The price of oil collapsed by more than 8 percent on Wednesday, and a decision by the European Central Bank has Greece at the precipice of a complete and total financial meltdown. What a difference 24 hours can make. On Tuesday, things really seemed like they were actually starting to get better. The price of oil had rallied by more than 20 percent since last Thursday, things in Europe seemed like they were settling down, and there appeared to be a good deal of optimism about how global financial markets would perform this month. But now fear is back in a big way. Of course nobody should get too caught up in how the markets behave on any single day. The key is to take a longer term point of view. And the fact that the markets have been on such a roller coaster ride over the past few months is a really, really bad sign. When things are calm, markets tend to steadily go up. But when the waters start really getting choppy, that is usually a sign that a big move down in on the horizon. So the huge ups and the huge downs that we have witnessed in recent days are likely an indicator that rough seas are ahead.
A stunning decision that the European Central Bank has just made has set the stage for a major showdown in Europe. The ECB has decided that it will no longer accept Greek government bonds as collateral from Greek banks. This gives the European Union a tremendous amount of leverage in negotiations with the new Greek government. But in the short-term, this could mean some significant pain for the Greek financial system. The following is how a CNBC article described what just happened…
“The European Central Bank is telling the Greek banking system that it will no longer accept Greek bonds as collateral for any repurchase agreement the Greek banks want to conduct,” said Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
“This is because the ECB only accepts investment grade paper and up until today gave Greece a waiver to this clause. That waiver has now been taken away and Greek banks now have to go to the Greek Central Bank and tap their Emergency Liquidity Assistance facility for funding,” he said.
And it certainly didn’t take long for global financial markets to respond to this news…
The Greek stock market closed hours ago, but the exchange-traded fund that tracks Greek stocks, GREK, crashed during the final minutes of trading in the US markets.
The euro is also getting walloped, falling 1.3% against the US dollar.
The EUR/USD, which had recovered to almost 1.15, fell to nearly 1.13 on news of the action taken by the ECB.
But this is just the beginning.
In coming months, I fully expect the euro to head toward parity with the U.S. dollar.
And if the new Greek government will not submit to the demands of the EU, and Greece ultimately ends up leaving the common currency, it could potentially mean the end of the eurozone in the configuration that we see it today.
Meanwhile, the oil crash has taken a dangerous new turn.
Over the past week, we have seen the price of oil go from $43.58 to $54.24 to less than 48 dollars before rebounding just a bit at the end of the day on Wednesday.
This kind of erratic behavior is the exact opposite of what a healthy market would look like.
What we really need is a slow, steady climb which would take the price of oil back to at least the $80 level. In the current range in which it has been fluctuating, the price of oil is going to be absolutely catastrophic for the global economy, and the longer it stays in this current range the more damage that it is going to do.
But of course the problems that we are facing are not just limited to the oil price crash and the crisis in Greece. The truth is that there are birth pangs of the next great financial collapse all over the place. We just have to be honest with ourselves and realize what all of these signs are telling us.
And it isn’t just in the western world where people are sounding the alarm. All over the world, highly educated professionals are warning that a great storm is on the horizon. The other day, I had an economist in Germany write to me with his concerns. And in China, the head of the Dagong Rating Agency is declaring that we are going to have to face “a new world financial crisis in the next few years”…
The world economy may slip into a new global financial crisis in the next few years, China’s Dagong Rating Agency Head Guan Jianzhong said in an interview with TASS news agency on Wednesday.
“I believe we’ll have to face a new world financial crisis in the next few years. It is difficult to give the exact time but all the signs are present, such as the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries,” he said, adding the situation is even worse than ahead of 2008.
For a long time, I have been pointing at the year 2015. But this year is not going to be the end of anything. Rather, it is just going to be the beginning of the end.
During the past few years, we have experienced a temporary bubble of false stability fueled by reckless money printing and an unprecedented accumulation of debt. But instead of fixing anything, those measures have just made the eventual crash even worse.
Now a day of reckoning is fast approaching.
Life as we know it is about to change dramatically, and most people are completely and totally unprepared for it.
Does a mystery that is 3,500 years old hold the key to what is going to happen to global financial markets in 2015? Could it be possible that the timing of major financial crashes is not just a matter of coincidence? In previous articles on my website, I have discussed some of the major economic and financial cycle theories and their proponents. For example, in an article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I examined a number of economic cycle theories that seem to indicate that the second half of this decade is going to be a nightmare economically. But the cycle that I am going to discuss in this article is a lot more controversial than any of those. In his most recent book, Jonathan Cahn has demonstrated that almost all of the major financial crashes in U.S. history are very closely tied to a seven year pattern that we find in the Bible known as “the Shemitah”. Since that book was released, I have been asked about this repeatedly during radio appearances. So in this article I am going to attempt to explain what the Shemitah is, and what this Biblical pattern seems to indicate may happen in 2015. If you are an atheist, an agnostic, or are generally skeptical by nature, this article might prove quite challenging for you. I would ask that you withhold judgment until you have examined the evidence. When I first heard about these things, I had to go verify the facts for myself, because they are truly extraordinary.
So precisely what is “the Shemitah”?
In the Bible, the people of Israel were commanded to let the land lie fallow every seven years. There would be no sowing and no reaping, and this is something that God took very seriously. In fact, the failure to observe these Sabbath years was one of the main reasons cited in the Scriptures for why the Jewish people were exiled to Babylon in 586 BC.
But there was more to the Shemitah year than just letting the land lie fallow.
On the last day of the Shemitah year, the people of Israel were instructed to perform a releasing of debts. We find the following in Deuteronomy chapter 15…
At the end of every seven years you shall grant a relinquishing of debts. This is the manner of the relinquishing: Every creditor that has loaned anything to his neighbor shall relinquish it. He shall not exact it of his neighbor, or of his brother, because it is called the Lord’s relinquishment.
This happened at the end of every seven years on Elul 29 – the day right before Rosh Hashanah on the Biblical calendar.
So what does this have to do with us today?
Well, if you go back to the last day of the Shemitah year in 2001, you will find that there was an absolutely horrifying stock market crash.
On September 17th, 2001 (which was Elul 29 on the Jewish calendar), we witnessed the greatest one day stock market crash in U.S. history up to that time. The Dow fell an astounding 684 points, and it was a record that held for precisely seven years until the end of the next Shemitah year.
At the end of the next Shemitah year in 2008, another horrifying stock market crash took place. On September 29th, 2008 the Dow plummeted 777 points, which still today remains the greatest one day stock market crash of all time. It turns out that September 29th, 2008 corresponded with Elul 29 on the Jewish calendar – the precise day when the Bible calls for a releasing of debts.
So on the very last day of the last two Shemitah years, the stock market crashed so badly that it set a brand new all-time record.
And now we are in another Shemitah year. It began last fall, and it will end next September.
Could it be possible that we will see another historic market crash?
Author Jonathan Cahn has correctly pointed out that we should never put God in a box. Just because something has happened in the past does not mean that it will happen again. But we should not rule anything out either.
Perhaps God is using His calendar to make a point. Cahn believes that if we are going to see something happen, it will probably occur as the Shemitah year comes to an end…
Cahn has pointed that, according to his research, the worst of the worst usually happens at the end of the Shemitah year, not at the beginning. In fact, the last day of the year, Elul 29 on the Hebrew calendar, which will occur on Sept. 13, 2015, is the most dreaded day.
The pattern revealed in “The Mystery of the Shemitah” is that the beginning of the Shemitah’s impact is often subtle, but leads to a dramatic climax.
“The beginning may mark a change in direction, even a foreshadow of what will come to a crescendo at the Shemitah’s end,” he said.
And this time around, far more people are paying attention. Back in 2001 and 2008, most Americans had absolutely no idea what a “Shemitah year” was. But now it is being talked about on some of the most prominent alternative news websites on the Internet. For example, the following is what Joseph Farah of WND has to say about the Shemitah year…
Farah believes the date Sept. 13, 2015 bears close watching – though he is quick to admit he has no idea what, if anything, will happen in America.
“A clear pattern has been established,” he says. “I don’t believe it’s a coincidence what happened in America on Elul 29 in 2001 and 2008. It would be foolish to ignore the possibility that a greater judgment might be in the works – especially if America continues to move away from God and His Word.”
The Shemitah year that we are in now does end on September 13th, 2015 – and that falls on a Sunday so the markets will be closed.
But what it comes to the Shemitah, we aren’t just looking at one particular day.
And it is very interesting to note that there will also be a solar eclipse on September 13th, 2015. Over the past century, there have only been two other times when a solar eclipse has corresponded with the end of a Shemitah year. Those two times were in 1931 and 1987, and as Jonathan Cahn has told WND, those solar eclipses foreshadowed major financial disasters…
In 1931, a solar eclipse took place on Sept. 12 – the end of a “Shemitah” year. Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history.
In 1987, a solar eclipse took place Sept. 23 – again the end of a “Shemitah” year. Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history.
Is Cahn predicting doom and gloom on Sept. 13, 2015? He’s careful to avoid a prediction, saying, “In the past, this ushered in the worst collapses in Wall Street history. What will it bring this time? Again, as before, the phenomenon does not have to manifest at the next convergence. But, at the same time, and again, it is wise to take note.”
So what is going to happen this time?
We will just have to wait and see.
But without a doubt so many of the same patterns that we witnessed just prior to the financial crash of 2008 are happening again right before our very eyes.
It has been said that those that do not learn from history are doomed to repeat it.
Perhaps you believe that there is something to “the Shemitah”, or perhaps you think that it is all a bunch of nonsense.
But at least now you know what everyone is talking about. What you choose to do with this information is up to you.
Is this the start of the next major financial crisis? The nightmarish collapse of the price of oil is creating panic in financial markets all over the planet. On June 16th, U.S. oil was trading at a price of $107.52. Since then, it has fallen by almost 50 dollars in less than 6 months. This has only happened one other time in our history. In the summer of 2008, the price of oil utterly collapsed and we all remember what happened after that. Well, the same patterns that we witnessed back in 2008 are happening again. As the price of oil crashed in 2008, so did prices for a whole host of other commodities. That is happening again. Once commodities started crashing, the market for junk bonds started to implode. That is also happening again. Finally, toward the end of 2008, we witnessed a horrifying stock market crash. Could we be on the verge of another major one? Last week was the worst week for the Dow in more than three years, and stock markets all over the world are crashing right now. Bad financial news continues to roll in from the four corners of the globe on an almost hourly basis. Have we finally reached the “tipping point” that so many have been warning about?
What we witnessed last week is being described as “a bloodbath” that was truly global in scope. The following is how Zero Hedge summarized the carnage…
- WTI’s 2nd worst week in over 3 years (down 10 of last 11 weeks)
- Dow’s worst worst week in 3 years
- Financials worst week in 2 months
- Materials worst week since Sept 2011
- VIX’s Biggest week since Sept 2011
- Gold’s best week in 6 months
- Silver’s last 2 weeks are best in 6 months
- HY Credit’s worst 2 weeks since May 2012
- IG Credit’s worst week in 2 months
- 10Y Yield’s best week since June 2012
- US Oil Rig Count worst week in 2 years
- The USDollar’s worst week since July 2013
- USDJPY’s worst week since June 2013
- Portugal Bonds worst week since July 2011
- Greek stocks worst week since 1987
The stock market meltdown in Greece is particularly noteworthy. After peaking in March, the Greek stock market is down 40 percent since then. That includes a 20 percent implosion in just the past three trading days.
And it isn’t just Greece. Financial markets all over Europe are in turmoil right now. In addition to crashing oil prices, there is also renewed concern about the fundamental stability of the eurozone. Many believe that it is inevitable that it is headed for a break up. As a result of all of this fear, European stocks also had their worst week in over three years…
European stock markets closed sharply lower on Friday, posting their biggest weekly loss since August 2011, as commodity prices continued to fall and and shares in oil-related firms came under renewed pressure from the weak price for crude.
The pan-European FTSEurofirst 300 unofficially ended 2.6 percent lower, down 5.9 percent on the week as the energy sector once again weighed heavily on wider benchmarks, falling over 3 percent.
But despite all of the carnage that we witnessed in the U.S. and in Europe last week, things are actually far worse for financial markets in the Middle East.
Just check out what happened on the other side of the planet on Sunday…
Stock markets in the Persian Gulf got drilled Sunday as worries about further price declines grew. The Dubai stock index fell 7.6% Sunday, the equivalent of a 1,313-point plunge in the Dow Jones industrial average. The Saudi Arabian market fell 3.3%.
Overall, Dubai stocks are down a whopping 23 percent over the last two weeks, and full-blown stock market crashes are happening in Qatar and Kuwait too.
Like I said, this is turning out to be a truly global financial panic.
Another region to keep an eye on is South America. Argentina is a financial basket case, the Brazilian stock market is tanking big time, and the implied probability of default on Venezuelan debt is now up to 93 percent…
Swaps traders are almost certain that Venezuela will default as the rout in oil prices pressures government finances and sends bond prices to a 16-year low.
Benchmark notes due 2027 dropped to 43.75 cents on the dollar as of 11:35 a.m. in New York, the lowest since September 1998, as crude extended a bear market decline. The upfront cost of contracts to insure Venezuelan debt against non-payment for five years is at 59 percent, bringing the implied probability of default to 93 percent, the highest in the world.
So what does all of this mean for the future?
Are we experiencing a repeat of 2008?
Could what is ahead be even worse than that?
Or could this just be a temporary setback?
Recently, Howard Hill shared a few things that he looks for to determine whether a major financial crisis is upon us or not…
The first condition is a serious market sector correction.
According to some participants in the market for energy company bonds and loans, such a correction is already underway and heading toward a meltdown (the second condition). Others are more sanguine, and expect a recovery soon.
That smaller energy companies have issued more junk-rated debt than their relative size in the economy isn’t under debate. Of a total junk bond market estimated around $1.2 trillion, about 18% ($216 billion, according to a Bloomberg estimate) has been issued by energy-related companies. Yet those companies represent a far smaller share of the economy or stock market capitalization among the universe of junk-rated companies.
If the beaten-down prices for junk energy bonds don’t stabilize or recover a bit, we might see the second condition: a spiral of distressed sales of bonds and loans. This could happen if junk bond mutual funds or other large holders sell into an unfriendly market at low prices, and then other holders of those bonds succumb to the pressure of fund redemptions or margin calls and sell at even lower prices.
The third condition, which we can’t determine directly, would be pressure on Credit Default Swap dealers or hedge funds to make deposits as the prices of the CDS move against them. AIG was taken down when collateral demands were made to support existing CDS agreements, and nobody knew it until they were going under. There simply isn’t a way to know whether banks or dealers are struggling until the effect is already metastasizing.
I think that he makes some really good points.
In particular, I think that watching how junk bonds perform over the next few weeks will be extremely telling.
Last week was truly a bloodbath for high yield debt.
But perhaps things will stabilize this week.
Let’s hope so, because this is the closest that we have been to another major financial crisis since 2008.
This is the big problem with fiat currency – eventually the temptation to print more of it when you are in a jam becomes too powerful to resist. In a surprise move on Friday, the Bank of Japan dramatically increased the size of the quantitative easing program that it has been conducting. This sent Japanese stocks soaring and the Japanese yen plunging. The yen had already fallen by about 11 percent against the dollar over the last year before this announcement, and news of the BOJ’s surprise move caused the yen to collapse to a seven year low. Essentially what the Bank of Japan has done is declare a currency war. And as you will see below, in every currency war there are winners and there are losers. Let’s just hope that global financial markets do not get shredded in the crossfire.
Without a doubt, the Japanese are desperate. Their economic decline has lasted for decades, and their debt levels are off the charts. In such a situation, printing more money seems like such an easy solution. But as history has shown us, wild money printing always ends badly. Just remember what happened in the Weimar Republic and in Zimbabwe.
At this point, the Bank of Japan is already behaving so recklessly that it is making the Federal Reserve look somewhat responsible in comparison. The following is how David Stockman summarized what just happened…
This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters——Messrs. Morimoto, Ishida, Sato and Kiuchi—-are only semi-mad.
Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year—-a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.
The Japanese are absolutely destroying the credibility of their currency in a last ditch effort to boost short-term economic growth.
So why would they want to devalue their currency?
Well, there are too main reasons why nations do this.
One reason is that it makes it easier to pay off debt. The government debt to GDP ratio in Japan is approximately 250 percent at the moment, and the total debt to GDP ratio is approximately 600 percent. When you have lots more money floating around, servicing crippling levels of debt becomes more feasible.
Secondly, nations like to devalue their currencies because it makes their products less expensive on the world stage.
In other words, it helps them sell more stuff to other people.
But in the process, this hurts other exporters. For example, what the Bank of Japan just did is already having serious consequences for South Korean automakers…
In Seoul, shares of auto makers Hyundai Motor and Kia Motors fell 5.9% and 5.6%, respectively, on Monday.
South Korean and Japanese companies often compete head-to-head in the same product groups in global markets, notably cars and electronics goods.
From the Bank of Japan’s standpoint, “you’re giving your industry a head start relative to someone else’s,” said Markus Rosgen, regional head of equity strategy at Citi in Hong Kong. “The perception in the equity market will be that they [South Korea] will have to take a hit from the lack of competitiveness versus the Japanese.”
This is why I said that there are winners and there are losers in every currency war.
If you boost your exports by devaluing your currency, you take away business from someone else. And ultimately other nations start devaluing their currencies in an attempt to stay competitive. That is why they call it a currency war.
For now, the Japanese are celebrating. On Friday, Japanese stocks surged almost five percent for the day and reached a seven year high. Investors tend to love quantitative easing, and they were very pleasantly surprised by what the Bank of Japan decided to do.
But of course rising stock prices are not always a good thing. As Kyle Bass recently explained, wild money printing caused Zimbabwe’s stock market to skyrocket to unprecedented heights as well and that turned out very, very badly…
Amid the euphoria… Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC’s Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected).
However, he caveats that nominally bullish statement with a critical point, “Zimbabwe’s stock market was the best performer this decade – but your entire portfolio now buys you 3 eggs” as purchasing power is crushed. Investors, he says, are “too focused on nominal prices” as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation – no matter what we are told by the government (as they will always lie when its critical). Own ‘productive assets’, finance them at low fixed rates (thank you Ben)…
And just like we have experienced with quantitative easing in the United States, Japan’s money printing has done very little to help the real economy. Here is more from David Stockman…
Notwithstanding the massive hype of Abenomics, Japan’s real GDP is lower than it was in early 2013, while its trade accounts have continued to deteriorate and real wages have headed sharply south.
So up to this point Japan’s experiment in crazy money printing has been a dismal failure.
Will printing even more money turn things around?
We shall see, but I wouldn’t hold your breath.
Meanwhile, there are reports that the European Central Bank is getting ready for more quantitative easing. Central banks all over the planet are becoming increasingly desperate for answers, and the temptation to print, print and print some more is extremely strong.
Nobody is quite sure how this currency war will play out, but I have a feeling that it isn’t going to be pretty.
You can see it coming, can’t you? The yield on 10 year U.S. Treasuries is skyrocketing, the S&P 500 has been down for 9 of the last 11 trading days and troubling economic news is pouring in from all over the planet. The much anticipated “financial correction” is rapidly approaching, and investors are starting to race for the exits. We have not seen so many financial trouble signs all come together at one time like this since just prior to the last major financial crisis. It is almost as if a “perfect storm” is brewing, and a lot of the “smart money” has already gotten out of stocks and bonds. Could it be possible that we are heading toward another nightmarish financial crisis? Could we see a repeat of 2008 or potentially even something worse? Of course a lot of people believe that we will never see another major financial crisis like we experienced in 2008 ever again. A lot of people think that this type of “doom and gloom” talk is foolish. It is those kinds of people that did not see the last financial crash coming and that are choosing not to prepare for the next one even though the warning signs are exceedingly clear. Let us hope for the best, but let us also prepare for the worst, and right now things do not look good at all. The following are 18 signs that global financial markets are entering a horrifying death spiral…
#1 The yield on 10 year U.S. Treasuries has risen for 5 of the past 6 days, and it briefly touched the 2.90% level on Monday.
#2 Rapidly rising interest rates are spooking investors and causing them to pull money out of bonds at a very rapid pace…
Investors have yanked nearly $20 billion from bond mutual funds and exchange traded funds so far in August. That’s the fourth highest pullback ever, according to TrimTabs data. In June, investors took out $69.1 billion — the highest on record.
#3 The sell-off of U.S. Treasuries is being led by foreigners. In particular, China and Japan have been particularly aggressive in selling off bonds…
China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries.
The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.
China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.
#4 Thanks to rapidly rising bond yields, some of the largest exchange-traded bond funds are getting absolutely hammered right now…
• The $18 billion iShares iBoxx $ Investment Grade Corporate Bond fund (ticker: LQD) has fallen 7.94% since May 2, according to S&P Capital IQ. That’s including reinvested interest from the fund’s bond holdings.
• The 3.7 billion iShares Barclays 20+ Year Treasury Bond (TLT) has plunged 15.9% the same period. Longer-term bonds typically get hit harder when rates rise than shorter-term bonds. For example, the iShares Barclays 3-7 Year Treasury Bond fund (IEI) has fallen 3.2% since May 2.
• PowerShares Emerging Markets Sovereign Debt (PCY), which invests in government bonds issued in developing countries, has fallen 12.7%. The fund has $1.8 billion in assets.
#5 In recent weeks we have witnessed the largest cluster of Hindenburg Omens that we have seen since prior to the last financial crisis.
#6 George Soros has bet a tremendous amount of money that the S&P 500 is going to be heading down.
#7 At this point, the S&P 500 has fallen for 9 out of the last 11 trading days.
#8 Margin debt has spiked to extremely dangerous levels. This is a pattern that we also saw just before the last financial crash and just before the dotcom bubble burst…
The exuberant mood comes as margin debt on Wall Street hovers near $377bn, just below its all-time high and well above peaks before the dotcom crash and the Lehman crisis.
“Investors have rarely been more levered than today,” said Deutsche Bank, warning that the spike in margin debt is a “red flag” and should be watched closely.
#9 The growth rate of new commercial bank loans and leases is now the slowest that it has been since the end of the last financial crisis.
#10 According to a shocking new report, Fannie Mae and Freddie Mac are masking “billions of dollars” in losses. Will they need to be bailed out again just like they were during the last financial crisis?
#11 Wal-Mart reported very disappointing sales numbers for the second quarter. Sales at stores open at least a year were down 0.3%. This is a continuation of a trend that has been building for years.
#12 U.S. consumer bankruptcies just experienced their largest quarterly increase in three years.
#13 The velocity of money in the United States has hit another stunning new low.
#14 The massive civil unrest in Egypt threatens to disrupt the steady flow of oil out of the Middle East…
After last week’s bloody crackdown by the Egyptian army, fears of a disruption of oil supplies to the West have boosted the oil price. Brent crude prices were propelled to a four-month high of $111.23 on Thursday. If the turmoil gets worse – or unrest spreads to other countries – the risk premium currently factored into the price of crude is likely to increase further.
#15 European stocks just experienced their biggest decline in six weeks.
#16 The Japanese national debt recently crossed the quadrillion yen mark, and many are expecting the Japanese financial system to start melting down at any time.
#17 In Indonesia, the stock market is “cratering“.
#18 In India, the yield on their 10 year government bonds has skyrocketed from 7.1 percent in May to 9.25 percent now.
As the coming months unfold, keep a close eye on the “too big to fail” banks both in Europe and in the United States. When the next great financial crisis strikes, they will play a starring role once again. They have been incredibly reckless, and as James Rickards told Greg Hunter during an interview the other day, we are in much worse shape to deal with a major banking crisis than we were back in 2008…
What’s going to cause the next crisis? Rickards says, “The problem in 2008 was too-big-to-fail banks. Well, those banks are now bigger. Their derivative books are bigger. In other words, everything that was wrong in 2008 is worse today.” Rickards goes on to warn, “The last time, in 2008 when the crisis started, the Fed’s balance sheet was $800 billion. Today, the Fed’s balance sheet is $3.3 trillion and increasing at $1 trillion a year.” Rickards contends, “You’re going to have a banking crisis worse than the last one because the banking system is bigger without the resources because the Fed is tapped out.” As far as the Fed ending the money printing, Rickards predicts, “My view is they won’t. The economy is fundamentally weak. We have 50 million on food stamps, 24 million unemployed and 11 million on disability, and all these numbers are going up.”
We never even came close to recovering from the last financial crisis and the last recession.
Now the next major wave of the economic collapse is coming up quickly.
I hope that you are taking this time to prepare for the approaching storm, because it is going to be very painful.
Can you smell that? It is the smell of panic in the air. As I have noted before, when financial markets catch up to economic reality they tend to do so very rapidly. Normally we don’t see virtually all asset classes get slammed at the same time, but the bucket of cold water that Federal Reserve Chairman Ben Bernanke threw on global financial markets on Wednesday has set off an epic temper tantrum. On Thursday, U.S. stocks, European stocks, Asian stocks, gold, silver and government bonds all over the planet all got absolutely shredded. This is not normal market activity. Unfortunately, there is nothing “normal” about our financial markets anymore. Over the past several years they have been grossly twisted and distorted by the Federal Reserve and by the other major central banks around the globe. Did the central bankers really believe that there wouldn’t be a great price to pay for messing with the markets? The behavior that we have been watching this week is the kind of behavior that one would expect at the beginning of a financial panic. Dick Bove, the vice president of equity research at Rafferty Capital Markets, told CNBC that what we are witnessing right now “is not normal. It is not normal for all markets to move in the same direction at the same point in time due to the same development.” The overriding emotion in the financial world right now is fear. And fear can cause investors to do some crazy things. So will global financial markets continue to drop, or will things stabilize for now? That is a very good question. But even if there is a respite for a while, it will only be temporary. More carnage is coming at some point.
What we have witnessed this week very much has the feeling of a turning point. The euphoria that drove the Dow well over the 15,000 mark is now gone, and investors all over the planet are going into crisis mode. The following is a summary of the damage that was done on Thursday…
-U.S. stocks had their worst day of the year by a good margin. The Dow fell 354 points, and that was the biggest one day drop that we have seen since November 2011. Overall, the Dow has lost more than 550 points over the past two days.
-Thursday was the eighth trading day in a row that we have seen a triple digit move in the Dow either up or down. That is the longest such streak since October 2011.
-The yield on 10 year U.S. Treasuries went as high as 2.47% before settling back to 2.42%. That was a level that we have not seen since August 2011, and the 10 year yield is now a full point above the all-time low of 1.4% that we saw back in July 2012.
– The yield on 30 year U.S. Treasuries hit 3.53 percent on Thursday. That was the first time it had been that high since September 2011.
-The CBOE Volatility Index jumped 28 percent on Thursday. It hit 20.49, and this was the first time in 2013 that it has risen above 20. When volatility rises, that means that the markets are getting stressed.
-European stocks got slammed too. The Bloomberg Europe 500 index fell more than 3 percent on Thursday. It was the worst day for European stocks in 20 months.
-In London, the FTSE fell about 3 percent. In Germany, the DAX fell 3.3 percent. In France, the CAC-40 fell 3.7 percent.
-Things continue to get even worse in Japan. The Nikkei has fallen close to 17 percent over the past month.
-Brazilian stocks have fallen by about 15 percent over the past month.
-On Thursday the price of gold got absolutely hammered. Gold was down nearly $100 an ounce. As I am writing this, it is trading at $1273.60.
-Silver got slammed even more than gold did. It fell more than 8 percent. At the moment it is trading at $19.57. That is ridiculously low. I have a feeling that anyone that gets into silver now is going to be extremely happy in the long-term if they are able to handle the wild fluctuations in the short-term.
-Manufacturing activity in China is contracting at a rate that we haven’t seen since the middle of the last recession.
-For the week ending June 15th, initial claims for unemployment benefits in the United States rose by about 18,000 from the previous week to 354,000. This is a number that investors are going to be watching closely in the months ahead.
Needless to say, Thursday was the type of day that investors don’t see too often. The following is what one stock trader told CNBC…
“It’s freaking, crazy now,” said one stock trader during the 3 p.m. ET hour as the Dow sunk more than 350 points. “Even defensive sectors are getting smoked. The super broad-based sell off between commodities, bonds, equities – I wouldn’t say it’s panic, but we’ve seen aggressive selling on the lows.”
Unfortunately, this may just be the beginning.
In fact, Mark J. Grant has suggested that we may see even more panic in the short-term…
Yesterday was the first day of the reversal. There will be more days to come.
What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin’s absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here.
The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force.
If we see global interest rates start to shift in a major way, that is going to be huge.
Well, it is because there are literally hundreds of trillions of dollars worth of interest rate derivatives contracts sitting out there…
The interest rate derivatives market is the largest derivatives market in the world. The Bank for International Settlements estimates that the notional amount outstanding in June 2009 were US$437 trillion for OTC interest rate contracts, and US$342 trillion for OTC interest rate swaps. According to the International Swaps and Derivatives Association, 80% of the world’s top 500 companies as of April 2003 used interest rate derivatives to control their cashflows. This compares with 75% for foreign exchange options, 25% for commodity options and 10% for stock options.
If interest rates begin to swing wildly, that could burst the derivatives bubble that I keep talking about.
And when that house of cards starts falling, we are going to see panic that is going to absolutely dwarf anything that we have seen this week.
So keep watching interest rates, and keep listening for any mention of a problem with “derivatives” in the mainstream media.
When the next great financial crash comes, global credit markets are going to freeze up just like they did in 2008. That will cause economic activity to grind to a standstill and a period of deflation will be upon us. Yes, the way that the Federal Reserve and the federal government respond to such a crisis will ultimately cause tremendous inflation, but as I have written about before, deflation will come first.
It would be wise to build up your emergency fund while you still can. When the next great financial crisis fully erupts a lot of people are going to lose their jobs and for a while it will seem like hardly anyone has any extra money. If you have stashed some cash away, you will be in better shape than most people.
Is the stock market going to crash by the end of this year? Are we on the verge of major financial chaos on a global scale? Well, this is the time of the year when investors start getting nervous. We all remember what happened during the fall of 1929, the fall of 1987 and the fall of 2008. However, it is important to keep in mind that we do not see a stock market crash in the fall of every year. Some years the stock market cruises through the months of September, October, November and December without any problems whatsoever. But this year conditions certainly seem to be right for a “perfect storm” to develop. Technical indicators are screaming that a stock market decline is imminent and sources in the financial industry all over the world are warning that a massive crisis is on the way. What you are about to read should alarm you. But it is not a guarantee that anything will or will not happen. When Ben Bernanke gives his speech at the Jackson Hole summit on Friday he could announce to the rest of the world that the Federal Reserve has decided to launch QE3 and that the Fed will be printing up trillions of new dollars. If that happened global financial markets would leap for joy. So it is always a dangerous thing when anyone out there tries to tell you that they can “guarantee” what is about to happen in the financial world. There are just so many moving parts. But if we do not see major intervention by the governments of the world or by global central banks a major financial crisis could rapidly develop this fall. The conditions are certainly right for a stock market collapse, and we could easily see a repeat of what happened back in 2008.
The truth is that the second half of 2012 looks a little bit more like the second half of 2008 with each passing day.
Just check out what Bob Janjuah of Nomura Securities has been saying….
Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides.
Others are issuing similar warnings. For example, the following is what a couple of Bank of America analysts said in a report the other day….
Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.
There has been an unusual amount of chatter in the financial world about the September to December time frame.
That could mean something or it could mean nothing.
But is is very interesting to watch what some top financial insiders are doing with their stocks right now.
Dennis Gartman, the publisher of the Gartman Leter, has dumped all of his stocks at this point.
As I have written about previously, George Soros has dumped all of his stock in banking giants JP Morgan, Citigroup and Goldman Sachs.
Are they just being paranoid?
Or do they know something that we do not?
If you are looking for the next “Lehman Brothers moment” in the United States, you might want to watch Morgan Stanley. Morgan Stanley was heavily involved in the Facebook IPO disaster, earlier this year their credit rating was downgraded, and now there are persistent rumors that Morgan Stanley is in big trouble and that it will be allowed to fail. You can check out some of these rumors for yourself here, here and here.
But of course as I have said all along the center of the coming crisis is going to be in Europe, and many analysts agree with me. For example, the following is what the chairman of Casey Research, Doug Casey, had to say during a recent interview….
Europe is a full cycle ahead of the U.S. Its governments and its banks are both bankrupt. It’s a couple of drunks standing on the street corner holding each other up at this point. Europe is in much worse shape than the U.S. It’s highly regulated, highly taxed and much more socially unstable.
Europe is going to be the epicenter of the coming storm. Japan is waiting in the wings, as is China. This is going to be a worldwide phenomenon. Of course, the U.S. will be in it, too. We’re going to see this all over the world.
Much of southern Europe is already experiencing depression-like conditions. Unemployment in both Greece and Spain is well above 20 percent and both economies are steadily shrinking.
Money is flowing out of Spanish banks at an unprecedented rate right now. Just take a look at these charts. The only thing that is going to keep the Spanish banking system from totally collapsing is outside intervention.
But the truth is that all of Europe is in big trouble. Even German companies are slashing job right now. For example, check out what Siemens is up to….
German engineering conglomerate Siemens (SIEGn.DE) is in early internal talks to cut thousands of jobs in response to a weakening economy, particularly in Europe, a German newspaper reported.
Decisions could be made in October or November, according to daily Boersen-Zeitung, which did not specify its sources.
A Siemens spokesman declined to comment.
We are living in the greatest debt bubble in the history of the world, and at some point that bubble is going to burst in a very messy way.
It is vital that people understand that our system is not even close to sustainable.
Knowing exactly when it will collapse is not nearly as important as understanding that a collapse is absolutely inevitable.
I think what former World Bank economist Richard Duncan had to say recently is very helpful….
“The explosion in credit drove economic growth in the U.S. and around the world, and now that’s the only thing that’s keeping us from collapsing in a debt/deflation spiral,” he said. “[What] I think everybody needs to understand is that the kind of economy that we have now, it’s not capitalism. It has very little in common with capitalism. Capitalism was an economic system in which the government played very little role …. Under capitalism, gold was money and the government had nothing to do with it. Now the central bank creates the money and manipulates its value.”
And he is very right.
We aren’t seeing a failure of capitalism.
What we are witnessing is the failure of debt-based central banking.
And if you think that the global elite are not aware of what is happening then you have not been paying attention.
This summer the global elite have been preparing very hard. Either they are getting very paranoid or they know things that we do not.
If you want to catch up on what the global elite have been up to recently, check out these three articles that I have published previously….
-“Are The Government And The Big Banks Quietly Preparing For An Imminent Financial Collapse?”
-“Startling Evidence That Central Banks And Wall Street Insiders Are Rapidly Preparing For Something BIG”
-“Jacob Rothschild, John Paulson And George Soros Are All Betting That Financial Disaster Is Coming”
If you are waiting for the nightly news to tell you what to do, then you have not learned anything.
Did anyone in the mainstream media warn you about what was about to happen back in 2008?
Of course not.
The “authorities” insisted that everything was going to be just fine and many average Americans were absolutely wiped out.
So don’t expect someone to come along and nicely inform you that your retirement savings are about to be absolutely devastated.
In this day and age it is absolutely critical for people to learn to think for themselves.
Barack Obama is not going to save you.
Mitt Romney is not going to save you.
The U.S. Congress is not going to save you. They are too busy living the high life at taxpayer expense.
The system is not looking out for you. Nobody is really going to care if your financial planning gets turned upside down. This is a cold, cruel world and you need to understand how the game is played. The financial insiders are looking out for themselves and most of them usually are able to avoid financial disaster.
Average folks like you and I are normally not so fortunate.
There are lots of warning signs that indicate that this fall could be a very turbulent time for global financial markets.
Ignore them at your own peril.
Has Europe finally been saved this time? Has this latest “breakthrough” solved the European debt crisis? Of course not, and you should know better by now. European leaders have held 18 summits since the beginning of the debt crisis. After most of the preceding summits, global financial markets responded with joy because European leaders had reached “a deal” which would supposedly solve the crisis. But a few weeks after each summit it would become clear that nothing had been solved and that the financial crisis had actually gotten even worse than before. How many times do they expect us to fall for the same sorry routine? Nothing in Europe has been solved. You can’t solve a debt problem with more debt. European leaders are just kicking the can down the road. More debt will relieve some of the short-term pressure, but in a few weeks it will be apparent that the underlying problems in Europe continue to grow. Unfortunately, there is not an unlimited amount of EU bailout money, so once all of these “financial bullets” have been fired European leaders are going to find that kicking the can down the road will not be so easy anymore. The truth is that the financial crisis in Europe has not been cancelled – it has just been put off for a few weeks or a few months.
Do you solve the problems of a credit card addict by giving that person another credit card? Of course not. You may delay the short-term financial problems of the credit card addict by giving that person another credit card, but in the process you make the long-term problems even worse.
Well, that is essentially what is happening in Europe. European governments and the European financial system have become ridiculously dependent on debt. By giving European debt junkies another “hit” or two it may relieve a bit of short-term suffering but it doesn’t solve anything.
Just think about it.
Did the first bailout package solve the problems in Greece?
Did the second bailout package solve the problems in Greece?
Today, the Greek financial system is a complete and total mess, and Greek politicians are saying that a third bailout package may be necessary.
Many are claiming that Italy and Spain have been “saved” by this new deal, but that is a joke.
Yes, the ability to inject bailout funds directly into troubled banks is going to keep some of them going for a little while. But the deal also calls for a new governing body to be established that will supervise those banks. Will that governing body be established in time to even provide the short-term help that is needed?
Yes, spending bailout funds to buy up Spanish debt and Italian debt will artificially suppress bond yields for a time.
We have seen this before.
But what happened?
After the bond buying program was over, bond yields started spiking again.
So do the Europeans plan to suppress bond yields forever?
Of course not. There is not enough bailout money to do that.
Let’s review the equation that I have shared in previous articles….
Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions
Have any of those elements been removed?
Bond yields will be suppressed for a period of time, but that will not last forever, and all of the other underlying issues are still there.
Meanwhile, the rest of Europe continues to follow the Greek economy into economic depression.
The Spanish economy shrunk again in the second quarter of 2012, and austerity in that nation has barely even begun.
As a recent CNBC article detailed, the big spending cuts are still coming….
The conservatives, who inherited from the outgoing Socialists one of the euro zone’s highest public deficits, at 8.9 percent of GDP in 2011, have said they will shrink the shortfall to 5.3 percent this year and 3 percent in 2013.
Austerity has absolutely shredded the Greek economy, and we are starting to see that same pattern be repeated all over Europe.
When you spend far more money than you bring in for decades, eventually you have to go through a very painful adjustment. What is going on in Greece should be a lesson for all of us. Debt allows you to live above your means, but the consequences of going into way too much debt can be absolutely horrific.
More debt can delay the consequences of a debt problem but it cannot solve a debt problem. The following is what Jim Rogers told CNBC on Friday….
“Just because now you have a way to get them (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said on Friday.
“People need to stop spending money they don’t have. The solution to too much debt is not more debt. All this little agreement does is give them (banks) a chance to have even more debt for a while longer,” he added.
But if you just went by the headlines in most of the newspapers around the world you would think that European leaders had discovered the cure for cancer or something.
Sadly, the truth is that they are simply choosing to fire off a few of the “financial bullets” that they still have left as a recent Washington Post article described….
The European bailout funds don’t have unlimited resources. If they throw $125 billion at Spain’s banks and another couple hundred billion toward Italy, pretty soon they’ll be running low. The only entity with unlimited euros is the European Central Bank. And right now, there’s no talk of using the ECB to provide bailouts. Which means that this latest move might have just forestalled the crisis, rather than ending it permanently.
So what comes next?
Bruce Krasting believes that the “half-life of this bailout will be measured in weeks”. The following is his summary of what he sees coming next in Europe….
If I’m right, after a few weeks things turn south again in the capital markets. Then what?
– More LTRO. No – there is no more collateral. All of the swill loans have already been hocked.
– Cut ECB % rate. Doesn’t matter. It won’t change conditions in Italian or Spanish funding markets one bit.
– A spending plan of <1% of GDP. That won’t put a dent in the recession that is building.
– Brussels buys more sovereign bonds to avoid a catastrophe of Italian 10-year exceeding 7% (capitulation). Sorry. There are “wise men” in Germany who will simply not allow this to happen in the scale that is required.
– The ECB goes Defcon 1 and launches a E2T QE program. No – same answer as above.
– Merkel does a 180 and embraces Euro bonds. No chance in hell.
–The US or China are going to start buying EU bonds? Lunacy – not happening.
-The IMF will come to the rescue? No way – the IMF does not have the resources to solve anyone’s problems.
In other words, kicking the can down the road is going to get quite a bit harder after the current “sugar high” wears off.
Europe is still headed for the greatest financial crisis since the Great Depression (at least) and European leaders seem powerless to stop it.
Of course the United States is also facing a crisis of too much debt and a great day of reckoning is on the way for this country as well.
So yes, the global economy is still heading for collapse and there is still a multitude of reasons to be extremely concerned about the second half of 2012.
What is your opinion about all of this?
Do you think that European leaders will be able to keep kicking the can down the road?
Please feel free to post a comment with your opinion below….