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The Dow Falls Another 138 Points As Geopolitical Shaking Forces Investors To Race For The Exits

Stock prices just keep on falling, and many analysts are now wondering if a full-blown stock market crash is in our near future.  On Thursday, the S&P 500 and the Dow both closed at 2 month lows after Donald Trump dropped “the mother of all bombs” in Afghanistan.  It was the first time that one of these bombs has ever been used in live combat, and it is being reported that each of these bombs weighs 22,000 pounds and costs 16 million dollars to make.  Of course Trump was trying to send a very clear message to the rest of the world by dropping this bomb, and investors interpreted it as a sign that we are getting even closer to war.

The financial markets will be closed on Friday for the long holiday weekend, and with so much uncertainty about what may happen in Syria and in North Korea, many investors wanted to get their money out of the market while they still could.  The historic losing streak for S&P 500 tech stocks extended to 10 days in a row on Thursday, and all of the major stock indexes are now below their 50 day moving averages for the first time since the election.

And the VIX closed above 16 to close the week, which many analysts saw as a sign that more market volatility is on the way

The fear index on Thursday hit 16.22, its highest since Nov. 10, after closing above its 200-day moving average on Monday for the first time since Nov. 8.

“The VIX confirmed a breakout above its 200-day moving average [Tuesday], supporting a pickup in volatility in the days ahead,” BTIG’s chief technical strategist, Katie Stockton, said in a Wednesday note.

On Tuesday, I wrote about how geopolitical instability is causing many investors to seek out safe havens such as gold and silver, and that trend continued on Thursday.  As I write this, the price of gold is sitting at $1289.20, and the price of silver is up to $18.50.  Of course if the French election goes badly for the globalists or we see a full-blown shooting war erupt in either Syria or North Korea, those prices will go far, far higher.

For quite a while I have been very strongly warning that these ridiculously inflated stock prices were not sustainable.  It was inevitable that they would start to decline, because the underlying economic numbers simply did not support them.

And just today we got some more bad news.  According to Zero Hedge, the mortgage business at one of America’s biggest banks has been absolutely crashing…

When we reported Wells Fargo’s Q4 earnings back in January, we drew readers’ attention to one specific line of business, the one we dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, specifically in Q4 Wells’ mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014.”

Fast forward one quarter when what was already a troubling situation, just got as bad as it has been since the financial crisis for America’s largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its ‘bread and butter’ is virtually gone, and in Q1 the amount of all-important Mortgage Applications has tumbled by a whopping 23% to just $59 billion, below the lows hit in early 2014, and at fresh lows since the financial crisis.

Unfortunately, what is going on at Wells Fargo is just part of an enormous “loan collapse” that we are witnessing all over the nation.

This is exactly what we would expect to see if a new recession was beginning.  When economic conditions show down, banks and other lending institutions begin to get tighter with their money, and a tightening of credit causes economic activity to slow down even further.

It can be exceedingly difficult to break out of such a cycle once it starts.

But the mainstream media doesn’t seem to understand these things.  Instead, they are pointing the blame at other sources for the emerging economic slowdown.  For example, consider the following excerpt from a CNN article entitled “Americans have become lazy and it’s hurting the economy”

Americans have become lazy, argues economist Tyler Cowen.

They don’t start businesses as much as they once did. They don’t move as often as they used to. And they live in neighborhoods that are about as segregated as they were in the 1960s.

All of this is causing the U.S. to stagnate economically and politically, Cowen says in his new book: “The Complacent Class: The Self-Defeating Quest for the American Dream.” Growth is far slower than it was in the 1960s, 70s and 80s and productivity growth is way down, despite everyone claiming they are working so hard.

No, our economic problems are not the result of Americans being too lazy.

Rather, the truth is that we have accumulated way too much debt as a society, we have been way too greedy, and there has been way too much manipulation by the Federal Reserve and other central banks.

For decades we have been living way above our means.  We have been able to do this by stealing trillions upon trillions of dollars from future generations of Americans, and now a day of reckoning is rapidly approaching.

Unfortunately for Donald Trump, he just happens to be the president at this moment in history, and so much of the blame for what is about to happen will be pinned on him.  The following comes from a recent interview with Peter Schiff

Trump doesn’t want to preside over a major decline in our standard of living, but ultimately that has to happen. Because this is the consequence of all this excess consumption that went on before he was president. You know, we sacrificed our future to indulge our past. The future is now the present. We’re here, and it’s time to pay the piper.

Schiff is precisely correct.

For decades we have just kept sacrificing the future in order to inflate our current standard of living.

But the funny thing about the future is that it always arrives at some point, and now we are going to pay an enormously high price for being so exceedingly reckless all these years.

Tech Stocks Experience Their Longest Losing Streak In 5 Years As Panic Begins To Grip The Market

S&P 500 tech stocks have now fallen for 9 days in a row.  The last time tech stocks declined for so many days in a row was in 2012, and that was the only other time in history when we have seen such a long losing streak.  As I have stated before, the post-election “Trump rally” is officially done, and the market is starting to roll over as investors begin to realize that all of the buying momentum has completely evaporated.  Tech stocks tend to be particularly volatile, and so the fact that they are starting to lead the way down should definitely be alarming to many in the investing community.

Of course it isn’t just tech stocks that are falling.  The Dow was down another 59 points on Wednesday, and the S&P 500 has closed beneath its 50 day moving average for the very first time since the election.  For those that have been waiting for a key technical signal before getting out of the market, there is one for you.

The price of gold was up again, and that is definitely not surprising in this geopolitical environment.  The closer we get to war the higher gold and silver prices will go, and if we actually get into a major conflict we will see them blast into the stratosphere.

Another key indicator that I am watching very closely is the VIX.  On Wednesday it shot up above 16 for the very first time since the day after Trump’s election victory, and many believe that it could soon go much higher.  The following is an excerpt from a CNBC report

The VIX measures the size of the S&P 500’s expected moves over the next 30 days, and consequently tends to run just a bit hotter than volatility over the past 30 days. Yet one-month realized volatility is just 6.7, meaning the VIX is at a roughly 9-point premium, which Chintawongvanich calls “highly unusual.”

That said, he notes that implied volatility was also at a large premium preceding the U.K. referendum to leave the EU and the U.S. presidential election. The obvious conclusion is that the market is now similarly preparing itself for the French presidential election, which is set to be held on April 23. Some fear that a populist candidate could prevail, which may cause more problems for the European Union and thus for economic stability.

As noted in that excerpt, the upcoming French election is absolutely huge.  If the election goes “the wrong way” according to the globalists, it could literally mean the end of the European Union as it is configured today.

And of course of even greater concern is the global march toward war.  It is being reported that North Korea is on the verge of a major nuclear weapons test, and such an act of defiance could be enough to push Donald Trump into conducting a major military strike.

But if Trump does hit North Korea, it is quite likely that North Korea will hit back.  The North Koreans are promising to use nuclear weapons in any conflict with the United States, and if Trump bungles this thing we could easily be looking at a scenario in which millions of people end up dead.

Things also continue to get more tense in the Middle East.  The Russians and the Iranians are promising to respond to any additional U.S. strikes “with force”, and on Wednesday Trump declared that our relationship with Russia “may be at an all-time low”.

Of course this came shortly after Secretary of State Rex Tillerson used similar language following his face to face meeting with Russian President Vladimir Putin

Secretary of State Rex Tillerson and Russian President Vladimir Putin held more than two hours of “very frank” talks Wednesday in the Kremlin amid tensions over a U.S. airstrike against a Syria air base blamed for last week’s deadly chemical attack.

In remarks to reporters after the meeting, Tillerson said he told the Russian leader that current relations between the two countries are at a “low point.”

If the Trump administration conducts any more strikes on Syria, it is quite likely that the Russians and Iranians will make good on their threats and will start firing back.

And once U.S. aircraft or U.S. naval vessels come under fire, the calls for war in Washington will become absolutely deafening.

Unfortunately, Trump is not likely to back down any time soon because the recent missile strike in Syria has dramatically boosted his popularity.  According to every recent survey, the American people overwhelmingly approve of what Trump did…

A Morning Consult/Politico poll released Wednesday found that 57% of Americans supported airstrikes in Syria, 58% supported establishing a no-fly zone over parts of Syria including strikes against Syria’s air-defense systems, and 63% of Americans thought the US should do more to end the Syrian conflict. Even more, 66% of respondents said they supported the Trump administration’s strike last week specifically.

This mirrored results of another recent poll from CBS News in which 57% of Americans said they approved of the US strike. A Pew Research Center survey from this week showed a similar level of support, with 58% of Americans approving of the strike.

Sadly, this is a time when the majority is dead wrong.  Many of those that are supporting military action against Syria now were vehemently against it when Barack Obama was considering it.

Even Donald Trump spoke out very strongly against military intervention in Syria in 2013, and he was quite right to do so, and so what has suddenly changed that now makes it okay?

There is nothing to be gained in Syria, but we could very easily end up in a direct military conflict with Russia, Iran and Hezbollah which could ultimately prove to be the spark that sets off World War III.

And of course a military strike on North Korea could also potentially spark a global war.  The first Korean War resulted in a direct military conflict between the United States and China, and the second Korean War could easily result in the exact same thing happening again.

Do the American people really want war with both Russia and China at the same time?

It has been said that you should be careful what you wish for, because you just might get it.

Have We Reached A Turning Point For Stocks? Tuesday Was The Worst Day For The Stock Market In 6 Months

New York Stock Exchange Trading Floor - Public DomainThe post-election stock market rally is officially over.  After hovering near record highs for the past couple of weeks, U.S. stocks had their worst day in six months on Tuesday.  For quite some time it has been clear that the momentum of the post-election rally had been exhausted, and a pullback of this nature was widely anticipated.  But even though stocks fell by more than 1 percent during a single trading session for the first time since last September, it is going to take a whole lot more than that to bring stock prices back into balance.  In fact, stocks are so overvalued at this point that it would take a total decline of about 40 to 50 percent before key stock valuation measures return to their long-term averages.

So we are still in a giant stock market bubble.  All Tuesday did was shave about one percent off of that bubble.

Let’s review some of the numbers from the carnage that we witnessed…

-The Dow was down 237.85 points (1.14 percent)

-The S&P 500 was down 1.2 percent on the day

-The Nasdaq was down 1.8 percent at the closing bell

-Financial stocks were down more than 2.5 percent

-Overall, it was the worst day for banking stocks since the Brexit vote

-Bank of America is now down more than 10 percent since Trump’s speech to Congress

-The Russell 2000 (small-cap stocks) dropped about 2 percent

Some prominent names on Wall Street were warning ahead of time that this was coming.  Marko Kolanovic was one of those voices…

Marko Kolanovic has done it again.

Last Thursday, one day ahead of the massive quad-witching where over $1.4 trillion in options expired in relatively tame fashion, the JPM quant warned of “near-term market weakness” and suggested “reducing US equity exposure. And, sure enough, JP Merlin’s Gandalf timed it impeccably yet again. To be sure, the jury is still out on what caused the selloff – lack of votes to repeal Obamacare, fears about Trump’s fiscal policy agenda, the market’s sudden  realization that it is at 30 CAPE, or just a technical revulsion – what matters is that once again, like clockwork, Kolanovic called a key inflection point just days in advance.

Of course the mainstream media is telling everyone not to worry.  They are insisting that this is just a temporary blip and that a market “correction” is highly unlikely.  The following comes from CNN

Few experts are predicting a correction — which is a 10% pullback from a market high. Even fewer see a bear market, a 20% drop or more, on the horizon.

Hopefully CNN is correct.

But it should be noted that experts such as Kolanovic are warning that more panic selling may be coming in the days ahead

Furthermore, the modest but rising uptick in realized volatility is starting to cause outflows from volatility-sensitive investors the JPM quant calculated and, as a result, the break in short-term momentum may cause modest equity selling by trend following strategies.

In other words, in the absence of a positive catalyst over the next few days – and with uncertainty ahead of the Thursday Trumpcare vote only growing by the hour we fail to see one emerging – the double whammy of gamma positioning and the CTA momentum “flip” will be the catalyst for the next, extremely overdue, move lower.

It is going to take quite a few more days like today before we can talk about the kind of “financial crisis” that I have been warning about for a long time, but we may have already reached a key turning point.

So much of the post-election stock market rally was based purely on hope, and meanwhile the underlying economic numbers have continued to deteriorate.  Corporate earnings are down, it is being projected that U.S. GDP growth will be about one percent during the first quarter, and used vehicle prices are dropping for the first time since the last recession…

In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”

The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.

When the Federal Reserve raised rates, that was very bad news for stocks, and if Donald Trump cannot get his Obamacare replacement through Congress that will be more bad news for stocks.

But even if there was no bad news, it is inevitable that stock prices would decline at some point anyway.

It is simply not rational to have price-earnings ratios up around 30.  The only other times when price-earnings ratios have become so bloated were right before the stock market crash of 1929, right before the stock market crash of 2000 and right before the stock market crash of 2008.

Whenever it ultimately happens, the truth is that stocks always eventually return to their historical averages.  And if a “black swan event” or two are thrown in, that could push stocks well below their historical averages.

Never before has there been this much debt in the world, and not even in 2008 were global financial markets so primed for a crash.

Many people get caught up in trying to predict what month or what day the markets will crash, and if you could predict that accurately you could make a lot of money.

But that is not the point.

What everyone should be able to agree on is that this temporary stock market bubble that has been fueled by reckless intervention from the Federal Reserve is not sustainable and that it is inevitable that stock prices will be a lot lower in the future than they are right now.

We should be thankful that this bubble has lasted much longer than it should have, because what is going to come after this bubble bursts is going to be absolutely horrible.

Markets tend to go down a lot faster than they go up, and when the coming crash finally occurs it is going to make 2008 look like a Sunday picnic.

So whatever you need to do financially, you should think about doing it soon, because the alarm bells on Wall Street are starting to ring.

The Dow Falls Another 364 Points And We Are Now Down 2200 Points From The Peak Of The Market

Falling - Public DomainIt was another day of utter carnage on Wall Street.  The Dow was down another 364 points, the S&P 500 broke below 1900, and the Nasdaq had a much larger percentage loss than either of them.  The Russell 2000 has now fallen 22 percent from the peak, and it has officially entered bear market territory.  After 13 days, this remains the worst start to a year for stocks ever, and trillions of dollars of stock market wealth has already been wiped out globally.  Meanwhile, junk bonds continue their collapse.  JNK got hammered all the way down to 33.06 as bond investors race for the exits.  In case you were wondering, this is exactly what a financial crisis look like.

Many of the “experts” had been proclaiming that “things are different this time” and that stocks could defy gravity forever.

Now we seeing that was not true at all.

So how far could stocks ultimately fall?

I have been telling my readers that stocks still need to fall about another 30 percent just to get to a level that is considered to be “normal” be historical standards, but the truth is that they could eventually fall much farther than that.

Just this week, Societe Generale economist Albert Edwards made headlines all over the world with his prediction that we could see the S&P 500 drop by a total of 75 percent…

If I am right and we have just seen a cyclical bull market within a secular bear market, then the next recession will spell real trouble for investors ill-prepared for equity valuations to fall to new lows. To bottom on a Shiller PE of 7x would see the S&P falling to around 550.

I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak. That obviously will be a catastrophe for the economy via the wealth effect and all the Fed’s QE hard work will turn dust.

That is why I believe the Fed will fight the next bear market with every weapon available including deeply negative Fed Funds rates in addition to more QE. Indeed, negative policy rates will become ubiquitous.

Most believe a 75% equity bear market to be impossible. But those same people said something similar prior to the 2008 Global Financial Crisis. They, including the Fed, failed to predict the vulnerability of the US economy that would fall into deep recession, well before Lehman’s went bust in September 2008.

Other than stocks, there are three key areas that I want my readers to keep an eye on during the weeks ahead…

1. The Price Of Oil – The price of oil doesn’t have to go one penny lower to continue causing catastrophic damage in the financial world.  If we hover around 30 dollars a barrel, we will see more bankruptcies, more defaults, more layoffs and more carnage for energy stocks.  But of course it is quite conceivable that the price of oil could easily slide a lot farther.  Just check out some of the predictions that some of the biggest banks in the entire world are now making

Just this week Morgan Stanley warned that the super-strong U.S. dollar could drive crude oil to $20 a barrel. Not to be outdone, Royal Bank of Scotland said $16 is on the horizon, comparing the current market mood to the days before the implosion of Lehman Brothers in 2008.

Standard Chartered doesn’t think those dire predictions are dark enough. The British bank said in a new research report that oil prices could collapse to as low as $10 a barrel — a level unseen since November 2001.

2. Junk Bonds – This is something that I have written about repeatedly.  Right now, we are witnessing an epic collapse of the junk bond market, just like we did just prior to the great stock market crash of 2008.  As I mentioned above, Wednesday was a particularly brutal day for junk bonds, and Jeffrey Gundlach seems convinced that the worst is still yet to come…

He seemed to leave his most dire predictions for junk bonds, a part of the market he’s been bearish on for years. Gundlach believes hedge funds investing in risky debts face major liquidity risks if they are forced to exit positions amid investor redemptions. “We could be looking at a real ugly situation in the first quarter of 2016,” Gundlach said on a Tuesday call with investors, when referring to redemptions.

Because many hedge funds operate with leverage, he raised an alarming prospect that those who don’t redeem could be left with losses far more severe than their marks indicate. As the Federal Reserve raises rates, redemptions combined with tightening credit conditions could create major pricing dislocations.

3. Emerging Markets – We have not seen money being pulled out of emerging markets at this kind of rate in decades.  We are seeing a repeat of the conditions that caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.  Only this time what we are witnessing is truly global in scope, and central bankers are beginning to panic.  The following comes from Wolf Richter

Last year was a terrible year, probably worse than 2009,” the head of Mexico’s central bank told a conference of central bankers in Paris on Tuesday. It was the first year since 1988 that emerging markets saw net capital outflows, according to the Institute of International Finance, a Washington-based association of global banks and finance houses.

In December more than $3.1 billion fled emerging market funds. If anything, the New Year has been worse.

“I don’t have any data yet for the first week of 2016 but it’s probably going to be very, very, very bad,” Carstens said. If conditions do not improve, he warned, central banks in emerging markets may have little choice but to adopt a more “radical” approach to monetary policy, including intervening in domestic bonds and securities markets.

In addition to everything that I just shared with you, we got several other very troubling pieces of news on Wednesday…

-Canadian stocks continued their dramatic plunge and have now officially entered a bear market.

-PC sales just hit an eight year low.

-GoPro just announced that it is getting rid of 7 percent of its total workforce.

The bad news is coming fast and furious now.  The snowball that started rolling downhill about halfway last year has set off an avalanche, and panic has gripped the financial marketplace.

But my readers knew all of this was coming in advance.  What we are witnessing right now is simply the logical extension of trends that have been building for months.  The global financial crisis that started during the second half of 2015 is now bludgeoning Wall Street mercilessly, and investors are in panic mode.

So what comes next?

We have never seen a year start like this, so it is hard to say.  And if there is some sort of a major “trigger event” in our near future, we could see some single day crashes that make history.

Either way, the hounds have now been released, and it is going to be exceedingly difficult to get them back into the barn.

20th Largest Bank In The World: 2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’

Royal Bank Of ScotlandThe Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”.  This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet.  Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market.  The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe.  And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters.

It amazes me that the Royal Bank of Scotland is essentially saying the exact same thing that I have been saying for months.  Just like I have been telling my readers, RBS has observed that global markets “are flashing the same stress alerts as they did before the Lehman crisis in 2008″

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.

The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.

So what should our response be to these warning signs?

According to RBS, the logical thing to do is to “sell everything” excerpt for high quality bonds…

“Sell everything except high quality bonds,” warned Andrew Roberts in a note this week.

He said the bank’s red flags for 2016 — falling oil, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation — had all been seen in just the first week of trading.

We think investors should be afraid,” he said.

And of course RBS is not the only big bank issuing these kinds of ominous warnings.

The biggest bank in America, J.P. Morgan Chase, is “urging investors to sell stocks on any bounce”

J.P. Morgan Chase has turned its back on the stock market: For the first time in seven years, the investment bank is urging investors to sell stocks on any bounce.

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

Aside from technical indicators, expectations of anemic corporate earnings combined with the downward trajectory in U.S. manufacturing activity and a continued weakness in commodities are raising red flags.

Major banks have not talked like this since the great financial crisis of 2008/2009.  Clearly something really big is going on.  Trillions of dollars of financial wealth were wiped out around the world during the last six months of 2015, and trillions more dollars have been wiped out during the first 12 days of 2016.  As I noted above, the collective market value of the S&P 500 is down by about a trillion dollars all by itself.

One of the big things driving all of this panic is the stunning collapse in the price of oil.  U.S. oil was trading as low as $29.93 a barrel on Tuesday, and this was the first time that oil has traded under 30 dollars a barrel since December 2003.

Needless to say, this collapse is absolutely killing energy companies.  The following comes from USA Today

There aren’t many people who feel bad for oil companies. But the implosion in oil prices is causing a profit decline that almost invokes pity.

The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ. That’s a $124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008.

If we are to avoid a major global deflationary crisis, we desperately need the price of oil to get back above 50 dollars a barrel.  Unfortunately, that does not appear to be likely to happen any time soon.  In fact, Dallas Fed President Robert Kaplan says that the price of oil is probably going to stay very low for years to come

You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018.

The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….”

The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.”

In recent articles I have discussed so many of the other signs that indicate that there is big trouble ahead, but today I just want to quickly mention another one that has just popped up in the news.

The amount of stuff being shipped across the U.S. by rail has been dropping dramatically.  The only times when we have seen similar large drops has been during previous recessions.  The following comes from Bloomberg

Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren’t looking good for the new year.

“We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009.”

BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter).

The “next economic downturn” is already here, and it is starting to accelerate.

Yes, the financial markets are starting to catch up with economic reality, but they still have a long, long way to go.  It is going to take another 30 percent drop or so just for them to get to levels that are considered to be “normal” or “average” by historical standards.

And the markets are so fragile at this point that any sort of a major “trigger event” could cause a sudden market implosion unlike anything that we have ever seen before.

So let us hope for the best, but let us also heed the advice of RBS and get prepared for a “cataclysmic” year.

Bear Market: The Average U.S. Stock Is Already Down More Than 20 Percent

Angry BearThe stock market is in far worse shape than we are being told.  As you will see in this article, the average U.S. stock is already down more than 20 percent from the peak of the market.  But of course the major indexes are not down nearly that much.  As the week begins, the S&P 500 is down 9.8 percent from its 2015 peak, the Dow Jones Industrial Average is down 10.7 percent from its 2015 peak, and the Nasdaq is down 11.0 percent from its 2015 peak.  So if you only look at those indexes, you would think that we are only about halfway to bear market territory.  Unfortunately, a few high flying stocks such as Facebook, Amazon, Netflix and Google have been masking a much deeper decline for the rest of the market.  When the market closed on Friday, 229 of the stocks on the S&P 500 were down at least 20 percent from their 52 week highs, and when you look at indexes that are even broader things are even worse.

For example, let’s take a look at the Standard & Poor’s 1500 index.  According to the Bespoke Investment Group, the average stock on that index is down a staggering 26.9 percent from the peak of the market…

Indeed, the Standard & Poor’s 1500 index – a broad basket of large, mid and small company stocks – shows that the average stock’s distance from its 52-week high is 26.9%, according to stats compiled by Bespoke Investment Group through Friday’s close.

“That’s bear market territory!” says Paul Hickey, co-founder of Bespoke Investment Group, the firm that provided USA TODAY with the gloomy price data.

So if the average stock has fallen 26.9 percent, what kind of market are we in?

To me, that is definitely bear market territory.

The rapid decline of the markets last week got the attention of the entire world, but of course this current financial crisis did not begin last week.  These stocks have been falling since the middle part of last year.  And what Bespoke Investment Group discovered is that small cap stocks have been hurt the most by this current downturn

Here’s a statistical damage assessment, provided by Bespoke Investment Group, of the pain being felt by the average U.S. stock in the S&P 1500 index:

* Large-company stocks in the S&P 500 index are down 22.6%, on average, from peaks hit in the past 12 months.

* Mid-sized stocks in the S&P 400 index are sporting an average decline of 26.5% since hitting 52-week highs.

* Small stocks in the S&P 600 index are the farthest distance away from their recent peaks. The average small-cap name is 30.7% below its high in the past year.

After looking at those numbers, is there anyone out there that still wants to try to claim that “nothing is happening”?

Over the past six months or so, the sector that has been hit the hardest has been energy.  According to CNN, the average energy stock has now fallen 52 percent…

And then there’s energy. The dramatic decline in crude oil prices rocked the energy space. The average energy stock is now down a whopping 52% from its 52-week high, according to Bespoke. The only thing worse than that is small-cap energy, which is down 61%.

If you go up to an energy executive and try to tell him that “nothing is happening”, you might just get punched in the face.

And it is very important to keep in mind that stocks still have a tremendous distance to fall.  They are still massively overvalued by historical standards, and this is something that I have covered repeatedly on my website in recent months.

So how far could they ultimately fall?

Well, Dr. John Hussman is convinced that we could eventually see total losses in the 40 to 55 percent range…

I remain convinced that the U.S. financial markets, particularly equities and low-grade debt, are in a late-stage top formation of the third speculative bubble in 15 years.

On the basis of the valuation measures most strongly correlated with subsequent market returns (and that havefully retained that correlation even across recent market cycles), current extremes imply 40-55% market losses over the completion of the current market cycle, with zero nominal and negative real total returns for the S&P 500 on a 10-to-12-year horizon.

These are not worst-case scenarios, but run-of-the-mill expectations.

If the market does fall about 40 percent, that will just bring us into the range of what is considered to be historically “normal”.  If some sort of major disaster or emergency were to strike, that could potentially push the market down much, much farther.

And with each passing day, we get even more numbers which seem to indicate that we are entering a very, very deep global recession.

For instance, global trade numbers are absolutely collapsing.  This is a point that Raoul Pal hammered home during an interview with CNBC just the other day…

Looking at International Monetary Fund data, “the year-over-year change in global exports is at the second lowest level since 1958,” Raoul Pal, Publisher of the Global Macro Investor told CNBC’s”Fast Money”this week.

Basically, it means economies around the world are shipping their goods at near historically low levels. “Something massive is going on in the global economy and people are missing it,” Pal added.

The steep decline in 2015 exports is second only to 2009, when the global recession led to a 37 percent drop in export growth.

We have never seen global exports collapse this much outside of a recession.

Clearly we are witnessing a tremendous shift, and it boggles my mind that more people cannot see it.

As for this current wave of financial turmoil, it is hard to say how long it will last.  As I write this article, markets all over the Middle East are imploding, stocks in Asia are going crazy, currencies are crashing, and carry trades are being unwound at a staggering pace.  But at some point we should expect the level of panic to subside a bit.

If things do temporarily calm down, don’t let that fool you.  Global financial markets have not been this fragile since 2008.  Any sort of a trigger event is going to cause stocks all over the world to slide even more.

And let us not minimize the damage that has already been done one bit.  As you just read, the average stock on the Standard & Poor’s 1500 index is already down 26.9 percent.  The financial crisis that erupted during the second half of 2015 has already resulted in trillions of dollars of wealth being wiped out.

When people ask me when the “next financial crisis” is coming, I have a very simple answer for them.

The next financial crisis is not coming.

The next financial crisis is already here.

An angry bear has been released after nearly seven years in hibernation, and the entire world is going to be absolutely shocked by what happens next.

Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever

Stock Market Collapse 2016We have never had a year start the way that 2016 has started.  In the U.S., the Dow Jones Industrial Average and the S&P 500 have both posted their worst four-day starts to a year ever.  Canadian stocks are now down 21 percent since September, and it has been an absolute bloodbath in Europe over the past four days.  Of course the primary catalyst for all of this is what has been going on in China.  There has been an emergency suspension of trading in China two times within the past four days, and nobody is quite certain what is going to happen next.  Eventually this wave of panic selling will settle down, but that won’t mean that this crisis will be over.  In fact, what is coming is going to be much worse than what we have already seen.

On Thursday I was doing a show with some friends, and we were amazed that stocks just seemed to keep falling and falling and falling.  The Dow closed down 392 points, and the NASDAQ got absolutely slammed.  At this point, the Dow and the NASDAQ are both officially in “correction territory”, and some of the talking heads on television are warning that this could be the beginning of a “bear market”.  But of course some of the other “experts” are insisting that this is just a temporary bump in the road.

But what everyone can agree on is that we have never seen a start to a year like this one.  The following comes from CNN

The global market freakout of 2016 just got worse.

The latest scare came on Thursday as China’s stock market crashed 7% overnight and crude oil plummeted to the lowest level in more than 12 years.

The Dow dropped 392 points on Thursday. The S&P 500 fell 2.4%, while the Nasdaq tumbled 3%.

The wave of selling has knocked the Dow down 911 points, or more than 5% so far this year. That’s the worst four-day percentage loss to start a year on record, according to FactSet stats that go back to 1897.

When CNN starts sounding like The Economic Collapse Blog, you know that things are really bad.  I particularly like their use of the phrase “global market freakout”.  I might have to borrow that one.

Even some of the biggest and most trusted stocks are plummeting.  For instance, Apple dropped to $96.45 on Thursday.  It is now down a total of 28 percent since hitting a record high of more than 134 dollars a share back in April.

So that means that if someone put all of their retirement money into Apple stock last April (which may have seemed like a really good idea at that time), by now more than one-fourth of that money is gone.

For months, I have been warning that the exact same patterns that we witnessed just prior to the great stock market crash of 2008 were happening again.  To me, the parallels between 2008 and 2015/2016 were just uncanny.  And now other very prominent names are making similar comparisons.  According to the Washington Post, George Soros says that the way this new crisis is unfolding “reminds me of the crisis we had in 2008″…

Influential investor George Soros said that China had a “major adjustment problem” on its hands. “I would say it amounts to a crisis,” he told an economic forum in Sri Lanka, according to Bloomberg News. “When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008.”

Don’t get me wrong – I am certainly not a supporter of George Soros.  My point is that we are starting to hear a lot of really ominous talk from a lot of different directions.  All over the world, people are starting to understand that the next great financial crisis is already here.

As I write this tonight, I just feel quite a bit of sadness.  A lot of hard working people are going to lose a lot of money this year, and that includes people that I know personally.  I wish that my voice had been clearer and louder.  I wish that I could have done more to get people to understand what was coming.  I wish that my warnings could have made more of a difference.

I just think about how I would feel if everything that I had worked for all my life was suddenly wiped out.  And that is what is going to end up happening to some of these people.  When you lose everything, it can be absolutely debilitating.

You only make money in the markets if you get out in time.  And unfortunately, most of the general population will be like deer in the headlights and won’t know which way to move.

There will be up days for the markets in our near future.  But don’t be fooled by them.  It is important to remember that some of the greatest up days in U.S. stock market history were right in the middle of the stock market crash of 2008.  So don’t let a rally fool you into thinking that the crisis is over.

The financial crisis that began in the second half of 2015 is now accelerating, and everything that we have witnessed over the past few days is just a natural extension of what has already been happening.

Personally, I am just really looking forward to this weekend when I will hopefully get caught up on some rest.  Plus, my Washington Redskins will be hosting a playoff game on Sunday, and if they find a way to win that game that will put me in a particularly positive mood.

It is good to enjoy these simple pleasures while we still can.  Unprecedented chaos is coming this year, and we are all going to need strength and courage for what is ahead.

BLACK MONDAY: The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

New York City Empire State Building - Public DomainOn Monday, the Dow Jones Industrial Average plummeted 588 points. It was the 8th worst single day stock market crash in U.S. history, and it was the first time that the Dow has ever fallen by more than 500 points on two consecutive days. But the amazing thing is that the Dow actually performed better than almost every other major global stock market on Monday.  In the U.S., the S&P 500 and the Nasdaq both did worse than the Dow. In Europe, almost every major index performed significantly worse than the Dow.  Over in Asia, Japanese stocks were down 895 points, and Chinese stocks experienced the biggest decline of all (a whopping 8.46 percent). On June 25th, I was not kidding around when I issued a “red alert” for the last six months of 2015. I had never issued a formal alert for any other period of time, and I specifically stated that “a major financial collapse is imminent“. But you know what? As the weeks and months roll along, things will eventually be even worse than what any of the experts (including myself) have been projecting. The global financial system is now unraveling, and you better pack a lunch because this is going to be one very long horror show.

Our world has not seen a day quite like Monday in a very, very long time. Let’s start our discussion where the carnage began…

Asian Markets

For weeks, the Chinese government has been taking unprecedented steps to try to stop Chinese stocks from crashing, but nothing has worked. As most Americans slept on Sunday night, the markets in China absolutely imploded

As Europe and North America slept on Sunday night, Chinese markets went through the floor — the Shanghai Composite index of stocks fell by 8.49%, the biggest single-day collapse since 2007.

It wasn’t alone. Hong Kong’s Hang Seng fell 5.17%, and Japan’s Nikkei fell 4.61%. Stocks in Taiwan, the Philippines, Singapore, and Thailand also tumbled.

Things would have been even worse in China if trading had not been stopped in most stocks. Trading was suspended for an astounding 2,200 stocks once they hit their 10 percent decline limits.

Overall, the Shanghai Composite Index is now down close to 40 percent from the peak of the market, and the truth is that Chinese stocks are still massively overvalued when compared to the rest of the world.

That means that they could very easily fall a lot farther.

European Markets

The selling momentum in Asia carried over into Europe once the European markets opened. On a percentage basis, all of the major indexes on the continent declined even more than the Dow did

In Europe, the bloodbath from Friday continued unabated. The German Dax plunged 4.7%, the French CAC 40 5.4%, UK’s FTSE 100 dropped 4.7%. Euro Stoxx 600, which covers the largest European companies, was down 5.3%.

But wait… Europe is where the omnipotent ECB and other central banks have imposed negative deposit rates. The ECB is engaged in a massive ‘whatever it takes” QE program to inflate stock markets. But it’s not working. Omnipotence stops functioning once people stop believing in it.

U.S. Markets

Even before U.S. markets opened on Monday morning, the New York Stock Exchange was already warning that trading would be halted if things got too far out hand, and it almost happened

The thousands of companies listed by the New York Stock Exchange and Nasdaq Stock Market will pause for 15 minutes if the Standard & Poor’s 500 Index plunges 7 percent before 3:25 p.m. New York time. The benchmark got close earlier, falling as much as 5.3 percent.

There were other circuit breakers in place for later in the day if too much panic selling ensued, but fortunately none of those were triggered either. Here is more from Bloomberg

Another circuit breaker kicks in if the S&P 500 extends its losses to 13 percent before 3:25 p.m. If the plunge reaches 20 percent at any point during today’s session, the entire stock market will shut for the rest of the day.

When the U.S. markets did open, the Dow plunged 1,089 points during the opening minutes of trading. If the Dow would have stayed at that level, it would have been the worst single day stock market crash in U.S. history by a wide margin.

Instead, by the end of the day it only turned out to be the 8th worst day ever.

And in case you are wondering, yes, investors are losing a staggering amount of money. According to MarketWatch, the total amount of money lost is now starting to approach 2 trillion dollars

As of March 31, households and nonprofits held $24.1 trillion in stocks. That’s both directly, and through mutual funds, pension funds and the like. That also includes the holdings of U.S.-based hedge funds, though you’d have to think that most hedge funds are held by households.

Using the Dow Jones Total Stock Market index DWCF, -4.21% through midmorning trade, that number had dropped to $22.32 trillion.

In other words, a cool $1.8 trillion has been lost between now and the first quarter — and overwhelmingly, those losses occurred in the last few days.

Unfortunately, U.S. stock prices are still nowhere near where they should be. If they were to actually reflect economic reality, they would have to fall a lot, lot lower.

For example, there is usually a very strong correlation between commodity prices and the S&P 500, but in recent times we have seen a very large divergence take place. Just check out the chart in this article. At this point the S&P 500 would have to fall another 30 to 40 percent or commodities would have to rise 30 or 40 percent in order to close the gap. I think that the following bit of commentary sums up where we are quite nicely

“Markets are afraid of further economic weakness in China, further pain in global commodity markets and uncertain about Fed and PBoC policy — what they will do and what the impact will be,” Societe Generale’s Kit Juckes wrote on Monday. “The divergence between global commodity prices and equities is not a new theme but the danger now is that they begin to re-correlate – as they did when the dotcom bubble burst in 2000 and what had previously been an emerging market crisis became a US recession.”

And commodities were absolutely hammered once again on Monday.

For instance, the price of U.S. oil actually fell below 38 dollars a barrel at one point.

What we are watching unfold is incredible.

Of course the mainstream media is bringing on lots of clueless experts that are talking about what a wonderful “buying opportunity” this is. Even though those of us that saw this coming have been giving a detailed play by play account of the unfolding crisis for months, the talking heads on television still seem as oblivious as ever.

What is happening right now just doesn’t seem to make any sense to the “experts” that most people listen to. I love this headline from an article that Business Insider posted on Monday: “None of the theories for the Black Monday market crash add up“. Yes, if you are willingly blind to the long-term economic and financial trends which are destroying us, I guess these market crashes wouldn’t make sense.

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

But don’t be fooled by that. Just because stocks go up on any particular day does not mean that everything is fine. We are in the midst of a financial meltdown that is truly global in scope. This is going to take time to fully play out, and there will be good days and there will be bad days.  The three largest single day increases for the Dow were right in the middle of the financial crisis of 2008. So one very good day for stocks is not going to change the long-term analysis one bit.

It isn’t complicated. Those that follow my writing regularly know that I have repeatedly explained how things were setting up in textbook fashion for another global financial crisis, and now one is unfolding right in front of our eyes.

At this point, everyone should be able to very clearly see what is happening, and yet most are still blind.

Why is that?

11 Red Flag Events That Just Happened As We Enter The Pivotal Month Of August 2015

Red Flags - Public DomainAre you ready for what is coming in August?  All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal.  In July, we saw things start to turn.  As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet.  I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter.  Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…

#1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday.  Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.

#2 As James Bailey has pointed out, the most important trendline for the S&P 500 has finally been broken after holding up for six years.  This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.

#3 The IMF is indicating that it will not take part in the new Greek debt deal.  As a result, the whole thing may completely fall apart

Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 percent of GDP.

The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.

#4 Italy is going down the exact same path as Greece, but Italy is going to be a much larger problem for Europe because it has a far, far larger economy.  This week, we learned that youth unemployment in Italy has reached a 38-year high of 44 percent, and Italy’s debt to GDP ratio has now hit 135 percent.

#5 The Canadian economy has officially entered a new recession.  This is something that was not supposed to happen.

#6 The price of oil plummeted close to 20 percent during the month of July.  It was the worst month for the price of oil that we have seen since October 2008, which just happened to be during the height of the last financial crisis.

#7 Commodities just had their worst month in almost four years.  As I have written about previously, we witnessed a collapse in commodity prices just before the stock market crash of 2008 too.

#8 Thanks to Barack Obama, the U.S. coal industry is imploding, and some of the largest coal producers in the entire country have just announced that they are declaring bankruptcy

On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.

Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.

#9 For the month of July, the Shanghai Composite Index was down 13.4 percent.  Despite unprecedented government intervention to prop up the market, it was the worst month for Chinese stocks since October 2009.

#10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009.  Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.

#11 Chevron is another oil giant that has seen earnings plunge.  In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.

And in this list I didn’t even mention the economic chaos that is happening down in South America.  For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.

To a certain extent, I can understand why most Americans are not alarmed about the months ahead.  The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead.  At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015.  But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.

A few weeks ago, I authored a piece entitled “The Last Days Of ‘Normal Life’ In America“, and I stand by every single word of that article.  I truly believe that the era of debt-fueled prosperity that we have been enjoying for so long is coming to an end, and our standard of living will never again get back to this level.

Just yesterday, I had the chance to go over and stock up on some emergency supplies at a dollar store.  It always astounds me what you can still buy for a dollar.  The combined cost of raw materials, manufacturing, packaging, shipping and retailing most of these items shouldn’t be less than a dollar, but thanks to having the reserve currency of the world we are still able to go to these big box stores and fill up our carts with lots and lots of extremely inexpensive merchandise.

Unfortunately, this massively inflated standard of living is going to come crashing to a halt.  This next financial crisis is going to destroy the system that is currently producing such comfortable lifestyles for the vast majority of us, and that will be an extremely painful experience.

So enjoy this summer for as long as it lasts.  Even though August threatens to be pivotal, it is going to be nothing compared to what will follow.

Fall and winter are coming.

Prepare while there is still time to do so.

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