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If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?

Demolition - Public DomainIf the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession?  The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession.  But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can.  In this article, I want to look at more signs that a dramatic shift is happening in our economy right now.

First of all, let’s consider what is happening to hedge funds.  For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis.  The following is an excerpt from a Business Insider article entitled “Hedge funds keep on imploding” that was posted on Wednesday…

BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer.

“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider.

The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours. The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing.

And those are just two examples.  Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street.

Another troubling sign is the implosion of so many energy companies.  Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard.  Just check out these stock price declines…

-Cabot Oil & Gas down 37.27 percent over the past 12 months

-Southwestern Energy down 68.11 percent over the past 12 months

-Chesapeake Energy down 73.98 percent over the past 12 months

A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink.  If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall.

We are also seeing tremendous turmoil in the retail industry.  The following comes from Investment Research Dynamics

The retail sales report for October was much worse than expected.  Not only that, but the Government’s original estimates for retail sales in August and September were revised lower.  A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments.  Businesses lower their estimated tax payments when their business activity slows down.

The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom.  Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009.  Here is more from the article that I just quoted above

Retail sales this holiday season are setting up to be a disaster.  Already most retailers are advertising “pre-Black Friday” sales events.  Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving?  Now retailers are going to cannibalize each other with massive discounting before Thanksgiving.  Anybody notice over the weekend that BMW is now offering $6500 price rebates?   The collapsing economy is affecting everyone, across all income demographics.

Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings.  I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts.  Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”  

I think that a chart would be helpful to give you an idea of how bad things have already gotten.  Jim Quinn shared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry.  As you can see, the numbers have never been this dreadful outside of a recession…

Retail Sales Ex-Autos

But stocks went up 247 points on Wednesday so everything must be great, right?

Wrong.

The stock market has never been a good barometer for the overall economy, and this is especially true these days.

In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well.

One of the things that is keeping stocks afloat for the moment is stock buybacks.  In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks.  The following comes from Wolf Richter

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.

Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years…

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

Big corporations like to do this for a couple of reasons.  Number one, it pushes the price of the stock higher, and current investors appreciate that.  Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings.

But now corporate profits are falling and it is becoming tougher for big corporations to borrow money.  So look for stock buybacks to start to decline significantly.

Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse.

All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008.

But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.

 

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

Globe Interconnected - Public DomainIf you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived.  Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.  And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world.  So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting.  A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628.  However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China.  China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling.  In October, Chinese exports were down 6.9 percent compared to a year ago.  That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse.  Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September.  China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing.  As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

Chinese Imports Chinese Exports

Other numbers confirm the magnitude of the economic slowdown in China.  I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low

The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.

The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.

It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.

Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…

Demand for Chinese steel is down 8.9 percent compared to a year ago.

China’s rail freight volume is down 10.1 percent compared to last year.

In October, South Korean exports were down 15.8 percent from a year ago.

According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114.  What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.

Clearly something very big is happening, and it is affecting the entire planet.  The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple

In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.

Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.

Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.

One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade.  A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…

When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.

And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.

A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.

This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.

Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).

But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately.  As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world.  All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash.  Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans.  This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.

Of course we have seen this happen before.  A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s and the major global recession of 2008 and 2009.

If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.

So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.

The Calm Before The Storm

Storm - Public DomainHave you noticed that things have gotten eerily quiet in the month of October?  After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine.  Other “watchmen” that I highly respect have made the exact same observation.  Even though the economic numbers are screaming that we have entered a global recession, they aren’t really make any headline news.  A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet.  And of course Barack Obama seems bound and determined to start World War III.  On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea.  The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care.  But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.

To me, what we are experiencing at the moment would best be described as “the calm before the storm”.  If you are not familiar with this concept, this is how it is defined by How Stuff Works

Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.

After a few minutes, you feel a change in the air, and suddenly a line of clouds ominously appears on the horizon — clouds with a look that tells you they aren’t fooling around. You quickly dash in the house and narrowly miss the first fat raindrops that fall right before the downpour. At this moment, you might stop and ask yourself, “Why was it so calm and peaceful right before the storm hit?”

Like so many others, I believe that a great storm is coming, and yet right at this moment things seem so peaceful.

Unfortunately, this period of peace and quiet is not going to last for long, and most Americans know deep down that something is seriously wrong with our nation.  In fact, a new WND/Clout poll has found that 85.3 percent of all likely voters in the United States believe that our country is going in the wrong direction…

The poll found 92.6 percent of those who identified themselves as conservative believe the nation is on the wrong track. Among those who call themselves liberal, 90.9 percent said it is going the wrong direction.

When asked what they think of the American economy after seven years of Obama’s leadership and economic policies, nearly 80 percent described it as “very fragile” or “somewhat fragile.”

Self-identified Democrats, Republicans, liberals and conservatives were in general agreement, with about 75 percent to 80 percent describing the economy as “somewhat fragile” or “very fragile.”

But even though we are steamrolling in the wrong direction, we haven’t suffered any incredibly serious consequences for it yet.

For the moment, this is allowing the mockers to have a field day.  They are fully confident that Barack Obama and the Federal Reserve knew what they were doing after all, and they are gleefully taunting those of us that have been warning of the great disaster that is heading our way.

However, those that are wise are getting prepared.

I think that we could all learn some lessons from what Overstock.com Chairman Jonathan Johnson is doing. The following is an extended excerpt from a recent Zero Hedge article

*****

One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.

What did Johnson tell the UPMA? Here are some choice quotes:

We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

We also happen to have three months of food supply for every employee that we can live on.

*****

Why would such a seemingly intelligent and successful CEO of a large Internet company do such things?

It is because he can see the writing on the wall.

This period of calm will not last.  A great storm is coming, and when it does arrive those that have not prepared for it are going to suffer tremendously.

Most people have no idea just how fragile our system really is.  Today, some of these “too big to fail” banks supposedly have trillions of dollars in assets, but if you want to withdraw $10,000 or more in cash you have got to give them 24 hours notice to get enough money

This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRILLIONS of dollars worth of assets on their books.

And with each passing day we see even more signs of the global economic slowdown that is emerging all around us.  For example, we just learned that the China Containerized Freight Index has dropped to the lowest level ever recorded.  China accounts for more global trade than anyone else, and so this is a very clear sign that global economic activity is slowing down dramatically…

By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels.

The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

But for those that don’t want to believe that hard times are on the way, they can take comfort in the eerie period of calm that we are experiencing right now.

What they don’t realize is that this truly is “the calm before the storm”, and the global economic crisis that is ahead of us is going to be far beyond what most people ever dared to imagine was possible.

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

Dominoes Falling - Public DomainWhen the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down.  It is just basic economics.  Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge.  Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now.  But this is just part of a larger trend.  As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent.  The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.

For many years, China has been leading the revolution in global trade.  But now we are witnessing something that is almost unprecedented.  Chinese exports are falling, and Chinese imports are absolutely imploding

Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’ Alpha Now puts it. Most of these exports are manufactured goods that are shipped by container to the rest of the world.

And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.

This week it was announced that Chinese GDP growth had fallen to the lowest level since the last recession, and that makes sense.  Global economic activity is really slowing down, and this is deeply affecting China.

So what about the United States?

Well, based on the amount of stuff that is being shipped around in our country it appears that our economy is really slowing down too.  The following comes from Wolf Richter, and I shared some of it in a previous article, but I think that it bears repeating…

September is in the early phase of the make-or-break holiday shipping season. Shipments usually increase from August to September. They did this year too. The number of shipments in September inched up 1.7% from August, according to the Cass Freight Index.

But the index was down 1.5% from an already lousy September last year, when shipments had fallen from the prior month, instead of rising. And so, in terms of the number of shipments, it was the worst September since 2010.

It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!

The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.

What major retailers such as Wal-Mart are reporting also confirms that we are in a major economic slowdown.  Wal-Mart recently announced that its earnings would fall by as much as 12 percent during the next fiscal year, and that caused Wal-Mart stock to drop by the most in 27 years.

And of course this is going to have a huge ripple effect.  There are thousands of other companies that do business with Wal-Mart, and Reuters is reporting that they are starting to get squeezed…

Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart Stores. Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week.

The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year.

“The ground is shaking here,” said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas. “Suppliers are going to have to help Wal-Mart get back on track.”

Similar things are going on at some of the other biggest companies in America as well.

For instance, things have gotten so bad for McDonald’s that one franchise owner recently stated that the restaurant chain is “facing its final days”

“McDonald’s announced in April that it would be closing 700 ‘underperforming’ locations, but because of the company’s sheer size — it has 14,300 locations in the United States alone — this was not necessarily a reduction in the size of the company, especially because it continues to open locations around the world. It still has more than double the locations of Burger King, its closest competitor.”

However, for the franchisees, the picture looks much worse than simply 700 stores closing down.

“We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”

Why would things be so bad at Wal-Mart and McDonald’s if the economy was “recovering”?

Come on now – let’s use some common sense here.

All of the numbers are screaming at us that we have entered a major economic downturn and that it is accelerating.

CNBC is reporting that the number of job openings in the U.S. is falling and that the number of layoffs is rising

Job openings fell 5.3 percent in August, while a 2.6 percent rise in layoffs and discharges offset a 0.3 percent gain in hires. Finally, the amount of quits — or what Convergex calls its “take this job and shove it” indicator because it shows the percentage of workers who left positions voluntarily — fell to 56.6 percent from 57.1 percent, indicating less confidence in mobility.

And as I discussed the other day, Challenger Gray is reporting that we are seeing layoffs at major firms at a level that we have not witnessed since 2009.

We already have 102.6 million working age Americans that do not have a job right now.  As this emerging worldwide recession deepens, a lot more Americans are going to lose their jobs.  That is going to cause the poverty and suffering in this country to spike even more, if you can imagine that.

Just consider what authorities discovered on the streets of Philadelphia just this week

Support is flooding in for a homeless Philadelphia family whose two-year-old son was found wandering alone in a park in the middle of the night.

Angelique Roland, 27, and Michael Jones, 24, were sleeping with their children behind cardboard boxes underneath the Fairmount Park Welcome Center in Love Park when the toddler slipped away.

The boy was found just before midnight and handed over to a nearby Southeastern Pennsylvania Transportation Authority police officer, who took him to the Children’s Hospital of Philadelphia.

He was wearing a green, long sleeve shirt, black running pants and had a diaper on, but did not have shoes or socks.

Could you imagine sleeping on the streets and not even being able to provide your two-year-old child with shoes and socks?

These numbers that I write about every day are not a game.  They affect all of us on a very personal level.

Just like in 2008 and 2009, millions of Americans that are living a very comfortable middle class lifestyle today will soon lose their jobs and will end up out in the streets.

In fact, there will be people that will read this article that this will happen to.

So no, none of us should be excited that the global economy is collapsing.  There is already so much pain all around us, and what is to come is beyond what most of us would even dare to imagine.

Wal-Mart’s Worst Stock Crash In 27 Years Is Another Sign That The Economy Is Rapidly Falling Apart

Wal-Mart - Photo by MikeMozartJeepersMediaNow that a major global recession has begun, you would expect major retailers like Wal-Mart to run into trouble as consumer spending dries up, and that is precisely what is happening.  On Wednesday, shares of Wal-Mart experienced their largest single day decline in 27 years after an extremely disappointing earnings projection was released.  The stock was down about 10 percent, which represented the biggest plunge since January 1988.  Over 21 billion dollars in shareholder wealth was wiped out on Wednesday, and this was just the continuation of a very bad year for Wal-Mart stockholders.  Overall, shares had already declined by 22 percent so far in 2015 before we even got to Wednesday.  Here is more on this stunning turn of events from Bloomberg

Wal-Mart Stores Inc. suffered its worst stock decline in more than 27 years after predicting a drop in annual profit, underscoring the giant retailer’s struggles to reignite growth.

Earnings will decrease 6 percent to 12 percent in fiscal 2017, which ends in January of that year, the Bentonville, Arkansas-based company said at its investor day on Wednesday. Analysts had estimated a gain of 4 percent on average, according to data compiled by Bloomberg.

If it was just Wal-Mart that was having trouble, that would be bad enough.  But the truth is that signs that the U.S. economy has entered another major downturn are popping up all around us.  Just consider the following list of economic indicators that Graham Summers recently put out

The Fed has now kept interest rates at zero for 81 months.

This is the longest period in the history of the Fed’s existence, lasting longer than even the 1938-1942 period of ZIRP.

And the US economy is moving back into recession. Consider that…

1)   Industrial production fell five months straight in the first half of 2015. This has never happened outside of a recession.

2)   Merchant Wholesalers’ Sales are in recession territory.

3)   The Empire Manufacturing Survey is in recession territory.

4)   All four of the Fed’s September Purchasing Manager Index (PMI) readings (Philadelphia, New York, Richmond, and Kansas City) came in at readings of sub-zero. This usually happens when you are already 4-5 months into a recession. (H/T Bill Hester)

Another huge red flag is the fact that month after month fewer products are being shipped around the country compared to last year.

If less stuff is being shipped around by truck, rail and air, is it a sign that the economy is getting better or is it a sign that the economy is getting worse?

The answer, of course, is self-evident.  With that in mind, please read the following excerpt which comes from a recent article by Wolf Richter

It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!

The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.

Evidence keeps piling up in the most unpleasant manner that something isn’t quite right in the real economy. The world is now in an inexplicable slowdown – “inexplicable” for central bankers who’ve cut interest rates to zero or below zero years ago, and who’re still dousing some economies with QE even as governments are running up big deficits. And yet, despite seven years of this huge monetary and fiscal stimulus, the global economy is deteriorating.

Okay, so is there anyone out there that still believes that the U.S. economy is in good shape?

The Obama administration will probably not admit it for a very long time, but the truth is that the numbers very clearly tell us that we are in a recession.

Anybody out there, whether an “expert” or just someone you happen to know, that tells you that everything is just fine is either completely ignorant or they are purposely lying to you.

And just like in 2008, state and local governments are starting to get into tremendous financial trouble as the real economy sputters.  For example, the governor of Illinois has told reporters that “we are out of money now” and that pension fund payments will be delayed as a result…

Illinois will delay payments to its pension fund as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said.

The spending standoff between Republican Governor Bruce Rauner and Democratic legislative leaders has extended into its fourth month with no signs of ending. Munger said her office will postpone a $560 million retirement-fund payment next month, and may make the December contribution late.

“This decision is choosing the least of a number of bad options,” Munger told reporters in Chicago on Wednesday. “For all intents and purposes, we are out of money now.”

When these sorts of things started happening in 2008, Fed Chairman Ben Bernanke and the Bush administration went into full-blown denial mode.  They kept telling all of us not to worry and that everything would be okay, and that just made things worse in the end.

The same thing is happening now.  The Obama administration and the mainstream media keep talking about an “economic recovery” even in the face of numbers such as I have discussed in this article.

Perhaps things are going well for you personally at the moment, and that is great.  But now is not the time to buy lots of new toys.   Nor is it the time to accumulate more debt.

Instead, now is a time to position yourself for a period of difficulty that could stretch on for years.

The next recession is here, and it is going to grow progressively worse.

The wise will take heed and make preparations, but the foolish will just keep on doing what they have been doing until it is far too late.

The Numbers Say That A Major Global Recession Has Already Begun

Global - Public DomainThe biggest bank in the western world has just come out and declared that the global economy is “already in a recession”.  According to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percentSo those that are waiting for the next worldwide economic recession to begin can stop waiting.  It is officially here.  As you will see below, money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun.  Just a few days ago, I explained that the IMF, the UN, the BIS And Citibank were all warning that a major economic crisis could be imminent.  They aren’t just making this stuff up out of thin air, but most Americans still seem to believe that everything is going to be just fine.  The level of blind faith in the system that most people are demonstrating right now is absolutely astounding.

The numbers say that the global economy has not been in this bad shape since the devastating recession that shook the world in 2008 and 2009.  According to HSBC, “we are already in a dollar recession”…

Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. As can be seen in Chart 3 on the following page, global GDP expressed in US dollars is already negative to the tune of USD 1,37trn or -3.4%. That is, we are already in a dollar recession. 

Here is the chart that Zero Hedge posted along with the quote above.  As you can see, the only time global GDP expressed in U.S. dollars has fallen faster in recent years was during the horrible recession of seven years ago…

HSBC Chart

But there are still a whole lot of incredibly clueless people running around out there claiming that “nothing is happening” even though more signs of trouble are erupting all around us every single day.

For instance, just today CNBC published an article entitled “The US is closer to deflation than you think“, and Twitter just announced that it plans to lay off 8 percent of its entire workforce.

But of course the biggest problems are happening in “emerging markets” right now.  The following is an excerpt from an article that was just published in a major British news source entitled “The world economic order is collapsing and this time there seems no way out“…

Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.

China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.

Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.

It is one thing for The Economic Collapse Blog to warn that “the world economic order is collapsing”, but this is one of the biggest newspapers in the UK.

I was writing about these emerging market problems back in July, but at that time very few really understood the true gravity of the situation.  But now giant banks such as Goldman Sachs are calling this the third stage of the ongoing global financial crisis.  The following comes from a recent CNBC piece entitled “Is EM turmoil the third wave of the financial crisis? Goldman thinks so“…

Emerging markets aren’t just suffering through another market rout—it’s a third wave of the global financial crisis, Goldman Sachs said.

“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week.

The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.

You know that it is late in the game when Goldman Sachs starts sounding exactly like The Economic Collapse Blog.  I have been warning about a “series of waves” for years.

When will people wake up?

What is it going to take?

The crisis is happening right now.

Of course many Americans will refuse to acknowledge what is going on until the Dow Jones Industrial Average collapses by several thousand more points.  And that is coming.  But let us all hope that day is delayed for as long as possible, because all of our lives will become much crazier once that happens.

And the truth is that many Americans do understand that bad times are on the horizon.  Just check out the following numbers that were recently reported by CNBC

The CNBC All-America Economic Survey finds views on the current state of the economy about stable, with 23 percent saying it is good or excellent and 42 percent judging it as fair. About a third say the economy is poor, up 3 points from the June survey.

But the percentage of Americans who believe the economy will get worse rose 6 points to 32 percent, the highest level since the government shutdown in 2013. And just 22 percent believe the economy will get better, 2 points lower than June and the lowest level since 2008, when the nation was gripped by recession.

If you want to believe that everything is going to be just fine somehow, then go ahead and believe that.

All I can do is present the facts.  For months I have been warning about this financial crisis, and now it is playing out as a slow-motion train wreck right in front of our eyes.

We are moving into a period of time during which events are going to start to move much more rapidly, and life as we know it is about to change in a major way for all of us.

Hopefully you have already been preparing for what is about to come.

If not, I wouldn’t want to be in your position.

The South American Financial Crisis Of 2015

South America - Public DomainMost nations in South America are either already experiencing an economic recession or are right on the verge of one.  In general, South American economies are very heavily dependent on exports, and right now they are being absolutely shredded by the twin blades of a commodity price collapse and a skyrocketing U.S. dollar.  During the boom times in South America, governments and businesses loaded up on tremendous amounts of debt.  Since much of that debt was denominated in U.S. dollars, South American borrowers are now finding that it takes much more of their own local currencies to service and pay back those debts.  At the same time, there is much less demand for commodities being produced by South American nations in the international marketplace.  As a result, South America is heading into a full-blown financial crisis which will cause years of pain for the entire continent.

If you know your financial history, then you know that we have seen this exact same scenario play out before in various parts of the world.  The following comes from a recent CNN article

The dollar’s gains should make history nerds shake in their boots. Its rally in the early 1980s helped trigger Latin America’s debt crisis. Fifteen years later, the greenback surged quickly again, causing Southeast Asian economies, such as Thailand, to collapse after a run on the banks ensued.

In particular, what is going on right now is so similar to what took place back in the early 1980s.  At that time, Latin American governments were swimming in debt, the U.S. dollar was surging and commodity prices were falling.  The conditions were perfect for a debt crisis in Latin America, and that is precisely what happened

When the world economy went into recession in the 1970s and 80s, and oil prices skyrocketed, it created a breaking point for most countries in the region. Developing countries also found themselves in a desperate liquidity crunch. Petroleum exporting countries – flush with cash after the oil price increases of 1973-74 – invested their money with international banks, which ‘recycled’ a major portion of the capital as loans to Latin American governments. The sharp increase in oil prices caused many countries to search out more loans to cover the high prices, and even oil producing countries wanted to use the opportunity to develop further. These oil producers believed that the high prices would remain and would allow them to pay off their additional debt.

As interest rates increased in the United States of America and in Europe in 1979, debt payments also increased, making it harder for borrowing countries to pay back their debts. Deterioration in the exchange rate with the US dollar meant that Latin American governments ended up owing tremendous quantities of their national currencies, as well as losing purchasing power. The contraction of world trade in 1981 caused the prices of primary resources (Latin America’s largest export) to fall.

Sadly, the same mistakes have been repeated once again.  In recent years South American nations have loaded up on vast amounts of debt, and now that commodity prices are tanking and the U.S. dollar is surging, all of that debt is creating tremendous headaches.

For instance, just consider what is happening in Brazil

Brazil’s real plummeted to a 12-year low of 3.34 to the dollar, reflecting the country’s heavy reliance on exports of iron ore and other raw materials to China.

The devaluation tightens the noose on Brazilian companies saddled with $188bn in dollar debt taken out during the glory days of the commodity boom. The oil group Petrobras alone raised $52bn on the US bond markets.

Today, Brazil has the 7th largest economy on the entire planet.

So a major financial crisis in Brazil would be extremely significant.

And that is precisely what is starting to happen.  It is being projected that Brazilian government debt will soon be reduced to junk status, Brazilian stocks have already entered “correction territory“, and economic forecasters say that the Brazilian economy is heading into its worst recession in at least 25 years

Brazil needs to brace itself for some very tough times. Brazilian banks are currently forecasting another economic contraction for the South American country in 2016, marking the first time that Brazil’s economy has shrunk in two consecutive years since the Great Depression.

Last Friday, economist Nelson Teixeira of Switzerland-based financial services holding company Credit Suisse released a revision of his already dour forecast for the Brazilian GDP, moving this year’s numbers from -1.8 percent to -2.4 percent.

The IMF is also projecting that 2015 will be a year of recession for the second largest economy in South America (Argentina) and the third largest economy in South America (Venezuela).

And actually Venezuela is in the deepest trouble of all.  According to a recent Bloomberg article, it appears to be inevitable that there will be a debt default by the Venezuelan government in the very near future…

Harvard University Professor Ricardo Hausmann last year questioned Venezuela’s decision to keep paying bondholders as the country sank deeper into crisis and suggested it stop honoring the debt.

Now, he’s saying Venezuela will have no choice but to default next year.

Hausmann’s comments come as a deepening collapse in oil prices and a shortage of dollars stoke concern Venezuela is fast running out of money to stay current on debt. The country’s bonds plunged last year after Hausmann, who served as Venezuelan planning minister after Hugo Chavez’s failed 1992 coup, raised the specter of default, saying he found “no moral grounds” for the government to pay debt at a time when Venezuelans were facing shortages of everything from basic medicine to toilet paper.

The inflation rate in Venezuela today is an astounding 68.5 percent, and the country is plunging into full-blown economic collapse.  The following comes from Zero Hedge

As we recently warned, the hyperinflationary collapse in Venezuela is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro’s socialist paradise… and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).

Here is the video that was mentioned in the excerpt above.  As you watch this, please keep in mind that the United States is on the exact same path that Venezuela has gone down…

Economic chaos is beginning to erupt all over the planet, and the depression that we are entering into will truly be global in scope.

For the moment, many in the United States still believe that what is going on in the rest of the world will not affect us.  But the truth is that we are also right on the verge of a major financial crisis, and it is going to be even worse than what we experienced back in 2008.

So what do you think about what is going on down in South America?

Please feel free to add to the discussion by posting a comment below…

2 Things That Are Happening Right Now That Have Never Happened Outside Of A Recession

Question Dollar - Public DomainIf we are not heading into a recession, why does our economy continue to act as if that is precisely what is happening?  As you will see below, we learned this week that factory orders have declined year over year for six months in a row.  That is something that has never happened outside of a time of recession.  We have also seen new orders for consumer goods fall dramatically.  In fact, the only time we have seen a more dramatic decline in that number was during the last recession.  And when you add these two items to what I have written about previously, the overall economic picture becomes even more disturbing.  Corporate profits have fallen for two quarters in a row, our exports fell by 7.6 percent during the first quarter of 2015, and U.S. GDP contracted by 0.7 percent during Q1.  Even though Barack Obama and the mainstream media are willingly ignoring them, the truth is that these numbers are absolutely screaming that we are going into a new recession.

Sometimes, a picture is worth more than a thousand words, and I believe that is certainly the case with the chart that I have posted below.  It comes from Zero Hedge, and it shows that factory orders have declined year over year for six months in a row.  The only times when this has ever happened before have been when the U.S. economy has been in recession…

 

Factory Orders 2015

When we look at new orders for consumer goods, we see a similar thing happening.  This next chart comes from Charles Hugh Smith, and it really doesn’t need much explanation…

New Orders For Consumer Goods - Charles Hugh Smith

Here is another chart from Charles Hugh Smith.  This one shows the percentage change in new orders for consumer goods on a year over year basis…

New Orders For Consumer Goods 2 - Charles Hugh Smith

These charts that I just shared with you are rather compelling.  How anyone can see them and still believe that we are in an “economic recovery” is beyond me.

When the economy starts to turn, there are certain things that we look for.  As I have written about over and over on my website, so many of the exact same patterns that we have seen emerge just prior to previous economic downturns are happening again right now.

Yes, the stock market is still sitting pretty for the moment.  But almost everyone can see that it is massively overvalued and could start tanking at any time.  And when the market does start crashing it is just going to cause our economic problems to accelerate even more.

Sadly, most Americans are totally oblivious to all of this.

Most Americans just continue to do the same things that they have always done.  That includes going into ridiculous amounts of debt.  For instance, this week we learned that the percentage of auto loans that are being stretched out for periods of greater than 6 years is at an all-time high

The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.

Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.

But you know what?

Even though most Americans are being exceedingly foolish and are living paycheck to paycheck, that still isn’t good enough for the boys and girls on Wall Street.

Just consider the following excerpt from a recent Wall Street Journal piece entitled “A Letter To Stingy American Consumers”…

Do you know the American economy is counting on you? We can’t count on the rest of the world to spend money on our stuff. The rest of the world is in an even worse mood than you are. You should feel lucky you’re not a Greek consumer. And China, well they’re truly struggling there just to reach the very modest goal of 7% growth.

The Federal Reserve is counting on you too. Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates. We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.

Please let us know the problem. You can reach us at any of the emails below.

Sincerely,

The Wall Street Journal’s Central Bank Team

-By Jon Hilsenrath

They just want all of us to keep borrowing and spending our way into oblivion.  But of course when things do fall apart and millions of Americans can’t pay their debts, they will be there to foreclose on our homes and repossess our vehicles without any hesitation.

And when the next major economic downturn does strike, don’t expect the rest of the planet to feel sorry for us.  We like to think that the rest of the world looks up to us, but the exact opposite is actually true.  At this point, much of the globe is pointing fingers at us and mocking us.  Just consider the following excerpt from an article that appeared in Pravda

The land of illusion; the land of entertainment producing songs and movies to warp reality. People pretending to be something they are not. Likewise, Washington DC has people who pretend to represent the people’s interests. Pretending to bring hope and a change for the better. Pretending to bring unity and peace among all races. Lying through their teeth and laughing like clowns behind closed doors. Setting up a consumer based economy forcing the once mighty middle class to shrink and work at customer service jobs. “Ya want fries with that?

It would be easy to dismiss that paragraph as “Russian propaganda”, but the cold, hard reality of the matter is that there is nothing in that quote that is not true.

They are mocking us, and they are dead on.  We are the land of illusion.  We do have a shrinking middle class.  And we are definitely addicted to entertainment.  If you doubt this, just check out what one study recently found

If you weren’t reading this article, you would probably be scanning something else on the internet, watching TV, or maybe—just maybe—reading a newspaper or magazine. In short, you would be consuming media.

On average, people spend more than 490 minutes of their day with some sort of media, according to a new report by ZenithOptimedia. Television remains dominant, accounting for three hours of daily consumption—an hour more than the internet, in second place.

Other studies have actually discovered that the amount of time that Americans spend connected to media is even greater.  This is something that I discussed in a previous article entitled “How Much Time Do Americans Spend Plugged Into The Matrix Every Day?

For the moment, the mainstream media is assuring everyone that everything is going to be just fine and that they should go out and spend lots and lots of money.

But instead of spending your money on frivolous things like boats, electronic toys and expensive vacations, I believe that now is the time to get prepared for the great economic crisis which is currently starting to unfold.

Right now, I know that most people don’t actually believe that life in America is about to dramatically change.

So many of the things that people (including myself) have been warning about for so long are about to happen.  Our politicians and national leaders have turned a deaf ear to all of the warnings and have continued to conduct business as usual.  Soon, the error of their ways will be apparent to all.

We are heading into the greatest economic crisis in U.S. history, and there is going to be no coming back to the false, debt-fueled “prosperity” that we are enjoying today.

 

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