On Tuesday junk bonds continued to crash, the price of oil briefly dipped below 28 dollars a barrel, Deutsche Bank was forced to deny that it is on the verge of collapse, but the biggest news was what happened in Japan. The Nikkei was down a staggering 918 points, but that stock crash made very few headlines in the western world. If the Dow had crashed 918 points today, that would have been the largest single day point crash in all of U.S. history. So what just happened in Japan is a really big deal. The Nikkei is now down 23.1 percent from the peak of the market, and that places it solidly in bear market territory. Overall, a total of 16.5 trillion dollars of global stock market wealth has been wiped out since the middle of 2015. As I stated yesterday, this is what a global financial crisis looks like.
Just as we saw during the last financial crisis, the big banks are playing a starring role, and this is definitely true in Japan. Right now, Japanese banking stocks are absolutely imploding, and this is what drove much of the panic last night. The following numbers come from Wolf Richter…
- Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
- Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
- Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
- Nomura plunged a juicy 9.1%, down 42% since June 2015
A lot of analysts have been very focused on the downturn in China in recent months, but I think that it is much more important to watch Japan right now.
I have become fully convinced that the Japanese financial system is going to play a central role in the initial stages of this new global financial meltdown, and so I encourage everyone to keep a close eye on the Nikkei every single night.
Meanwhile, the stock price of German banking giant Deutsche Bank crashed to a record low on Tuesday. If you will recall, Deutsche Bank reported a loss of 7.6 billion dollars in 2015, and I wrote quite a bit about their ongoing problems yesterday.
Things have gotten so bad that now Deutsche Bank has been forced to come out and publicly deny that they are in trouble…
Deutsche Bank co-CEO John Cryan moved to quell fears about the bank’s stability Tuesday with a surprise memo saying its balance sheet “remains absolutely rock-solid.”
The comments come as investors grow increasingly nervous about the health of European banks, which have taken a hit on the fall in energy prices and which face rising concerns over their cash levels.
Of course Lehman Brothers issued the same kind of denials just before they collapsed in 2008. Cryan’s comments did little to calm the markets, and even Jim Cramer saw right through them…
“You know, Deutsche Bank puts out a note saying, ‘listen, don’t worry, all good.’ Reminds me of JPMorgan saying if you have to say that you’re creditworthy then it’s already too late.”
Another thing that Lehman Brothers did just before they collapsed in 2008 was to lay off workers. We have seen a number of major banks do this lately, including Deutsche Bank…
Cryan, 55, has been seeking to boost capital buffers and profitability by cutting costs and eliminating thousands of jobs as volatile markets undermine revenue and outstanding regulatory probes raise the specter of fresh capital measures to help cover continued legal charges. The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while the shares have dropped about 42 percent.
The following chart comes from Zero Hedge. Nobody on the Internet does a better job with charts than Zero Hedge does. I would recommend visiting them right after you visit The Economic Collapse Blog each day (wink wink). This chart shows that Deutsche Bank stock has already fallen lower than it was during any point during the last financial crisis…
Deutsche Bank is the biggest and most important bank in the biggest and most important economy in the EU, and it has exposure to derivatives that is approximately 20 times Germany’s GDP.
If that doesn’t alarm you, I don’t know what will.
The biggest financial bubble in the history of the world has entered a terminal phase, and the parallels to the last financial crisis have become so apparent that just about anyone can see them at this point. Just consider some of the ominous warnings that we have seen recently…
Billionaire Carl Icahn, for example, recently raised a red flag on a national broadcast when he declared, “The public is walking into a trap again as they did in 2007.”
And the prophetic economist Andrew Smithers warns, “U.S. stocks are now about 80% overvalued.”
Smithers backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively.
Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to “Sell Everything” because “in a crowded hall, the exit doors are small.”
And let’s not forget that famous billionaire retail magnate Hugo Salinas Price has warned that the global economy “is going into a depression“.
The chaos that we have seen this week is simply a logical progression of the crisis that began during the second half of last year. If you were to create a checklist of all the things that you would expect to see during the initial stages of a new financial crisis, all of the boxes would be checked.
In the days ahead, keep your eyes on Germany and Japan.
Yes, the Italian banking system is completely collapsing right now, but I believe that what is happening in Germany is going to be the key to the meltdown of Europe, and I am convinced that Deutsche Bank is going to be the star of the show.
Meanwhile, don’t underestimate what is taking place in Japan.
The Japanese still have the third largest economy on the entire planet, and their financial system is essentially a Ponzi scheme built on top of a house of cards that has a rapidly aging population as the foundation.
As Japan falls, that will be a signal that financial Armageddon is now upon us.
And after last night, it appears that moment is a lot closer than a lot of us may have thought.
On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.
The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…
One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…
“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.
“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”
Analysts at Goldman Sachs are even more pessimistic than that. According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…
At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.
After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.
That may sound really good to you, especially if you fill up your gas tank frequently. But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…
“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”
Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.
“This was a devastating blow for the U.S. oil industry,” Cramer said.
On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.
I watch a high yield bond ETF known as JNK very closely. On Monday, JNK broke below 35 for the first time since the financial crisis of 2008. Just like 40 dollar oil, this is a key psychological barrier.
So why is this important?
As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again. If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.
Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016. Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…
Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.
In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.
On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.
“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.
What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started. The evidence is all around us, and yet so many choose to be willingly blind.
Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt. And of course all of this manipulation just made our long-term problems even worse. I really like how Peter Schiff put it recently…
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.
Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.
Economic activity is slowing down all over the planet, and a whole host of signs are indicating that we are essentially exactly where we were just prior to the great stock market crash of 2008. Yesterday, I explained that the economies of Japan, Brazil, Canada and Russia are all in recession. Today, I am mainly going to focus on the United States. We are seeing so many things happen right now that we have not seen since 2008 and 2009. In so many ways, it is almost as if we are watching an eerie replay of what happened the last time around, and yet most of the “experts” still appear to be oblivious to what is going on. If you were to make up a checklist of all of the things that you would expect to see just before a major stock market crash, virtually all of them are happening right now. The following are 11 critical indicators that are absolutely screaming that the global economic crisis is getting deeper…
#1 On Tuesday, the price of oil closed below 40 dollars a barrel. Back in 2008, the price of oil crashed below 40 dollars a barrel just before the stock market collapsed, and now it has happened again.
#2 The price of copper has plunged all the way down to $2.04. The last time it was this low was just before the stock market crash of 2008.
#3 The Business Roundtable’s forecast for business investment in 2016 has dropped to the lowest level that we have seen since the last recession.
#4 Corporate debt defaults have risen to the highest level that we have seen since the last recession. This is a huge problem because corporate debt in the U.S. has approximately doubled since just before the last financial crisis.
#5 The Bloomberg U.S. economic surprise index is more negative right now than it was at any point during the last recession.
#6 Credit card data that was just released shows that holiday sales have gone negative for the first time since the last recession.
#7 As I mentioned yesterday, U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.
#8 The velocity of money in the United States has dropped to the lowest level ever recorded. Not even during the depths of the last recession was it ever this low.
#9 In 2008, commodity prices crashed just before the stock market did, and late last month the Bloomberg Commodity Index hit a 16 year low.
#10 In the past, stocks have tended to crash about 12-18 months after a peak in corporate profit margins. At this point, we are 15 months after the most recent peak.
#11 If you look back at 2008, you will see that junk bonds crashed horribly. Why this is important is because junk bonds started crashing before stocks did, and right now they have dropped to the lowest point that they have been since the last financial crisis.
If just one or two of these indicators were flashing red, that would be bad enough.
The fact that all of them seem to be saying the exact same thing tells us that big trouble is ahead.
And I am not the only one saying this. Just today, a Reuters article discussed the fact that Citigroup analysts are projecting that there is a 65 percent chance that the U.S. economy will plunge into recession in 2016…
The outlook for the global economy next year is darkening, with a U.S. recession and China becoming the first major emerging market to slash interest rates to zero both potential scenarios, according to Citi.
As the U.S. economy enters its seventh year of expansion following the 2008-09 crisis, the probability of recession will reach 65 percent, Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. A rapid flattening of the bond yield curve towards inversion would be an key warning sign.
Personally, I am convinced that we are already in a recession. There is a lag in the official numbers, so often we don’t know that we are officially in one until it is well underway. For example, we now know that a recession started in early 2008, but in the summer of 2008 Ben Bernanke and our top politicians were still insisting that there was not going to be a recession. They were denying what was actually happening right in front of their eyes, and the same thing is happening now.
And of course if the government was actually using honest numbers, we would all be talking about the recession that never seems to end. According to John Williams of shadowstats.com, honest numbers would show that the U.S. economy has continually been in recession since 2005.
But just like in 2008, the “experts” at the Federal Reserve are assuring all of us that everything is going to be just fine. In fact, Janet Yellen is convinced that things are so rosy that she seems quite confident that the Fed will raise interest rates in December…
Federal Reserve Chair Janet Yellen signaled Wednesday that the Fed is all but certain to raise interest rates this month for the first time in nearly a decade, saying that gains in the economy and labor market have met the central bank’s goals.
Her comments at the Economic Club of Washington amount to the strongest indication the Fed has provided so far that it will take action at a December 15-16 meeting.
This is the exact same kind of mistake that the Federal Reserve made back in the late 1930s. They thought that the U.S. economy was finally recovering, and so interest rates were raised. That turned out to be a tragic mistake.
But this time around, any mistake that the Fed makes will have global consequences. The rising U.S. dollar is already crippling emerging markets all around the globe, and an interest rate hike will just push the U.S. dollar even higher. For much more on this, please see my previous article entitled “The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse“.
Many people are waiting for “the big crash”, but the truth is that almost everything has crashed already.
Oil has crashed.
Commodities have crashed.
Gold and silver have crashed.
Junk bonds have crashed.
Chinese stocks have crashed.
Dozens of other stock markets around the world have already crashed.
But the “big event” that many are waiting for is the crash of U.S. stocks. And just like in 2008, it is inevitable that a U.S. stock crash will follow all of the other crashes that I just mentioned.
Sometimes I get criticized for issuing these kinds of alarms. But just think of how many people could have been helped if they would have known that the financial crisis of 2008 was going to happen ahead of time.
The exact same patterns that we experienced back then are playing out once again right in front of our eyes, and the more people that we can warn in advance the better.
The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.
Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…
As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.
And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…
“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”
Many “experts” seem mystified by all of this, but the explanation is very simple.
For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…
Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.
The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.
The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.
Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.
But it looks like they are going to do it anyway.
It has been said that those that refuse to learn from history are doomed to repeat it.
And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.
A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.
But that is not true at all.
The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.
Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.
Because if they do, it will just make the global crisis that is now emerging much, much worse.
Are you waiting for the next major wave of the global economic collapse to strike? Well, you might want to start paying attention again. Three of the ten largest economies on the planet have already fallen into recession, and there are very serious warning signs coming from several other global economic powerhouses. Things are already so bad that British Prime Minister David Cameron is comparing the current state of affairs to the horrific financial crisis of 2008. In an article for the Guardian that was published on Monday, he delivered the following sobering warning: “Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.” For the leader of the nation with the 6th largest economy in the world to make such a statement is more than a little bit concerning.
So why is Cameron freaking out?
Well, just consider what is going on in Japan. The economy of Japan is the 3rd largest on the entire planet, and it is a total basket case at this point. Many believe that the Japanese will be on the leading edge of the next great global economic crisis, and that is why it is so alarming that Japan has just dipped into recession again for the fourth time in six years…
Japan’s economy unexpectedly fell into recession in the third quarter, a painful slump that called into question efforts by Prime Minister Shinzo Abe to pull the country out of nearly two decades of deflation.
The second consecutive quarterly decline in gross domestic product could upend Japan’s political landscape. Mr. Abe is considering dissolving Parliament and calling fresh elections, people close to him say, and Monday’s economic report is seen as critical to his decision, which is widely expected to come this week.
Of course Japan is far from alone.
Brazil has the 7th largest economy on the globe, and it has already been in recession for quite a few months.
And the problems that the national oil company is currently experiencing certainly are not helping matters…
In the past five days, 23 powerful Brazilians have been arrested, with even more warrants still outstanding.
The country’s stock market has become a whipsaw, and its currency, the real, has hit a nine-year low.
All of this is due to a far-reaching corruption scandal at one massive company, Petrobras.
In the last month the company’s stock has fallen by 35%.
The 9th largest economy in the world, Italy, has also fallen into recession…
Italian GDP dropped another 0.1% in the third quarter, as expected.
That’s following a 0.2% drop in Q2 and another 0.1% decline in Q1, capping nine months of recession for Europe’s third-largest economy.
Like Japan, there is no easy way out for Italy. A rapidly aging population coupled with a debt to GDP ratio of more than 132 percent is a toxic combination. Italy needs to find a way to be productive once again, and that does not happen overnight.
Meanwhile, much of the rest of Europe is currently mired in depression-like conditions. The official unemployment numbers in some of the larger nations on the continent are absolutely eye-popping. The following list of unemployment figures comes from one of my previous articles…
Are you starting to get the picture?
The world is facing some real economic problems.
Another traditionally strong economic power that is suddenly dealing with adversity is Israel.
In fact, the economy of Israel is shrinking for the first time since 2009…
Israel’s economy contracted for the first time in more than five years in the third quarter, as growth was hit by the effects of a war with Islamist militants in Gaza.
Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau of Statistics said on Sunday. It was the first quarterly decline since a 0.2 percent drop in the first three months of 2009, at the outset of the global financial crisis.
And needless to say, U.S. economic sanctions have hit Russia pretty hard.
The rouble has been plummeting like a rock, and the Russian government is preparing for a “catastrophic” decline in oil prices…
President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices.
Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.
Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.
It is being reported that Russian President Vladimir Putin has been hoarding gold in anticipation of a full-blown global economic war.
I think that will end up being a very wise decision on his part.
Despite all of this global chaos, things are still pretty stable in the United States for the moment. The stock market keeps setting new all-time highs and much of the country is preparing for an orgy of Christmas shopping.
Unfortunately, the number of children that won’t even have a roof to sleep under this holiday season just continues to grow.
A stunning report that was just released by the National Center on Family Homelessness says that the number of homeless children in America has soared to an astounding 2.5 million.
That means that approximately one out of every 30 children in the United States is homeless.
Let that number sink in for a moment as you read more about this new report from the Washington Post…
The number of homeless children in the United States has surged in recent years to an all-time high, amounting to one child in every 30, according to a comprehensive state-by-state report that blames the nation’s high poverty rate, the lack of affordable housing and the effects of pervasive domestic violence.
Titled “America’s Youngest Outcasts,” the report being issued Monday by the National Center on Family Homelessness calculates that nearly 2.5 million American children were homeless at some point in 2013. The number is based on the Education Department’s latest count of 1.3 million homeless children in public schools, supplemented by estimates of homeless preschool children not counted by the agency.
The problem is particularly severe in California, which has about one-eighth of the U.S. population but accounts for more than one-fifth of the homeless children, totaling nearly 527,000.
This is why I get so fired up about the destruction of the middle class. A healthy economy would mean more wealth for most people. But instead, most Americans just continue to see a decline in the standard of living.
And remember, the next major wave of the economic collapse has not even hit us yet. When it does, the suffering of the poor and the middle class is going to get much worse.
Unfortunately, there are already signs that the U.S. economy is starting to slow down too. In fact, the latest manufacturing numbers were not good at all…
The Federal Reserve’s new industrial production data for October show that, on a monthly basis, real U.S. manufacturing output has fallen on net since July, marking its worst three-month production stretch since March-June, 2011. Largely responsible is the automotive sector’s sudden transformation from a manufacturing growth leader into a serious growth laggard, with combined real vehicles and parts production enduring its worst three-month stretch since late 2008 to early 2009.
A lot of very smart people are forecasting economic disaster for next year.
Hopefully they are all wrong, but I have a feeling that they are going to be right.
Barack Obama is secretly negotiating the largest international trade agreement in history, and the mainstream media in the United States is almost completely ignoring it. If this treaty is adopted, it will be the most important step toward a one world economic system that we have ever seen. The name of this treaty is “the Trans-Pacific Partnership”, and the text of the treaty is so closely guarded that not even members of Congress know what is in it. Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy. And it is hoped that the EU, China and India will eventually join as well. This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.
Even though Congress is not being allowed to see what is in the treaty, Barack Obama wants Congress to give him fast track negotiating authority. What that means is that Congress would essentially trust Obama to negotiate a good treaty for us. Congress could vote the treaty up or down, but would not be able to amend or filibuster it.
Of course now the Republicans control both houses of Congress. If they are foolish enough to blindly give Barack Obama so much power, they should all immediately resign.
And it is critical that people understand that this is not just an economic treaty. It is basically a gigantic end run around Congress. Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty. If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more. This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all “Buy American” laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.
In other words, it is the treaty from hell.
In addition to imposing Obama’s vision for the world on 40 percent of the global population, it is also being described as a “Christmas wish-list for major corporations”. Of the 29 chapters in the treaty, only five of them actually deal with economic issues. The rest of the treaty deals with a whole host of other issues of great importance to the global elite.
The following list of issues addressed by this treaty is from a Malaysian news source…
• domestic court decisions and international legal standards (e.g., overriding domestic laws on both trade and nontrade matters, foreign investors’ right to sue governments in international tribunals that would overrule the national sovereignty)
• environmental regulations (e.g., nuclear energy, pollution, sustainability)
• financial deregulation (e.g., more power and privileges to the bankers and financiers)
• food safety (e.g., lowering food self-sufficiency, prohibition of mandatory labeling of genetically modified products, or bovine spongiform encephalopathy (BSE) or mad cow disease)
• Government procurement (e.g., no more buy locally produced/grown)
• Internet freedom (e.g., monitoring and policing user activity)
• labour (e.g., welfare regulation, workplace safety, relocating domestic jobs abroad)
• patent protection, copyrights (e.g., decrease access to affordable medicine)
• public access to essential services may be restricted due to investment rules (e.g., water, electricity, and gas)
Why can’t we get this type of reporting in the United States?
And if this treaty is ultimately approved by Congress, we will essentially be stuck with it forever.
This treaty is written in such a way that the United States will be permanently bound by all of the provisions and will never be able to alter them unless all of the other countries agree.
Are you starting to understand why this treaty is so dangerous?
This treaty is the key to Obama’s “legacy”. He wants to impose his will upon 40 percent of the global population in a way that will never be able to be overturned.
Of course Obama is touting this treaty as the path to economic recovery. He promises that it will greatly increase global trade, decrease tariffs and create more jobs for American workers.
But instead, it would be a major step toward destroying what is left of the U.S. economy.
Over the past several decades, every time a major trade agreement has been signed we have seen even more good jobs leave the United States.
And it doesn’t take a genius to figure out why this is happening. If corporations can move jobs to the other side of the planet to nations where it is legal to pay slave labor wages, they will make larger profits.
Just think about it. If you were running a corporation and you had the choice of paying workers ten dollars an hour or one dollar an hour, which would you choose?
Plus there are so many other costs, taxes and paperwork hassles when you deal with American workers. For example, big corporations will not have to provide Obamacare for their foreign workers. That alone will represent a huge savings.
Any basic course in economics will teach you that labor flows from markets where labor costs are high to markets where labor costs are lower. And at this point it costs less to make almost everything overseas. As a result, we have already lost millions upon millions of good jobs, and countless small and mid-size U.S. companies have been forced to shut down because they cannot compete with foreign manufacturers.
Later this month, consumers will flock to retail stores for “Black Friday” deals. But if you look carefully at those products, you will find that almost all of them are made overseas. We buy far, far more from the rest of the world than they buy from us, and that is a recipe for national economic suicide.
We consume far more wealth that we produce, and anyone with half a brain can see that is not sustainable in the long run. The only way that we have been able to maintain our high standard of living is by going into insane amounts of debt. We are currently living in the largest debt bubble in the history of the planet, and at some point the party is going to end.
Please share this article with as many people as you can. We need to inform people about what Obama is trying to do.
If Obama is successful in ramming this secret treaty through, it is going to do incalculable damage to what is left of the once great U.S. economy.
This is the big problem with fiat currency – eventually the temptation to print more of it when you are in a jam becomes too powerful to resist. In a surprise move on Friday, the Bank of Japan dramatically increased the size of the quantitative easing program that it has been conducting. This sent Japanese stocks soaring and the Japanese yen plunging. The yen had already fallen by about 11 percent against the dollar over the last year before this announcement, and news of the BOJ’s surprise move caused the yen to collapse to a seven year low. Essentially what the Bank of Japan has done is declare a currency war. And as you will see below, in every currency war there are winners and there are losers. Let’s just hope that global financial markets do not get shredded in the crossfire.
Without a doubt, the Japanese are desperate. Their economic decline has lasted for decades, and their debt levels are off the charts. In such a situation, printing more money seems like such an easy solution. But as history has shown us, wild money printing always ends badly. Just remember what happened in the Weimar Republic and in Zimbabwe.
At this point, the Bank of Japan is already behaving so recklessly that it is making the Federal Reserve look somewhat responsible in comparison. The following is how David Stockman summarized what just happened…
This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters——Messrs. Morimoto, Ishida, Sato and Kiuchi—-are only semi-mad.
Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year—-a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.
The Japanese are absolutely destroying the credibility of their currency in a last ditch effort to boost short-term economic growth.
So why would they want to devalue their currency?
Well, there are too main reasons why nations do this.
One reason is that it makes it easier to pay off debt. The government debt to GDP ratio in Japan is approximately 250 percent at the moment, and the total debt to GDP ratio is approximately 600 percent. When you have lots more money floating around, servicing crippling levels of debt becomes more feasible.
Secondly, nations like to devalue their currencies because it makes their products less expensive on the world stage.
In other words, it helps them sell more stuff to other people.
But in the process, this hurts other exporters. For example, what the Bank of Japan just did is already having serious consequences for South Korean automakers…
In Seoul, shares of auto makers Hyundai Motor and Kia Motors fell 5.9% and 5.6%, respectively, on Monday.
South Korean and Japanese companies often compete head-to-head in the same product groups in global markets, notably cars and electronics goods.
From the Bank of Japan’s standpoint, “you’re giving your industry a head start relative to someone else’s,” said Markus Rosgen, regional head of equity strategy at Citi in Hong Kong. “The perception in the equity market will be that they [South Korea] will have to take a hit from the lack of competitiveness versus the Japanese.”
This is why I said that there are winners and there are losers in every currency war.
If you boost your exports by devaluing your currency, you take away business from someone else. And ultimately other nations start devaluing their currencies in an attempt to stay competitive. That is why they call it a currency war.
For now, the Japanese are celebrating. On Friday, Japanese stocks surged almost five percent for the day and reached a seven year high. Investors tend to love quantitative easing, and they were very pleasantly surprised by what the Bank of Japan decided to do.
But of course rising stock prices are not always a good thing. As Kyle Bass recently explained, wild money printing caused Zimbabwe’s stock market to skyrocket to unprecedented heights as well and that turned out very, very badly…
Amid the euphoria… Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC’s Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected).
However, he caveats that nominally bullish statement with a critical point, “Zimbabwe’s stock market was the best performer this decade – but your entire portfolio now buys you 3 eggs” as purchasing power is crushed. Investors, he says, are “too focused on nominal prices” as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation – no matter what we are told by the government (as they will always lie when its critical). Own ‘productive assets’, finance them at low fixed rates (thank you Ben)…
And just like we have experienced with quantitative easing in the United States, Japan’s money printing has done very little to help the real economy. Here is more from David Stockman…
Notwithstanding the massive hype of Abenomics, Japan’s real GDP is lower than it was in early 2013, while its trade accounts have continued to deteriorate and real wages have headed sharply south.
So up to this point Japan’s experiment in crazy money printing has been a dismal failure.
Will printing even more money turn things around?
We shall see, but I wouldn’t hold your breath.
Meanwhile, there are reports that the European Central Bank is getting ready for more quantitative easing. Central banks all over the planet are becoming increasingly desperate for answers, and the temptation to print, print and print some more is extremely strong.
Nobody is quite sure how this currency war will play out, but I have a feeling that it isn’t going to be pretty.
There are some who believe that the next great financial crash will not begin in the United States. Instead, they are convinced that a financial crisis that begins in Europe or in Japan (or both) will end up spreading across the globe and take down the U.S. too. Time will tell if they are ultimately correct, but even now there are signs that financial trouble is already starting to erupt in both Germany and Japan. German stocks have declined 10 percent since July, and that puts them in “correction” territory. In Japan, the economy is a total mess right now. According to figures that were just released, Japanese GDP contracted at a 7.1 percent annualized rate during the second quarter and private consumption contracted at a 19 percent annualized rate. Could a financial collapse in either of those nations be the catalyst that sets off financial dominoes all over the planet?
This week, the worst German industrial production figure since 2009 rattled global financial markets. Germany is supposed to be the economic “rock” of Europe, but at this point that “rock” is starting to show cracks.
And certainly the civil war in Ukraine and the growing Ebola crisis are not helping things either. German investors are becoming increasingly jittery, and as I mentioned above the German stock market has already declined 10 percent since July…
German stocks, weighed down by the economic fallout spawned by the Ukraine-Russia crisis and the eurzone’s weak economy, are now down more than 10% from their July peak and officially in correction territory.
The DAX, Germany’s benchmark stock index, has succumbed to recent data points that show the German economy has ground to a halt, hurt in large part by the economic sanctions levied at its major trading partner, Russia, by the U.S. and European Union as a way to get Moscow to butt out of Ukraine’s affairs. The economic slowdown in the rest of the debt-hobbled eurozone has also hurt the German economy, considered the economic locomotive of Europe.
In trading today, the DAX fell as low as 8960.43, which put it down 10.7% from its July 3 closing high of 10,029.43 and off nearly 11% from its June 20 intraday peak of 10,050.98.
And when you look at some of the biggest corporate names in Germany, things look even more dramatic.
Just check out some of these numbers…
The hardest hit sectors have been retailers, industrials and leisure stocks with sports clothing giant Adidas down 37.7pc for the year, airline Lufthansa down 27pc, car group Volkswagen sliding 23.6pc and Deutchse Bank falling 20.2pc so far this year.
Meanwhile, things in Japan appear to be going from bad to worse.
The government of Japan is more than a quadrillion yen in debt, and it has been furiously printing money and debasing the yen in a desperate attempt to get the Japanese economy going again.
Unfortunately for them, it is simply not working. The revised economic numbers for the second quarter were absolutely disastrous. The following comes from a Japanese news source…
On an annualized basis, the GDP contraction was 7.1 percent, compared with 6.8 percent in the preliminary estimate. That makes it the worst performance since early 2009, at the height of the global financial crisis.
The blow from the first stage of the sales tax hike in April extended into this quarter, with retail sales and household spending falling in July. The administration signaled last week that it is prepared to boost stimulus to help weather a second stage of the levy scheduled for October 2015.
Corporate capital investment dropped 5.1 percent from the previous quarter, more than double the initial estimate of 2.5 percent.
Private consumption was meanwhile revised to a 5.1 percent drop from the initial reading of 5 percent, meaning it sank 19 percent on an annualized basis from the previous quarter, rather than the initial estimate of 18.7 percent, Monday’s report said.
For the moment, things are looking pretty good in the United States.
But as I have written about so many times, our financial markets are perfectly primed for a fall.
Other experts see things the same way. Just consider what John Hussman wrote recently…
As I did in 2000 and 2007, I feel obligated to state an expectation that only seems like a bizarre assertion because the financial memory is just as short as the popular understanding of valuation is superficial: I view the stock market as likely to lose more than half of its value from its recent high to its ultimate low in this market cycle.
At present, however, market conditions couple valuations that are more than double pre-bubble norms (on historically reliable measures) with clear deterioration in market internals and our measures of trend uniformity. None of these factors provide support for the market here. In my view, speculators are dancing without a floor.
And it isn’t just stocks that could potentially be on the verge of a massive decline. The bond market is also experiencing an unprecedented bubble right now. And when that bubble bursts, the carnage will be unbelievable. This has become so obvious that even CNBC is talking about it…
Picture this: The bond market gets spooked by a sudden interest rate scare, sending a throng of buyers streaming toward the exits, only to find a dearth of buyers on the other side.
As a result, liquidity evaporates, yields soar, and the U.S. finds itself smack in the middle of another debt crisis no one saw coming.
It’s a scenario that TABB Group fixed income head Anthony J. Perrotta believes is not all that far-fetched, considering the market had what could be considered a sneak preview in May 2013. That was the “taper tantrum,” which saw yields spike and stocks sell off after then-Federal Reserve Chairman Ben Bernanke made remarks that the market construed as indicating rates would rise sooner than expected.
If the strength of our financial markets reflected overall strength in the U.S. economy there would not be nearly as much cause for concern.
But at this point our financial markets have become completely and totally divorced from economic reality.
The truth is that our economic fundamentals continue to decay. In fact, the IMF says that China now has the largest economy on the planet on a purchasing power basis. The era of American economic dominance is ending. It is just that the financial markets have not gotten the memo yet.
Hopefully we still have at least a few more months before stock markets all over the world start crashing. But remember, we are entering the seventh year of the seven year cycle of economic crashes that so many people are talking about these days. And we are definitely primed for a global financial collapse.
Sadly, most people did not see the crash of 2008 coming, and most people will not see the next one coming either.