If we really are plunging into a deflationary global financial crisis, we would expect to see commodity prices crash hard. That happened just before the great stock market crash of 2008, and that is precisely what is happening once again right now. On Thursday, the Bloomberg Commodity Index closed at 79.1544. The last time that it closed this low was 16 years ago. Not even during the worst moments of the last recession did it ever get so low. Overall, the Bloomberg Commodity Index is down more than 28 percent over the past 12 months, and it has plummeted by more than half since mid-2011. As a result of this stunning commodity collapse, extremely large mining companies such as Anglo American are imploding, giant commodity trading firms such as Glencore and Trafigura are in full-blown crisis mode, and huge portions of the global financial system are in danger of utterly collapsing.
In recent days, I have been trying to stress that many of the exact same patterns that we witnessed just prior to the great stock market crash of 2008 are happening once again. This includes the staggering crash of commodity prices that we are currently witnessing, and even CNN acknowledges that there are parallels to what we experienced seven years ago…
The last time raw materials like copper and oil were this cheap, an economic depression loomed just around the corner.
It’s no secret that commodities in general have had a horrendous 2015. A nasty combination of overflowing supply and soft demand has wreaked havoc on the industry.
But prices for everything from crude oil to industrial metals like aluminum, steel, copper, platinum, and palladium have collapsed even further in recent days.
As I mentioned above, this crash in prices is hitting mining companies really hard. Just this week, the fifth largest mining company in the entire world announced a massive restructuring and will be laying off tens of thousands of workers…
In the latest example of just how bad things have gotten, Anglo American–the world’s fifth largest miner–just kitchen sink-ed it, announcing a sweeping restructuring, a massive round of layoffs, and a dividend cut. The company will reduce its assets by some 60% while headcount will be cut by a whopping 85,000 or, nearly two-thirds.
Overall, the U.S. has lost approximately 123,000 good paying jobs from the mining sector since the end of 2014. And if commodity prices stay low, this sector is going to continue to bleed good paying jobs.
Meanwhile, investors have been dumping the debt of any companies that have anything to do with commodities. This has significantly contributed to the emerging junk bond crisis that I discussed in my last article. As I write this, a high yield bond ETF known as JNK has fallen all the way down to 34.31, which is the lowest that it has been since the last recession. For much more on the junk bond implosion, I would encourage you to read an article that Wolf Richter just put out entitled “Bond King Gets Antsy as Junk Bonds, Which Lead Stocks, Spiral to Heck“.
So why are commodity prices falling so rapidly?
Many analysts are pointing to the economic slowdown in China as the primary reason. For years, the Chinese economy voraciously gobbled up commodities from sources all over the planet, but now things are changing. The Chinese economy is really, really slowing down, and some recently released numbers give us some clues as to the true extent of that slowdown…
-Chinese exports fell 6.8 percent in November on a year over year basis after being down 6.9 percent on a year over year basis in October.
-Chinese imports were down 8.7 percent in November on a year over year basis.
-Chinese manufacturing activity has been contracting for nine months in a row.
-Last week, the China Containerized Freight Index plummeted to 718.58 – the lowest level ever recorded.
And of course it isn’t just China. Goldman Sachs says that the seventh largest economy on the entire planet, Brazil, has plunged into a “depression“. And as I pointed out the other day, of the 93 largest stock market indexes in the entire world, an astonishing 47 of them (more than half) are down at least 10 percent year to date.
Even though stocks slid in the U.S. this week, the major indexes still seem somewhat stable. But this is a bit of an illusion. Yes, the biggest names on Wall Street are still flying high for the moment, but shares of a multitude of smaller and mid-size firms have been plummeting. At this point, nearly 70 percent of all U.S. stocks are already below their 200 day moving averages. This is yet another thing that we would expect to see just before the bottom falls out for stocks.
Everything that I have been writing about this week (see here and here) is perfectly consistent with all of my warnings from earlier this year.
We are plunging into a deflationary financial crisis in textbook fashion. And if the Federal Reserve actually does decide to go ahead with an interest rate hike next week that is just going to make things even worse.
But most people are not patient enough to watch a process play out. Most people that write about “the coming economic collapse” hype it up like it is going to be some sort of big Hollywood blockbuster that is going to happen over a week or a month and then be over. That is definitely not the way that I see things.
To me, “the economic collapse” is something that has been happening for decades, that is still in the process of happening right now, and that will continue to happen as we move forward into the future. The long-term trends that are ripping our economy to shreds continue to intensify, and our leaders are not doing anything to fix our underlying fundamental problems.
And the financial crisis that I warned would start during 2015 and accelerate in 2016 has already begun. More than half of all major global stock market indexes are down by at least 10 percent year to date, and some of them have plummeted by more than 30 or 40 percent. Trillions of dollars of wealth has been wiped out around the globe, and this is just the beginning.
All of the numbers tell us the same thing.
Big trouble is ahead.
My job is to inform you of these things. What you choose to do with this information is up to you.
On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.
The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…
One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…
“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.
“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”
Analysts at Goldman Sachs are even more pessimistic than that. According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…
At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.
After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.
That may sound really good to you, especially if you fill up your gas tank frequently. But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…
“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”
Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.
“This was a devastating blow for the U.S. oil industry,” Cramer said.
On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.
I watch a high yield bond ETF known as JNK very closely. On Monday, JNK broke below 35 for the first time since the financial crisis of 2008. Just like 40 dollar oil, this is a key psychological barrier.
So why is this important?
As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again. If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.
Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016. Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…
Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.
In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.
On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.
“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.
What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started. The evidence is all around us, and yet so many choose to be willingly blind.
Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt. And of course all of this manipulation just made our long-term problems even worse. I really like how Peter Schiff put it recently…
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.
Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.
As we approach the end of 2015, researchers at both JP Morgan and Citigroup agree that the probability that the U.S. economy will soon plunge into recession is rising. Just last week, a member of the U.S. House of Representatives asked Janet Yellen about Citigroup’s assessment that there is a 65 percent chance that the United States will experience an economic recession in 2016. You can read her answer below. And just a few days ago, JP Morgan economists Michael Feroli, Daniel Silver, Jesse Edgerton, and Robert Mellman released a report in which they declared that “the probability of recession within three years” has risen to “an eye-catching 76%”…
“Our longer-run indicators, however, continue to suggest an elevated risk that the expansion is nearing its end, and our preferred model now puts the probability of recession within three years at an eye-catching 76%.”
The good news is that the economists at JP Morgan believe that a recession will probably not hit us within the next six months. But due to steadily weakening economic conditions, they are convinced that one is almost certain to strike within the next few years…
“When we first wrote, only manufacturing sentiment was signaling an above-average probability of imminent recession,” they said. “But recent weakening in the Richmond Fed services survey and the ISM nonmanufacturing index have now pushed the nonmanufacturing sentiment probability up somewhat as well.”
In the short term, the note says that the 6-month likelihood is only 5%, but within a year it stands at 23%, in two years 48%, and in three years the “eye-popping” 76%.
To be honest, I believe that this assessment is far too optimistic, and it appears that researchers at Citigroup agree with me. According to them, there is a 65 percent chance that the U.S. economy will plunge into recession by the end of next year. Last week, Janet Yellen was asked about this during testimony before Congress…
In testimony before Congress’ Joint Economic Committee, Yellen was asked by Rep. Pat Tiberi about a piece of research released by Citigroup’s rates strategy team Monday.
Specifically, Tiberi, an Ohio Republican, wanted to know what Yellen made of Citi’s conclusion that there is a 65 percent chance of a U.S. recession in 2016.
“The economists said that they would assign about a 65 percent likelihood of a recession in the United States in 2016. Now, 65 percent sounds high to me, but I’m not an economist and I’m not the Fed chair. But zero risk might be too low as well. So what would you assign a risk level of a recession next year?” Tiberi asked.
So how did Yellen respond?
Her answer was about what you would expect…
“I absolutely wouldn’t see it as anything approaching 65 percent,” the central banker said.
This reminds me so much of what former Federal Reserve Chairman Ben Bernanke said when he was asked a similar question back in 2008…
“The Federal Reserve is not currently forecasting a recession.”
Later on, when the official numbers finally came out and all the revisions were done, we learned that the U.S. economy was already in a recession when he made that statement.
And when it is all said and done this time around, I believe that history will show that a new global recession had already started when Janet Yellen made her statement.
But don’t just take my word for it. British banking giant HSBC is the largest bank in the western world, and they recently announced that the global economy has already entered a “dollar recession“. According to HSBC, total global trade has fallen 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent.
If their figures are correct, a new global recession has definitely begun.
And without a doubt, we have already seen a tremendous amount of global financial turmoil. This is something that I highlighted in my recent article entitled “27 Major Global Stocks Markets That Have Already Crashed By Double Digit Percentages In 2015“. When Zero Hedge republished my article, several excellent charts were added that really illustrate how bad things have gotten, and I wanted to share a couple of them with you. Of the 93 largest stock market indexes in the world, an astounding 47 of them (more than half) are down at least 10 percent year to date. This first chart shows which ones fall into that category…
Another chart that was added to the article by Zero Hedge shows how decoupled U.S. stocks have become from global stocks overall. As you can see, U.S. stocks are not too far from recent highs at the moment, but global stocks overall are solidly in bear market territory…
Since mid-2015, trillions of dollars of stock market wealth has been wiped out globally.
Let that sink in for a moment.
The debate is over. The “major financial collapse” that so many warned was imminent has actually happened.
It is just that U.S. stocks have not gotten the memo yet. Up to this point they have defied gravity, but at some point U.S. stocks and world stocks will converge once again.
And if you want to see many of the reasons why U.S. stocks will soon take a big tumble, just check out this article. There is no way that U.S. stocks will be able to defy the underlying economic fundamentals that are pummeling other global markets for much longer. Just like in 2008, a global stock market slide that starts elsewhere will eventually hit the United States. It is just a matter of time.
But once again, even though U.S. stocks are doing okay for the moment, that doesn’t negate the fact that more than half of all major global stock indexes are down by double digit percentages year to date.
We have not seen numbers like this since the great stock market crash of 2008, and it seems abundantly clear to me that the great financial shaking that so many warned was coming in 2015 is already happening.
And if JP Morgan and Citigroup are correct, what we have seen so far is just a preview of some very troubling times ahead.
Once upon a time, “Black Friday” was a major event in the United States. Yes, the mainstream media is still endlessly hyping it up, and major retailers are still rolling out their “incredible deals”, but it appears that most Americans are tiring of this particular gimmick. Or perhaps it is just that U.S. consumers don’t have as much discretionary income as they once did. As you will see below, retail traffic this Black Friday was “much, much slower” than anticipated. And expectations were not great anyway – the number of shoppers was down last year, and it was being projected that there would be another decline in 2015. Yes, there were still a few fights on Black Friday, but mostly the “holiday” was marked by giant piles of unsold merchandise sitting around collecting dust. The inventory to sales ratio in the U.S. has surged to levels not seen since the last recession, and so the truth is that most retailers were hoping for much more contrived chaos on Black Friday than we actually witnessed.
Personally, I wish that this whole phenomenon would just simply disappear, because it definitely doesn’t bring out the best in the American people.
Who wants to see fellow citizens trampling one another and fighting with one another for cheaply made electronics that aren’t even manufactured in this country anyway?
Black Friday was always a disgusting spectacle, and now it appear to be fading.
Let’s start with Thanksgiving sales. More stores than ever are opening on Thanksgiving Day itself, and according to SunTrust that was a total “bust” this year…
We believe Thanksgiving shopping was a bust. We note that traffic seemed below last year both on- and off-mall. Members of our team who went to the malls first had no problem finding parking or navigating stores. Crowds were tame and, with some exceptions there seemed to be more browsing than buying and less items purchased. We heard many people discussing that deals were not that compelling compared to years past. Interestingly, many retailers closed at midnight- which contributed to a sharp decline in traffic shortly thereafter. Off-mall, members of our team visited Walmart and Target for the openings and had no problem finding parking. Customers at both were focused on electronics. Lines, even early, were about half of what they were last year and quickly dissipated. The only off-mall big box retailer we visited with consistently long lines and customers making multiple item purchases was Kohl’s — where buys were focused on deals not available online.
Once Black Friday rolled around, things didn’t get any better. For example, one analyst said that traffic at the Mall of America didn’t “look much busier than an average Saturday morning”…
At the Mall of America in Minneapolis, the largest in the country, Edward Yruma, managing director at KeyBanc Capital Markets, said he’s seeing less traffic than years past as well. He was there from 6 p.m. to 1 a.m. last night and arrived again at 8 a.m. this morning.
“It doesn’t look much busier than an average Saturday morning,” said Yruma.
And in North Carolina, retailers saw “much less traffic than was anticipated”…
Jeff Simpson, a director at Deloitte Consulting LLP’s retail practice, surveyed shopping centers in North Carolina and saw smaller crowds than expected for Black Friday.
“Across the board, much less traffic than was anticipated,” he said. “Much, much slower.”
Of course this wasn’t much of a surprise. A global recession has already begun, and investors were dumping retail stocks ahead of Thanksgiving in anticipation of a horrible shopping season. The following comes from the New York Post…
Wall Street, fearful that consumers are running out of cash heading into the crucial Christmas retail season, are selling off retail stocks and everything else sensitive to consumer spending.
So why are consumers running out of cash?
Well, it is because the middle class is dying, poverty in America is exploding and the cost of living continues to soar.
Just look at what is happening to healthcare costs. It turns out that employees that work for medium and large companies in the U.S. are now paying more than double for health insurance than they were a decade ago…
Employees of midsize and large companies in 2015 paid an average of $4,700 for their health insurance, up from $2,001 in 2005, according to recent analysis from Aon Hewitt.
For much more on how the cost of living is absolutely crippling families all over this nation, please see my previous article entitled “Inflation Is Crushing The Middle Class“.
Meanwhile, things continue to get worse around the rest of the globe as well. The number of unemployed job seekers just hit a brand new record high in France, Puerto Rico is on the verge of a major debt default, and on Friday there was an absolutely massive stock market decline in China…
In China, equities saw a significant sell off as a result of investigations by the Chinese securities regulatory body into several brokerages for breaking regulations. The Shanghai Composite closed 199 points, or 5.48 percent, lower; the Shenzhen Composite closed 6.1 percent lower, the Chinext was down 6.1 percent, and the CSI300 Index saw a decline of 5.38 percent.
Chinese brokerages took major hits, with Citic Securities, Founder Securities, and China Merchants closing 10.1, 10, and 9.98 percent lower after news broke that the China Securities Regulatory Commission (CSRC) has launched investigations into these firms to weed out short selling and speculation.
I hope that you enjoyed this Thanksgiving as much as you possibly could, because all of the underlying economic numbers are absolutely screaming that hard times are ahead.
This year, Americans are going to spend an average of $130 on “self-gifting” and more than $800 on the holiday season overall. People are spending money that they don’t have on things that they don’t need, and meanwhile very few of us are actively preparing for what promises to be a very challenging 2016.
So yes, let us enjoy the time that we have with our families, but let us also not be completely oblivious to the huge changes that are literally happening all around us.
The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.
Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…
As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.
And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…
“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”
Many “experts” seem mystified by all of this, but the explanation is very simple.
For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…
Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.
The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.
The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.
Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.
But it looks like they are going to do it anyway.
It has been said that those that refuse to learn from history are doomed to repeat it.
And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.
A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.
But that is not true at all.
The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.
Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.
Because if they do, it will just make the global crisis that is now emerging much, much worse.
If 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…
But stocks went up 247 points on Wednesday so everything must be great, right?
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.
If 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…
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.
Have 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.