believe. Just check out the results from one recent survey…
While 55 percent of Democrats reported feeling positive about the economy, for example, just 25 percent of Republicans felt the same from March 25 to May 27.
When asked if they thought the economy would improve over the next 12 months, 53 percent of Democrats said yes. Only 23 percent of the Republicans in the survey agreed.
The same perception gap extends to the far future, with 41 percent of Democrats believing that the next generation will be better off than their parents, and just 24 percent of Republicans saying the same.
To me, those numbers are quite striking.
Many Democrats very much want to believe that things are getting better because Barack Obama is in the White House.
Many Republicans very much want to believe that things are totally falling apart because Barack Obama is in the White House.
So who is right and who is wrong?
Please feel free to share what you think by posting a comment below…
If you are looking for a “canary in a coal mine” type of warning for the entire global economy, you have a whole bunch to pick from right now. “Dr. Copper” just hit a six year low, Morgan Stanley is warning that this could be the worst oil price crash in 45 years, the Chinese economy is suddenly stalling out, and world trade is falling at the fastest pace that we have seen since the last financial crisis. In order not to see all of the signs that are pointing toward a global economic slowdown, you would have to be willingly blind. In recent months, I have been writing article after article detailing how the exact same patterns that happened just before the stock market crash of 2008 are playing out once again. We are watching a slow-motion train wreck unfold right before our eyes, and things are only going to get worse from here.
Copper is referred to as “Dr. Copper” because it does such an excellent job of indicating where economic conditions are heading next. We saw this in 2008, when the price of copper started crashing big time in the months leading up to the stock market implosion.
Well, now copper is crashing again. Just check out this chart. The price of copper plunged again on Wednesday, and it is now the lowest that it has been since the last financial crisis. Unfortunately, the forecast for the months ahead is not good. The following is what Goldman Sachs is saying about copper…
“Though we have been bearish on copper on a 12-mo forward basis for the past two and a half years, we have maintained a more bullish medium to long-term stance on the assumption of Chinese copper demand growth of 4% per annum and a major slowing in supply growth around 2017/2018 … we substantially lower our short, medium, and long-term copper price forecasts, on the back of lower Chinese copper demand growth forecasts (we have been highlighting that the risk has been skewed to the downside for some time), increased conviction in copper supply growth over the next three years, and increased conviction in the outlook for mining cost deflation in dollar terms.”
It is funny that Goldman mentioned China so prominently. Even though China’s fake GDP figures say that everything is fine over there, other numbers are painting a very dismal picture.
For instance, Chinese electrical consumption in June grew at the slowest pace that we have seen in 30 years, and capital outflows from China have reached a level that is “frightening”…
Robin Brooks at Goldman Sachs estimates that capital outflows topped $224bn in the second quarter, a level “beyond anything seen historically”.
The Chinese central bank (PBOC) is being forced to run down the country’s foreign reserves to defend the yuan. This intervention is becoming chronic. The volume is rising. Mr Brooks calculates that the authorities sold $48bn of bonds between March and June.
Charles Dumas at Lombard Street Research says capital outflows – when will we start calling it capital flight? – have reached $800bn over the past year. These are frighteningly large sums of money.
Just last month, the Chinese stock market started to crash, but the crash was interrupted when the Chinese government essentially declared a form of financial martial law.
And I don’t think that “financial martial law” is too strong of a term to use in this case. Just consider the following excerpt from a recent article in the Telegraph…
Half the shares traded in Shanghai and Shenzhen were suspended. New floats were halted. Some 300 corporate bosses were strong-armed into buying back their own shares. Police state tactics were used hunt down short sellers.
We know from a vivid account in Caixin magazine that China’s top brokers were shut in a room and ordered to hand over money for an orchestrated buying blitz. A target of 4,500 was set for the Shanghai Composite by Communist Party officials.
So a stock market crash was halted, but in doing so Chinese officials have essentially destroyed the second largest stock market in the world. China’s financial markets have lost all legitimacy, and foreigners are going to be extremely hesitant to put any money into Chinese stocks from now on.
Meanwhile, there is no hiding the fact that trade activity in China and in most of the rest of the planet is slowing down. In fact, world trade volume has now dropped by the most that we have seen since the last global recession. The following comes from Zero Hedge…
As goes the world, so goes America (according to 30 years of historical data), and so when world trade volumes drop over 2% (the biggest drop since 2009) in the last six months to the weakest since June 2014, the “US recession imminent” canary in the coalmine is drawing her last breath…
As Wolf Street’s Wolf Richter adds, this isn’t stagnation or sluggish growth. This is the steepest and longest decline in world trade since the Financial Crisis. Unless a miracle happened in June, and miracles are becoming exceedingly scarce in this sector, world trade will have experienced its first back-to-back quarterly contraction since 2009.
As you probably noted in the chart above, a decline in world trade is almost always associated with a recession.
That was certainly the case back in 2008 and 2009.
Another similarity between the last crisis and what is happening now is a crash in the price of oil.
According to Business Insider, we have just officially entered a brand new bear market for oil…
Oil is officially in a bear market.
On Thursday, West Texas Intermediate crude oil futures fell more than 1% to settle near $48.55 per barrel in New York.
A bear market is roughly defined as a 20% drop from highs. Crude has now fallen by about 20% in the last six weeks.
So what does all of this mean?
All of these signs are indicating that another great economic crisis is here, and that a global financial implosion is just around the corner.
At this point, even many of the “bulls” are sounding the alarm. For example, just consider what Henry Blodget of Business Insider is saying…
As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.
I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!
For those that don’t know, Henry Blodget is definitely not a bear. In fact, he is one of Wall Street’s biggest cheerleaders.
So for Blodget to suggest that we could see the stock market drop by half is a really big deal.
The closer that we get to this next crisis, the clearer that everything is becoming.
Where are things going to go from here? Please feel free to add to the discussion by posting a comment below…
If we were going to see a stock market crash in the United States in the fall of 2015 (to use a hypothetical example), we would expect to see commodity prices begin to crash a few months ahead of time. This is precisely what happened just before the great financial crisis of 2008, and we are watching the exact same thing happen again right now. On Wednesday, commodities got absolutely pummeled, and at this point the Bloomberg Commodity Index is down a whopping 26 percent over the past twelve months. When global economic activity slows down, demand for raw materials sinks and prices drop. So important global commodities such as copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber are all considered to be key “leading indicators” that can tell us a lot about where things are heading next. And what they are telling us right now is that we are rapidly approaching a global economic meltdown.
If the global economy was actually healthy and expanding, the demand for commodities would be increasing and that would tend to drive prices up. But instead, prices continue to go down.
The Bloomberg Commodity Index just hit a brand new 13-year low. That means that global commodity prices are already lower than they were during the worst moments of the last financial crisis…
The commodities rout that’s pushed prices to a 13-year low pulled some of the biggest mining and energy companies below levels seen during the financial crisis.
The FTSE 350 Mining Index plunged as much as 4.9 percent to the lowest since 2009 on Wednesday, with BHP Billiton Ltd. and Anglo American Plc leading declines. Gold and copper are near the lowest in at least five years, while crude oil retreated to $50 a barrel.
“This commodity bear market is like a train wreck in slow motion,” said Andy Pfaff, the chief investment officer for commodities at MitonOptimal in Cape Town. “It has a lot of momentum and doesn’t come to a sudden stop.”
Commodity prices have not been this low since April 2002. According to Bloomberg, some of the commodities being hit the hardest include soybean oil, copper, zinc and gasoline. And this commodity crash is already having a dramatic impact on some of the biggest commodity-producing nations on the globe. Just consider what Gerald Celente recently told Eric King…
We now see that the Australian dollar is at a six-year low against the U.S. dollar. What are Australia’s biggest exports? How about iron-ore and other metals.
If we look at Canada, their currency is also now at a six-year low vs the U.S. dollar. Well, Canada is a big oil exporter, particularly some tar sands oil, which is expensive to produce.
We also now have the Brazilian real at a 10-year low vs the U.S. dollar. Why? Because it’s a natural resource rich country and they don’t have a strong market to sell their natural resources to.
Meanwhile, the Indian rupee is at a 17-year low vs the U.S. dollar. This is because manufacturing is slowing down and there is less development. If the Americans aren’t buying, the Indians, the Chinese, the Vietnamese — they’re not making things.
All of this is so, so similar to what we experienced in the run up to the financial crisis of 2008. Just a couple of days ago, I talked about how the U.S. dollar got really strong just prior to the last stock market crash. The same patterns keep playing out over and over, and yet most in the mainstream media refuse to see what is happening.
Something else that happened just a few months before the last stock market crash was a collapse of the junk bond market.
That is starting to happen again too. Just check out this chart.
I know that I must sound like a broken record. But I think that it is extremely important to document these things. When the next financial collapse takes place, virtually everyone in the mainstream media will be talking about what a “surprise” it is.
But for those that have been paying attention, it won’t be much of a “surprise” at all.
When the stock market does crash, how far might it fall?
During a recent appearance on CNBC, Marc Faber suggested that it could decline 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.”
Others, including myself, believe that what we are going to experience is going to be even worse than that.
We live in such a fast-paced world, and most of us don’t have the patience to wait for long-term trends to play out.
If the stock market is not crashing today, to most people that means that everything must be fine.
But once it has crashed, everyone is going to be complaining that they weren’t warned in advance about what was coming and everyone will be complaining that nobody ever fixed the things that caused the exact same problems the last time around.
Personally, I am trying very hard to make sure that nobody can accuse me of not sounding the alarm about the storm that is on the horizon.
The world has never been in more debt, our “too big to fail” banks have never been more reckless, and global financial markets have never been more primed for a collapse.
Amazingly, there are still a lot of “experts” out there that insist that everything is going to be okay somehow.
Of course many of those exact same “experts” were telling us the same thing just before the stock market crashed in 2008 too.
A great financial shaking has already begun around the world, and it will hit U.S. financial markets very soon.
I hope that you are getting ready while you still can.
Did you know that the percentage of children in the United States that are living in poverty is actually significantly higher than it was back in 2008? When I write about an “economic collapse”, most people think of a collapse of the financial markets. And without a doubt, one is coming very shortly, but let us not neglect the long-term economic collapse that is already happening all around us. In this article, I am going to share with you a bunch of charts and statistics that show that economic conditions are already substantially worse than they were during the last financial crisis in a whole bunch of different ways. Unfortunately, in our 48 hour news cycle world, a slow and steady decline does not produce many “sexy headlines”. Those of us that are news junkies (myself included) are always looking for things that will shock us. But if you stand back and take a broader view of things, what has been happening to the U.S. economy truly is quite shocking. The following are 12 ways that the U.S. economy is already in worse shape than it was during the depths of the last recession…
#1 Back in 2008, 18 percent of all Americans kids were living in poverty. This week, we learned that number has now risen to 22 percent…
There are nearly three million more children living in poverty today than during the recession, shocking new figures have revealed.
Nearly a quarter of youngsters in the US (22 percent) or around 16.1 million individuals, were classed as living below the poverty line in 2013.
This has soared from just 18 percent in 2008 – during the height of the economic crisis, the Casey Foundation’s 2015 Kids Count Data Book reported.
#2 In early 2008, the homeownership rate in the U.S. was hovering around 68 percent. Today, it has plunged below 64 percent. Incredibly, it has not been this low in more than 20 years. Just look at this chart – the homeownership rate has continued to plummet throughout Obama’s “economic recovery”…
#3 While Barack Obama has been in the White House, government dependence has skyrocketed to levels that we have never seen before. In 2008, the federal government was spending about 37 billion dollars a year on the federal food stamp program. Today, that number is above 74 billion dollars. If the economy truly is “recovering”, why is government dependence so much higher than it was during the last recession?
#4 On the chart below, you can see that the U.S. national debt was sitting at about 9 trillion dollars when we entered the last recession. Since that time, the debt of the federal government has doubled. We are on the exact same path that Greece has gone down, and what you are looking at below is a recipe for national economic suicide…
#5 During Obama’s “recovery”, real median household income has actually gone down quite a bit. Just prior to the last recession, it was above $54,000 per year, but now it has dropped to about $52,000 per year…
#6 Even though our incomes are stagnating, the cost of living just continues to rise steadily. This is especially true of basic things that we all purchase such as food. As I wrote about earlier this year, the price of ground beef in the United States has doubled since the last recession.
#7 In a healthy economy, lots of new businesses are opening and not that many are being forced to shut down. But for each of the past six years, more businesses have closed in the United States than have opened. Prior to 2008, this had never happened before in all of U.S. history.
#8 Barack Obama is constantly telling us about how unemployment is “going down”, but the truth is that the percentage of working age Americans that are either working or considered to be looking for work has steadily declined since the end of the last recession…
#9 Some have suggested that the decline in the labor force participation rate is due to large numbers of older people retiring. But the reality of the matter is that we have seen a spike in the inactivity rate for Americans in their prime working years. As you can see below, the percentage of males between the ages of 25 and 54 that aren’t working and that aren’t looking for work has surged to record highs since the end of the last recession…
#10 A big reason why we don’t have enough jobs for everyone is the fact that millions upon millions of good paying jobs have been shipped overseas. At the end of Barack Obama’s first year in office, our yearly trade deficit with China was 226 billion dollars. Last year, it was more than 343 billion dollars.
#11 Thanks to all of these factors, the middle class in America is dying. In 2008, 53 percent of all Americans considered themselves to be “middle class”. But by 2014, only 44 percent of all Americans still considered themselves to be “middle class”.
When you take a look at our young people, the numbers become even more pronounced. In 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”. But in 2014, an astounding 49 percent of all Americans in that age range considered themselves to be “lower class”.
#12 This is something that I have covered before, but it bears repeating. The velocity of money is a very important indicator of the health of an economy. When an economy is functioning smoothly, people generally feel quite good about things and money flows freely through the system. I buy something from you, then you take that money and buy something from someone else, etc. But when an economy is in trouble, the velocity of money tends to go down. As you can see on the chart below, a drop in the velocity of money has been associated with every single recession since 1960. So why has the velocity of money continued to plummet since the end of the last recession?…
If you are waiting for an “economic collapse” to happen, you can stop waiting.
One is unfolding right now before our very eyes.
But what most people really mean when they ask about these things is that they are wondering when the next great financial crisis will happen. And as I discussed yesterday, things are lining up in textbook fashion for one to happen in our very near future.
Once the next great financial crisis does strike, all of the numbers that I just discussed above are going to get a whole lot worse.
So as bad as things are now, the truth is that this is just the beginning of the pain.
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…
#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…
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.
A global stock market crash has begun. European stocks are crashing, Chinese stocks are crashing, and commodities are crashing. And guess what? All of those things happened before U.S. stocks crashed in the fall of 2008 too. In so many ways, it seems like we are watching a replay of the financial crisis of 2008, but this time around the world is in far worse shape financially. Global debt levels are at an all-time high, the 75 trillion dollar global shadow banking system could implode at any time, and there are hundreds of trillions of dollars in derivatives that threaten to wipe out major banks all over the planet. The last major worldwide financial crash was almost seven years ago, and very little has been done since that time to prepare for the next one. If global markets do not calm down, we could see carnage in the months ahead that is absolutely unprecedented.
For months, European authorities have been promising us that a “Grexit” is already “priced in” to the markets and that any “contagion” from the Greek crisis will be “contained”. Of course everyone knew that was just a smokescreen. Just in the past couple of days since the Greek “no” vote, European stocks have already been crashing. The following comes from Zero Hedge…
Does this look contained to you?
Portugal, Spain, and Italy all collapsing…
As I mentioned at the top of this article, European stocks started crashing well before U.S. stocks started crashing during the last financial crisis. If you doubt this, just look at this chart, and this chart and this chart.
Will the same thing happen again this time?
And just like I have warned repeatedly, European bond yields have started to soar. When bond yields go up, bond prices go down, so many bond investors are losing a tremendous amount of money right now. Here is more from Zero Hedge…
European bond risk is anything but “contained” as GGB 10Y Yields top 18%…
If there is not a last minute deal between Greece and her creditors, what we have witnessed so far in the bond markets will just be the tip of the iceberg. In the months ahead, we could witness a bond crash unlike anything that we have ever seen in all of history. Just consider what Egon von Greyerz recently told Eric King…
There is no liquidity in this market and this is where we will soon see a problem. We will see the bond market totally seizing up in the next few months. Eric, people simply don’t understand that this is a much bigger problem than Greece.
So we are talking about a worldwide problem, not just a Greek problem. The majority of the $100 trillion bond market is worthless, and of course a ticking time-bomb of over $1 quadrillion worth of derivatives is linked to that. This means that, sadly, we are heading into a major contagion that will lead to financial catastrophe for the world. This will also lead to an implosion of all bubble assets across the globe.
Hmm – there is that word “derivatives” again.
It is funny how that keeps popping up.
As things unravel over in Europe, a lot of desperate Europeans are feverishly purchasing physical gold. The following comes from Bloomberg…
European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.
Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.
Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6.
Meanwhile, Chinese stocks have continued to fall. Overall, Chinese stocks have fallen 27 percent since the peak, and a whopping 3.2 trillion dollars of “paper wealth” has been wiped out in China in just the last three weeks.
At this point things are so bad that about one-fourth of all stocks in China have already suspended trading according to CNN…
The turmoil in China’s stock market is so bad that some companies are calling it quits.
Over 700 Chinese companies have halted trading to “self preserve,” according to the state media. That means about a quarter of the companies listed on China’s two big exchanges — the Shanghai and Shenzhen — are no longer trading.
Desperate measures are being employed to try to stop the stock market crash in China. For example, over the weekend an alliance of securities brokerages pledged to invest “at least 120 billion yuan” in order to stabilize stock prices…
China’s top 21 securities brokerages said on Saturday they would collectively invest at least 120 billion yuan ($19.3 billion) to help stabilize the country’s stock markets after a slump of nearly 30 percent since mid-June. In addition, 57 Chinese mutual funds are reportedly investing 2.2 billion yuan in stock funds.
The Chinese central bank has gotten involved as well. In fact, the People’s Bank of China has taken the dramatic step of actually directly loaning money to brokerages…
In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.
The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.
In addition, the Chinese government has taken the following steps to intervene…
-All short selling of stocks has been banned.
-China’s national social security fund has been banned from selling stocks, but they can continue to buy stocks.
-Local media has been banned from using the terms “equity disaster” and “rescue the market” in their news reports.
But despite everything that you just read, Chinese stocks have still been falling.
Meanwhile, global commodity prices are crashing. Just check out this chart. This is also something that happened before U.S. stocks crashed back in 2008.
Thankfully, U.S. stocks have not started crashing yet. But it should be noted that the “smart money” in the United States has been selling stocks like crazy since the “no” vote in the Greek referendum. And if the patterns that we witnessed seven years ago hold up, it is just a matter of time before we experience a stock market crash too.
Incredibly, there are a lot of people out there that very strongly believe that everything is going to be just fine. They have tremendous faith in the central bankers and in our political leaders, and they are assuring all the rest of us that there is no possible way that the global financial system could be brought down again.
I truly wish that they were right. If everything was going to be just fine, instead of writing about the coming economic collapse I could write about sports or do a blog dedicated to LOLcats. But of course the truth is that the “hopetimists” are dead wrong.
A great shaking is coming to our world, and life as we know it is about to change in a major way.
As we enter the second half of 2015, financial panic has gripped most of the globe. Stock prices are crashing in China, in Europe and in the United States. Greece is on the verge of a historic default, and now Puerto Rico and Ukraine are both threatening to default on their debts if they do not receive concessions from their creditors. Not since the financial crisis of 2008 has so much financial chaos been unleashed all at once. Could it be possible that the great financial crisis of 2015 has begun? The following are 16 facts about the tremendous financial devastation that is happening all over the world right now…
1. On Monday, the Dow fell by 350 points. That was the biggest one day decline that we have seen in two years.
2. In Europe, stocks got absolutely smashed. Germany’s DAX index dropped 3.6 percent, and France’s CAC 40 was down 3.7 percent.
3. After Greece, Italy is considered to be the most financially troubled nation in the eurozone, and on Monday Italian stocks were down more than 5 percent.
4. Greek stocks were down an astounding 18 percent on Monday.
5. As the week began, we witnessed the largest one day increase in European bond spreads that we have seen in seven years.
6. Chinese stocks have already met the official definition of being in a “bear market” – the Shanghai Composite is already down more than 20 percent from the high earlier this year.
7. Overall, this Chinese stock market crash is the worst that we have witnessed in 19 years.
8. On Monday, Standard & Poor’s slashed Greece’s credit rating once again and publicly stated that it believes that Greece now has a 50 percent chance of leaving the euro.
9. On Tuesday, Greece is scheduled to make a 1.6 billion euro loan repayment. One Greek official has already stated that this is not going to happen.
10. Greek banks have been totally shut down, and a daily cash withdrawal limit of 60 euros has been established. Nobody knows when this limit will be lifted.
11. Yields on 10 year Greek government bonds have shot past 15 percent.
12. U.S. investors are far more exposed to Greece than most people realize. The New York Times explains…
But the question of what happens when the markets do open is particularly acute for the hedge fund investors — including luminaries like David Einhorn and John Paulson — who have collectively poured more than 10 billion euros, or $11 billion, into Greek government bonds, bank stocks and a slew of other investments.
Through the weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working round the clock comforting and cajoling his frantic hedge fund clients.
“People are freaking out,” said Mr. Papapolitis, 32, his eyes red and his voice hoarse. “They have made some really big bets on Greece.”
13. The Governor of Puerto Rico has announced that the debts that the small island has accumulated are “not payable“.
14. Overall, the government of Puerto Rico owes approximately 72 billion dollars to the rest of the world. Without debt restructuring, it is inevitable that Puerto Rico will default. In fact, CNN says that it could happen by the end of this summer.
15. Ukraine has just announced that it may “suspend debt payments” if their creditors do not agree to take a 40 percent “haircut”.
16. This week the Bank for International Settlements has just come out with a new report that says that central banks around the world are “defenseless” to stop the next major global financial crisis.
Without a doubt, we are overdue for another major financial crisis. All over the planet, stocks are massively overvalued, and financial markets have become completely disconnected from economic reality. And when the next crash happens, many believe that it will be even worse than what we experienced back in 2008. For example, just consider the words of Jim Rogers…
“In the United States, we have had economic slowdowns every four to seven years since the beginning of the Republic. It’s now been six or seven years since our last stock market problem. We’re overdue for another problem.”
In Rogers’ view, low interest rates caused stock prices to increase significantly. He believes many assets are priced beyond their fundamentals thanks to the ultra-easy monetary policies by the Federal Reserve. Fed supporters argue such measures are good for investors, but Rogers takes a different view.
“The Fed might tell us we don’t have to worry and that a correction or crash will never happen again. That’s balderdash! When this artificial sea of liquidity ends, we’re going to pay a terrible price. When the next economic problem occurs, it will be much worse because the debt is so much higher.”
Of course Rogers is far from alone. A recent article by Paul B. Farrell expressed similar sentiments…
America’s 95 million investors are at huge risk. Remember the $10 trillion losses in the crash and recession of 2007-2009? The $8 trillion lost after the dot-com technology crash and recession of 2000-2003? This is the third big recession of the century. Yes, America will lose trillions again.
Especially with dead-ahead predictions like Mark Cook’s 4,000-point Dow correction. And Jeremy Grantham’s warning of a 50% crash around election time, with negative stock returns through the first term of the next president, beyond 2020. Starting soon.
Why is America so vulnerable when the next recession hits? Simple: The Fed’s cheap-money giveaway is killing America. When the downturn, correction, crash hits, it will compare to the 2008 crash. The Economist warns: “the world will be in a rotten position to do much about it. Rarely have so many large economies been so ill-equipped to manage a recession,” whatever the trigger.
Things have been relatively quiet in the financial world for so long that many have been sucked into a false sense of security.
But the underlying imbalances were always there, and they have been getting worse over time.
I believe that we are heading into a global financial collapse that will make what happened in 2008 look like a Sunday picnic by the time it is all said and done.
Global debt levels are at all-time highs, big banks all over the planet have been behaving more recklessly than ever, and financial markets are absolutely primed for a huge crash.
Hopefully things will calm down a bit as the rest of this week unfolds, but I wouldn’t count on it.
We have entered uncharted territory, and what comes next is going to shock the world.