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.
One of the epicenters of the global financial crisis that started during the second half of last year is Japan, and it looks like the markets in the land of the rising sun are entering yet another period of great turmoil. The Nikkei was down another 390 points last night, and it is now down more than 1,300 points since a week ago. Why this is so important for U.S. investors is because the Nikkei is often an early warning indicator of where the rest of the global markets are heading. For example, the Nikkei started crashing early last December about a month before U.S. markets started crashing really hard in early January. So the fact that the Nikkei has been falling very rapidly in recent days should be a huge red flag for investors in this country.
I want you to study the chart below very carefully. It shows the performance of the Nikkei over the past 12 months. As you can see, it kind of resembles a giant leaning “W”. You can see the stock crash that started last August, you can see the second wave of the crash that began last December, and now a third leg of the crash is currently forming…
The third largest economy on the entire planet is in a comatose state at this point, and Japanese authorities have been throwing everything but the kitchen sink at it in an attempt to revive it. Government stimulus programs have pushed the debt to GDP ratio to 229 percent, and the quantitative easing that the Bank of Japan has been engaged in has made the Federal Reserve look timid by comparison.
But none of those extraordinary measures has been successful in stimulating the Japanese economy, so now the Bank of Japan has been been trying negative interest rates. Unfortunately, these negative rates are also having some unintended consequences. According to the Wall Street Journal, the negative interest rate program is putting additional stress on the Japanese financial sector…
The Bank of Japan started imposing a minus 0.1% rate on some deposits held by commercial banks in February, meaning that those banks now have to pay a small fee when they add to their money parked at the central bank. The financial sector has suffered amid worries that banks can’t pass on negative interest rate to their depositors and therefore will take a hit to their profits.
I would keep a very close eye on the big banks in Japan. It is my conviction that there is a lot more brewing under the surface than we are being told about so far.
In addition, many analysts in Japan are complaining that all of this manipulation by the BOJ is essentially destroying normal market behavior. The following comes from Bloomberg…
Nobuyasu Atago, who also had worked at the BOJ and is now the chief economist at Okasan Securities Co., pointed out that instead of serving as a important source of cash for borrowers, the credit market has become a profit center for dealers looking to buy securities from investors and sell them to the central bank. While the strategy may be lucrative now, financial institutions face the risk of massive losses, he said.
“By making the trade with the BOJ the only source of profit, markets are exposed to unexpected volatility when that trade ends and the BOJ moves toward the exit,” Atago said. “Markets are being destroyed.”
The more global central banks try to “fix things”, the more they make our long-term imbalances even worse.
To me, it makes no sense to have a bunch of unelected, unaccountable central planners constantly monkeying with the financial system. In a true free market system, we would allow market forces to determine the course of events. But of course we don’t have a free market system anymore. Instead, what we have is a heavily socialized system that is greatly manipulated by the central planners.
That is why global financial markets gyrate wildly if Janet Yellen so much as sneezes. They know who holds all the power, and investors are constantly on edge as they wait for the latest pronouncement from our central banking overlords.
At this point, 99 percent of the global population lives in a country with a central bank. Our world is more deeply divided than ever, and yet somehow everyone in the world has agreed to adopt this insidious system.
It sure is quite a coincidence, isn’t it?
Getting back to Japan, things are so bad now that the Japanese government is actually considering giving gift certificates directly to low-income young people. The following originally comes from Bloomberg…
The Japanese government plans to include gift certificates for low-income young people in its fiscal 2016 supplementary budget, Sankei reports, without saying who provided the information.
Recipients would be able to use them for daily necessities.
The government sees gift certificates as more effective in stimulating consumption than cash handouts, which may be deposited.
This is what the end of democracy looks like.
When the government just starts handing out money like candy, you might as well turn out the lights because the party is over.
Since 2008, global central banks have cut interest rates 637 times and they have injected approximately 12.3 trillion dollars into the global financial system through various quantitative easing programs.
Has all of this monkeying around solved our problems?
Of course not.
Instead, our long-term problems have grown progressively worse and now a new financial crisis has begun.
Keep an eye on Japan, and also keep an eye on Europe. Huge problems are bubbling right under the surface, and when they come bursting into the open they will deeply affect the United States as well.
*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.*
Financial experts Robert Kiyosaki and Harry Dent are both warning that the next major economic crash is in our very near future. Dent is projecting that the Dow will fall to “5,500 to 6,000 by late 2017″, and Kiyosaki actually originally projected that a great crash was coming in 2016 all the way back in 2002. Of course we don’t exactly have to wait for things to get bad. The truth is that things are not really very good at the moment by any stretch of the imagination. Approximately one-third of all Americans don’t make enough money to even cover the basic necessities, 23 percent of adults in their prime working years are not employed, and corporate debt defaults have exploded to the highest level that we have seen since the last financial crisis. But if Kiyosaki and Dent are correct, economic conditions in this country will soon get much, much worse than this.
During a recent interview, Harry Dent really went out on a limb by staking his entire reputation on a prediction that we would experience “the biggest global bubble burst in history” within the next four years…
There will be… and I will stake my entire reputation on this… we are going to see the biggest global bubble burst in history in the next four years…
There’s only one way out of this bubble and that is for it to burst… all this stuff is going to reset back to where it should be without all this endless debt, endless printed money, stimulus and zero interest rate policy.
And of course he is far from alone. Without a doubt, we are currently in the terminal phases of the greatest financial bubble the world has ever known, and it is exceedingly difficult to see any way that it will not end very, very badly.
Ultimately, Dent believes that we could see U.S. stocks lose two-thirds of their value by late next year…
The Dow, I’m projecting, will hit 5,500 to 6,000 by late 2017… just in the next year and a half or so.
That’ll be most of the damage… then it will rally and there’ll be some aftershocks into 2020… my four cycles point down into early 2020 and then they start one after the other to turn up… I think the worst will be over by 2020, but the worst of that will be by the end of 2017.
If that does happen, it will be a far worse crash than what we experienced back in 2008, and the economic consequences will be absolutely terrifying.
Another highly respected financial expert that is making similar claims is Robert Kiyosaki. My wife is a big fan of his books, and I have always held him in high regard.
But what I didn’t realize is that he had actually predicted that there would be a major financial crash all the way back in 2002…
Fourteen years ago, the author of a series of popular personal-finance books predicted that 2016 would bring about the worst market crash in history, damaging the financial dreams of millions of baby boomers just as they started to depend on that money to fund retirement.
Broader U.S. stock markets are recovering from the worst 10-day start to a year on record. But Robert Kiyosaki — who made that 2016 forecast in the 2002 book “Rich Dad’s Prophecy” — says the meltdown is under way, and there’s little investors can do but buy gold or silver and hope the Federal Reserve slows the slide.
I agree with Kiyosaki that one way that investors can shield their wealth is by getting gold and silver. In a recent article, I explained exactly why I believe that silver in particular is ridiculously undervalued right now.
Kiyosaki also believes that the coming crash could be delayed a bit if the Federal Reserve decided to embark on another round of quantitative easing. But even if that happens, Kiyosaki is absolutely convinced that eventually “it’s all going to come down”…
Kiyosaki told MarketWatch that the combination of demographics and global economic weakness makes the next crash inevitable — but the Fed could stave it off with another round of quantitative easing, which might stimulate the economy.
The Fed turned more dovish at its March meeting, with the central bank penciling in fewer interest-rate hikes this year than were previously part of its implied framework. The Fed signaled those hikes would happen more slowly than had been anticipated earlier, owing to a weak global economic environment and a volatile stock market.
“The big question [whether] we do ‘QE4,’” said Kiyosaki. “If we do, the stock market will come roaring back, but it’s not rocket science. If we stop printing money, it crashes; if we print money, it goes up. But, eventually, it’s all going to come down.”
Another voice that I have come to respect is Jim Rickards. He is not quite as apocalyptic as Kiyosaki or Dent, but without a doubt he is deeply concerned about where the global economy is headed…
Global growth is slowing both because of weakness in developed economies like Europe and Japan, and weakness in some of the emerging markets champions such as China, Brazil and Russia. The limits of monetary policy have been reached.
The evidence is now clear that negative interest rates don’t stimulate spending; they are only good for devaluation in the ongoing currency wars. World trade is shrinking; a rare phenomenon usually associated with recession or depression.
And he is exactly right. The economic downturn that we are witnessing is truly global in scope. Brazil has plunged into an economic depression, the Italian banking system is in the process of completely melting down, and Japan has implemented negative interest rates in a desperate attempt to keep their Ponzi scheme going but it really isn’t working. In fact, Japanese industrial production just crashed by the most that we have seen since the tsunami of 2011.
Here in the United States, investors are generally feeling pretty good right now because stocks have rebounded substantially in recent weeks. However, Rickards is warning that this rebound is very temporary…
Stocks are clearly in a bubble. The stock market is ignoring the strong dollar, which in turn hurts exports and devalues overseas earnings. It is also ignoring declining corporate earnings, imminent defaults in the energy sector, and declining global growth in general.
Never mind. As long as money is cheap and leverage is plentiful, there’s no reason not to bid up stock prices, and wait for the greater fool to bid them up some more.
There is so much that we could learn from all these three men.
Sadly, just like we saw in 2008, most Americans are ignoring the warnings.
We haven’t seen numbers like these since the last global recession. I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing. We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”. Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about. But that does not mean that the crisis is over. All bear markets have their ups and downs, and this one will not be any different. Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.
Just consider what is happening in China. Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis…
Chinese manufacturing suffered a seventh straight month of contraction in February.
China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.
A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.
For years, the expansion of the Chinese economy has helped fuel global economic growth. But now things have shifted dramatically.
At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…
China’s premier told visiting U.S. Treasury Secretary Jacob Lew on Monday his government is pressing ahead with painful reforms to shrink bloated coal and steel industries that are a drag on its slowing economy and ruled out devaluing its currency as a short-cut to boosting exports.
Premier Li Keqiang’s comments to Lew on Monday were in line with a joint declaration by financial officials from the Group of 20 biggest rich and developing economies who met over the weekend in Shanghai. They pledged to avoid devaluations to boost sagging trade and urged governments to speed up reforms to boost slowing global growth.
Across all state-controlled industries, as many as six million workers could be out of a job, with almost two million in the coal industry alone.
But it isn’t just China. Right now manufacturing activity is slowing down literally all over the planet, and this is exactly what we would expect to see if a new global recession had begun. The following chart and analysis come from Zero Hedge…
As the below table shows, 28 regions have reported so far. Seven saw improvements in their manufacturing sectors in February, twenty recorded a weakening, and India was unchanged. This means that over 70% of the world saw manufacturing sentiment deteriorate in February compared to January.
In terms of actual expansion, there were 21 countries in positive territory and 7 in negative. In particular, Greece moved from neutral to contraction territory, while Taiwan dropped below breakeven from expansion.
Unfortunately, most Americans don’t really pay much attention to what is going on in the rest of the world. For most of us, what really matters is what is happening inside the good ole USA.
And of course the news is not good. There were more signs of trouble for U.S. manufacturing in the February numbers, and this continues a trend that stretches back well into last year. The following is what Chris Williamson, the chief economist at Markit, had to say about these numbers…
“The February data add to signs of distress in the US manufacturing economy. Production and order book growth continues to worsen, led by falling exports. Jobs are being added at a slower pace and output prices are dropping at a rate not seen since mid-2012.
“The deterioration in the manufacturing sector’s performance since mid-2014 has broadly tracked the dollar’s rise, which makes US goods more expensive in overseas markets and leads US consumers to favour cheaper imported goods.
“With other headwinds including the downturn in the oil sector, heightened uncertainty due to financial market volatility, global growth worries and growing concerns about the presidential election, it’s no surprise that the manufacturing sector is facing its toughest period since the global financial crisis.“
Over the past couple of decades, the U.S. economy has lost tens of thousands of manufacturing facilities. We desperately need a manufacturing renaissance – not another manufacturing decline.
As good paying manufacturing jobs have been shipped overseas, they have been replaced by low paying service jobs. As a result, the middle class is shrinking and the ranks of the poor are exploding.
And no matter what Obama may say, unemployment remains a major problem in the United States as well. At this point, unemployment rates in 36 states are higher than they were just before the last recession hit in 2008.
Of course a lot of people are going to look at this article and will point to the stock market gains of the past couple of weeks as evidence that “things are getting better”. It is this kind of clueless approach that is keeping the American people from coming together on solutions to our problems.
The truth is that the United States has been experiencing economic decline for decades. Our economic infrastructure has been gutted, the middle class is steadily deteriorating, and we have amassed the biggest pile of debt in the history of the world.
Anyone that believes that things are “just fine” is in a massive state of denial. Consuming far more wealth than we produce is not a formula for a sustainable economy, and it is just a matter of time before we find this out the hard way.
Uh oh – here we go again. Do you remember the subprime mortgage meltdown during the last financial crisis? Well, now a similar thing is happening with auto loans. The auto industry has been doing better than many other areas of the economy in recent years, but this “mini-boom” was fueled in large part by customers with subprime credit. According to Equifax, an astounding 23.5 percent of all new auto loans were made to subprime borrowers in 2015. At this point, there is a total of somewhere around $200 billion in subprime auto loans floating around out there, and many of these loans have been “repackaged” and sold to investors. I know – all of this sounds a little too close for comfort to what happened with subprime mortgages the last time around. We never seem to learn from our mistakes, and a lot of investors are going to end up paying the price.
Everything would be fine if the number of subprime borrowers not making their payments was extremely low. And that was true for a while, but now delinquency rates and default rates are rising to levels that we haven’t seen since the last recession. The following comes from Time Magazine…
People, especially those with shaky credit, are having a tougher time than usual making their car payments.
According to Bloomberg, almost 5% of subprime car loans that were bundled into securities and sold to investors are delinquent, and the default rate is even higher than that. (Depending on who’s counting, delinquency is up to three or four months behind in payments; default is what happens after that). At just over 12% in January, the default rate jumped one entire percentage point in just a month. Both delinquency and default rates are now the highest they’ve been since 2010, when the ripple effects of the recession still weighed heavily on many Americans’ finances.
The chart below was posted by David Stockman, and it shows how the delinquency rate for subprime borrowers has hit the highest level since 2009. In fact, we are not too far away from totally smashing through the previous highs that were set during the last crisis…
It is quite foolish to try to sell expensive cars to people with bad credit. This is especially true now that the economy is slowing down significantly in many areas. But people are greedy and they are going to do what they are going to do.
The most disturbing thing to me is that many of these loans are being “repackaged” and sold off to investors as “solid investments”. The following description of what has been happening comes from Wolf Richter…
The business of “repackaging” these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS are structured with different tranches, so that the highest tranches – the last ones to absorb any losses – can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.
Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.
It almost makes you want to tear your hair out.
This is exactly the kind of thing that caused so much chaos with subprime mortgages.
When will we ever learn?
Meanwhile, we continue to get even more numbers that indicate that a substantial economic slowdown has already begun…
We just got the clearest sign yet that something is wrong with the US economy.
Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years.
The tentative February index was reported Wednesday at 49.8.
Statistic after statistic is telling us that a new recession is already here. And of course some would argue that the last recession never actually ended. According to John Williams of shadowstats.com, the U.S. economy has continually been in contraction mode since 2005.
If we do not learn from history, we are doomed to repeat it. All over the world, “non-performing loans” are starting to become a major problem, and already some financial institutions are starting to get tighter with credit.
As credit conditions tighten up, this is going to cause economic activity to slow down even more. And as economic activity slows down, it is going to become even harder for ordinary people to make their debt payments.
Deflationary forces are on the rise, and most global central banks are just about out of ammunition at this point.
Everyone knew that the global debt bubble could not keep expanding much faster than the overall rate of economic growth forever.
It was only a matter of time until the bubble burst.
Now we can see signs of crisis popping up all around us, and things are only going to get worse in the months ahead…
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering. After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out.
As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years.
Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“…
BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.
Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.
BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.
Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low.
And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent.
Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year.
But I just found out that the true number is much worse than that.
According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″…
Bankruptcy filings are flying in the American oil patch.
At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese.
That represents a 379% spike from the previous year when oil prices were substantially higher.
With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone.
A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported.
What we desperately need is for the price of oil to go back up.
Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon…
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
And of course all of this is incredibly bad news for financial institutions all over the world.
During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN…
It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.
Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks.
Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone.
This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet.
At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today…
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
I think that the author of this editorial is correct.
I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”.
In fact, I believe that is what we are steamrolling toward right now.
We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump.
But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts.
Many people believed that this day of reckoning would never come, but now it is here.
The “coming nightmare” is now upon us, and this is just the start.
The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008.