Warren Buffett once referred to derivatives as “financial weapons of mass destruction“, and it was inevitable that they would begin to wreak havoc on our financial system at some point. While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface. As you will see below, something happened in mid-September that required an unprecedented 405 billion dollar surge of Treasury collateral into the repo market. I know – that sounds very complicated, so I will try to break it down more simply for you. It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting that they have been doing. This is something that I have warned would happen over and over again. In fact, I have written about it so much that my regular readers are probably sick of hearing about it. But this is what is going to cause the meltdown of our financial system.
Many out there get upset when I compare derivatives trading to gambling, and perhaps it would be more accurate to describe most derivatives as a form of insurance. The big financial institutions assure us that they have passed off most of the risk on these contracts to others and so there is no reason to worry according to them.
Well, personally I don’t buy their explanations, and a lot of others don’t either. On a very basic, primitive level, derivatives trading is gambling. This is a point that Jeff Nielson made very eloquently in a piece that he recently published…
No one “understands” derivatives. How many times have readers heard that thought expressed (please round-off to the nearest thousand)? Why does no one understand derivatives? For many; the answer to that question is that they have simply been thinking too hard. For others; the answer is that they don’t “think” at all.
Derivatives are bets. This is not a metaphor, or analogy, or generalization. Derivatives are bets. Period. That’s all they ever were. That’s all they ever can be.
One very large financial institution that appears to be in serious trouble with these financial weapons of mass destruction is Glencore. At one time Glencore was considered to be the 10th largest company on the entire planet, but now it appears to be coming apart at the seams, and a great deal of their trouble seems to be tied to derivatives. The following comes from Zero Hedge…
Of particular concern, they said, was Glencore’s use of financial instruments such as derivatives to hedge its trading of physical goods against price swings. The company had $9.8 billion in gross derivatives in June 2015, down from $19 billion in such positions at the end of 2014, causing investors to query the company about the swing.
Glencore told investors the number went down so drastically because of changes in market volatility this year, according to people briefed by Glencore. When prices vary significantly, it can increase the value of hedging positions.
Last year, there were extreme price moves, particularly in the crude-oil market, which slid from about $114 a barrel in June to less than $60 a barrel by the end of December.
That response wasn’t satisfying, said Michael Leithead, a bond fund portfolio manager at EFG Asset Management, which managed $12 billion as of the end of March and has invested in Glencore’s debt.
According to Bank of America, the global financial system has about 100 billion dollars of exposure overall to Glencore. So if Glencore goes bankrupt that is going to be a major event. At this point, Glencore is probably the most likely candidate to be “the next Lehman Brothers”.
And it isn’t just Glencore that is in trouble. Other financial giants such as Trafigura are in deep distress as well. Collectively, the global financial system has approximately half a trillion dollars of exposure to these firms…
Worse, since it is not just Glencore that the banks are exposed to but very likely the rest of the commodity trading space, their gross exposure blows up to a simply stunning number:
For the banks, of course, Glencore may not be their only exposure in the commodity trading space. We consider that other vehicles such as Trafigura, Vitol and Gunvor may feature on bank balance sheets as well ($100 bn x 4?)
Call it half a trillion dollars in very highly levered exposure to commodities: an asset class that has been crushed in the past year.
The mainstream media is not talking much about any of this yet, and that is probably a good thing. But behind the scenes, unprecedented moves are already taking place.
When I came across the information that I am about to share with you, I was absolutely stunned. It comes from Investment Research Dynamics, and it shows very clearly that everything is not “okay” in the financial world…
Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008:
What in the world could possibly cause a spike of that magnitude?
What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.
The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out sight in the general liquidity functions of the global banking system.
Back in 2008, Lehman Brothers was not “perfectly fine” one day and then suddenly collapsed the next. There were problems brewing under the surface well in advance.
Well, the same thing is happening now at banking giants such as Deutsche Bank, and at commodity trading firms such as Glencore, Trafigura and The Noble Group.
And of course a lot of smaller fish are starting to implode as well. I found this example posted on Business Insider earlier today…
On September 11, Spruce Alpha, a small hedge fund which is part of a bigger investment group, sent a short report to investors.
The letter said that the $80 million fund had lost 48% in a month, according the performance report seen by Business Insider.
There was no commentary included in the note. No explanation. Just cold hard numbers.
Wow – how do you possibly lose 48 percent in a single month?
It would be hard to do that even if you were actually trying to lose money on purpose.
Sadly, this kind of scenario is going to be repeated over and over as we get even deeper into this crisis.
Meanwhile, our “leaders” continue to tell us that there is nothing to worry about. For example, just consider what former Fed Chairman Ben Bernanke is saying…
Former Federal Reserve chairman Ben Bernanke doesn’t see any bubbles forming in global markets right right now.
But he doesn’t think you should take his word for it.
And even if you did, that isn’t the right question to ask anyway.
Speaking at a Wall Street Journal event on Wednesday morning, Bernanke said, “I don’t see any obvious major mispricings. Nothing that looks like the housing bubble before the crisis, for example. But you shouldn’t trust me.”
I certainly agree with that last sentence. Bernanke was the one telling us that there was not going to be a recession back in 2008 even after one had already started. He was clueless back then and he is clueless today.
Most of our “leaders” either don’t understand what is happening or they are not willing to tell us.
So that means that we have to try to figure things out for ourselves the best that we can. And right now there are signs all around us that another 2008-style crisis has begun.
Personally, I am hoping that there will be a lot more days like today when the markets were relatively quiet and not much major news happened around the world.
Unfortunately for all of us, these days of relative peace and tranquility are about to come to a very abrupt end.
Have you heard of “the global goals”? If you haven’t heard of them by now, rest assured that you will be hearing plenty about them in the days ahead. On September 25th, the United Nations launched a set of 17 ambitious goals that it plans to achieve over the next 15 years. A new website to promote this plan has been established, and you can find it right here. The formal name of this new plan is “the 2030 Agenda“, but those behind it decided that they needed something catchier when promoting these ideas to the general population. The UN has stated that these new “global goals” represent a “new universal Agenda” for humanity. Virtually every nation on the planet has willingly signed on to this new agenda, and you are expected to participate whether you like it or not.
Some of the biggest stars in the entire world have been recruited to promote “the global goals”. Just check out the YouTube video that I have posted below. This is the kind of thing that you would expect from a hardcore religious cult…
If you live in New York City, you are probably aware of the “Global Citizen Festival” that was held in Central Park on Saturday where some of the biggest names in the music industry promoted these new “global goals”. The following is how the New York Daily News described the gathering…
It was a party with a purpose.
A star-studded jamboree and an impassioned plea to end poverty rocked the Great Lawn in Central Park as more than 60,000 fans gathered Saturday for the fourth-annual Global Citizen Festival.
The feel-good event, timed to coincide with the annual gathering of world leaders at the United Nations General Assembly, featured performances by Beyoncé, Pearl Jam, Ed Sheeran and Coldplay.
Pope Francis gave his backing to the new development agenda in an address to the U.N. General Assembly before the summit to adopt the 17-point plan opened, calling it “an important sign of hope” at a very troubled time in the Middle East and Africa.
When Danish Prime Minister Lars Rasmussen struck his gavel to approve the development road map, leaders and diplomats from the 193 U.N. member states stood and applauded loudly.
Then, the summit immediately turned to the real business of the three-day meeting — implementation of the goals, which is expected to cost $3.5 trillion to $5 trillion every year until 2030.
Okay, so where will the trillions of dollars that are needed to implement these new “global goals” come from?
Let me give you a hint – they are not going to come from the poor nations.
When you read over these “global goals”, many of them sound quite good. After all, who wouldn’t want to “end hunger”? I know that I would like to “end hunger” if I could.
The key is to look behind the language and understand what is really being said. And what is really being said is that the elite want to take their dream of a one world system to the next level.
The following list comes from Truthstream Media, and I think that it does a very good job of translating these new “global goals” into language that we can all understand…
Goal 1: End poverty in all its forms everywhere
Translation: Centralized banks, IMF, World Bank, Fed to control all finances, digital one world currency in a cashless society
Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal3: Ensure healthy lives and promote well-being for all at all ages
Translation: Mass vaccination, Codex Alimentarius
Goal 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Translation: UN propaganda, brainwashing through compulsory education from cradle to grave
Goal 5: Achieve gender equality and empower all women and girls
Translation: Population control through forced “Family Planning”
Goal 6: Ensure availability and sustainable management of water and sanitation for all
Translation: Privatize all water sources, don’t forget to add fluoride
Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all
Translation: Smart grid with smart meters on everything, peak pricing
Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
Translation: TPP, free trade zones that favor megacorporate interests
Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
Goal 10: Reduce inequality within and among countries
Translation: Even more regional government bureaucracy like a mutant octopus
Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable
Translation: Big brother big data surveillance state
Goal 12: Ensure sustainable consumption and production patterns
Translation: Forced austerity
Goal 13: Take urgent action to combat climate change and its impacts*
Translation: Cap and Trade, carbon taxes/credits, footprint taxes
Goal 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Translation: Environmental restrictions, control all oceans including mineral rights from ocean floors
Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
Translation: More environmental restrictions, more controlling resources and mineral rights
Goal 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
Translation: UN “peacekeeping” missions (ex 1, ex 2), the International Court of (blind) Justice, force people together via fake refugee crises and then mediate with more “UN peacekeeping” when tension breaks out to gain more control over a region, remove 2nd Amendment in USA
Goal 17: Strengthen the means of implementation and revitalize the global partnership for sustainable development
Translation: Remove national sovereignty worldwide, promote globalism under the “authority” and bloated, Orwellian bureaucracy of the UN
If you doubt any of this, you can find the official document for this new UN agenda right here. The more you dig into the details, the more you realize just how insidious these “global goals” really are.
The elite want a one world government, a one world economic system and a one world religion. But they are not going to achieve these things by conquest. Rather, they want everyone to sign up for these new systems willingly.
The “global goals” are a template for a united world. To many, the “utopia” that the elite are promising sounds quite promising. But for those that know what time it is, this call for a “united world” is very, very chilling.
I am mourning for America, because she is dying. I am mourning for a nation that once knew such greatness but that has now fallen to depths that were once unimaginable. I am mourning for the death and destruction that are coming, and I am mourning for a future that our children and our grandchildren will never get to see. I am mourning for a nation that has refused to listen to the warnings and that now stands on the precipice of judgment. I am mourning for games that will never be played, for books that will never be finished, for family vacations that will never get to happen and for memories that will never be made. I am mourning for the economic depression that is coming, for the horror and suffering that friends and family will endure, and for the coming death of the country where I drew my first breath.
To many, these words will seem “over the top” and overly dramatic. After all, despite the thousands of problems facing this nation, things still seem very “normal” at this moment. Well, if you don’t “get” what I am saying right now, just bookmark this page and come back to it later. Eventually it will make sense to you.
Last week, I was invited to be a guest on a major television show that is beamed into the homes of millions of people in the United States and Canada. If you get a chance to view the shows that are being aired this week, you will notice that I wore all black.
I wasn’t just making a fashion statement. I was doing it because I am in mourning for America. Unlike so many that talk about the horrible things that are ahead for this country, I actually love the United States. I truly wish that this nation had become everything that it could have become. I love the part of the country where I currently live, I love the amazing people that I am constantly meeting, and I love the things that I have been able to experience just because I am an American.
Unfortunately, everything is about to change.
There are many out there that believe that America is still a great nation. Well, great nations do not murder tens of millions of their own children. As Dr. Chuck Missler has pointed out, the most dangerous place to be in America today is in a mother’s womb.
Since Roe v. Wade was decided in 1973, more than 56 million babies have been purposely destroyed in this country.
What does a nation that has murdered 56 million of its own children deserve?
I believe that we have just come out of a season of time when America has been shown exactly why it is about to be judged.
It is no accident that the undercover Planned Parenthood videos were released when they were. Now the entire world knows that we slaughter our babies, harvest their organs and sell them off to the highest bidder.
So what has the response of the American people been to the revelation of this great evil?
Yes, a small minority of Americans have gotten upset, but most people have been completely unmoved by this news.
Our government gives Planned Parenthood hundreds of millions of dollars each year, and that isn’t going to change. Planned Parenthood is just going to keep doing what they do, and the American people are just going to go back to ignoring the unprecedented holocaust that is happening behind closed doors all over the nation.
This past summer we also witnessed what I believe is the perfect bookend for the Roe v. Wade Supreme Court decision of 1973. The institution of marriage was permanently altered in all 50 states, and most of the nation greatly rejoiced.
The White House was lit up with rainbow colors to honor what the Supreme Court did. The rainbow is a symbol of God’s covenant with Noah, and in the book of Revelation there is a rainbow around the throne of God. They have taken this symbol that belongs to God, and they are using it as a symbol of their defiance.
Of course these things that I have just mentioned are just the tip of the iceberg. The truth is that evil is growing in this nation in thousands of different ways. Every year there are 20 million new cases of sexually transmitted disease in the United States, we have the highest divorce rate in the entire industrialized world, and nearly one out of every five American women say that they have been raped at some point in their lives. In the United States today, there are 60 million people that abuse alcohol and there are 22 million people that use illegal drugs. America produces more pornography than the rest of the world combined, and surveys have found that Christian men use it at just about the same rate as everyone else.
I will not be publishing an article tomorrow. In a few hours, Yom Kippur will begin where I live. It is the most solemn of all the holidays described in the Bible, and it is a time of repentance. I will be praying for myself, my family, my community and my nation.
If America had repented as a nation and had turned from her wicked ways, we would not have to go through the things that we are about to go through.
I believe that the time of grace that the United States has been given to repent is ending.
I know that this is very different from my usual format. Is it okay if I just share what is on my heart from time to time? On Thursday I will get back to sharing the facts, figures and hard information that you all have come to expect from me. But today when I woke up I just felt that I should share these things with you.
Very shortly, things are going to start changing in a major way.
America is dying, and the hardest times that any of us have ever seen are right in front of us.
We witnessed something truly historic happen on Friday. The Dow Jones Industrial Average plummeted 530 points, and that followed a 358 point crash on Thursday. When you add those two days together, the total two day stock market crash that we just witnessed comes to a grand total of 888 points, which is larger than any one day stock market crash in U.S. history. It is also interesting to note that this 888 point crash comes in the 8th month of our calendar. Perhaps that is just a coincidence, and perhaps it is not. It just struck me as being noteworthy. This is the first time that the Dow has dropped by more than 300 points on two consecutive days since November 2008, and we all remember what was happening back then. Overall, this was the worst week for the Dow in four years, and there have only been five other months throughout history when the Dow has fallen by more than a thousand points (the most recent being October 2008). Of course we still have six more trading days left in August, so there is plenty of time remaining for even more carnage.
By itself, the 530 point plunge on Friday was the ninth worst stock market crash in all of U.S. history. The following list of the top eight comes from Wikipedia…
It is funny how these strange “coincidences” keep happening.
The financial carnage that we witnessed on Friday was truly global in scope. On a percentage basis, Chinese stocks crashed even more than U.S. stocks did. Japanese stocks also crashed, so did stock markets all over Europe, and emerging market currencies all over the planet got absolutely destroyed.
The following is how Zero Hedge summarized what went down…
China’s worst week since July – closes at 5 month lows
Normally, August is a fairly slow month in the financial world. As I have discussed previously, most of the really noteworthy stock market crashes throughout history have taken place during the months of September and October. So I thought that things wouldn’t start getting really crazy for another few weeks at least.
Financial markets tend to fall much faster than they go up, and I believe that we are moving into a time of extraordinary volatility. There will be huge down days, and there will also be huge up days. In fact, the three largest single day rallies in Dow history happened right in the middle of the financial crisis of 2008. So don’t let what happens on any one particular day fool you.
An absolutely gigantic global financial bubble is beginning to burst, and stocks could potentially fall a very, very long way. For instance, just consider what MarketWatch columnist Brett Arends has just written…
I don’t mean to be alarmist or to induce panic, but someone needs to tell the public that there is a plausible scenario in which the U.S. stock market now collapses by another 70% until the Dow Jones Industrial Average falls to about 5,000.
It is important to keep in mind that Arends is not a “bear” at all. He is a very level-headed analyst that tries to objectively look at all sides of things.
I sincerely hope that global financial markets will stabilize for at least a couple of weeks. But there is absolutely no guarantee that will happen.
So many of the things that I have been warning about on this website and on End of the American Dream are starting to unfold right in front of our eyes. If I am right, this is just the beginning. I believe that we are moving into a time of unprecedented chaos, and our nation is about to be shaken to the core.
Hopefully you have been preparing for the storm that is coming for quite a while and you will not be surprised by what is about to happen.
Unfortunately, the same cannot be said for the vast majority of Americans. Most of them are totally unprepared for what is coming, and they are going to be completely blindsided by the events that will unfold in the months ahead.
The relative calm of the past few years has lulled millions into a false sense of complacency.
If you are one of those that have dozed off, I have a word of warning for you…
Those that run food banks all over America say that demand for their services just continues to explode. It always amazes me that there are still people out there that insist that an “economic collapse” is not happening. From their air-conditioned homes in their cushy suburban neighborhoods they mock the idea that the U.S. economy is crumbling. But if they would just go down and visit the local food banks in their areas, they would see how much people are hurting. According to Feeding America spokesman Ross Fraser, 46 million Americans got food from a food bank at least one time during 2014. Because the demand has become so overwhelming, some food banks are cutting back on the number of days they operate and the amount of food that is given to each family. As you will see below, many impoverished Americans are lining up at food banks as early as 6:30 in the morning just so that they can be sure to get something before the food runs out. And yet there are still many people out there that have the audacity to say that everything is just fine in America. Shame on them for ignoring the pain of millions upon millions of their fellow citizens.
Poverty in America is getting worse, not better. And no amount of spin from Barack Obama or his apologists can change that fact.
This year, it is being projected that food banks in the United States will give away an all-time record 4 billion pounds of food.
Over the past decade, that number has more than doubled.
Food banks across the country are seeing a rising demand for free groceries despite the growing economy, leading some charities to reduce the amount of food they offer each family.
Those in need are starting to realize what is going on, so they are getting to the food banks earlier and earlier. For example, one food bank in New Mexico is now getting long lines of people every single day starting at 6:30 in the morning…
“We get lines of people every day, starting at 6:30 in the morning,” said Sheila Moore, who oversees food distribution at The Storehouse, the largest pantry in Albuquerque, New Mexico, and one where food distribution has climbed 15 percent in the past year.
Does that sound like an “economic recovery” to you?
Just because your family doesn’t have to stand in line for food does not mean that everything is okay in America.
The same thing that is happening in New Mexico is also happening in Ohio. Needy people are standing in line at the crack of dawn so that they can be sure to get something “before the food runs out”…
Lisa Hamler-Fugitt, executive director of the Ohio Association of Food Banks, who has been working in food charities since the 1980s, said that when earlier economic downturns ended, food demand declined, but not this time.
“People keep coming earlier and earlier, they’re standing in line, hoping they get there before the food runs out,” Hamler-Fugitt said.
So how bad will things be when millions more Americans lose their jobs and millions more Americans lose their homes?
Rising poverty is also reflected in the number of Americans on food stamps. The following graph was posted by the Economic Policy Journal, and it shows how food stamp use has absolutely exploded in the five most populated states…
I don’t see an “economic recovery” in that graph, do you?
Instead, what it shows is that the number of Americans on food stamps continued to rise for years even after the recession ended.
Sadly, things are only going to get worse from here. Eventually, the kinds of things that we are seeing happen in places such as Venezuela will be coming here as well. At this point, young mothers in Venezuela are sleeping outside of empty supermarkets at night in a desperate attempt to get something for their families when morning arrives…
As dawn breaks over the scorching Venezuelan city of Maracaibo, smugglers, young mothers and a handful of kids stir outside a supermarket where they spent the night, hoping to be first in line for scarce rice, milk or whatever may be available.
Some of the people in line are half-asleep on flattened cardboard boxes, others are drinking coffee.
Most Americans cannot identify with this level of suffering, but it is coming to our country someday too. Here is more from Reuters…
“I can’t get milk for my child. What are we going to do?” said Leida Silva, 54, breaking into tears outside the Latino supermarket in northern Maracaibo where she arrived at 3 a.m. on a recent day.
In case you are wondering, that is not a sign of progress.
Just because you might live in a comfortable neighborhood that does not give you the right to look down on those that are suffering.
And when you add increasing racial tensions to the mix, it becomes easier to understand why there is so much anger and frustration in our urban areas. According to Business Insider, the percentage of Americans that consider race relations to be in good shape in this nation has dropped precipitously…
Over the last two years there has been a 23% drop in the number of Americans who see relations between blacks and whites as “very good” or “somewhat good.”
Today, only 47% of Americans see black-white relations positively, according to a Gallup poll, the lowest it has been in the last 14 years.
The poll also showed that blacks see the relations more positively (51%) than whites (45%), but both percentages experienced sharp declines in the last two years.
All of the ingredients are there for civil unrest to erupt in cities all over the United States.
When the next major economic downturn happens, anger and frustration are going to flare to extremely dangerous levels. At this point, it will not take much to set things off.
Desperate people do desperate things, and desperation is rising even now in this country.
So how did things get so bad?
Stupid decisions lead to stupid results, and very soon we will start to pay a very great price for decades of incredibly stupid decisions.
Will there be a financial collapse in the United States before the end of 2015? An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis. Of course that doesn’t mean that it will happen. Experts have been wrong before. But without a doubt, red flags are popping up all over the place and things are lining up in textbook fashion for a new financial crisis. As I write this article, U.S. stocks have declined four days in a row, the Dow is down more than 750 points from the peak of the market in May, and one out of every five U.S. stocks is already in a bear market. I fully expect the next several months to be extremely chaotic, and I am far from alone. The following are 8 financial experts that are warning that a great financial crisis is imminent…
Noted short seller Bill Fleckenstein, who correctly predicted the financial crisis in 2007, says he is one step closer to opening up a short-focused fund for the first time since 2009. In the meantime, Fleckenstein says the entire market could be heading for calamity in the coming months.
“The market is uniquely crash-prone,” Fleckenstein told CNBC’s “Fast Money” this week. “I think the market is very brittle because of high-frequency trading, ETFs, a lot of momentum investors. I don’t think there’s going to be any painless back door.”
From my standpoint, this is the strangest period that I have gone through since the 1940s. The Industrials are declining faster than the Transports. If this continues, at some point the Industrials will touch the Transports. When that happens, I believe a bear market will be signaled, as both Industrials and Transports accelerate on the downside.
I expect a brief period of higher prices which will draw in the amateurish retail public. This brief breather will be followed by an historic bear market that will tear apart the current economic system.
#4 Larry Edelson is “100% confident” that a global financial crisis will be triggered “within the next few months”…
“On October 7, 2015, the first economic supercycle since 1929 will trigger a global financial crisis of epic proportions. It will bring Europe, Japan and the United States to their knees, sending nearly one billion human beings on a roller-coaster ride through hell for the next five years. A ride like no generation has ever seen. I am 100% confident it will hit within the next few months.”
In any event, this is no time to be on autopilot. Look at the data, and you’ll realize that our present concerns are not hyperbole or exaggeration. We simply have not observed the market conditions we observe today except in a handful of instances in market history, and they have typically ended quite badly (see When You Look Back on This Moment in History and All Their Eggs in Janet’s Basket for a more extended discussion of current conditions). In my view, this is one of the most important moments in a generation to examine all of your risk exposures, the extent to which you believe historical evidence is informative, your tolerance for loss, your comfort or discomfort with missing out on potential rallies even in a wickedly overvalued market, and your true investment horizon.
#6 During a recent appearance on CNBC, Marc Faber suggested that U.S. stocks could soon plummet 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.”
As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.
I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!
Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.
So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.
So are they right?
We’ll know soon.
And of course they are not the only ones with a bad feeling about what is ahead. A recent WSJ/NBC News survey found that 65 percent of all Americans believe that the country is currently on the wrong track.
Also, Gallup’s Economic Confidence Index just plunged to the lowest level that we have seen so far in 2015…
Americans confidence in the US economy dropped sharply in July to its lowest level in 2015, according to a new US Economic Confidence Index rating released by Gallup on Tuesday.
“Gallup’s Economic Confidence Index declined to an average of —12 in July from —8 in June. This is the lowest monthly average since last October, and is a noticeable departure from the +3 average in January,” the polling company said.
Gallup said that “unsettled economic” conditions, including tumult in Chinese markets and uncertainty in Europe over a Greek debt deal, as well as US stock market volatility are factors driving lower confidence in the US economy.
What I am about to share with you is quite stunning. A well-respected financial expert that correctly predicted the last two stock market crashes is now warning that we are right on the verge of the next one. John Hussman is a former professor of economics and international finance at the University of Michigan, and the information in his latest weekly market comment is staggering. Since 1970, there have only been a handful of times when a combination of market signals that Hussman uses have indicated that a major market peak has been reached. In 1972, 2000 and 2007 each of those peaks was followed by a dramatic stock market crash. Now, for the first time since the last financial crisis, all four of those signals appeared once again during the week of July 17th. If Hussman’s analysis is correct, this could very well mean that the next great stock market crash in the United States is imminent.
It was an excellent article by Jim Quinn of the Burning Platform that first alerted me to Hussman’s latest warning. If you don’t follow Quinn’s work already, you should, because it is excellent.
When someone is repeatedly correct about the financial markets, we should all start paying attention. Back in late 2007, Hussman warned us about what was coming in 2008, but most people did not listen.
Now he is sounding the alarm again. According to Hussman, when there is a confluence of four key market indicators, that tells us that the market has peaked and is in danger of crashing. The following comes from Newsmax…
He cited the metric among the indicators that foreshadowed declines after peaks in 1972, 2000 and 2007:
*Less than 27 percent of investment advisers polled by Investors Intelligence who say they are bearish.
*Valuations measured by the Shiller price-to-earnings ratio are greater than 18 times.
*Less than 60 percent of S&P 500 stocks above their 200-day moving averages.
*Record high on a weekly closing basis.
“The most recent warning was the week ended July 17, 2015,” Hussman said. “It’s often said that they don’t ring a bell at the top, and that’s true in many cycles. But it’s interesting that the same ‘ding’ has been heard at the most extreme peaks among them.”
It is quite rare for the market to set a new record high on a weekly closing basis and have more than 40 percent of stocks below their 200-day moving averages at the same time. That is why a confluence of all these factors is fairly uncommon. Hussman elaborated on this in his recent report…
The remaining signals (record high on a weekly closing basis, fewer than 27% bears, Shiller P/E greater than 18, fewer than 60% of S&P 500 stocks above their 200-day average), are shown below. What’s interesting about these warnings is how closely they identified the precise market peak of each cycle. Internal divergences have to be fairly extensive for the S&P 500 to register a fresh overvalued, overbullish new high with more than 40% of its component stocks already falling – it’s evidently a rare indication of a last hurrah. The 1972 warning occurred on November 17, 1972, only 7 weeks and less than 4% from the final high before the market lost half its value. The 2000 warning occurred the week of March 24, 2000, marking the exact weekly high of that bull run. The 2007 instance spanned two consecutive weekly closing highs: October 5 and October 12. The final daily high of the S&P 500 was October 9 – right in between. The most recent warning was the week ended July 17, 2015.
The following is the chart that immediately followed the paragraph in his report that you just read…
When I first took a look at that chart I could hardly believe it.
It appears that Hussman’s signals are able to indicate major stock market crashes with stunning precision.
And considering the fact that we just hit a new “ding” for the first time since the last financial crisis, what Hussman is saying is more than just a little bit ominous.
According to Hussman this is not just a recent phenomenon either. Even though advisory sentiment figures were not available back in 1929, he believes that his indicators would have given a signal that a market crash was imminent in August of that year as well…
Though advisory sentiment figures aren’t available prior to the mid-1960’s, imputed data suggest that additional instances likely include the two consecutive weeks of August 19, 1929 and August 26, 1929. We can infer unfavorable market internals in that instance because we know that cumulative NYSE breadth was declining for months before the 1929 high. The week of the exact market peak would also be included except that stocks closed down that week after registering a final high on September 3, 1929. Another likely instance, based on imputed sentiment data, is the week of November 10, 1961, which was immediately followed by a market swoon into June 1962.
Of course the past is the past, and what has happened in the past will not necessarily happen in the future.
Other financial professionals are concerned that a market crash could be imminent as well. The following comes from a piece authored by Andrew Adams…
More than 13% of stocks on the New York Stock Exchange are at 52-week lows, which is about 6 standard deviations above the average over the last three years (1.62%) and an extreme only seen one other time during said period (last October when the S&P 500 was percentage points away from a 10% correction).
This dichotomy has created what I believe to be the biggest question about the stock market right now – have we already experienced a stealth correction in the majority of stocks that will soon come to an end or will the market leaders finally succumb to the weight of the laggards and join in on the sell-off? The answer to this could end up being worth at least $2.2 trillion, which is how much money would essentially be wiped out of the stock market if we finally get the much-discussed 10% correction in the overall market (the total U.S. stock market capitalization was $22.5 trillion as of June 30, according to the Center for Research in Security Prices).
Sometimes, a picture is worth more than a thousand words. I could share many more quotes from the “experts” about why they are concerned about a potential stock market collapse, but instead I want to share with you a “bonus chart” that Zero Hedge posted on Tuesday…
Do you understand what that is saying?
In 2007 and 2008, junk bonds started crashing well before stocks did.
Now, we are witnessing a similar divergence. If a similar pattern holds up this time, stocks have a long, long way to fall.
Like Hussman and so many others, I believe that a stock market crash and a new financial crisis are imminent.
The month of August is usually a slow month in the financial world, so hopefully we can get through it without too much chaos. But once we roll into the months of September and October we will officially be in “the danger zone”.
Keep an eye on China, keep an eye on Europe, and keep listening for serious trouble at “too big to fail” banks all over the planet.
The next several months are going to be extremely significant, and we all need to be getting ready while we still can.