If Jim Rogers is right, the worst stock market crash that any of us has ever seen is right around the corner. For the past 15 years, Rogers has been a frequent guest analyst on CNBC, Fox News and elsewhere, and he is immensely respected for the depth of knowledge and experience that he brings to the table. So the fact that he is warning that we are about to see the worst stock market crash in any of our lifetimes is making a lot of waves in the financial community. And of course Rogers is far from alone. Previously, I have written about several other prominent experts that are warning that a new financial crisis is imminent, and I have also discussed how a number of big investors are quietly positioning themselves to make an enormous amount of money when the markets crash. Could it be possible that all of these incredibly sharp minds could be wrong? Yes, but I wouldn’t bet on it.
I was actually quite stunned when I first learned what Jim Rogers had told Henry Blodget of Business Insider during a recent interview. Rogers has built up a tremendous amount of credibility, but now he is putting that credibility on the line by warning that a great stock market crash will happen by the end of next year. Here is the key portion of the interview …
Blodget: Well, yeah, TV ratings do seem to go up during crashes, but then they completely disappear when everyone is obliterated, so no one is hoping for that. So when is this going to happen?
Rogers: Later this year or next.
Blodget: Later this year or next?
Rogers: Yeah, yeah, yeah. Write it down.
There is no backing out of a statement like that.
If Rogers is wrong, he will never hear the end of it.
Subsequently, Blodget and Rogers also discussed how severe the coming crisis would be…
Blodget: And how big a crash could we be looking at?
Rogers: It’s going to be the worst in your lifetime.
Blodget: I’ve had some pretty big ones in my lifetime.
Rogers: It’s going to be the biggest in my lifetime, and I’m older than you. No, it’s going to be serious stuff.
So that means that Rogers is convinced that the coming crisis is going to be even worse than what we went through in 2008.
Of course this is something that I have been warning about for quite a while, but for Jim Rogers to make a statement like this is a really, really big deal.
Later in the interview, Rogers shared more details about what he believes the coming crisis will look like…
You’re going to see governments fail. You’re going to see countries fail, this time around. Iceland failed last time. Other countries fail. You’re going to see more of that.
You’re going to see parties disappear. You’re going to see institutions that have been around for a long time — Lehman Brothers had been around over 150 years. Gone. Not even a memory for most people. You’re going to see a lot more of that next around, whether it’s museums or hospitals or universities or financial firms.
That definitely sounds like an “economic collapse” to me. Of course the truth is that the U.S. economy is already in the midst of a slow-motion economic collapse that stretches back for decades, but this coming crisis that Rogers is talking about is going to great accelerate matters.
Let us hope that it is put off for as long as possible, but at some point we are simply going to run out of time.
And when markets do start falling, they can move very, very rapidly. Just look at what happened on Friday. Technology sector stocks were down 2.7 percent, and the FAANG stocks were some of the biggest movers…
Facebook fell $5.11, or 3.3%, to $149.60.
Apple fell $6.01, or 3.9%, to $148.90.
Amazon fell $31.96, or 3.2%, to $978.31 now demoted from the elect group for 4-digit stocks back to the large group of 3-digit stocks.
Netflix plunged $7.85, or 4.7%, to $158.20.
Alphabet – the G in FAANG – fell $33.58, or 3.4%, to $952.23, moving further away from everyone’s dream of closing at $1,000.
If we are indeed moving toward a new crisis, one of the things that we will want to watch for is an inverting of the yield curve.
We saw this happen in 2000 and in 2006, and on both occasions it foreshadowed that a huge stock market crash was coming in the not too distant future.
Unfortunately, CNBC says that a new inversion of the yield curve could happen “by the end of this year”…
The bounce in Treasury yields witnessed after the election of Donald Trump is now decaying in the D.C. swamp. If the Federal Reserve continues to ignore this slow growth and deflationary signal from the bond market and continues along its current rate hiking path, the yield curve will invert by the end of this year and an equity market plunge and a recession is sure to follow.
An inverted yield curve, which has correctly predicted the last seven recessions going back to the late 1960’s, occurs when short-term interest rates yield more than longer-term rates. Why is an inverted yield curve so crucial in determining the direction of markets and the economy? Because when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.
Another key indicator is the growth of commercial and industrial loans. According to Zero Hedge, this indicator has correctly foreshadowed every single recession since 1960…
While many “conventional” indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed’s target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon.
So considering the fact that this indicator has been so accurate, it is extremely alarming that we could see our “first negative loan growth” since the last financial crisis “in roughly 4 to 6 weeks”…
After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, – the lowest since 2011 – after slowing to 2.3% and 1.8% in the previous two weeks.
Should the current rate of loan growth deceleration persist – and there is nothing to suggest otherwise – the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks.
And when you throw in all of the other signs that the U.S. economy is slowing down, a very clear picture begins to emerge.
It has been said that those that do not learn from history are doomed to repeat it. As a society, we certainly didn’t learn much from the horrible financial disaster of 2008, and now so many of the exact same patterns are repeating once again.
An unprecedented financial crisis is most definitely heading our way, and the only thing left to be answered is how soon it will get here.
Gerald Celente of the Trends Research Institute has just gone on the record with a prediction that there will be a stock market crash by the end of this calendar year. If you are not familiar with Gerald Celente, he is one of the most highly respected trends forecasters in the entire world. He has been featured on CNN, The Oprah Winfrey Show, The Today Show, Good Morning America, CBS Morning News, NBC Nightly News and Coast to Coast AM. Personally, I have a lot of respect for him. While it is true that not every single one of his forecasts about the future came to pass over the years, he does have a very solid track record that goes back for decades. He correctly predicted the 1987 stock market crash, the bursting of the dotcom bubble and the financial panic of 2008. Just a couple of days ago, he told Eric King the following: “I’m now predicting that we are going to see a global stock market crash before the end of the year.” Celente says that it won’t just be U.S. stocks either. He believes that crashes are also coming to “the DAX, the FTSE, the CAC, Shanghai, and the Nikkei”. It other words, it is going to be a truly global financial crisis and he says that there is “going to be panic on the streets from Wall Street to Shanghai and from the UK down to Brazil”.
When you go out on a limb like this, you are putting your credibility on the line. This is something that Celente has only done a few times in the past, and normally he has been spot on…
Rarely do I ever put a date on market crashes. I did it in 1987 when I forecast the 1987 stock market crash — that was in the Wall Street Journal. I also forecast the ‘Panic of 2008,’ and the ‘dot-com bust’ in October of 1999, when I said it (the dot-com mania) would fail in the second quarter of 2000…
Of course Celente is far from alone. Many others have also been warning that a new financial crisis is imminent.
For instance, just check out what David Stockman recently told CNBC…
David Stockman has long warned that the stock market is on the verge of a massive collapse, and the recent price action has him even more convinced than ever that the bottom is about to fall out.
“I think it’s pretty obvious that the top is in,” the Reagan administration’s OMB director said Thursday on CNBC’s “Futures Now.” The S&P 500 has traded in a historically narrow range for the better part of 2015, having moved just 1 percent higher year to date. “It’s just waiting for the knee-jerk bulls, robo traders and dip buyers to finally capitulate.”
Stockman, whose past claims have yet to come to fruition, still believes that the excessive monetary policy from central banks around the world has created a “debt supernova,” and all the signs point to “the end of the central bank enabled bubble,” which could cause a worldwide recession.
Just a few days ago, I authored an article entitled “8 Financial Experts That Are Warning That A Great Financial Crisis Is Imminent” which showed that a whole bunch of other financial experts are sounding the alarm about an implosion of the financial markets.
And before any of these warnings came out, I issued my “red alert” for the last six months of 2015 back on June 25th.
There is a growing consensus that something really, really bad is about to happen in the very near future.
You know that we are really late in the game when the mainstream media starts sounding exactly like The Economic Collapse Blog.
On July 22nd, I authored a piece entitled “Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now?”
Now compare that headline to this recent one from Bloomberg: “Commodities Are Crashing Like It’s 2008 All Over Again“.
The mainstream media is starting to get it. The exact same patterns that we witnessed just prior to the last financial crisis are playing out once again right before our very eyes. Here is an excerpt from that Bloomberg article…
Attention commodities investors: Welcome back to 2008!
The meltdown has pushed as many commodities into bear markets as there were in the month after the collapse of Lehman Brothers Holdings Inc., which spurred the worst financial crisis seven years ago since the Great Depression.
Eighteen of the 22 components in the Bloomberg Commodity Index have dropped at least 20 percent from recent closing highs, meeting the common definition of a bear market. That’s the same number as at the end of October 2008, when deepening financial turmoil sent global markets into a swoon.
This is the kind of stuff that I have been hammering on for weeks.
Another sign that we saw back in 2008 that is repeating once again is a substantial slowdown in global trade. Over the weekend, we got some more bad news on this front from China. The following comes from Zero Hedge…
Overnight we got another acute reminder of just who is lying hunched over, comatose in the driver’s seat of global commerce: the country whose July exports just crashed by 8.3% Y/Y (and down 3.6% from the month before) far greater than the consensus estimate of only a 1.5% drop, and the biggest drop in four months following the modest June rebound by 2.8%: China.
It wasn’t just exports, imports tumbled as well by 8.1%, fractionally worse than the -8.0% consensus, and down from the -6.1% in June as China’s commodity tolling operations are suddenly mothballed.
The crisis that so many have been waiting for is here.
As the coming weeks and months play out, there will be good days and there will be bad days. Remember, some of the biggest one day gains in U.S. stock market history happened right in the middle of the financial crisis of 2008. So don’t get fooled by what happens on any one particular day.
Also, please do not think that this crisis will be “over” by the end of 2015. What we are moving into is just the start of the crisis. Things will continue to unravel as we move into 2016 and beyond. The recession that we experienced back in 2008 and 2009 will seem like a Sunday picnic compared to what is coming by the time that everything is all said and done.
So that is why I work so hard to encourage people to get prepared.
What we are facing is not going to last for weeks or for months.
The coming crisis is going to last for years, and it is going to be painful beyond what most people would dare to imagine.
If we were going to see a stock market crash in the United States in the fall of 2015 (to use a hypothetical example), we would expect to see commodity prices begin to crash a few months ahead of time. This is precisely what happened just before the great financial crisis of 2008, and we are watching the exact same thing happen again right now. On Wednesday, commodities got absolutely pummeled, and at this point the Bloomberg Commodity Index is down a whopping 26 percent over the past twelve months. When global economic activity slows down, demand for raw materials sinks and prices drop. So important global commodities such as copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber are all considered to be key “leading indicators” that can tell us a lot about where things are heading next. And what they are telling us right now is that we are rapidly approaching a global economic meltdown.
If the global economy was actually healthy and expanding, the demand for commodities would be increasing and that would tend to drive prices up. But instead, prices continue to go down.
The Bloomberg Commodity Index just hit a brand new 13-year low. That means that global commodity prices are already lower than they were during the worst moments of the last financial crisis…
The commodities rout that’s pushed prices to a 13-year low pulled some of the biggest mining and energy companies below levels seen during the financial crisis.
The FTSE 350 Mining Index plunged as much as 4.9 percent to the lowest since 2009 on Wednesday, with BHP Billiton Ltd. and Anglo American Plc leading declines. Gold and copper are near the lowest in at least five years, while crude oil retreated to $50 a barrel.
“This commodity bear market is like a train wreck in slow motion,” said Andy Pfaff, the chief investment officer for commodities at MitonOptimal in Cape Town. “It has a lot of momentum and doesn’t come to a sudden stop.”
Commodity prices have not been this low since April 2002. According to Bloomberg, some of the commodities being hit the hardest include soybean oil, copper, zinc and gasoline. And this commodity crash is already having a dramatic impact on some of the biggest commodity-producing nations on the globe. Just consider what Gerald Celente recently told Eric King…
We now see that the Australian dollar is at a six-year low against the U.S. dollar. What are Australia’s biggest exports? How about iron-ore and other metals.
If we look at Canada, their currency is also now at a six-year low vs the U.S. dollar. Well, Canada is a big oil exporter, particularly some tar sands oil, which is expensive to produce.
We also now have the Brazilian real at a 10-year low vs the U.S. dollar. Why? Because it’s a natural resource rich country and they don’t have a strong market to sell their natural resources to.
Meanwhile, the Indian rupee is at a 17-year low vs the U.S. dollar. This is because manufacturing is slowing down and there is less development. If the Americans aren’t buying, the Indians, the Chinese, the Vietnamese — they’re not making things.
All of this is so, so similar to what we experienced in the run up to the financial crisis of 2008. Just a couple of days ago, I talked about how the U.S. dollar got really strong just prior to the last stock market crash. The same patterns keep playing out over and over, and yet most in the mainstream media refuse to see what is happening.
Something else that happened just a few months before the last stock market crash was a collapse of the junk bond market.
That is starting to happen again too. Just check out this chart.
I know that I must sound like a broken record. But I think that it is extremely important to document these things. When the next financial collapse takes place, virtually everyone in the mainstream media will be talking about what a “surprise” it is.
But for those that have been paying attention, it won’t be much of a “surprise” at all.
When the stock market does crash, how far might it fall?
During a recent appearance on CNBC, Marc Faber suggested that it could decline by up to 40 percent…
The U.S. stock market could “easily” drop 20 percent to 40 percent, closely followed contrarian Marc Faber said Wednesday—citing a host of factors including the growing list of companies trading below their 200-day moving average.
In recent days, “there were [also] more declining than advancing stocks, and the list of 12-month new lows was very high on Friday,” the publisher of The Gloom, Boom & Doom Report told CNBC’s “Squawk Box.”
“It shows you a lot of stocks are already declining.”
Others, including myself, believe that what we are going to experience is going to be even worse than that.
We live in such a fast-paced world, and most of us don’t have the patience to wait for long-term trends to play out.
If the stock market is not crashing today, to most people that means that everything must be fine.
But once it has crashed, everyone is going to be complaining that they weren’t warned in advance about what was coming and everyone will be complaining that nobody ever fixed the things that caused the exact same problems the last time around.
Personally, I am trying very hard to make sure that nobody can accuse me of not sounding the alarm about the storm that is on the horizon.
The world has never been in more debt, our “too big to fail” banks have never been more reckless, and global financial markets have never been more primed for a collapse.
Amazingly, there are still a lot of “experts” out there that insist that everything is going to be okay somehow.
Of course many of those exact same “experts” were telling us the same thing just before the stock market crashed in 2008 too.
A great financial shaking has already begun around the world, and it will hit U.S. financial markets very soon.
I hope that you are getting ready while you still can.
Is the financial collapse that so many are expecting in the second half of 2015 already starting? Many have believed that we would see bonds crash before the stock market crashes, and that is precisely what is happening right now. Since mid-April, the yield on 10 year German bonds has shot up from 0.05 percent to 0.89 percent. But much of that jump has come this week. Just a couple of days ago, the yield on 10 year German bonds was sitting at just 0.54 percent. And it isn’t just Germany – bond yields are going crazy all over Europe. So far, it is being estimated that global investors have lost more than half a trillion dollars, and there is much more room for these bonds to fall. In the end, the overall losses could be well into the trillions even before the stock market collapses.
I know that for most average Americans, talk about “bond yields” is rather boring. But it is important to understand these things, because we could very well be looking at the beginning of the next great financial crisis. The following is an excerpt from an article by Wolf Richter in which he details the unprecedented carnage that we have witnessed over the past few days…
On Tuesday, ahead of the ECB’s policy announcement today, German Bunds sagged, and the 10-year yield soared from 0.54% to 0.72%, drawing a squiggly diagonal line across the chart. In just one day, yield increased by one-third!
Makes you wonder to which well-connected hedge funds the ECB had once again leaked its policy statement and the all-important speech by ECB President Mario Draghi that the rest of us got see today.
And today, the German 10-year yield jump to 0.89%, the highest since October last year. From the low in mid-April of 0.05% to today’s 0.89% in just seven weeks! Bond prices, in turn, have plunged! This is the definition of a “rout.”
Other euro sovereign bonds have gone through a similar rout, with the Spanish 10-year yield soaring from 1.05% in March to 2.07% today, and the Italian 10-year yields jumping from a low in March of 1.03% to 2.17% now.
What this means is that the central banks are losing control.
In particular, the European Central Bank has been trying very hard to force yields down, and now the exact opposite is happening.
This is very bad news for a global financial system that is absolutely teeming with red ink. Since the last financial crisis, our planet has been on the greatest debt binge of all time. If we are moving into a time of higher interest rates, that is going to cause enormous problems. Unfortunately, CNBC says that is precisely where things are headed…
The wild breakout in German yields is rocking global debt markets, and giving investors an early glimpse of the uneasy future for bonds in a world of higher interest rates.
The shakeout also carries a message for corporate bond investors, who have snapped up a record level of new issuance this year, and are now seeing negative total returns in the secondary market for the first time this year.
So why is this happening?
Why are bond yields going crazy?
According to the Wall Street Journal, financial regulators in Europe are blaming the ECB’s quantitative easing program…
A recent surge in government bond market volatility can be blamed on the quantitative easing program of the European Central Bank, according to one of Europe’s top financial regulators.
EIOPA, the body responsible for regulating insurers and pension funds in the European Union, has warned that the ECB’s decision to buy billions of euros’ worth of sovereign bonds, to kick-start the region’s economy, has caused markets to become choppier.
And actually this is what should be happening. When central banks start creating money out of thin air and pumping it into the markets, investors should rationally demand a higher return on their money. This didn’t really happen when the Federal Reserve tried quantitative easing, so the Europeans thought that they might as well try to get away with it too. Unfortunately for them, investors are starting to catch up with the scam.
So what happens next?
Well, European bond yields are probably going to keep heading higher over the coming weeks and months. This will especially be true if the Greek crisis continues to escalate. And unfortunately for Europe, that appears to be exactly what is happening…
Greece will not make a June 5 repayment to the International Monetary Fund if there is no prospect of an aid-for-reforms deal with its international creditors soon, the spokesman for the ruling Syriza party’s lawmakers said on Wednesday.
The payment of 300 million euros ($335 million) is the first of four this month totaling 1.6 billion euros from a country that depends on foreign aid to stay afloat.
Greece owes a total of about 320 billion euros, of which about 65 percent to euro zone governments and the IMF, and about 8.7 percent to the European Central Bank.
On Tuesday, Greece’s creditors drafted the broad outlines of an agreement to put to the leftist government in Athens in a bid to conclude four months of negotiations and release aid before the country runs out of money.
“If there is no prospect of a deal by Friday or Monday, I don’t know by when exactly, we will not pay,” Nikos Filis told Mega TV.
In fact, there are reports that both the ECB and the Greek government are talking about Greece going to a “parallel domestic currency”…
Biagio Bossone and Marco Cattaneo write that according to several recent media reports, both the Greek government and the ECB are taking into consideration the possibility (for Greece) to issue a parallel domestic currency to pay for government expenditures, including civil servant salaries, pensions, etc. This could happen in the coming weeks as Greece faces a severe shortage of euros. A new domestic currency would help make payments to public employees and pensioners while freeing up the euros needed to pay out creditors.
If Greece defaults and starts using another currency, the value of the euro is going to absolutely plummet and bond yields all over the continent are going to start heading into the stratosphere.
That is why it is so important to keep an eye on what is going on in Greece.
But no matter what happens in Greece, it appears that we are moving into a time when there will be higher interest rates around the world. And since 505 trillion dollars in derivatives are directly tied to interest rate levels, that could lead to a financial unraveling unlike anything that we have ever seen before in the history of our planet.
As I have warned about so many times before, 2008 was just the warm up act.
The main event is still coming, and it is going to be extraordinarily painful.
The higher financial markets rise, the harder they fall. By any objective measurement, the stock market is currently well into bubble territory. Anyone should be able to see this – all you have to do is look at the charts. Sadly, most of us never seem to learn from history. Most of us want to believe that somehow “things are different this time”. Well, about the only thing that is different this time is that our economy is in far worse shape than it was just prior to the last major financial crisis. That means that we are more vulnerable and will almost certainly endure even more damage this time around. It would be one thing if stocks were soaring because the U.S. economy as a whole was doing extremely well. But we all know that isn’t true. Instead, what we have been experiencing is clearly artificial market behavior that has nothing to do with economic reality. In other words, we are dealing with an irrational financial bubble, and all irrational financial bubbles eventually burst. And as I wrote about yesterday, the way that stocks have moved so far this year is eerily reminiscent of the way that stocks moved in early 2008. The warning signs are there – if you are willing to look at them.
The first chart that I want to share with you today comes from Doug Short. It is a chart that shows that the ratio of corporate equities (stocks) to GDP is the second highest that it has been since 1950. The only other time it has been higher was just before the dotcom bubble burst…
Does that look like a bubble to you?
It sure looks like a bubble to me.
In order for the corporate equities to GDP ratio to get back to the mean (average) level, stock prices would have to fall nearly 50 percent.
If that happens, people will be calling it a crash, but in truth it would just be a return to normalcy.
This next chart comes from Phoenix Capital Research. The CAPE ratio (cyclically adjusted price-to-earnings ratio) is considered to be an extremely accurate measure of the true value of stocks…
As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.
Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.
CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.
Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns.
When the CAPE ratio is too high, that means that stocks are overpriced and are not a good value. And right now the CAPE ratio is the 3rd highest that it has been since 1890. That only times it has been higher than this were in 1929 (we all remember what happened then) and just before the dotcom bubble burst…
The funny thing is that stocks have continued to rise even as corporate revenues have begun to fall.
According to Wolf Richter, in the first quarter of 2015 corporate revenues are projected to decline at the fastest pace that we have seen since the depths of the last recession…
Week after week, corporations and analysts have been whittling down their estimates. By now, revenues of the S&P 500 companies are expected to decline 2.8% in Q1 from a year ago – the worst year-over-year decline since Q3 of crisis year 2009.
This next chart I want to share with you shows how the Nasdaq has performed over the past decade. Looking at this chart alone, you would think that the U.S. economy must have been absolutely roaring since the end of the last recession. But what is really going on is rampant speculation. Some of the tech companies that make up the Nasdaq are not making any profits at all and yet they are supposedly worth billions of dollars. If you cannot see a bubble in this chart, you need to get your vision checked…
And this kind of irrational euphoria is not just happening in the United States.
For example, Chinese stocks are up nearly 80 percent over the past nine months.
Meanwhile, the overall Chinese economy is growing at the slowest pace that we have seen in about 20 years.
Right now, we are in the calm before the storm. We are right at the door of the next great financial crisis, and most of the people that work in the industry know this.
And once in a while they let the cat out of the bag.
For example, consider what Hans-Jörg Vetter, the CEO of Landesbank Baden-Württemberg in Germany, had to say during one recent press conference…
“Risk is no longer priced in,” he said. And these investors aren’t paid for the risks they’re taking. This applies to all asset classes, he said. The stock and the bond markets, he said, are now both seeing “the mother of all bubbles.”
This can’t go on forever. Or for very long. But he couldn’t see the future either and pin down a date, which is what everyone wants to know so that they can all get out in time. “I cannot tell you when it will rumble,” he said, “but eventually it will rumble again.”
By “again” he meant the sort of thing that had taken the bank down last time, the Financial Crisis. It had been triggered by horrendous risk-taking, where risks hadn’t been priced into all kinds of securities. When those securities – mortgage-backed securities, for example, that were hiding the inherent risks under a triple-A rating – blew up, banks toppled.
What Vetter is telling us is what I have been warning about for a long time.
Another great stock market crash is coming.
It is just a matter of time.
The stock market continues to flirt with new record highs, but the signs that we could be on the precipice of the next major financial crisis continue to mount. A couple of days ago, I discussed the fact that the U.S. dollar is experiencing a tremendous surge in value just like it did in the months prior to the financial crisis of 2008. And previously, I have detailed how the price of oil has collapsed, prices for industrial commodities are tanking and market behavior is becoming extremely choppy. All of these are things that we witnessed just before the last market crash as well. It is also important to note that orders for durable goods are declining and the Baltic Dry Index has dropped to the lowest level on record. So does all of this mean that the stock market is guaranteed to crash in 2015? No, of course not. But what we are looking for are probabilities. We are looking for patterns. There are multiple warning signs that have popped up repeatedly just prior to previous financial crashes, and many of those same warning signs are now appearing once again.
One of these warning signs that I have not discussed previously is the wholesale inventories to sales ratio. When economic activity starts to slow down, inventory tends to get backed up. And that is precisely what is happening right now. In fact, as Wolf Richter recently wrote about, the wholesale inventories to sales ratio has now hit a level that we have not seen since the last recession…
In December, the wholesale inventory/sales ratio reached 1.22, after rising consistently since July last year, when it was 1.17. It is now at the highest – and worst – level since September 2009, as the financial crisis was winding down:
Rising sales gives merchants the optimism to stock more. But because sales are rising in that rosy scenario, the inventory/sales ratio, depicting rising inventories and rising sales, would not suddenly jump. But in the current scenario, sales are not keeping up with inventory growth.
Another sign that I find extremely interesting is the behavior of the yield on 10 year U.S. Treasury notes. As Jeff Clark recently explained, we usually see a spike in the 10 year Treasury yield about the time the market is peaking before a crash…
The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it’s at 2%. That’s a 35-basis-point spike – a jump of 21% – in less than two weeks.
And it’s the first sign of an impending stock market crash.
As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.
For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.
In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.
Let’s be clear… not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.
Once again, just because something has happened in the past does not mean that it will happen in the future.
But the fact that so many red flags are appearing all at once has got to give any rational person reason for concern.
Yes, the Dow gained more than 100 points on Thursday. But on Thursday we also learned that retail sales dropped again in January. Overall, this has been the worst two month drop in retail sales since 2009…
Following last month’s narrative-crushing drop in retail sales, despite all that low interest rate low gas price stimulus, January was more of the same as hopeful expectations for a modest rebound were denied. Falling 0.8% (against a 0.9% drop in Dec), missing expectations of -0.4%, this is the worst back-to-back drop in retail sales since Oct 2009. Retail sales declined in 6 of the 13 categories.
And economic activity is rapidly slowing down on the other side of the planet as well.
For example, Chinese imports and exports both fell dramatically in January…
Chinese imports collapsed 19.9% YoY in January, missing expectations of a modest 3.2% drop by the most since Lehman. This is the biggest YoY drop since May 2009 and worst January since the peak of the financial crisis. Exports tumbled 3.3% YoY (missing expectations of 5.9% surge) for the worst January since 2009. Combined this led to a $60.03 billion trade surplus in January – the largest ever. But apart from these massive imbalances, everything is awesome in the global economy (oh apart from The Baltic Dry at record lows, Iron Ore near record lows, oil prices crashed, and the other engine of the world economy – USA USA USA – imploding).
In light of so much bad economic data, it boggles my mind that stocks have been doing so well.
But this is typical bubble behavior. Financial bubbles tend to be very irrational and they tend to go on a lot longer than most people think they will. When they do finally burst, the consequences are often quite horrifying.
It may not seem like it to most people, but we are right on track for a major financial catastrophe. It is playing out right in front of our eyes in textbook fashion. But it is going to take a little while to unfold.
Unfortunately, most people these days do not have the patience to watch long-term trends develop. Instead, we have been trained by the mainstream media to have the attention spans of toddlers. We bounce from one 48-hour news cycle to the next, eagerly looking forward to the next “scandal” that is going to break.
And when the next financial crash does strike, the mainstream media is going to talk about what a “surprise” it is. But for those that are watching the long-term trends, it is not going to be a surprise at all. We will have seen it coming a mile away.
The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun. Bitcoins are crashing, gold and silver are plunging, the price of oil and the overall demand for energy continue to decline, markets all over Europe are collapsing and consumer confidence in the United States just had the biggest miss relative to expectations that has ever been recorded. In many ways, all of this is extremely reminiscent of 2008. Other than the Bitcoin collapse, almost everything else that is happening now also happened back then. So does that mean that a horrible stock market crash is coming as well? Without a doubt, one is coming at some point. The only question is whether it will be sooner or later. Meanwhile, there are a whole lot of other economic crashes that deserve out attention at the moment.
The following are 11 economic crashes that are happening RIGHT NOW…
As I write this, the price of Bitcoins has fallen more than 70 percent from where it was on Wednesday. This is one of the reasons why I have never recommended Bitcoins to anyone. Yes, alternative currencies are a good thing, but there are a lot of big problems with Bitcoins. Why would anyone want to invest in a currency that could lose 70 percent of its purchasing power in just two days? Why would anyone want to invest in a currency where a single person can arbitrarily decide to suspend trading in that currency at any time?
An article by Mike Adams of Natural News described some of the things that we have learned about Bitcoins this week…
#1) The bitcoin infrastructure cannot handle a selloff. Once the rush for the exits gains momentum, you will not be able to get out. Only those who sell early will be able to exit the market.
#2) The bitcoin infrastructure is subject to the whims of just one person running MTGox who can arbitrarily decide to shut it down whenever he thinks the market needs a “cooling period.” This is nearly equivalent to a financial dictatorship where one person calls the shots.
#3) Every piece of bad news will be “spun” by exchanges like MTGox into good-sounding news. As bitcoin was crashing yesterday by 60% in value in mere hours, MTGox announced it was a “victim of our own success!” So while bitcoin holders watched $1 billion in market valuation evaporate, MTGox called it a success. Gee, then what would you call it when bitcoin loses 99%? A “raging” success?
The price of gold was down by about 4 percent on Friday. Gold has now fallen below $1500 an ounce for the first time since July 2011. Overall, the price of gold has fallen by about 10 percent since the beginning of the year, and it is about 22 percent below the record high set back in September 2011.
Yes, the price of gold is likely being pushed down by the banksters. And yes, gold is a fantastic investment for the long-term. But there will be times when the price of gold does fall dramatically just like we saw back in 2008.
The price of silver fell by about 5 percent on Friday. If it falls much more it is going to be at a level that presents a historically good buying opportunity.
Just like gold, there will be times when the price of silver swings dramatically. But the truth is that silver is probably an even better long-term investment than gold is.
The price of oil declined by about 3 percent on Friday. Many will consider this a positive thing, but just remember what happened back in 2008. Back then, the price of oil dropped like a rock. If the price of oil gets below $80, that could very well be a clear signal that a major economic crisis is about to happen.
#5 Consumer Confidence
As I mentioned above, consumer confidence in the U.S. just had its biggest miss relative to expectations that has ever been recorded. The following is from an article posted on Zero Hedge on Friday…
Well if this doesn’t send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history!
#6 Retirement Accounts
According to Wells Fargo, the number of Americans taking loans from their 401(k) accounts has risen by 28 percent over the past year…
Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 – a 7% increase from $6,662.
Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.
“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement.
#7 Casino Spending
Casino spending is declining again. Many people (including myself) would consider this to be a good thing, but casino spending is also one of the most reliable indicators about the overall health of the economy. Remember, casino spending crashed during the last financial crisis as well. That is why it is so alarming that casino spending is now back to levels that we have not seen since the last recession.
#8 Employment In Greece
Over in Europe, things just continue to get worse. According to numbers that were just released, the unemployment rate in Greece has soared to 27.2 percent, which was up from 25.7 percent the previous month. That means that the unemployment rate in Greece rose by 1.5 percent in just a single month. That is not just a crash – that is an avalanche of unemployment.
#9 European Financial Stocks
European financial stocks have been hit particularly hard lately. And for good reason actually – most of the major banks in Europe are essentially insolvent at this point. This week, European financial stocks fell to seven month lows, and this is probably only just the beginning.
#10 Spanish Bankruptcies
According to Reuters, the number of Spanish companies going bankrupt has risen by 45 percent over the past year…
A record number of Spanish companies went bust in the first quarter of 2013 as companies remained under intense pressure from tight credit conditions and meager demand, a study showed on Monday.
The 2,564 firms filing for insolvency proceedings in first three months of the year was a 10 percent rise from the previous quarter and a 45 percent increase on the same period in 2012, the survey by credit rating agency Axesor said.
#11 Demand For Energy
Just like we saw back in 2008, the overall demand for energy in the United States is falling rapidly. There are some shocking charts that prove this that were recently posted on Zero Hedge that you can find right here.
Yes, it is good for people to use a bit less energy, but it is also a clear indication that economic activity is really starting to slow down.
But despite everything that you have just read, the Dow and the S&P 500 have been setting new record highs.
And if you listen to the mainstream media, you would think that this stock market bubble can continue indefinitely.
Fortunately, there are a few voices of reason out there. For example, just check out what Marc Faber recently told CNBC…
In the near-term, the U.S. stock market is overbought and adding that any more near-term gains portend big trouble for the market, “The Gloom, Boom & Doom Report” publisher Marc Faber told CNBC on Monday.
“If we continue to move up, the probability of a crash becomes higher,” Faber predicted in a “Squawk Box” interview, saying it could happen “sometime in the second half of this year.”
As I have written about previously, a bubble is always the biggest right before it bursts. I hope that we still have at least a little bit more time before it happens, but I wouldn’t count on it.
The economic fundamentals tell us that the stock market should be plunging, not rising. At some point the boys over on Wall Street will get the message and the market will catch up to reality very, very rapidly.
But for the moment, the American people are feeling really good. According to CNN, Americans are now more optimistic than they have been in six years…
As the stock market continues to show record highs, the number of Americans who say things are going well in the country has reached 50% for the first time in more than six years, according to a new national survey.
So what do you think will happen for the rest of the year?
Do you think that the good times will continue to roll, or do you believe that the bubble is about to burst?
Please feel free to share your opinion by posting a comment below…
Why are some of the biggest names in the corporate world unloading stock like there is no tomorrow, and why are some of the most prominent investors on Wall Street loudly warning about the possibility of a market crash? Should we be alarmed that the big dogs on Wall Street are starting to get very nervous? In a previous article, I got very excited about a report that indicated that corporate insiders were selling nine times more of their own shares than they were buying. Well, according to a brand new Bloomberg article, insider sales of stock have outnumbered insider purchases of stock by a ratio of twelve to one over the past three months. That is highly unusual. And right now some of the most respected investors in the financial world are ringing the alarm bells. Dennis Gartman says that it is time to “rush to the sidelines”, Seth Klarman is warning about “the un-abating risks of collapse”, and Doug Kass is proclaiming that “we’re headed for a sharp fall”. So does all of this mean that a market crash is definitely on the way? No, but when you combine all of this with the weak economic data constantly coming out of the U.S. and Europe, it certainly does not paint a pretty picture.
According to Bloomberg, it has been two years since we have seen insider sales of stock at this level. And when insider sales of stock are this high, that usually means that the market is about to decline…
Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.
There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.
But it isn’t just the number of stock sales that is alarming. Some of these insider transactions are absolutely huge. Just check out these numbers…
Among the biggest transactions last week were a $65.2 million sale by Google Inc.’s 39-year-old Chief Executive Officer Larry Page, a $40.1 million disposal by News Corp.’s 81- year-old Chairman and CEO Rupert Murdoch and a $34.2 million sale from American Express Co. chief Kenneth Chenault, who is 61. Nolan Archibald, the 69-year-old chairman of Stanley Black & Decker Inc. who plans to leave his post next month, unloaded $29.7 million in shares last week and Amphenol Corp. Chairman Martin Hans Loeffler, 68, sold $27.5 million, according to data compiled by Bloomberg.
Google Chairman Eric Schmidt, 57, announced plans to sell as many as 3.2 million shares in the operator of the world’s most-popular search engine. The planned share sales, worth about $2.5 billion, represent about 42 percent of Schmidt’s holdings.
So why are all of these very prominent executives cashing out all of a sudden?
That is a very good question.
Meanwhile, some of the most respected names on Wall Street are warning that it is time to get out of the market.
For example, investor Dennis Gartman recently wrote that the game is “changing” and that it is time to “rush to the sidelines”…
“When tectonic plates in the earth’s crust shift earthquakes happen and when the tectonic plants shift beneath our feet in the capital markets margin calls take place. The tectonic plates have shifted and attention… very careful and very substantive attention… must be paid.
“Simply put, the game has changed and where we were playing a ‘game’ fueled by the monetary authorities and fueled by the urge on the part of participants to see and believe in rising ‘animal spirits’ as Lord Keynes referred to them we played bullishly of equities and of the EUR and of ‘risk assets’. Now, with the game changing, our tools have to change and so too our perspective.
“Where we were buyers of equities previously we must disdain them henceforth. Where we were sellers of Yen and US dollars we must buy them now. Where we had been long of gold in Yen terms, we must shift that and turn bullish of gold in EUR terms. Where we might have been ‘technically’ bullish of the EUR we must now be technically and fundamentally bearish of it. The game board has been flipped over; the game has changed… change with it or perish. We cannot be more blunt than that.”
That is a very ominous warning, but he is far from alone. Just the other day, I wrote about how legendary investor Seth Klarman is warning that the collapse of the financial markets could happen at literally any time…
“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”
Other big hitters on Wall Street are ringing the alarm bells as well. For example, Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what he is seeing right now reminds him of the period just before the crash of 1987…
“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”
And of course the “perma-bears” continue to warn that the months ahead are going to be very difficult. For instance, “Dr. Doom” Marc Faber recently said that he “loves the high odds of a ‘big-time’ market crash“.
Another “perma-bear”, Nomura’s Bob Janjuah, is convinced that the stock market will experience one more huge spike before collapsing by up to 50%…
I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in “their system”.
So are they right?
We will see.
At the same time that many of the big dogs are pulling their money out of the market, many smaller investors are rushing to put their money back in to the market. The mainstream media continues to assure them that everything is wonderful and that this rally can last forever.
But it is important to keep in mind that the last time that Wall Street was this “euphoric” was right before the market crash in 2008.
So what should we be watching for?
As I have mentioned before, it is very important to watch the financial markets in Europe right now.
If they crash, the financial markets in the U.S. will probably crash too.
And the financial markets in Europe definitely have had a rough week. Just check out what happened on Thursday. The following is from a report by CNBC’s Bob Pisani…
Italy, Germany, France, Spain, U.K., Greece, and Portugal all on track to log worst day since Feb. 4. European PMI numbers were disappointing, with all major countries except Germany reporting numbers below 50, indicating contraction.
What does this mean? It means Europe remains mired in recession: “The euro zone is on course to contract for a fourth consecutive quarter,” Markit, who provides the PMI data, said. A new insight is that France is now joining the weakness shown in periphery countries.
You’re giving me agita: Italy was the worst market, down 2.5 percent. The CEO of banking company, Intesa Sanpaolo, said Italy’s recession has been so bad it could cause a fifth of Italian companies to fail, noting that topline for those bottom fifth have been shrinking 35 to 45 percent. Italian elections are this weekend.
It wasn’t any better in Asia. The Shanghai Index had its worst day in over a year, closing down nearly three percent.
And the economic numbers coming out of the U.S. also continue to be quite depressing.
On Thursday, the Department of Labor announced that there were 362,000 initial claims for unemployment benefits during the week ending February 16th. That was a sharp rise from a week earlier.
But I am not really concerned about that number yet.
When it rises above 400,000 and it stays there, then it will be time to officially become alarmed.
So what is the bottom line?
There are trouble signs on the horizon for the financial markets. Nobody should panic right now, but things certainly do not look very promising for the remainder of the year.