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.
Do you remember how much stocks went down when the first dot-com bubble burst? Well, it is happening again, and tech stocks are already down more than half a trillion dollars since the middle of 2015. On Friday, the tech-heavy Nasdaq dropped to its lowest level in more than 15 months, and it has now fallen more than 16 percent from the peak of the market. But of course some of the biggest names have fallen much more than that. Netflix is down 37 percent, Yahoo is down 39 percent, LinkedIn is down 60 percent, and Twitter is down more than 70 percent. If you go back through my previous articles, you will find that I specifically warned about Twitter again and again. Irrational financial bubbles like this always burst eventually, and many investors that got in at the very top are now losing extraordinary amounts of money.
On Friday, tech stocks got absolutely slammed as the bursting of dot-com bubble 2.0 accelerated once again. The following is how CNBC summarized the carnage…
Also weighing on the index were Amazon and Facebook, which closed down 6.36 percent and 5.81 percent, respectively.
LinkedIn shares also tanked 43.63 percent after posting weak guidance on their quarterly results.
Overall, LinkedIn is now down a total of 60 percent from the peak of the market. But they are far from the only ones that have already seen their bubble burst.
Many of the biggest names in the tech world have gotten mercilessly hammered over the past six months of so. Just look at some of the famous brands that have already lost between 20 and 40 percent of their market caps…
Yahoo (YHOO) shares are off 39%, and Netflix (NFLX), the best-performing stock in the S&P 500 last year, is now off by 37% from its 52-week high.
Likewise, Priceline.com (PCLN) is off 31% and eBay (EBAY), 22%.
But there are other very big tech companies that have seen stock collapses that completely dwarf those numbers. Here are some more absolutely stunning statistics from USA Today…
Twitter and Groupon are the biggest dogs of this boom, both off 70% from 52-week highs and well below their IPO prices.
FitBit shares have collapsed 70%, while Yelp’s valuation has shrunk by two-thirds.
Hopefully people listened to those warnings and got out while the getting was good.
At the top of this article, I mentioned that tech stocks have already fallen in value by more than 500 billion dollars. The financial crisis that began in the middle of last year is now greatly accelerating, and Wall Street is starting to panic.
Some of the biggest names to get trounced include:
►Pershing Square Capital Management, the publicly traded investment vehicle of billionaire hedgie Bill Ackman, fell 11% last month following a 20% decline last year, data from the web site shows.
►Larry Robbins’ Glenview Capital, famous for picking stocks that could benefit from Obamacare, dropped 13.65% in January following a decline of 18% last year, according to data from HSBC’s Hedge Weekly report, a copy of which was obtained by USA TODAY.
►Marcato International, a well-known activist fund run by Ackman protege Mick McGuire, fell 12.1% last month following a 9% loss last year, according to HSBC.
When you lose more than 10 percent of your money in a single month, that is not good.
And of course I am far from the only one warning that big problems are on the horizon. In fact, analysts at Citigroup just made international headlines by warning that the global economy was now trapped in a “death spiral”…
Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.
“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.
“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”
Signs of a significant economic downturn are all around us, and so many of the exact same patterns that played out during the last two stock market crashes are happening again, and yet most people continue to refuse to acknowledge what is taking place.
If you are waiting for this new dot-com bubble to crash, you can stop waiting, because it has already happened.
When your stock falls by 50, 60 or 70 percent, the game is already over.
But just like 2001 and 2008, many people out there will end up being paralyzed by indecision. Once again the mainstream media is insisting that there is no reason for panic and that everything will be just fine, and once again millions upon millions of ordinary Americans will be wiped out as the financial markets implode.
This is now the third time this has happened since the turn of the century.
How clueless have we become? The exact same thing keeps happening to us over and over and yet we still don’t get it.
Only this time around there isn’t going to be any sort of a “recovery” afterwards.
This is essentially our “third strike”, and the years ahead are going to be extremely bitter and painful for most people.
But if you want to believe that one of these politicians is going to come along and save America, you go ahead and keep on believing that.
Most people believe what they want to believe, and the capacity that many Americans have demonstrated for self-delusion is absolutely remarkable.
It was another day of utter carnage on Wall Street. The Dow was down another 364 points, the S&P 500 broke below 1900, and the Nasdaq had a much larger percentage loss than either of them. The Russell 2000 has now fallen 22 percent from the peak, and it has officially entered bear market territory. After 13 days, this remains the worst start to a year for stocks ever, and trillions of dollars of stock market wealth has already been wiped out globally. Meanwhile, junk bonds continue their collapse. JNK got hammered all the way down to 33.06 as bond investors race for the exits. In case you were wondering, this is exactly what a financial crisis look like.
Many of the “experts” had been proclaiming that “things are different this time” and that stocks could defy gravity forever.
Now we seeing that was not true at all.
So how far could stocks ultimately fall?
I have been telling my readers that stocks still need to fall about another 30 percent just to get to a level that is considered to be “normal” be historical standards, but the truth is that they could eventually fall much farther than that.
Just this week, Societe Generale economist Albert Edwards made headlines all over the world with his prediction that we could see the S&P 500 drop by a total of 75 percent…
If I am right and we have just seen a cyclical bull market within a secular bear market, then the next recession will spell real trouble for investors ill-prepared for equity valuations to fall to new lows. To bottom on a Shiller PE of 7x would see the S&P falling to around 550.
I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak. That obviously will be a catastrophe for the economy via the wealth effect and all the Feds QE hard work will turn dust.
That is why I believe the Fed will fight the next bear market with every weapon available including deeply negative Fed Funds rates in addition to more QE. Indeed, negative policy rates will become ubiquitous.
Most believe a 75% equity bear market to be impossible. But those same people said something similar prior to the 2008 Global Financial Crisis. They, including the Fed, failed to predict the vulnerability of the US economy that would fall into deep recession, well before Lehmans went bust in September 2008.
Other than stocks, there are three key areas that I want my readers to keep an eye on during the weeks ahead…
1. The Price Of Oil – The price of oil doesn’t have to go one penny lower to continue causing catastrophic damage in the financial world. If we hover around 30 dollars a barrel, we will see more bankruptcies, more defaults, more layoffs and more carnage for energy stocks. But of course it is quite conceivable that the price of oil could easily slide a lot farther. Just check out some of the predictions that some of the biggest banks in the entire world are now making…
Just this week Morgan Stanley warned that the super-strong U.S. dollar could drive crude oil to $20 a barrel. Not to be outdone, Royal Bank of Scotland said $16 is on the horizon, comparing the current market mood to the days before the implosion of Lehman Brothers in 2008.
Standard Chartered doesn’t think those dire predictions are dark enough. The British bank said in a new research report that oil prices could collapse to as low as $10 a barrel — a level unseen since November 2001.
2. Junk Bonds – This is something that I have written about repeatedly. Right now, we are witnessing an epic collapse of the junk bond market, just like we did just prior to the great stock market crash of 2008. As I mentioned above, Wednesday was a particularly brutal day for junk bonds, and Jeffrey Gundlach seems convinced that the worst is still yet to come…
He seemed to leave his most dire predictions for junk bonds, a part of the market he’s been bearish on for years. Gundlach believes hedge funds investing in risky debts face major liquidity risks if they are forced to exit positions amid investor redemptions. “We could be looking at a real ugly situation in the first quarter of 2016,” Gundlach said on a Tuesday call with investors, when referring to redemptions.
Because many hedge funds operate with leverage, he raised an alarming prospect that those who don’t redeem could be left with losses far more severe than their marks indicate. As the Federal Reserve raises rates, redemptions combined with tightening credit conditions could create major pricing dislocations.
3. Emerging Markets – We have not seen money being pulled out of emerging markets at this kind of rate in decades. We are seeing a repeat of the conditions that caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s. Only this time what we are witnessing is truly global in scope, and central bankers are beginning to panic. The following comes from Wolf Richter…
“Last year was a terrible year, probably worse than 2009,” the head of Mexico’s central bank told a conference of central bankers in Paris on Tuesday. It was the first year since 1988 that emerging markets saw net capital outflows, according to the Institute of International Finance, a Washington-based association of global banks and finance houses.
In December more than $3.1 billion fled emerging market funds. If anything, the New Year has been worse.
“I don’t have any data yet for the first week of 2016 but it’s probably going to be very, very, very bad,” Carstens said. If conditions do not improve, he warned, central banks in emerging markets may have little choice but to adopt a more “radical” approach to monetary policy, including intervening in domestic bonds and securities markets.
In addition to everything that I just shared with you, we got several other very troubling pieces of news on Wednesday…
-Canadian stocks continued their dramatic plunge and have now officially entered a bear market.
-GoPro just announced that it is getting rid of 7 percent of its total workforce.
The bad news is coming fast and furious now. The snowball that started rolling downhill about halfway last year has set off an avalanche, and panic has gripped the financial marketplace.
But my readers knew all of this was coming in advance. What we are witnessing right now is simply the logical extension of trends that have been building for months. The global financial crisis that started during the second half of 2015 is now bludgeoning Wall Street mercilessly, and investors are in panic mode.
So what comes next?
We have never seen a year start like this, so it is hard to say. And if there is some sort of a major “trigger event” in our near future, we could see some single day crashes that make history.
Either way, the hounds have now been released, and it is going to be exceedingly difficult to get them back into the barn.
The Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”. This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet. Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market. The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe. And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters.
J.P. Morgan Chase has turned its back on the stock market: For the first time in seven years, the investment bank is urging investors to sell stocks on any bounce.
“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.
Aside from technical indicators, expectations of anemic corporate earnings combined with the downward trajectory in U.S. manufacturing activity and a continued weakness in commodities are raising red flags.
Major banks have not talked like this since the great financial crisis of 2008/2009. Clearly something really big is going on. Trillions of dollars of financial wealth were wiped out around the world during the last six months of 2015, and trillions more dollars have been wiped out during the first 12 days of 2016. As I noted above, the collective market value of the S&P 500 is down by about a trillion dollars all by itself.
One of the big things driving all of this panic is the stunning collapse in the price of oil. U.S. oil was trading as low as $29.93 a barrel on Tuesday, and this was the first time that oil has traded under 30 dollars a barrel since December 2003.
Needless to say, this collapse is absolutely killing energy companies. The following comes from USA Today…
There aren’t many people who feel bad for oil companies. But the implosion in oil prices is causing a profit decline that almost invokes pity.
The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ. That’s a $124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008.
If we are to avoid a major global deflationary crisis, we desperately need the price of oil to get back above 50 dollars a barrel. Unfortunately, that does not appear to be likely to happen any time soon. In fact, Dallas Fed President Robert Kaplan says that the price of oil is probably going to stay very low for years to come…
You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018.
The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….”
The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.”
In recent articles I have discussed so many of the other signs that indicate that there is big trouble ahead, but today I just want to quickly mention another one that has just popped up in the news.
The amount of stuff being shipped across the U.S. by rail has been dropping dramatically. The only times when we have seen similar large drops has been during previous recessions. The following comes from Bloomberg…
Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren’t looking good for the new year.
“We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009.”
BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter).
The “next economic downturn” is already here, and it is starting to accelerate.
Yes, the financial markets are starting to catch up with economic reality, but they still have a long, long way to go. It is going to take another 30 percent drop or so just for them to get to levels that are considered to be “normal” or “average” by historical standards.
And the markets are so fragile at this point that any sort of a major “trigger event” could cause a sudden market implosion unlike anything that we have ever seen before.
So let us hope for the best, but let us also heed the advice of RBS and get prepared for a “cataclysmic” year.
A lot of people were expecting some really big things to happen in 2015, and most of them did not happen. But what did happen? It is my contention that a global financial crisis began during the second half of 2015, and it threatens to greatly accelerate as we enter 2016. During the last six months of the year that just ended, financial markets all over the planet crashed, trillions of dollars of global wealth was wiped out, and some of the largest economies in the world plunged into recession. Here in the United States, 2015 was the worst year for stocks since 2008, nearly 70 percent of all investors lost money last year, and it is being projected that the final numbers will show that close to 1,000 hedge funds permanently shut down within the last 12 months. This is what the early stages of a financial crisis look like, and the worst is yet to come.
If we were entering another 2008-style crisis, we would expect to see junk bonds crashing. When financial trouble starts, it usually doesn’t start with the biggest and strongest companies. Instead, it usually starts percolating on the periphery. And right now bonds of firms that are considered to be on the risky side of things are rapidly losing value.
In the chart below, you can see that a high yield bond ETF that I track very closely known as JNK started crashing in the middle of 2008. This crash began to unfold before the horrific crash of stocks in the fall. Investors that saw junk bonds crashing in advance and pulled their money out of stocks in time saved an enormous amount of money.
Now, for the very first time since the last financial crisis, we are seeing junk bonds crash again. In December, there was finally a sustained crash through the psychologically-important 35.00 level, and at this point JNK is sitting a bit below 34.00. This stunning decline is a giant red flag that tells us that stocks will soon follow in the exact same direction…
In 2015, Third Avenue Management shocked Wall Street when they froze withdrawals from a 788 million dollar mutual fund that was highly focused on junk bonds. Investors that couldn’t get their money out began to panic, and other mutual funds now find themselves under siege. If junk bonds continue to crash, this will just be the beginning of the carnage.
One of the big reasons why junk bonds are crashing is because of the crash in the price of oil. Over the past 18 months, the price of oil has plummeted from $108 a barrel to $37 a barrel.
There has only been one other time in all of history when we have ever seen an oil price crash of this magnitude. That was in 2008 – just before the greatest financial crisis since the Great Depression…
Why can’t people see the parallels?
Crashes are happening all around us, and yet so many of the “experts” seem completely blind to what is going on.
Unlike 2008, the price of oil is not expected to rapidly rebound any time soon. The following comes from CNN…
Crude prices dropped a whopping 35% last year and are hovering around $37 a barrel. That’s a level not seen since the global financial crisis.
It won’t get better any time soon. Most oil experts believe prices will bounce back in late 2016, but they expect more pain first.
Goldman Sachs forecasts that oil will average about $38 a barrel in February, even lower than for most of 2015.
Meanwhile, the prices of industrial commodities have been crashing as well. For example, the chart below shows that the price of copper started crashing hard just before the great financial crisis of 2008, and the exact same thing is happening once again right before our very eyes…
Things are unfolding just as we would expect they would during the initial stages of a new global financial crisis.
And we have already seen a full blown stock market crash in many of the largest economies around the planet. For instance, just look at what has been happening in Brazil. The Brazilians have the 7th largest economy in the world, and Goldman Sachs says that they have plunged into an “outright depression“. In the chart below, you can see the sharp downturn that took place in August, and Brazilian stocks actually kept falling all the way through the end of 2015…
We see a similar thing when we look at our neighbor to the north. Canada has the 11th largest economy on the entire planet, and I recently wrote a lengthy article about the economic difficulties that the Canadians are now facing. 2015 was a very bad year for Canadian stocks as well, and they just kept falling steadily all the way through December…
Of course nobody can forget what happened to China. The Chinese have the second largest economy on the globe, and news about their economic slowdown in making headlines almost every single day now.
Last summer, Chinese stocks crashed about 40 percent, and they did manage to bounce back just a bit since then. But they are still down about 30 percent from the peak of the market…
And there is plenty more that we could talk about. European stocks just had their second worst December ever, and Japanese stocks are down about 500 points in early trading as I write this article.
Here in the United States, the Dow Jones Industrial Average, Dow Transports, the S&P 500 and the Russell 2000 all had their worst years since 2008. As I mentioned the other day, 674 hedge funds shut down during the first nine months of 2015, and it is being projected that the final total for the year will be up around 1000.
But we aren’t hearing much about this financial carnage on the news yet, are we?
Many people that I talk to still think that “nothing is happening”, but don’t you dare say that to Warren Buffett.
How would you feel if you lost 7.8 billion dollars in a single year?
The truth, of course, is that signs of financial chaos are erupting all around us. Corporate profits are plunging, the bond distress ratio just hit the highest level that we have seen since the last financial crisis, and corporate debt defaults have risen to the highest level that we have seen in about seven years.
If you run a business, you may have noticed that fewer people are coming in and it seems like those that do come in have less money to spend. Economic activity is slowing down, and inventories are piling up. In fact, wholesale inventories have now risen to the highest level that we have seen since the last recession…
Do you notice a theme?
So many things that have not happened in six or seven years are now happening again.
History may not repeat, but it sure does rhyme, and it astounds me that more people cannot see that 2015/2016 is looking eerily similar to a replay of 2008/2009.
Another number that I watch closely is the velocity of money. When an economy is running well, money tends to circulate efficiently through the system. But when an economy gets into trouble, people get scared and start holding on to their money. As you can see from the chart below, the velocity of money declined during every single recession since 1960. This is precisely what one would expect. And of course during the recession that started in 2008, the velocity of money plunged precipitously. But then a funny thing happened when that recession supposedly “ended”. The velocity of money just kept going down, and now it has fallen to an all-time record low…
But if you go back to 1971, 61 percent of all Americans lived in middle class households.
Meanwhile, the share of the income pie that the middle class takes home has also continued to shrink.
In 1970, the middle class brought home approximately 62 percent of all income. Today, that number has fallen to just 43 percent.
As the middle class is systematically destroyed, the number of Americans living in poverty just continues to grow. And those that often suffer the most are the children. It may be hard for you to believe, but the number of homeless children in the U.S. has increased by 60 percent over the past six years.
How in the world can anyone dare to claim that “things are getting better”?
Anyone that says that should be ashamed of themselves.
We are in the midst of a long-term economic collapse that is now accelerating once again.
Anyone that tries to tell you that “things are getting better” and that 2016 is going to be a better year than 2015 is simply not being honest with you.
A new global financial crisis erupted during the last six months of 2015, and this new financial crisis is going to intensify throughout the early months of 2016. Financial institutions will begin falling like dominoes, and this will result in a great credit crunch around the world. Businesses will fail, unemployment will skyrocket and millions will suddenly be faced with economic despair.
By the time it is all said and done, this new financial crisis will be even worse than what we experienced back in 2008, and the suffering that we will see around the world will be off the charts.
So does that mean that I am down about this year?
Not at all. In fact, my wife and I are greatly looking forward to 2016. In the midst of all the chaos and darkness, there will be great opportunities to do good and to make a difference.
What a great shaking comes, people go looking for answers. And I think that this will be a year when millions of people start to understand that our politicians and the mainstream media are not telling them the truth.
Yes, great challenges are coming. But now is not a time to dig a hole and try to hide from the world. Instead, this will be a time for those that have prepared in advance to love others, help others and show them the truth.
What about you?
Are you ready to be a light during the dark times that are coming?
Please feel free to join the conversation by posting a comment below…