Why Is The Mainstream Media Suddenly Buzzing About “Another Global Financial Crisis”?

All of a sudden, the mainstream media is starting to sound a lot like The Economic Collapse Blog.  Throughout the Obama years, the mainstream media in the United States always seemed extremely hesitant to suggest that difficult economic times may be ahead, but now talk of “another global financial crisis” seems to be all over the place.  Is this because they truly believe that one is coming, or is it just another angle that they can use to attack Donald Trump?  In any event, it is undeniable that evidence is mounting that big trouble could be right around the corner.  European financial markets are already in meltdown mode, a major international trade war has just erupted, the worst “retail apocalypse” in modern U.S. history is accelerating, and our debt problems continue to grow with each passing day.  Normally the mainstream news is much more subdued than I am about all of this stuff, and so I was very surprised to see reporter James Pethokoukis come out with an article entitled “Here comes another global financial crisis”

Investors are increasingly worried that an escalating political crisis in Italy could lead to a populist, euroskeptic government taking power. As a result, there’s rising uncertainty about whether the country might eventually abandon the euro currency zone or default on its giant debt pile. To make things worse, the Trump administration continues to toy with the idea of a trade war with Europe and China. That would be the last thing the global economy would need if the Italian situation deteriorates further. Debt crises and trade wars are a toxic combination.

And remember, this comes just days after George Soros ominously declared that “we may be heading into another major financial crisis.”

So what has changed?

Certainly, what is happening in Italy is starting to get everyone’s attention.  Here is more from James Pethokoukis

Italy is the eurozone’s third-largest economy, 10 times the size of Greece’s. It also has the world’s third-largest sovereign debt market, some $2.7 trillion. Only Greece has a higher public debt-to-GDP ratio in the eurozone. My AEI colleague Desmond Lachman, a former International Monetary Fund official and Wall Street emerging market strategist, argues that Italy’s troubles have the potential to roil the global economy much like the 2008 Lehman bankruptcy. (The 10th anniversary of “Free Market Day” is coming!) America wouldn’t be spared.

And it isn’t just Italy.  Financial institutions all over Europe are deeply troubled, and that includes the largest bank in Germany.

On Thursday, Deutsche Bank’s stock price crashed to an all-time low.  This caused such a stir that the bank was actually forced to issue a statement about it.

I have been writing about the troubles at Deutsche Bank for a very long time.  When they finally go down for good, it is going to create a “Lehman Brothers moment” for the entire planet.  This week, there were two key revelations that led to the dramatic stock price decline.  The following comes from Wolf Richter

This came after leaked double-whammy revelations the morning: One reported by the Financial Times, that the FDIC had put Deutsche Bank’s US operations on its infamous “Problem Bank List”; and the other one, reported by the Wall Street Journal, that the Fed, as main bank regulator, had walloped the bank last year with a “troubled condition” designation, one of the lowest rankings on its five-level scoring system.

Meanwhile, the other major factor that has investors starting to panic is the beginning of an international trade war.

It takes a great deal to get the Canadians upset, but they have already retaliated against the tariffs that the Trump administration just imposed on them…

Canada will retaliate against new U.S. tariffs by imposing its own trade barriers on U.S. steel, aluminum and other products, Canadian Foreign Minister Chrystia Freeland said Thursday.

Freeland said Canada plans to slap dollar-for-dollar tariffs on the U.S. The Nafta partner’s proposed import taxes would also cover whiskey, orange juice and other food products alongside the steel and aluminum tariffs.

And it is expected that we will see retaliation from the Chinese, the Europeans and Mexico shortly.  All of this is causing a great deal of consternation on Capitol Hill, and it could mean big trouble for Republicans in November.

At the same time all of this is going on, this week we learned that 13 of Bank of America’s 19 “bear market indicators” have now been triggered.  The following summary comes from Zero Hedge

Specifically, the following indicators have now been triggered, with the latest 2 bolded:

  • Bear markets have always been preceded by the Fed hiking rates by at least 75bp from the cycle trough
  • Minimum returns in the last 12m of a bull market have been 11%
  • Minimum returns in the last 24m of a bull market have been 30%
  • 9m price return (top decile) vs. S&P 500 equalweight index
  • Consensus projected long-term growth (top decile) vs. S&P 500 equalweight index
  • We have yet to see a bear market when the 100 level had not been breached in the prior 24m
  • Similarly, we have yet to see a bear market when the 20 level had not been breached in the prior 6m
  • Companies beating on both EPS & Sales outperformed the S&P 500 by less than 1ppt within the last three quarters
  • While not always a major change, aggregate growth expectations tend to rise within the last 18m of bull markets
  • Trailing PE + CPI y/y% >20 in the prior 12m
  • Based on 1- and 3-month estimate revision trends; see footnote for more detail
  • Trailing PE + CPI (y/y%) >20 within the last 12m
  • In the preceding 12m of all but one (1961) bull market peak, the market has pulled back by 5%+ at least once

And here are the 6 indicators that have yet to ring the proverbial bell.

  • Each of the last three bear markets has started when a net positive % of banks were tightening C&I lending standards
  • Companies with S&P Quality ratings of B or lower outperform stocks rated B+ or higher
  • Forward 12m earnings yield (top decile) vs. S&P 500 equalweight index
  • A contrarian measure of sell side equity optimism; sell signal trigged in the prior 6m
  • A contrarian measure of buy side optimism
  • Does not always lead or catch every peak and all but one inversion (1970) has coincided with a bear market within 24m

Like so many others, I’ve got a bad feeling about all of this.

And so does best-selling author James Rickards.  He seems quite convinced that we are heading for the largest market collapse that anyone has ever seen

Each crisis is bigger than the one before. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means that the larger size of the system implies a future global liquidity crisis and market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever. Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

It has been 10 years since 2008, and conditions are definitely ripe for another great financial crisis.

Stay frosty my friends, because it looks like events are going to accelerate greatly in the months ahead.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

European Implosion Sends Panic Through Global Markets As George Soros Warns ‘We May Be Heading For Another Major Financial Crisis’

I told you to keep your eyes on Europe.  On Tuesday, widespread panic shot through European financial markets and this deeply affected U.S. markets as well.  The Dow Jones industrial average fell 391 points, and at this point the Dow and the S&P 500 have been down for three trading sessions in a row.  But the big news is what is happening over in Europe.  Tuesday’s crash represented the largest one day move for 2 year Italian bonds ever, and Italian bank stocks are now down a whopping 24 percent from their April highs.  Overall, European banks have fallen a total of 11 percent over the last four days, and it isn’t just banks in troubled countries such as Italy and Spain that are hurting.  The biggest bank in Europe, Deutsche Bank, just keeps on tumbling and is now just barely above all-time lows.  A few days ago when I wrote that the next global economic crisis “could be just around the corner”, there were some people that criticized me for making such a statement.  Well, as you will see below, now this fact has become so obvious that even George Soros is saying it.

Those that are ignoring what is going on in Italy are making a tragic mistake.  Italy is the third largest economy in the eurozone, and even the Wall Street Journal is admitting that its bond market is “in meltdown”…

Risk aversion is back. Italy is the focal point, with its bond market in meltdown, its politics in crisis after President Sergio Mattarella blocked the formation of an antiestablishment government, and its credit rating under threat.

That is all now making bigger waves: Europe’s deepening troubles and disappointing global growth signals are sparking a sudden rally in haven bonds like U.S. Treasurys.

The next financial crisis has already arrived in Europe, and the primary reason for this crisis has to do with the giant mess that Italy’s government has become.  The following summary of the current situation comes from CNBC

Italy has been without a government since an inconclusive vote in early March, with anti-establishment political groups abandoning their efforts to form a coalition over the weekend amid a dispute with the country’s head of state.

President Sergio Mattarella, who was installed by a previous pro-EU government, refused to accept the nomination of euroskeptic candidate Paolo Savona for economy minister on Sunday.

Instead, he set the country on a path to another snap vote by appointing former International Monetary Fund (IMF) official Carlo Cottarelli as interim prime minister.

Of course the Italian parliament will never accept Cottarelli, and it looks like we are heading for snap elections in either July or August.

What is at stake in these elections is of the utmost importance to all of Europe.  As Politico recently discussed, if the Italian people continue to move toward anti-establishment parties we could actually see Italy leave the euro or even leave the EU altogether…

Italy, the third-largest EU power once Britain leaves, may sooner or later be run by two parties who agree on little other than their apparent eagerness to break stuff. It could be Italy’s debt — a default in the trillions of euros. It could be the euro, if they follow through on past promises to hold a referendum on membership in the single currency. And what’s ultimately broken could be the EU as we know it, if any such referendum goes against Brussels, as most that have been held have done.

The EU survived Brexit, but there is a lot of doubt as to whether it could also survive a defection by Italy.

During a speech on Tuesday, George Soros soberly assessed the current state of affairs in Europe.  According to Bloomberg, at one point he stated that “we may be heading for another major financial crisis.”

It is unusual for Soros to have such a gloomy tone.  He really seemed to quite pessimistic about Europe’s future, and he even went as far to say that “everything that could go wrong has gone wrong”

The stark warning from the billionaire money manager comes as Italian bond yields have jumped to multi-year highs and major emerging economies including Turkey and Argentina are struggling to contain the fallout from runaway inflation. Soros, who has been the object of ire by the government of his native Hungary, saved his gloomiest outlook for the EU.

“Everything that could go wrong has gone wrong,” he said, citing the refugee crisis and austerity policies that catapulted populists into power, as well as “territorial disintegration” exemplified by Brexit. “It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality,” he said.

I must admit that I agree with his assessment of the situation in Europe.  The EU most definitely is in “existential danger”, and I believe that we are in the beginning stages of the worst financial crisis in modern European history.

So what should be expect to see in the weeks ahead?

Well, here are three things to keep an eye on…

#1 The chaos is likely to continue for Italian financial markets.

#2 The euro is likely to continue to fall relative to the U.S. dollar.

#3 Trouble signs are likely to continue to erupt at European banking giants such as Deutsche Bank.

I have been warning about Italy, the euro and Deutsche Bank for a very long time, but because things didn’t fall apart right away a lot of people thought that the problems had been solved.

But just because something doesn’t happen in the short-term doesn’t mean that it isn’t going to happen.  The long-term trends that are destroying Europe’s financial system took a long time to mature, and we could all see what was happening, but now we have finally reached a major crisis point.

Of course the European elite could try to “extend and pretend” by pulling a few more tricks out of their sleeves, but at some point even they will lose control.  There is only so much that can be done, and those holding the reigns of power in Europe are almost out of ammunition.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

12 Indications That The Next Major Global Economic Crisis Could Be Just Around The Corner

There have not been so many trouble signs for the global economy in a very long time.  Analysts are sounding the alarm about junk bond defaults, the smart money is getting out of stocks at an astounding rate, mortgage rates are absolutely skyrocketing, and Europe is already facing a full blown financial meltdown.  Of course expectations that another global economic crisis will happen among the general population are probably at an all-time low right now, but the reality of the matter is that we are probably closer to a new one erupting than at any point since the last one in 2008.  Since the last financial crisis our long-term debt problems have just continued to grow, and there are many that believe that the next crisis will actually be far worse than what we experienced ten years ago.

So how bad are things at this moment?

The following are 12 indications that the next major global economic crisis could be just around the corner…

#1 The “smart money” is getting out of stocks at a rate that we haven’t seen since just before the financial crisis of 2008.

#2 Moody’s is warning that a “particularly large wave” of junk bond defaults is coming.  And as I have written about so many times before, junk bonds are often an early warning indicator for a major financial crisis.

#3 According to the FDIC, a closely watched category known as “assets of problem banks” more than tripled during the first quarter of 2018.  What that means is that some really big banks are now officially in “problem” territory.

#4 U.S. Treasury bonds are having the worst start to a year since the Great Depression.

#5 Mortgage interest rates just hit a 7 year high, and they have been rising at the fastest pace in nearly 50 years.  This is going to be absolutely crippling for the real estate and housing industries.

#6 Retail industry debt defaults have hit a record high in 2018.

#7 We are on pace for the worst year for retail store closings ever.

#8 The two largest economies on the entire globe are on the verge of starting an international trade war.

#9 The 9th largest economy in the world, Italy, is in the midst of yet another financial meltdown.  In fact, this one appears to be the worst yet, and there are fears that it could spread to other areas of the eurozone.

#10 Italian banking stocks crashed really hard this week.

#11 Italian two year bond yields are the highest that they have been since the crisis of 2014.

#12 German banking giant Deutsche Bank just announced that it will be cutting another 7,000 jobs as it “seeks to turn the page on years of losses”.  Those of you that have followed my work for a long time know that I have written extensively about Deutsche Bank, and it really is amazing that it has survived for this long.  If Deutsche Bank fails in 2018, it will essentially be a “Lehman Brothers moment” for the entire planet.

The mainstream media in the United States almost entirely ignores Europe, but I believe that what is going on over there is the key right now.

Italy is a financial basket case, and Europe isn’t going to be able to handle a complete and total Italian financial collapse.  If you will remember, Europe could barely handle what happened in Greece, and the Italian economy is many times the size of Greece.

The can has been kicked down the road several times before on the Italian crisis, but now we are getting to the point where it simply won’t be able to be kicked down the road any further.

And once things start unraveling over in Europe, we will be deeply affected in the United States as well.  The global financial system is more interconnected than ever before, and at this point we are even more vulnerable than we were just prior to the crisis of 2008.

When this thing breaks loose, it won’t matter who is in the White House, who is in Congress or who is running the Federal Reserve.

When this bubble bursts there is nothing that anyone will be able to do to stop it.

Global central banks have been able to buy a few extra years of time by engaging in unprecedented levels of intervention, but now they are almost out of ammunition and events are beginning to escalate at a very frightening pace.

We shall see if they can pull another rabbit out of a hat in 2018, but I wouldn’t count on it…

Michael Snyder is a nationally syndicated writer, media personality and political activist.  He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

A 918 Point Stock Market Crash In Japan And Deutsche Bank Denies That It Is About To Collapse

Financial Crisis 2016On 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 Record Low

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.

The Oil Crash Of 2016 Has The Big Banks Running Scared

Running Scared - Public DomainLast time around it was subprime mortgages, but this time it is oil that is playing a starring role in a global financial crisis.  Since the start of 2015, 42 North American oil companies have filed for bankruptcy, 130,000 good paying energy jobs have been lost in the United States, and at this point 50 percent of all energy junk bonds are “distressed” according to Standard & Poor’s.  As you will see below, some of the big banks have a tremendous amount of loan exposure to the energy industry, and now they are bracing for big losses.  And the longer the price of oil stays this low, the worse the carnage is going to get.

Today, the price of oil has been hovering around 29 dollars a barrel, and over the past 18 months the price of oil has fallen by more than 70 percent.  This is something that has many U.S. consumers very excited.  The average price of a gallon of gasoline nationally is just $1.89 at the moment, and on Monday it was selling for as low as 46 cents a gallon at one station in Michigan.

But this oil crash is nothing to cheer about as far as the big banks are concerned.  During the boom years, those banks gave out billions upon billions of dollars in loans to fund exceedingly expensive drilling projects all over the world.

Now those firms are dropping like flies, and the big banks could potentially be facing absolutely catastrophic losses.  The following examples come from CNN

For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the “continued deterioration within the energy sector.”

JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.

Citigroup is another bank that also has a tremendous amount of exposure

Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that “oil prices are likely to remain low for a longer period of time.”

If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.

For the moment, these big banks are telling the public that the damage can be contained.

But didn’t they tell us the same thing about subprime mortgages in 2008?

We are already seeing bank stocks start to slide precipitously.  People are beginning to realize that these banks are dangerously exposed to a lot of really bad deals.

If the price of oil were to shoot back up above 50 dollars in very short order, the damage would probably be manageable.  Unfortunately, that does not appear likely to happen.  In fact, now that sanctions have been lifted on Iran, the Iranians are planning to flood the world with massive amounts of oil that they have been storing in tankers at sea

Iran has been carefully planning for its return from the economic penalty box by hoarding tons of oil in tankers at sea.

Now that the U.S. and European Union have lifted some sanctions on Iran, the OPEC country can begin selling its massive stockpile of oil.

The sale of this seaborne oil will allow Iran to get an immediate financial boost before it ramps up production. The onslaught of Iranian oil is coming at a terrible time for the global oil markets, which are already drowning in an epic supply glut.

Just the other day, I explained that some of the biggest banks in the world are now projecting that the price of oil could soon fall much, much lower.

Morgan Stanley says that it could go as low as 20 dollars a barrel, the Royal Bank of Scotland says that it could go as low as 16 dollars a barrel, and Standard Chartered says that it could go as low as 10 dollars a barrel.

But the truth is that the price of oil does not need to go down one penny more to have a catastrophic impact on global financial markets.  If it just stays right here, we will see an endless parade of layoffs, energy company bankruptcies  and debt defaults.  Without any change, junk bonds will continue to crash and financial institutions will continue to go down like dominoes.

We are already experiencing a major disaster.  Things are already so bad that some forms of low quality crude oil are literally selling for next to nothing.  The following comes from Bloomberg

Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude.

Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014.

While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch.

A chart that I saw posted on Zero Hedge earlier today can help put all of this into perspective.  Whenever the price of oil falls really low relative to the price of gold, there is a major global crisis.  Right now an ounce of gold will purchase more oil than ever before, and many believe that this indicates that a new great crisis is upon us…

The number of barrels of oil that a single ounce of gold can buy has never, ever been higher.

Barrels Of Oil Per Ounce Of Gold

All over the planet, big banks are absolutely teeming with bad loans.  And to be honest, the big banks in the U.S. are probably in better shape than some of the major banks in Europe and Asia.  But once the dominoes start to fall, very few financial institutions are going to escape unscathed.

In the coming days I would expect to see more headlines like we just got out of Italy.  Apparently, Italian banks are nearing full meltdown mode, and short selling has been temporarily banned.  To me, it appears that we are just inches away from full-blown financial panic in Europe.

However, just like with the last financial crisis, you never quite know where the next “explosion” is going to happen next.

But one thing is for sure – the financial crisis that began during the second half of 2015 is raging out of control, and the pain that we have seen so far is just the beginning.

The Dow Falls Another 364 Points And We Are Now Down 2200 Points From The Peak Of The Market

Falling - Public DomainIt 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 Fed’s 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 Lehman’s 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.

-PC sales just hit an eight year low.

-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 Financial Crisis Of 2016 Rolls On – China, Oil, Copper And Junk Bonds All Continue To Crash

Buy Sell - Public DomainNever before have we seen a year start like this.  On Monday, Chinese stocks crashed once again.  The Shanghai Composite Index plummeted another 5.29 percent, and this comes on the heels of two historic single day crashes last week.  All of this chaos over in China is one of the factors that continues to push commodity prices even lower.  Today the price of copper fell another 2.40 percent to $1.97, and the price of oil continued to implode.  At one point the price of U.S. oil plunged all the way down to $30.99 a barrel before rebounding just a little bit.  As I write this article, oil is down a total of 6.12 percent for the day and is currently sitting at $31.13.  U.S. stocks were mixed on Monday, but it is important to note that the Russell 2000 did officially enter bear market territory.  This is yet another confirmation of what I was talking about yesterday.  And junk bonds continue to plummet.  As I write this, JNK is down to 33.42.  All of these numbers are huge red flags that are screaming that big trouble is ahead.  Unfortunately, the mainstream media continues to insist that there is absolutely nothing to be concerned about.

A little over a year ago, I wrote an article that explained that anyone that believed that low oil prices were good for the economy was “crazy“.  At the time, many people really didn’t understand what I was trying to communicate, but now it is becoming exceedingly clear.  On Monday, one veteran oil and gas analyst told CNBC that “half of U.S. shale oil producers could go bankrupt” over the next couple of years…

Half of U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium, Fadel Gheit, said Monday.

The senior oil and gas analyst at Oppenheimer & Co. said the “new normal oil price” could be 50 to 100 percent above current levels. He ultimately sees crude prices stabilizing near $60, but it could be more than two years before that happens.

By then it will be too late for many marginal U.S. drillers, who must drill into and break up shale rock to release oil and gas through a process called hydraulic fracturing. Fracking is significantly more expensive than extracting oil from conventional wells.

Since the last recession, the energy industry has been the number one producer of good paying jobs in this country.

Now that those firms are starting to drop like flies, what is that going to mean for employment in America?

Just today, a huge coal company filed for bankruptcy, and so did a U.S. unit of commodity trading giant Glencore.  The following comes from Zero Hedge

While the biggest bankruptcy story of the day is this morning’s chapter 11 filing by Arch Coal, one which would trim $4.5 billion in debt from its balance sheet while handing over the bulk of the post-reorg company to its first-lien holders as part of the proposed debt-for-equity exchange, the reality is that the Arch default was widely anticipated by the market.

However, another far less noted and perhaps far more significant bankruptcy filing was that of Sherwin Alumina Co., a U.S. unit of commodity trading giant Glencore PLC, whose troubles have been extensively detailed on these pages. The stated reason for this far more troubling chapter 11 was “challenging market conditions” which is one way to describe an industry in which just one remaining U.S. smelter will be left in operation after Alcoa shut down its Warrick Country smelting ops last week.

A spokesman for Glencore, which owns the entire business, said the commodities producer and trader is “supportive of the restructuring process undertaken by Sherwin and is hopeful of an outcome that will allow for the continued operation of the Sherwin facility.”

We desperately need prices for oil and other commodities to rebound significantly.  Unfortunately, that does appear to be likely to happen any time soon.  In fact, according to CNN we could soon see the price of oil fall quite a bit more…

The strengthening U.S. dollar could send oil plunging to $20 per barrel.

That’s the view of analysts at Morgan Stanley. In a report published Monday, they say a 5% increase in the value of the dollar against a basket of currencies could push oil down by between 10% and 25% — which would mean prices falling by as much as $8 per barrel.

If prices for oil and other commodities keep falling, what is going to happen?

Well, Gina Martin Adams of Wells Fargo Securities says that what is happening right now reminds her of the correction of 1998

Recent market volatility has dredged up memories of previous times of turmoil, most notably the 2008 crisis. But Gina Martin Adams of Wells Fargo Securities has been reminded of another, less dramatic correction year — 1998.

Adams posits that the current economic environment is suffering from themes that also played out in 1998, including falling oil prices, a rising U.S. dollar and troubles in emerging markets. Consequently, stocks may see a similar move to the 1998 correction, which saw a 20 percent drop for stocks over six weeks.

To me, it is much more serious than that.  Just before U.S. stocks crashed horribly in 2008, we saw Chinese stocks crash, the price of oil crashed, commodity prices crashed, and junk bonds crashed really hard.

All of those things are happening again, and yet most of the “experts” continue to refuse to see the warning signs.

In fact, the mainstream media is full of articles that are telling people not to panic while the financial markets crumble all around them…

There’s no need to make big moves in response to the recent volatility. “Regular folks should take on a long-term view and avoid trying to anticipate short-term market movements,” says Stephen Horan, the managing director of credentialing at CFA Institute. “There is almost no evidence to suggest that professionals can do it effectively and a plethora of evidence suggesting individuals do it poorly.”

They want “regular folks” to keep holding on to their investments as the “smart money” dumps their stocks at a staggering pace.

A little more than six months ago, I predicted that “our problems will only be just beginning as we enter 2016”, and that is turning out to be dead on correct.

The financial crisis that began during the second half of last year is greatly accelerating, and yet most of the population continues to be in denial even though the average stock price has already fallen by more than 20 percent.

Hopefully it will not take another 20 percent decline before people begin to wake up.