The Dow Jones Industrial Average provides us with some pretty strong evidence that our “stock market boom” has been fueled by debt. On Wednesday, the Dow crossed the 20,000 mark for the first time ever, and this comes at a time when the U.S. national debt is right on the verge of hitting 20 trillion dollars. Is this just a coincidence? As you will see, there has been a very close correlation between the national debt and the Dow Jones Industrial Average for a very long time.
For example, when Ronald Reagan took office in 1991, the U.S. national debt had just hit 994 billion dollars and the Dow was sitting at 951. And as you can see from this chart by Matterhorn.gold via David Stockman, roughly that same ratio has held true throughout subsequent presidential administrations…
During the Clinton years the Dow raced out ahead of the national debt, but an “adjustment” during the Bush years brought things back into line.
The cold hard truth is that we have been living way above our means for decades. Our “prosperity” has been fueled by the greatest debt binge in the history of the world, and we are greatly fooling ourselves if we think otherwise.
We would never have gotten to 20,000 on the Dow if Barack Obama and Congress had not gotten us into an extra 9.3 trillion dollars of debt over the past eight years.
The average began tracking the most powerful corporate stocks in 1896, and has served as a broad measure of the market’s health through 22 presidents, 22 recessions, a Great Depression, at least two crashes and innumerable rallies, corrections, bull and bear markets. The blue chip reading finally cracked the 20,000 benchmark for the first time early Wednesday.
During the current bull market, the second longest in history, the Dow has more than tripled since March 2009.
Since Donald Trump’s surprise election victory, the Dow has now climbed by approximately 2150 points.
And it took just 64 calendar days for the Dow to go from 19,000 to 20,000. That is an astounding pace, and financial markets around the rest of the planet are doing very well right now too. In fact, global stocks rose to a 19 month high on Wednesday.
So where do we go from here?
Well, if Donald Trump wants to see Dow 30,000 during his presidency, then history tells us that he needs to take us to 30 trillion dollars in debt.
Of course that would be absolute insanity even if it was somehow possible. Each additional dollar of debt destroys the future of our country just a little bit more, and at some point this colossal bubble is going to burst.
The “market always goes higher over time,” Todd Morgan, chairman of Bel Air Investment Advisors. “The lesson here is that through wars, recessions, elections, impeachments, financial crises, and on and on, investing for the long term in high-quality stocks is the key to building wealth. … We are telling our clients that you can’t time the market. Think long term. Stay the course. We expect the market to see Dow 30,000 in my lifetime, and for my grandchildren to see Dow 50,000 in their lifetime.”
My hope is that the market will continue to go up. But nobody can deny that valuations are already at absurdly high levels, and the only way that this party can keep going is to continue to fuel it with more and more debt.
But for the moment, there is a tremendous amount of optimism out there, and most experts expect the Dow to continue to set new highs. In fact, CNBC says that whenever the Dow crosses a new threshold like this it usually means good things for investors…
CNBC looked at market data from the past 30 years and zeroed in on the times when the Dow has crossed levels like 2,000, 3,000, 4,000 … all the way up to the 19,000 level it hit in November. At those times, investors can typically expect traders to push it up even higher, according to data from Kensho. Not only does the Dow go up, but it outperforms the S&P 500 index along the way.
But as USA Today has explained, not all Americans are benefiting from this stock market rally…
The breakthrough came just four trading days into Trump’s presidency, a whirlwind in which the billionaire has reaffirmed his commitment to strengthen the U.S. economy and create more jobs and higher wages for workers. Still, nearly half of Americans have not benefited from the so-called “Trump Rally,” which has generated more than $2.2 trillion in paper gains for the Wilshire 5000 Total Stock Index since Election Day. The reason: only 52% of Americans polled by Gallup last April said they “have money invested in stocks” — the lowest stock ownership rate in the 19 years Gallup has tracked the data and down sharply from 65% in 2007 before the financial crisis.
Hopefully the good times will continue to roll for as long as possible.
But there is no possible way that they can keep going indefinitely.
For decades, our debt has been growing much faster than our GDP has. By definition, this is an unsustainable situation. At some point we will have accumulated so much debt that our financial system will no longer be able to hold up under the strain.
Many were convinced that we would reach that point before the U.S. national debt hit 20 trillion dollars, and yet here we are.
So how much higher can we go before the bubble bursts?
That is a very good question, and I don’t know if anyone has the right answer.
But for President Trump, this is going to present him with quite a dilemma.
Either he can keep the debt party going for as long as possible, or he can try to get us to take some tough financial medicine right now.
If an attempt is made to deal with our debt problems now, we will experience severe economic pain almost immediately.
But if the can keeps being kicked down the road, our long-term prognosis is just going to keep getting worse and worse.
And if we try to delay the inevitable indefinitely, at some point the laws of economics are going to make our hard choices for us.
So let us celebrate “Dow 20,000″, but let us also understand that it is far more likely that we will see “Dow 10,000″ again before we ever see “Dow 30,000″.
Will the financial bubble that has been rapidly growing ever since Donald Trump won the election suddenly be popped once he takes office? Could it be possible that we are being set up for a horrible financial crash that he will ultimately be blamed for? Yesterday, I shared my thoughts on the incredible euphoria that we have seen since Donald Trump’s surprise victory on November 8th. The U.S. dollar has been surging, companies are announcing that they are bringing jobs back to the U.S., and we are witnessing perhaps the greatest post-election stock market rally in Wall Street history. In fact, the Dow, the Nasdaq and the S&P 500 all set new all-time record highs again on Thursday. What we are seeing is absolutely unprecedented, and many believe that the good times will continue to roll as we head into 2017.
What has been most surprising to me is how well the stocks of the big Wall Street banks have been doing. It is no secret that those banks poured a tremendous amount of money into Hillary Clinton’s campaign, and Donald Trump had some tough things to say about them leading up to election day.
So you wouldn’t think that it would be particularly good news for those banks that Trump won the election. However, we seem to be living in “Bizarro World” at the moment, and in so many ways things are happening exactly the opposite of what we would expect. Since Trump’s victory, all of the big banking stocks have been skyrocketing…
Financial stocks in particular have been on fire. Citigroup (C) and JPMorgan Chase (JPM) are up about 20% since Donald Trump defeated Hillary Clinton — and that makes them laggards!
Morgan Stanley (MS) has gained more than 25%. So has troubled Wells Fargo (WFC), despite the lingering fallout from its fake account scandal. Bank of America (BAC) is up more than 30%.
And so is Goldman Sachs (GS) — the former employer of both Treasury Secretary nominee Steven Mnuchin and Trump chief strategist Steve Bannon.
But are these stock prices justified by the fundamentals?
Of course not, but during times of euphoria the fundamentals never seem to matter much. Stocks were incredibly overvalued before the election, and now they are ridiculously overvalued.
Earlier today, a CNBC article pointed out that the cyclically-adjusted price to earnings ratio has only been higher than it is today at three points in our history…
“The cyclically adjusted P/E (CAPE), a valuation measure created by economist Robert Shiller now stands over 27 and has been exceeded only in the 1929 mania, the 2000 tech mania and the 2007 housing and stock bubble,” Alan Newman wrote in his Stock Market Crosscurrents letter at the end of November.
Newman said even if the market’s earnings increase by 10 percent under Trump’s policies “we’re still dealing with the same picture, overvaluation on a very grand scale.”
And of course a historic stock market crash immediately followed each of those three bubbles.
So are we being set up for a huge crash in early 2017?
Right now, the U.S. stock market is surging, with the Dow leaping toward 20,000, a number rooted in fiscal insanity and delusional expectations. There are no fundamentals that support a 20,000 Dow, but fundamentals have long since ceased to matter in a financial world hyperventilating on debt fumes while hallucinating about utopian economic models that will soon prove to generate fools instead of real wealth.
Today I’m going on the record with a prediction that I’ll offer with near absolute certainty: The rigged markets that now seem to defy gravity will be deliberately and destructively imploded under President Trump for all the obvious reasons. There will be financial chaos like we’ve never seen before: Investors leaping off tall buildings, banks declaring extended “holidays” that freeze transactions, and California pensioners slitting their wrists after they discover their promised pension funds were just vaporized by incompetent bureaucrats.
On the other hand, there are others that believe that Trump is just walking into a very bad situation and that a crash would be inevitable no matter who was president.
History tells us that there is no possible way that stock prices can stay at this irrational level indefinitely. But for now a wave of optimism is sweeping the nation, and many of those that are caught up in it will get seriously angry with you if you try to inject a dose of reality into the conversation.
But like I said yesterday, let’s hope that the optimists are correct. A survey that was just taken of 600 business executives found that 62 percent of them were optimistic about the U.S. economy over the next 12 months.
Incredibly, that number was sitting at just 38 percent the previous quarter.
For the moment, business leaders seem to be quite thrilled that we have a business executive in the White House.
Hopefully Donald Trump’s business experience will translate well to his new position. And it is certainly my hope that he is as successful as possible.
But even during the campaign Trump talked about how stocks were in a giant bubble, and the euphoria that we have seen since his election victory has just made that bubble even larger.
Throughout U.S. history, every giant financial bubble has always ended very badly, and this time around will not be any exception.
Trump may get the blame for it when it bursts, but the truth is that the conditions for the coming crisis have been building for a very, very long time.
Since Donald Trump’s victory on election night we have seen the worst bond crash in 15 years. Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead. The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates. Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown. And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money. The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.
For those that are not familiar with the bond market, when yields go up bond prices go down. And when bond prices go down, that is bad news for economic growth.
The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!
The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.
As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes. Just look at what is happening to mortgages. As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…
The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”
If mortgage rates continue to shoot higher, there will be another housing crash.
Rates on auto loans, credit cards and student loans will also be affected. Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.
Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon…
In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.
And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.
Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down. It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.
The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge. The following comes from Lance Roberts…
With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.
Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.
Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.
If you look at history, a stock market crash almost always follows a major bond crash. So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.
And history has also shown us that no bull market can survive a major recession. If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.
The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.
Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.
Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.
That is an enormous mistake.
A shaking has already begun in the financial world, and this shaking could easily become an avalanche.
Now is not a time to party. Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.
All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.
So get prepared while you still can, because time is running out.
On the surface, things seem pretty quiet in mid-July 2016. The biggest news stories are about the speculation surrounding Donald Trump’s choice of running mate, the stock market in the U.S. keeps setting new all-time record highs, and the media seems completely obsessed with Taylor Swift’s love life. But underneath the surface, it is a very different story. As you will see below, the conditions for a “perfect storm” are coming together very rapidly, and the rest of 2016 promises to be much more chaotic than what we have seen so far.
Let’s start with China. On Tuesday, an international tribunal in the Hague ruled against China’s territorial claims in the South China Sea. The Chinese government announced ahead of time that they do not recognize the jurisdiction of the tribunal, and they have absolutely no intention of abiding by the ruling. In fact, China is becoming even more defiant in the aftermath of this ruling. We aren’t hearing much about it in the U.S. media, but according to international news reports Chinese president Xi Jinping has ordered the People’s Liberation Army “to prepare for combat” with the United States if the Obama administration presses China to abandon the islands that they are currently occupying in the South China Sea…
“Chinese president Xi Jinping has reportedly ordered the People’s Liberation Army to prepare for combat,” reports Arirang.com. “U.S.-based Boxun News said Tuesday that the instruction was given in case the United States takes provocative action in the waters once the ruling is made.”
A U.S. aircraft carrier and fighter jets were already sent to the region in anticipation of the ruling, with the Chinese Navy also carrying out exercises near the disputed Paracel islands.
Last October, China said it was “not frightened” to fight a war with the U.S. following an incident where the guided-missile destroyer USS Lassen violated the 12-nautical mile zone China claims around Subi and Mischief reefs in the Spratly archipelago.
Meanwhile, the relationship between the United States and Russia continues to go from bad to worse. The installation of a missile defense system in Romania is just the latest incident that has the Russians absolutely steaming, and during a public appearance on June 17th Russian President Vladimir Putin tried to get western reporters to understand that the world is being pulled toward war…
“We know year by year what’s going to happen, and they know that we know. It’s only you that they tell tall tales to, and you buy it, and spread it to the citizens of your countries. You people in turn do not feel a sense of the impending danger – this is what worries me. How do you not understand that the world is being pulled in an irreversible direction? While they pretend that nothing is going on. I don’t know how to get through to you anymore.”
And of course the Russians have been feverishly updating and modernizing their military in preparation for a potential future conflict with the United States. Just today we learned that the Russians are working to develop a hypersonic strategic bomber that is going to have the capability of striking targets with nuclear warheads from outer space.
Unfortunately, the Obama administration does not feel a similar sense of urgency. The size of our strategic nuclear arsenal has declined by about 95 percent since the peak of the Cold War, and many of our installations are still actually using rotary phones and the kind of 8 inch floppy disks for computers that were widely used back in the 1970s.
But I don’t expect war with China or Russia to erupt by the end of 2016. Of much more immediate concern is what is going on in the Middle East. The situation in Syria continues to deteriorate, but it is Israel that could soon be the center of attention.
Back in March, the Wall Street Journal reported that the Obama administration wanted to revive the peace process in the Middle East before Obama left office, and that a UN Security Council resolution that would divide the land of Israel and set the parameters for a Palestinian state was still definitely on the table…
The White House is working on plans for reviving long-stalled Middle East negotiations before President Barack Obama leaves office, including a possible United Nations Security Council resolution that would outline steps toward a deal between the Israelis and Palestinians, according to senior U.S. officials.
And just this week, the Washington Post reported that there were renewed “rumblings” about just such a resolution…
Israel is facing a restive European Union, which is backing a French initiative that seeks to outline a future peace deal by year’s end that would probably include a call for the withdrawal of Israeli troops and the creation of a Palestinian state. There are also rumblings that the U.N. Security Council might again hear resolutions about the conflict.
For years, Barack Obama has stressed the need for a Palestinian state, and now that his second term is drawing to a close he certainly realizes that this is his last chance to take action at the United Nations. If he is going to pull the trigger and support a UN resolution formally establishing a Palestinian state, it will almost certainly happen before the election in November. So over the coming months we will be watching these developments very carefully.
And it is interesting to note that there is an organization called “Americans For Peace Now” that is collecting signatures and strongly urging Obama to support a UN resolution of this nature. The following comes from their official website…
Now is the time for real leadership that can revive and re-accredit the two-state solution as President Obama enters his final months in office. And he can do this – he can lay the groundwork for a two-state agreement in the future by supporting an Israeli-Palestinian two-state resolution in the United Nations Security Council.
Such a resolution would restore U.S. leadership in the Israeli-Palestinian arena. It would preserve the now-foundering two-state outcome. And it would be a gift to the next president, leaving her or him constructive options for consequential actions in the Israeli-Palestinian arena, in place of the ever-worsening, politically stalemated status quo there is today.
Sadly, a UN resolution that divides the land of Israel and that formally establishes a Palestinian state would not bring lasting peace. Instead, it would be the biggest mistake of the Obama era, and it would set the stage for a major war between Israel and her neighbors. This is something that I discussed during a recent televised appearance down at Morningside that you can watch right here…
At the same time all of this is going on, the global economic crisis continues to escalate. Even though U.S. financial markets are in great shape at the moment, the same cannot be said for much of the rest of the world.
Just look at the country that is hosting the Olympics this summer. Brazil is mired in the worst economic downturn that it has seen since the Great Depression of the 1930s, and Rio de Janeiro’s governor has declared “a state of financial emergency“.
Elsewhere, China is experiencing the worst economic downturn that they have seen in decades, the Japanese are still trying to find the end of their “lost decade”, and the banking crisis in Europe is getting worse with each passing month.
In quite a few articles recently, I have discussed the ongoing implosion of the biggest and most important bank in Germany. But I am certainly not the only one warning about this. In one of his recent articles, Simon Black also commented on the turmoil at “the most dangerous bank in Europe”…
Well-capitalized banks are supposed to have double-digit capital levels while making low risk investments.
Deutsche Bank, on the other hand, has a capital level of less that 3% (just like Lehman), and an incredibly risky asset base that boasts notional derivatives exposure of more than $70 trillion, roughly the size of world GDP.
But of course Deutsche Bank isn’t getting a lot of attention from the mainstream media right now because of the stunning meltdown of banks in Italy, Spain and Greece. Here is more from Simon Black…
Italian banks are sitting on over 360 billion euros in bad loans right now and are in desperate need of a massive bailout.
IMF calculations show that Italian banks’ capital levels are among the lowest in the world, just ahead of Bangladesh.
And this doesn’t even scratch the surface of problems in other banking jurisdictions.
Spanish banks have been scrambling to raise billions in capital to cover persistent losses that still haven’t healed from the last crisis.
In Greece, over 35% of all loans in the banking system are classified as “non-performing”.
Even though U.S. stocks are doing well for the moment, the truth is that trillions of dollars of stock market wealth has been lost globally since this time last year. If you are not familiar with what has been going on around the rest of the planet, this may come as a surprise to you. During my recent appearance at Morningside, I shared some very startling charts which show how dramatically global markets have shifted over the past 12 months. You can view the segment in which I shared these charts right here…
I would really like it if the rest of 2016 was as quiet and peaceful as the past couple of days have been.
Unfortunately, I don’t believe that is going to be the case at all.
The storm clouds are rising and the conditions for a “perfect storm” are brewing. Sadly, most people are not going to understand what is happening until it is far too late.
The Dow and the S&P 500 both closed at all-time record highs on Tuesday, and that is very good news. You might think that is an odd statement coming from the publisher of The Economic Collapse Blog, but the truth is that I am not at all eager to see the financial system crash and burn. We all saw what took place when it happened in 2008 – millions of people lost their jobs, millions of people lost their homes, and economic suffering was off the charts. So no, I don’t want to see that happen again any time soon. All of our lives will be a lot more comfortable if the financial markets are stable and stocks continue to go up. If the Dow and the S&P 500 can keep on soaring, that will suit me just fine. Unfortunately, I don’t think that is going to be what happens.
Of course I never imagined we would be talking about new record highs for the stock market in mid-July 2016. We have seen some crazy ups and downs for the financial markets over the last 12 months, and the downs were pretty severe. Last August, we witnessed the greatest financial shaking since the historic financial crisis of 2008, and that was followed by an even worse shaking in January and February. Then in June everyone was concerned that the surprising result of the Brexit vote would cause global markets to tank, and that did happen briefly, but since then we have seen an unprecedented rally.
So what is causing this sudden surge?
We’ll get to that in a moment, but first let’s review some of the numbers from Tuesday. The following comes from USA Today…
All three major indexes gained 0.7% apiece, as the Dow jumped 121 points to a new all-time closing high and the S&P 500 built upon its record close notched Monday. The blue chips now stand at 18,347.67, about 35 points above the previous record set May 19, 2015.
The new mark for the S&P 500 is 2,152.14, a 15-point improvement on its Monday close.
Overall, we have seen stocks shoot up more than eight percent over the last two weeks. Normally, a rise of 10 percent for an entire yearis considered to be quite healthy…
Interior Minister Theresa May is set to become the U.K.’s prime minister on Wednesday. Stock markets across the globe have risen sharply, after a steep sell-off, following the United Kingdom’s decision to leave the European Union.
“In the past two weeks, post Brexit, the S&P 500 has vaulted over 8 percent,” said Adam Sarhan, CEO at Sarhan Capital. “Typically, a 10 percent move for the entire year is considered normal.”
What makes all of this even stranger is the fact that investors have been pulling money out of stocks as if it was 2008 all over again. In fact, Zero Hedge tells us that on balance investors have been taking money out of equity funds for 17 weeks in a row.
So why are stocks still going up?
If your guess is “central bank intervention”, you are right on the nose.
Across the Pacific, the Bank of Japan has been voraciously gobbling up assets, and the architect of “Abenomics” just won a major electoral victory which has fueled a huge market rally over there…
Meanwhile, in Japan, Prime Minister Shinzo Abe ordered new stimulus after his coalition won an election in Japan’s upper chamber by a landslide. Japan’s Nikkei 225 rose nearly 2.5 percent overnight, while the yen erased all of its post-Brexit gains against the dollar.
“In the short term, I think it’s going to help, but in the long term, we’ll see,” said JJ Kinahan, chief strategist at TD Ameritrade. “I feel like a lot of people are getting themselves into situations that they can’t get out of.”
Fast forward six months when Matt King reports that “many clients have been asking for an update of our usual central bank liquidity metrics.”
What the update reveals is “a surge in net global central bank asset purchases to their highest since 2013.”
And just like that the mystery of who has been buying stocks as everyone else has been selling has been revealed.
So now you know the rest of the story.
The economic fundamentals have not changed. China is still slowing down. Japan is still mired in a multi-year economic crisis. Much of Europe is still dealing with a full-blown banking crisis. Much of South America is still experiencing a full-blown depression.
The economic and financial suffering that are coming are inevitable, but they are not going to be pleasant for any of us. So let us all hope that we still have a little bit more time before the party is over and it is time to turn out the lights.
Have you seen what the price of silver has been doing? On Monday, it exploded past 20 dollars an ounce, and as I write this article it is sitting at $20.48. Earlier today it actually surged above 21 dollars an ounce for a short time before moving back just a bit. In late March, I told my readers that silver was “ridiculously undervalued” when it was sitting at $15.81 an ounce, and that call has turned out to be quite prescient. The Friday before last, silver started the day at $17.25 an ounce, and it is up more than 18 percent since that time. Overall, silver is up more than 30 percent for the year, and that makes it one of the best performing investments of 2016. So what is causing this sudden surge in the price of silver? This is something that we will discuss below…
This sudden spike in the price of silver has definitely caught a lot of analysts off guard. Some are suggesting that the fact that the Fed is now less likely to raise rates after the Brexit and the fact that the dollar has been slipping a bit lately are the primary reasons for silver’s rise…
This isn’t a gradual increase either. It’s an explosive growth spurt. Just three months ago silver had reached an 11 month high. Now silver prices have reached a 23 month high. Several factors appear to be influencing these gains, including a weakening dollar, and the fact that the Fed may cut interest rates in light of the Brexit vote.
Personally, I don’t buy those explanations.
To me, the continuing implosion of major banks over in Europe is the main factor that is driving investors to safe haven assets such as silver.
Rumors continue to spread that Deutsche Bank is essentially insolvent at this point, and many are watching for the imminent collapse of the largest and most important bank in Germany. When this happens, it will be a much, much more cataclysmic event for the global financial system than the collapse of Lehman Brothers was back in 2008.
But today I want to focus on the ongoing implosion of the major banks in Italy.
Italy has the 8th largest economy on the entire planet, and their banks are drowning in approximately 400 billion dollars worth of non-performing debt.
The Italian government would like to bail these banks out, but the rest of the EU appears ready to block that effort because it would violate EU rules. As a result, the big Italian banks experienced a bloodbath on Monday…
Italy’s Banca Monte dei Paschi di Siena SpA BMPS, -13.99% closed down 14%. The move came after a report that the European Central Bank is pushing the lender to draft a new plan aimed at reducing non-performing loans.
Other Italian bank shares were lower, with Banca Popolare dell’Emilia Romagna BPE, -6.73% down 6.7%, Intesa Sanpaolo SpA ISP, -3.04% off 3% and Banca Popolare di Milano SpA PMI, -1.40% lower by 1.4%.
As a reminder, the Euro Stoxx Banks index was down -0.88% last week and is nearly 19% down from its pre-referendum levels. Italian Banks are at the heart of that weakness with the likes of Unicredit, Intesa, Banco Monte dei Paschi and UBI down -9.78%, -3.44%, -15.79% and -6.11% respectively last week, in the process sending Italian stocks to levels not seen since Draghi’s famous “whatever it takes” speech.
So what happens when all of the major banks of a country collapse at the exact same time?
Basically, Italy is facing “financial Armageddon” if nothing is done, and so some Italian politicians are desperate to step in and do something about this crisis even if it means defying the EU…
The Financial Times reported Sunday that Italy was prepared “to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress … despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues.”
Citing “several officials and bankers familiar with the plans,” the FT said that the threat has raised alarm along Europe’s regulators “who fear such a brazen intervention would devastate the credibility of the union’s newly implemented banking rule book during its first real test.”
Michael Hewson, chief market analyst at CMC Markets UK, said: “Under current EU state aid rules any attempts to help banks must involve a bail-in process that doesn’t involve using taxpayer’s money.
“Italian Prime Minister Matteo Renzi has tried to argue that the Brexit uncertainty has destabilised Italy’s already fragile banks.
“The reality is the problems of Italy’s banks predate last week’s Brexit vote, and he knows it.”
So what is going to happen?
Could Italy be forced to leave the EU?
Will the rest of the European Union eventually cave in and save Italy?
We all remember how difficult it was for the EU to save Greece, and they are just the 44th largest economy on the planet.
So where in the world are they going to come up with the resources to rescue the 8th largest economy on the planet?
Immediately following the Brexit vote on the Friday before last, we witnessed the biggest one day global stock market loss in world history. But since that time many global markets have bounced back, and a lot of people seem convinced that the crisis has passed.
Unfortunately, the truth is that the crisis is just getting started. As I warned before the Brexit vote, European banks were going to continue to implode no matter what the result was, and that is definitely what we are seeing come to pass right now.
Without bailouts, virtually all of the major banks in Italy are going to fail. It is just a matter of time. And each of those failures would send financial shockwaves all over the planet.
Personally, I am convinced that the second half of 2016 is going to be even more eventful that the first half of 2016, and this new global economic crisis is going to continue to accelerate.
Unfortunately, most Americans are preoccupied reading about Taylor Swift’s new boyfriend and things of that nature, and so they are totally oblivious to the global events that are about to turn their lives totally upside down.
More stock market wealth was lost on Friday than on any other day in world history. As you will see below, global investors lost two trillion dollars on the day following the Brexit vote. And remember, this is on top of the trillions that global investors have already lost over the past 12 months. It is important to understand that the Brexit vote was not the beginning of a new crisis – it has simply accelerated a global financial crisis that started last year and that was already in the process of unfolding. As I noted on Friday, we have been waiting for “the next Lehman Brothers moment” that would really unleash fear and panic globally, and now we have it. The next six months should be absolutely fascinating to watch.
According to CNBC, the total amount of money lost on global stock markets on Friday surpassed anything that we had ever seen before, and that includes the darkest days of the financial crisis of 2008…
Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.
The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.
And of course many of the wealthiest individuals on the planet got absolutely hammered. According to Bloomberg, the 400 richest people in the world lost a total of $127.4 billion dollars on Friday…
The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.
Could you imagine losing a billion dollars on a single day?
I am sure that Bill Gates and Jeff Bezos are not shivering in their boots quite yet, but what if the markets keep on bleeding like they did in 2008?
On the other hand, globalist magnate George Soros made a ton of money on Friday because he had positioned himself for a Brexit ahead of time. The following comes from the London Independent…
The billionaire who predicted Brexit would bring about “Black Friday” and a crisis for the finances of ordinary people appears to have profited hugely from the UK’s surprise exit from the EU.
George Soros is widely known as the man who “broke” the Bank of England in 1992, when he bet against the pound and made a reported £1.5bn.
Although the exact amount Mr Soros has gained after Brexit is not known, public filings show he doubled his bets earlier this year that stocks would fall.
So what will happen on Monday when the markets reopen?
Personally, I don’t think that it will be as bad as Friday.
But I could be wrong.
In early trading, Dow futures, S&P 500 futures and Nasdaq futures are all down…
Dow futures fell by 90 points in early trading, while S&P 500 futures slipped 11 points, and NASDAQ futures dipped 24 points. Gold futures rose, in a reflection of sustained demand for safe-haven assets.
And at this moment, the British pound is getting absolutely crushed. It is down to 1.33, and I would expect to see it fall a lot lower in the weeks and months to come.
Well, the truth is that now that the British people have voted to leave the EU, the globalists have to make it as painful as possible on them in order to send a warning to other nations that may consider leaving. I think that a recent article by W. Ben Hunt explained this very well…
What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain). Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.
The elite need a crisis now in order to show everyone that globalism is the answer and not the problem. If the British people were allowed to thrive once they walked away, that would only encourage more countries to go down the exact same path. This is something that the elite are determined to avoid.
The Brexit vote has barely sunk in, and Bank of America and Goldman Sachs are already projecting a recession for the United Kingdom. Sadly, I believe that this is what we will see happen.
But it won’t just be the British that suffer.
On Friday, European banking stocks had their worst day ever. In particular, Deutsche Bank fell an astounding 17.49 percent to an all-time record closing low of 14.72. I have warned repeatedly about the implosion of Deutsche Bank, and this crisis could be the catalyst for it.
Last week, market tumult stemming from the U.K.’s vote to quit the European Union drove the British pound to its weakest levels in three decades.
Yet it also sent investors flocking to traditional safe haven assets like the U.S. dollar, gold and the yen, the latter surging against every major currency as the results of Brexit became clear: Dollar/yen spiked from a Thursday high near 107 to a two-year low near 99.
Just like in 2008, there will be days when global markets will be green. When that happens, it will not mean that the crisis is over.
If you follow my work closely, then you know that it is imperative to look at the bigger picture. Over the past 12 months, there have been some very nice market rallies around the world, but investors have still lost trillions of dollars overall.
What happens on any one particular day is not the story. Rather, the key is to focus on the long-term trends.
And without a doubt, this Brexit vote could be “the tipping point” that greatly accelerates our ongoing woes…
“Brexit is the biggest global monetary shock since 2008,” said David Beckworth, a scholar at the Mercatus Center at George Mason University, in a blog post on Friday. “This could be the tipping point that turns the existing global slowdown of 2016 into a global recession.”
We were already dealing with a new global economic crisis without the Brexit vote. But what this does is it introduces an element of panic and fear that had been missing up until this current time.
And markets do not like panic and fear very much. In general, markets tend to go up when things are calm and predictable, and they tend to go down when chaos reigns.
Unfortunately, I believe that we are going to see quite a bit more chaos for the rest of 2016, and the trillions that were lost on Friday may turn out to be just the tip of the iceberg.
Over the past 12 months, stock market investors around the planet have lost trillions of dollars. Since this time last June, stocks have crashed in 6 of the world’s 8 largest economies, and stocks in the other two are down as well. The charts that you are about to see are absolutely stunning, and they are clear evidence that a new global financial crisis has already begun. Of course it is true that we are still in the early chapters of this new crisis and that there is much, much more damage to be done, but let us not minimize the carnage that we have already witnessed.
In general, there have been three major waves of financial panic over the past 12 months. Late last August we saw the biggest financial shaking since the financial crisis of 2008, then in January and February there was an even bigger shaking, and now a third “wave” has begun in June. Not all areas around the globe have been affected equally by each wave, but without a doubt this new financial crisis is a global phenomenon.
The charts that I am about to show you come from Trading Economics. It is an absolutely indispensable website that is packed full of useful data, and I encourage everyone to check it out.
Let’s talk about China first. The Chinese economy is the second largest on the entire planet, and since this time last year Chinese stocks are down an astounding 40 percent…
As things have started to unravel in China, the Chinese have been selling off U.S. debt and U.S. stocks like crazy. The following comes from Bloomberg…
For the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy.
The People’s Bank of China, owner of the world’s biggest foreign-exchange reserves, burnt through 20 percent of its war chest since 2014, dumping about $250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows.
While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines.
Japan has the third largest economy in the world, and over the past year Japanese stocks are down a total of 26 percent from the peak…
Personally, I have been extremely alarmed by what has been happening in Japan lately. Japanese stocks were down almost 500 points last night, and overall the Nikkei is down a whopping 1,800 points so far in June.
Germany has the fourth largest economy in the world, and over the past year their stocks have fallen 19 percent from the peak of the market…
The key thing to watch for in Germany are serious troubles at their biggest bank. I wrote a long article about the slow-motion implosion of Deutsche Bank last month, and just this week Deutsche Bank stock hit an all-time low.
The fifth largest economy on the planet belongs to the United Kingdom, and since last June their stocks have fallen about 13 percent…
France has the sixth largest economy in the world, and over the past year French stocks are down 20 percent from the peak of the market…
The French economy is really struggling these days, and we have not heard much about it in the U.S. media, but there have been tremendous riots in major cities in France in recent weeks.
The seventh largest economy on our planet belongs to India. Even though India is facing some very serious economic problems, their stocks are doing okay for the moment. Even though stocks in India are down over the past 12 months, we have not seen a major financial crisis over there just yet.
But there is definitely a major crisis in the eighth largest economy in the world. Italian stocks are down a staggering 32 percent from the peak of the market. That means approximately a third of all stock market wealth in Italy is already gone…
Earlier this year, I wrote about the horrifying collapse of the Italian banking system that has greatly accelerated since the start of 2016. It looks like virtually all of their big banks will ultimately need to be bailed out, and this threatens to become a far bigger crisis than the crisis in Greece ever was.
And let us not leave off the ninth largest economy in the world. Not too long ago, CNN ran an article entitled “Brazil: Economic collapse worse than feared“. So not only are they admitting that the ninth largest economy on the globe is collapsing, they are also admitting that it is even worse than what the experts had anticipated.
So did I leave anyone off the list?
Ah yes, I haven’t even addressed what has been going on in the United States yet.
U.S. stocks did crash last August, but then they recovered.
Then they crashed again in January, but then they recovered again.
Now U.S. stocks have been taking another tumble here in June, but we are being assured that there is nothing to worry about.
Hopefully this article will clear a lot of things up. In this piece, I have presented undeniable evidence that a new global financial crisis has begun over the past 12 months. We have not seen global stock declines of this nature since the great financial crisis of 2008, but much worse is still to come.
I would love to be wrong about that last part.
It would be wonderful if the worst was now behind us and good times for the global financial system were ahead.
Unfortunately, every single indicator that I am watching is telling me just the opposite.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
We have seen this story before, and it never ends well. From mid-March until early May 2008, a vigorous stock market rally convinced many investors that the market turmoil of late 2007 and early 2008 was over and that happy days were ahead for the U.S. economy. But of course we all know what happened. It turned out that the market downturns of late 2007 and early 2008 were just “foreshocks” of a much greater crash in late 2008. The market surge in the spring of 2008 was just a mirage, and it masked rapidly declining economic fundamentals. Well, the exact same thing is happening right now. The Dow rose another 222 points on Tuesday, but meanwhile virtually every number that we are getting is just screaming that the overall U.S. economy is steadily falling apart. So don’t be fooled by a rising stock market. Just like in the spring of 2008, all of the signs are pointing to an avalanche of bad economic news in the months ahead. The following are 11 signs that the U.S. economy is rapidly deteriorating…
#1 Total business sales have been declining for nearly two years, and they are now about 15 percent lower than they were in late 2014.
#2 The inventory to sales ratio is now back to near where it was during the depths of the last recession. This means that there is lots and lots of unsold stuff just sitting around out there, and that is a sign of a very unhealthy economy.
#4 Profits for companies listed on the S&P 500 were down 7.1 percent during the first quarter of 2016 when compared to the same time period a year ago.
#5 In April, commercial bankruptcies were up 32 percent on a year over year basis, and Chapter 11 filings were up 67 percent on a year over year basis. This is exactly the kind of spike that we witnessed during the initial stages of the last major financial crisis as well.
#7 The U.S. economy has lost an astounding 191,000 mining jobs since September 2014. For areas of the country that are heavily dependent on mining, this has been absolutely devastating.
#8 According to Challenger, Gray & Christmas, U.S. firms announced 35 percent more job cuts during April than they did in March. This indicates that our employment problems are accelerating.
#9 So far this year, job cut announcements are running 24 percent above the exact same period in 2015.
#10 U.S. GDP grew at just a 0.5 percent annual rate during the first quarter of 2016. This was the third time in a row that the GDP number has declined compared to the previous quarter, and let us not forget that the formula for calculating GDP was changed last year specifically to make the first quarter of each year look better. Without that “adjustment”, it is quite possible that we would have had a negative number for the first quarter.
But you never hear Obama talk about that statistic, do you?
And the mainstream media loves to point the blame at just about anyone else. In fact, the Washington Post just came out with an article that is claiming that the big problem with the economy is the fact that U.S. consumers are saving too much money…
The surge in saving is the real drag on the economy. It has many causes. “People got a cruel lesson about [the dangers] of debt,” says economist Matthew Shapiro of the University of Michigan. Households also save more to replace the losses suffered on homes and stocks. But much saving is precautionary: Having once assumed that a financial crisis of the 2008-2009 variety could never happen, people now save to protect themselves against the unknown. Research by economist Mark Zandi of Moody’s Analytics finds higher saving at all income levels.
So even though half the country is flat broke, I guess we are all supposed to do our patriotic duty by going out and running up huge balances on our credit cards.
What a joke.
Of course the U.S. economy is actually doing significantly better at the moment than almost everywhere else on the planet. Many areas of South America have already plunged into an economic depression, major banks all over Europe are in the process of completely melting down, Japanese GDP has gone negative again despite all of their emergency measures, and Chinese stocks are down more than 40 percent since the peak of the market.
This is a global economic slowdown, and just like in 2008 it is only a matter of time before the financial markets catch up with reality. I really like how Andrew Lapthorne put it recently…
On the more bearish slant is Andrew Lapthorne, head of quantitative strategy at Societe Generale. To him this profit downturn is a sign that stocks are far too overvalued and the economy is weaker than you think.
“MSCI World EPS is now declining at the fastest pace since 2009, losing 4% in the last couple of months alone (this despite stronger oil prices),” wrote Lapthorne in a note. For the S&P 500 specifically, the year on year drop in profit drop was the most since third quarter of 2009.
“Global earnings are now 14% off the peak set in August 2014 and back to where they stood five years ago. Equity prices on the other hand are 25% higher. Gravity beckons!”
I couldn’t have said it better myself.
Look, this is not a game.
So far in 2016, three members of my own extended family have lost their jobs. Businesses are going under at a pace that we haven’t seen since 2008, and this means that more mass layoffs are on the way.
We can certainly be happy that U.S. stocks are doing okay for the moment. May it stay that way for as long as possible. But anyone that believes that this state of affairs can last indefinitely is just being delusional.
Gravity beckons, and the crash that is to come is going to be a great sight to behold.