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Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

Locomotive - Public DomainWe have not seen global economic activity fall off this rapidly since the great recession of 2008.  Manufacturing activity is imploding all over the planet, global trade is slowing down at a pace that is extremely alarming, and the Baltic Dry Index just hit another brand new all-time record low.  If the “real economy” consists of people making, selling and shipping stuff, then it is in incredibly bad shape.  Here in the United States, the dismal economic numbers continue to stun all of the experts.  For example, on Monday we learned that the Texas general business activity index just hit a six year low

Economic activity in Texas keeps getting worse.

The general business activity index out Monday from the Dallas Federal Reserve for January was -34.6, a six-year low and much worse than economists had expected.

The forecast for the monthly index was -14, following a December reading of -21.6 (revised from -20.1) that was also worse than expected.

One could perhaps argue that this is to be expected in Texas because of the collapse in the price of oil.

But what about the very unusual things that we are seeing in other areas of the country?  In Erwin, Tennessee, a rail terminal that had been continuously operating for 135 years was just permanently shut down, and hundreds of workers now find themselves without a job

The last coal train to leave Erwin rolled slowly out of town just after at 3 p.m. Thursday, less than eight hours after CSX Transportation employees heard the news that rocked all of Unicoi County.

“Its a hard pill to swallow,”  county Mayor Greg Lynch said. “Of course, we heard rumors that something was coming down. But never in my wildest dreams did I imagine they would just shut down and leave town.”

CSX delivered the news of its decision to immediately close Erwin’s 175-acre rail yard and abruptly end the employment of the facility’s 300 workers in a series of meetings with employees conducted at the start of their morning shifts.

It has been said that if you want to know what is really happening with the U.S. economy, just watch the railroads.

And right now, rail traffic all over the nation is falling to depressingly low levels.

One of Steve Quayle’s readers says that rail traffic in Colorado has slowed down so much that hundreds of engines are just sitting there on the tracks

With regard to the train freight article this morning, we have in Grand Junction, CO., literally hundreds of engines sidelined on the tracks. They are three deep on some tracks and easily number over 250. I have never seen this many engines on the tracks before and I feel this is just another indicator of the slowdown in shipping.

In case you are tempted to think that this is just anecdotal evidence, I want you to consider what is happening to the largest railroad company in the United States.

According to Wolf Richter, operating revenues for Union Pacific were down 15 percent last year…

Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%.

It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.

So Union Pacific did what American companies do best: it laid off 3,900 people last year.

And of course we can see evidence of the emerging economic slowdown all around us pretty much wherever we look.  Sprint just laid off 8 percent of its workforce, GoPro is letting go 7 percent of its workers,  and Wal-Mart just announced the closure of 269 stores.

But instead of dealing with reality, there are a lot of irrational optimists that insist that things will start bouncing back any day now.  For instance, CNBC is reporting that Goldman Sachs is forecasting that the S&P 500 will end up finishing the year back at 2,100…

Goldman, though, is sticking with its forecast that the S&P 500 will rebound and finish the year at 2,100, a rise of about 11 percent from current levels but basically no net gain for the full year.

It is easy to say something like that, but the actions of the big banks speak louder than words.

Most people don’t realize this, but several of the “too big to fail” banks laid off thousands of workers in 2015

Bank of America and Citigroup reduced headcount the most, eliminating about 20,000 staffers between them, according to fourth-quarter earnings reports from each bank. The respective moves amount to 4.6 percent and 4 percent fewer workers at the banks. JPMorgan Chase reported in its earnings that it employs 6,700 fewer workers than a year ago.

And guess what?

The “too big to fail” banks did the exact same thing just before the great stock market crash of 2008.

When are people going to finally start understanding that we have a major league crisis on our hands?

Since June 2015, approximately 15 trillion dollars of global stock market wealth has been wiped out.  After a brief respite at the end of last week, it appears that the global financial crisis is getting ready to accelerate once again.

On Monday, the price of oil dipped back under 30 dollars, the Dow was down another 208 points, and the Nikkei is currently down another 389 points in early trading.

Somewhere close to one-fifth of all global stock market wealth has already been wiped out.

We only have about four-fifths left.

But in the end, I can talk about these numbers until I am blue in the face and some people will still not get prepared.

Some people have so much faith in Barack Obama, the Federal Reserve and the mainstream media that they would literally follow them off a cliff.

By now, most of the people that believe that they should prepare for the coming crisis have already gotten prepared, and most of those that want to believe that everything is going to work out just fine somehow are never going to get prepared anyway.

What is going to happen is going to happen, and tens of millions of people are going to end up bitterly regretting not listening to the warnings when they still had the chance.

The Last 16 Times This Happened There Was A Recession…

16 Sign - Public DomainSomething has just happened that has signaled a recession every single time that it has occurred since World War I.  16 times since 1919 there have been at least 8 month-over-month declines in industrial production during the preceding 12 month period, and in each of those 16 instances the U.S. economy has plunged into recession.  Now that it has happened again, will the U.S. economy beat the odds and avoid a major economic downturn?  I certainly wouldn’t count on it.  As I have written about repeatedly, there are a whole host of other numbers that are screaming that a new recession is here, and global financial markets are crumbling.  It would take a miracle of epic proportions to pull us out of this tailspin, and yet there are many people out there that are absolutely convinced that it will happen.

John Hussman is not one of them.  In his most recent weekly comment, he examined this stunning correlation between month-over-month declines in industrial production and recessions.  To me, what Hussman has presented is overwhelmingly conclusive

Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough.

Declines In Industrial Production And Recessions

After looking at that chart, is there anyone out there that still doubts that the U.S. economy is in significant trouble?

Many estimates of U.S. GDP growth for the fourth quarter of 2015 are already just a small fraction of one percent.  It would not be a surprise at all to see a negative number posted once it is all said and done.

And of course more bad news for the economy just keeps pouring in.  So far this week we have learned that the growth rate of federal withholding taxes has turned negative, Johnson & Johnson plans has announced that it is eliminating 3,000 jobs, and BP has announced that it is eliminating 4,000 jobs.

Of course it is not exactly a surprise that BP is cutting jobs.  At this point the entire energy industry is absolutely hemorrhaging workers.  As I wrote about yesterday, 130,000 good paying energy jobs have been lost in the United States since the beginning of last year.

But now we are seeing major firms outside the energy industry cutting payrolls.  Even financial giants such as Morgan Stanley are looking for ways to cut costs…

Morgan Stanley just announced fourth-quarter earnings, and it is providing detail to investors on a cost-saving plan called Project Streamline.

During a conference call, CEO James Gorman uttered a sentence that will most likely make the bank’s staff shudder.

“Too many employees based in high-cost centers are doing work that can sensibly be done in lower-cost centers,” he said.

The whole environment is changing.

When things start to get tough, big corporations start to get rid of people.  We saw this back in 2008, and it is starting to happen again right now.

And just like last time around, we are going to see millions of Americans lose their jobs during the hard years that are ahead of us.

But thankfully for the moment there is a brief lull in the action.  The financial turmoil that has gripped the planet was calmed on Tuesday when China announced that their economy grew at a rate of 6.8 percent during the fourth quarter of 2015.  This was right in line with expectations, and markets around the world responded positively to the news.

There is just one huge problem.  Everyone knows that GDP figures coming out of China are essentially meaningless.  If you believe that the Chinese economy actually grew at a 6.8 percent rate during the fourth quarter of 2015, then I have a bridge to sell you.  Virtually every other number coming out of China over the past several months tells us that the Chinese economy is shrinking, and so that 6.8 percent figure is extremely questionable at best.

Do you want to know the last time the communist Chinese admitted to having a recession?

It was in 1976.

Over the past four decades, economic growth figures have become a source of great national pride for China.  To admit that the economy is now imploding would bring great shame on the Chinese government and the nation as a whole, and so that must be avoided at all costs.

Yes, the numbers are fraudulent in the U.S. too.  According to John Williams of shadowstats.com, if the U.S. was actually using honest numbers the last recession never would have technically ended.

But in China they take this to ridiculous extremes.  The Chinese economy is fueled by exports, and Chinese exports have been down on a year over year basis for six months in a row.  And the primary reason why commodity prices have been absolutely collapsing is because of the economic contraction in China.

Of course if China had released a GDP number that was honest, global markets would have crashed hard.  So their lies are making everyone else feel a bit better for the moment, and every day of relative stability that we can enjoy from here on out is something to be thankful for.

As you read this article, markets all over Asia, Europe, South America and the Middle East are already in bear market territory.  More than 30 percent of the market has been wiped out in Brazil and Hong Kong, more than 40 percent of the market has been wiped out in China and Italy, and about 50 percent of the market has been wiped out in Saudi Arabia.

We are already experiencing a major global financial crisis.

The only question remaining is how bad it will eventually become.

Let us hope for more days like this one that are relatively calm.  But I wouldn’t count on things turning around significantly any time soon, because the economic fundamentals are telling us that big trouble is ahead.

What Really Happened In 2015, And What Is Coming In 2016…

2015 2016 - Public DomainA lot of people were expecting some really big things to happen in 2015, and most of them did not happen.  But what did happen?  It is my contention that a global financial crisis began during the second half of 2015, and it threatens to greatly accelerate as we enter 2016.  During the last six months of the year that just ended, financial markets all over the planet crashed, trillions of dollars of global wealth was wiped out, and some of the largest economies in the world plunged into recession.  Here in the United States, 2015 was the worst year for stocks since 2008, nearly 70 percent of all investors lost money last year, and it is being projected that the final numbers will show that close to 1,000 hedge funds permanently shut down within the last 12 months.  This is what the early stages of a financial crisis look like, and the worst is yet to come.

If we were entering another 2008-style crisis, we would expect to see junk bonds crashing.  When financial trouble starts, it usually doesn’t start with the biggest and strongest companies.  Instead, it usually starts percolating on the periphery.  And right now bonds of firms that are considered to be on the risky side of things are rapidly losing value.

In the chart below, you can see that a high yield bond ETF that I track very closely known as JNK started crashing in the middle of 2008.  This crash began to unfold before the horrific crash of stocks in the fall.  Investors that saw junk bonds crashing in advance and pulled their money out of stocks in time saved an enormous amount of money.

Now, for the very first time since the last financial crisis, we are seeing junk bonds crash again.  In December, there was finally a sustained crash through the psychologically-important 35.00 level, and at this point JNK is sitting a bit below 34.00.  This stunning decline is a giant red flag that tells us that stocks will soon follow in the exact same direction…

JNK

In 2015, Third Avenue Management shocked Wall Street when they froze withdrawals from a 788 million dollar mutual fund that was highly focused on junk bonds.  Investors that couldn’t get their money out began to panic, and other mutual funds now find themselves under siege.  If junk bonds continue to crash, this will just be the beginning of the carnage.

One of the big reasons why junk bonds are crashing is because of the crash in the price of oil.  Over the past 18 months, the price of oil has plummeted from $108 a barrel to $37 a barrel.

There has only been one other time in all of history when we have ever seen an oil price crash of this magnitude. That was in 2008 – just before the greatest financial crisis since the Great Depression…

Oil - Federal Reserve

Why can’t people see the parallels?

Crashes are happening all around us, and yet so many of the “experts” seem completely blind to what is going on.

Unlike 2008, the price of oil is not expected to rapidly rebound any time soon.  The following comes from CNN

Crude prices dropped a whopping 35% last year and are hovering around $37 a barrel. That’s a level not seen since the global financial crisis.

It won’t get better any time soon. Most oil experts believe prices will bounce back in late 2016, but they expect more pain first.

Goldman Sachs forecasts that oil will average about $38 a barrel in February, even lower than for most of 2015.

Meanwhile, the prices of industrial commodities have been crashing as well.  For example, the chart below shows that the price of copper started crashing hard just before the great financial crisis of 2008, and the exact same thing is happening once again right before our very eyes…

Price Of Copper

Things are unfolding just as we would expect they would during the initial stages of a new global financial crisis.

And we have already seen a full blown stock market crash in many of the largest economies around the planet.  For instance, just look at what has been happening in Brazil.  The Brazilians have the 7th largest economy in the world, and Goldman Sachs says that they have plunged into an “outright depression“.  In the chart below, you can see the sharp downturn that took place in August, and Brazilian stocks actually kept falling all the way through the end of 2015…

Brazil Stock Market

We see a similar thing when we look at our neighbor to the north.  Canada has the 11th largest economy on the entire planet, and I recently wrote a lengthy article about the economic difficulties that the Canadians are now facing.  2015 was a very bad year for Canadian stocks as well, and they just kept falling steadily all the way through December…

Canada Stock Market

Of course nobody can forget what happened to China.  The Chinese have the second largest economy on the globe, and news about their economic slowdown in making headlines almost every single day now.

Last summer, Chinese stocks crashed about 40 percent, and they did manage to bounce back just a bit since then. But they are still down about 30 percent from the peak of the market…

China Stock Market

And there is plenty more that we could talk about.  European stocks just had their second worst December ever, and Japanese stocks are down about 500 points in early trading as I write this article.

Here in the United States, the Dow Jones Industrial Average, Dow Transports, the S&P 500 and the Russell 2000 all had their worst years since 2008.  As I mentioned the other day674 hedge funds shut down during the first nine months of 2015, and it is being projected that the final total for the year will be up around 1000.

But we aren’t hearing much about this financial carnage on the news yet, are we?

Many people that I talk to still think that “nothing is happening”, but don’t you dare say that to Warren Buffett.

He lost 7.8 billion dollars in 2015.

How would you feel if you lost 7.8 billion dollars in a single year?

The truth, of course, is that signs of financial chaos are erupting all around us.  Corporate profits are plunging, the bond distress ratio just hit the highest level that we have seen since the last financial crisis, and corporate debt defaults have risen to the highest level that we have seen in about seven years.

If you run a business, you may have noticed that fewer people are coming in and it seems like those that do come in have less money to spend.  Economic activity is slowing down, and inventories are piling up.  In fact, wholesale inventories have now risen to the highest level that we have seen since the last recession…

Inventory To Sales Ratio - Federal Reserve

Do you notice a theme?

So many things that have not happened in six or seven years are now happening again.

History may not repeat, but it sure does rhyme, and it astounds me that more people cannot see that 2015/2016 is looking eerily similar to a replay of 2008/2009.

Another number that I watch closely is the velocity of money.  When an economy is running well, money tends to circulate efficiently through the system.  But when an economy gets into trouble, people get scared and start holding on to their money.  As you can see from the chart below, the velocity of money declined during every single recession since 1960.  This is precisely what one would expect.  And of course during the recession that started in 2008, the velocity of money plunged precipitously.  But then a funny thing happened when that recession supposedly “ended”.  The velocity of money just kept going down, and now it has fallen to an all-time record low…

Velocity Of Money M2

A big reason for this is the ongoing decline of the middle class.  In 2015, we learned that middle class Americans now make up a minority of the population for the first time ever.

But if you go back to 1971, 61 percent of all Americans lived in middle class households.

Meanwhile, the share of the income pie that the middle class takes home has also continued to shrink.

In 1970, the middle class brought home approximately 62 percent of all income. Today, that number has fallen to just 43 percent.

As the middle class is systematically destroyed, the number of Americans living in poverty just continues to grow. And those that often suffer the most are the children.  It may be hard for you to believe, but the number of homeless children in the U.S. has increased by 60 percent over the past six years.

60 percent!

How in the world can anyone dare to claim that “things are getting better”?

Anyone that says that should be ashamed of themselves.

We are in the midst of a long-term economic collapse that is now accelerating once again.

Anyone that tries to tell you that “things are getting better” and that 2016 is going to be a better year than 2015 is simply not being honest with you.

A new global financial crisis erupted during the last six months of 2015, and this new financial crisis is going to intensify throughout the early months of 2016.  Financial institutions will begin falling like dominoes, and this will result in a great credit crunch around the world.  Businesses will fail, unemployment will skyrocket and millions will suddenly be faced with economic despair.

By the time it is all said and done, this new financial crisis will be even worse than what we experienced back in 2008, and the suffering that we will see around the world will be off the charts.

So does that mean that I am down about this year?

Not at all.  In fact, my wife and I are greatly looking forward to 2016.  In the midst of all the chaos and darkness, there will be great opportunities to do good and to make a difference.

What a great shaking comes, people go looking for answers.  And I think that this will be a year when millions of people start to understand that our politicians and the mainstream media are not telling them the truth.

Yes, great challenges are coming.  But now is not a time to dig a hole and try to hide from the world.  Instead, this will be a time for those that have prepared in advance to love others, help others and show them the truth.

What about you?

Are you ready to be a light during the dark times that are coming?

Please feel free to join the conversation by posting a comment below…

The Global Commodity Crash Tells Us That A Major Deflationary Financial Crisis Is Imminent

Global - Public DomainIf 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.

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

Question Mark Burning - Public DomainOn 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…

Price Of Oil - Public Domain

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.

JP Morgan And Citigroup Agree That The U.S. Economy Is Steamrolling Toward A Recession

Locomotive - Public DomainAs 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…

47 Out Of 93

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…

US Stocks And World Stocks

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.

Do You Remember When Black Friday Actually Still Mattered In America?

Bored - Public DomainOnce 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 U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

Dollar Hands - Public DomainThe 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 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.

 

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