We Are Witnessing Unusual Stock Market Behavior That Is Unlike Anything That We Have Seen Since 2008

We have not seen Wall Street this jumpy since just before the great financial crisis of 2008.  As I have explained so many times before, when the waters are calm and there is low volatility, markets tend to go up.  And when the waters are choppy and volatility starts to spike, markets tend to go down.  That is why the behavior that we have been witnessing from investors during the first two quarters of 2018 is so alarming.  A high level of market turnover is often a sign of big trouble ahead, and according to Bloomberg our financial markets “are churning at the fastest rate since 2008″…

From junk bonds to emerging-market stocks, market turnover is through the roof, reaching multi-year highs. Within the S&P 500 Index, investors traded more than $2.9 trillion worth of shares in each of the past two quarters, a feat last achieved in early 2008.

Bloomberg is not prone to hyperbole, and so when they say that “market turnover is through the roof”, I hope that you will take that statement seriously.

We truly are facing a scenario that Wall Street has never seen before.  The Wilshire 5000 stock index to nominal GDP ratio has been hovering near all-time highs, and what that tells us is that stock prices are more overvalued today than they have been at any other point in modern American history.  Meanwhile, all sorts of red flags continue to indicate that big trouble is on the horizon, but most investors are ignoring those red flags.

But if you look closely, it is becoming clear that the most savvy investors are getting out while the getting is good.  In a previous article, I explained that the “smart money” is getting out of stocks at a pace that we have not seen since just before the last financial crisis.  Fortunately for them, the “dumb money” has been willing to buy what they are selling at these massively inflated prices.

We see a similar spike in the “churn rate” when we look at emerging markets.  In fact, Bloomberg says that we have not seen this much volatility in emerging market stocks since the international financial crisis of 1998…

It’s a similar story for developing-nation assets at the mercy of a strengthening U.S. dollar and trade tensions. Volume on the MSCI Emerging Market index reached $1.9 trillion in the three months through June, the most since 1998 when a wave of currency devaluations and defaults ripped through emerging economies from Thailand to Russia.

As I mentioned a couple of days ago, global stocks lost approximately 10 trillion dollars in value during the first six months of 2018.

Just think about that.

10 trillion dollars is almost half of the U.S. national debt.

If global stocks continue to fall at a similar pace during the second half, it is only a matter of time before U.S. stocks get absolutely slammed.

One of the emerging markets that is showing significant signs of trouble is India.  According to Bloomberg, India’s banks are now dealing with 210 billion dollars of bad debts…

India’s nearly $1.7 trillion formal banking sector is coping with $210 billion of soured or problem loans, and some regional banks have been ensnared in fraud scandals.

If U.S. banks had 210 billion dollars of bad debts that would be a big problem.

In India, a number like that is a complete and utter financial catastrophe that is not going to be easy to clean up.

According to CNBC, most of the bad loans are owned by India’s state-controlled banks…

India’s public-sector financial institutions control about 70 percent of all banking assets in the country, but they have the highest exposure to soured loans amounting to as much as $150 billion. In fact, the 21 state-owned banks had stressed loans of about 8.26 trillion rupees ($120 billion) as of Dec. 31, Reuters reported. Private sector lenders, meanwhile, reportedly had a bad loan pile of just about 1.1 trillion rupees.

Things have already gotten so bad in India that some people are starting to panic.

In fact, it is being reported that ATMs in some areas of the nation have been “running dry”…

On top of that, ATMs in some parts of the country have been reported to be running dry in recent days. There’s an unusually high demand for cash, according to the Finance Ministry. The rupee shortage is being blamed on everything from farm spending to looming elections and hoarding by some families.

This is yet another example that shows that it always pays to not put all of your eggs in one basket.  In the event of a major emergency, you will want access to cash, and you cannot necessarily count on your bank to always be there for you.

As we move forward into the second half of 2018, red flags continue to appear on an almost daily basis.  The Federal Reserve is steadily raising interest rates, civil unrest is erupting in the streets of America, and the Trump administration is starting trade wars with virtually everyone else on the planet.

In the end, these trade wars are going to prove to be very painful for U.S. businesses.  Earlier today, CNBC posted a piece about the impact that tariffs are likely to have on our pork producers…

U.S. pork producers are about to be bitten by a second batch of hefty retaliatory tariffs from China and Mexico — and that has some large producers predicting they could lose big money and be forced to invest overseas.

Executives say the pork industry has been expanding in recent years, in part on the expectation of export opportunities that would continue to support growth. However, the threat of a trade war is adding uncertainty and driving fear. One in 4 hogs raised in the U.S. is sold overseas, and the Chinese are the world’s top consumers of pork.

As I write this article, I can hear fireworks going off in the background.  The 4th of July is always a time for celebration, and without a doubt many Americans are extremely optimistic right now.

But as I have just explained, major storm clouds are gathering, and it isn’t going to take much to push the U.S. economy into another major crisis.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Why Are Investors Pulling Money Out Of Global Stock Funds At The Fastest Pace Since The Last Financial Crisis?

We haven’t seen anything like this since the financial crisis of 2008.  Investors are taking money out of global stock funds at a pace that we haven’t seen in 10 years, and many believe that this is a harbinger of tough times ahead.  Global stocks lost about 10 trillion dollars in value during the first half of 2018, and an even worse performance during the second half of the year will almost certainly push the global financial system into panic mode.  U.S. stocks have been relatively stable, and so most Americans are not too alarmed about what is happening just yet.  But if you look back throughout history, emerging market chaos is often an early warning signal that a major global crisis is on the horizon, and that is precisely what is happening right now.  Financial markets in emerging markets all over the planet are in the process of melting down, and the losses are becoming quite dramatic.

As stock prices around the planet start to plummet, investors are pulling money out of global stock funds very, very rapidly.  The following comes from CNBC

Investor money is hemorrhaging out of global stock funds at a pace not seen since just after the financial crisis exploded.

Global equity funds have seen outflows of $12.4 billion in June, a level not seen since October 2008, according to market research firm TrimTabs. Lehman Brothers collapsed in September of that year, triggering the worst economic downturn since the Great Depression and helping fuel a bear market that would see major indexes lose more than 60 percent of their value.

Does this automatically mean that another major financial crisis is on the way in the United States?

No, but it is definitely not a good sign.

As CNBC also noted, investors have been taking tremendous amounts of money out of one emerging market ETF in particular…

The iShares emerging market ETF has seen $5.4 billion in outflows in June, the most of any fund, according to ETF.com.

“U.S. dollar strength and persistent underperformance seem to be driving fund investors away from non-U.S. equities,” TrimTabs said in a note.

The list of emerging market economies that are in crisis mode is beginning to get really long.  Argentina, Venezuela, Turkey, Brazil and South Africa are some of the more prominent examples.

If the chaos in emerging markets continues to intensify, the rush for the exits is going to become a stampede.  Not too long ago, I discussed the fact that the “smart money” was getting out of stocks at a pace that we haven’t seen since just before the last financial crisis, and it isn’t going to take too much to set off a full-blown financial avalanche.

In the general population, most people still seem to think that the financial system is in good shape.  But in many ways, the first half of 2018 was the worst half of a year for the global financial system since the financial crisis of 2008.  The following summary of the carnage that we have witnessed over the last 6 months comes from Zero Hedge

  • Bitcoin Worst Start To A Year Ever
  • German Banks At Lowest Since 1988
  • Onshore Yuan Worst Quarter Since 1994
  • Argentine Peso Worst Start To A Year Since 2002
  • US Financial Conditions Tightened The Most To Start A Year Since 2002
  • Global Systemically Important Banks Worst Start To A Year Since 2008
  • Global Stocks Worst Start To A Year Since 2010
  • China Stocks Worst Start To A Year Since 2010
  • German Stocks Worst Start (In USD Terms) Since 2010
  • Global Economic Data Disappointments Worst Since 2012
  • Emerging Markets, Gold, Silver Worst Start To A Year Since 2013
  • High Yield Bonds Worst Start To A Year Since 2013
  • Offshore Yuan Worst Month Since Aug 2015
  • Global Bonds Worst Start To A Year Since 2015
  • Treasury Yield Curve Down Record 16 Of Last 18 Quarters

And as I mentioned above, global stocks lost about 10 trillion dollars in value over the last 6 months.

When the Federal Reserve hikes interest rates, it puts a lot of financial stress on emerging markets.  It becomes much more expensive to take out dollar-denominated loans, and it also becomes much more expensive to pay back existing dollar-denominated debts.

But the Fed has not listened to appeals from the rest of the world, and has decided to accelerate the pace of rate hikes instead.

Meanwhile, the trade wars that the United States has started with other nations continue to escalate.  Here are the latest developments

U.S. farmers and food producers are in the cross-hairs of a global trade conflict that shows no signs of abating anytime soon — and things are about to escalate in a big way on Sunday.

New tariffs will be imposed by Canada on beef, and more retaliation will come this week when China and Mexico take aim at pork. China’s also planning a 25 percent tariff on soybeans on July 6 in addition to hikes on pork duties, and Mexico’s 20 percent levy on “the other white meat” is set to begin July 5.

Meanwhile, the European Union’s initial duties worth $3.2 billion took effect June 22. Most of the duties amount to 25 percent, and include a variety of U.S. products, including motorcycles, boats, whiskey and peanut butter.

If nobody gives in, economic activity will start to slow down substantially.  This is what CNN says that we should expect…

Here’s how the dominoes could fall: First, businesses would be hit with higher costs triggered by tariffs. Then, companies won’t be able to figure out how to get the materials they need. Eventually, confidence among executives and households would drop. Businesses would respond by drastically scaling back spending.

A perfect storm is starting to emerge, and investors are getting spooked.

If financial problems continue to get worse in emerging markets, and if the Federal Reserve continues to raise interest rates, and if these trade wars continue to grow, it is only a matter of time before we have a major market catastrophe in the United States.

The storm clouds on the horizon have just kept getting darker and darker, and many analysts all over the nation agree that this is the gloomiest that things have looked since 2008.

Hopefully a way can be found to turn things around, but I wouldn’t count on it…

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The Federal Reserve Is Increasing The Pace Of Interest Rate Hikes Just In Time For The 2018 Mid-Term Elections

If the Federal Reserve really wanted to hurt the U.S. economy, the quickest way that it could do that would be by aggressively raising interest rates.  Lower interest rates make it less expensive to borrow money, and therefore economic activity tends to expand in a low interest rate environment.  Alternatively, higher interest rates make it more expensive to borrow money, and economic activity tends to slow down in a high interest rate environment.  Since 1913, the Federal Reserve has engaged in 18 previous rate hiking cycles, and every single one of them resulted in a huge stock market decline and/or a recession.  It will be the same this time around as well, and the “experts” at the Federal Reserve know exactly what they are doing.  Interest rates are being aggressively jacked up just in time for the 2018 mid-term elections, and that is very bad news for the Republican Party and the Trump administration.

On Wednesday, the Federal Reserve announced an interest rate hike for the 2nd time this year

The Federal Reserve increased a key interest rate again Wednesday, which will trigger higher rates on credit cards, home equity lines and other kinds of borrowing.

Wednesday’s action, which was widely expected, was the second Fed rate hike this year — and the seventh since it began boosting them in 2015. The latest increase puts the federal funds rate in a range between 1.75 and 2 percent. The Fed previously nudged rates up in March.

Because so much is based on what the Federal Reserve does, now interest rates will be going up throughout our economy.

For example, we should expect the average rate on a 30-year fixed mortgage to surpass the 4.66 percent mark that we witnessed earlier this year

Mortgage rates have been climbing. The average rate on a 30-year fixed rate mortgage climbed to 4.66% this year in May, the highest in seven years, before falling slightly in recent weeks.

Home mortgage rates tend to move with the bond market, but rates can also rise because of a higher federal funds rate. A higher rate makes it more expensive for banks to borrow money, which can translate into higher borrowing rates for consumers.

Needless to say, this is going to have a huge impact on the housing market.

Interest rates will also be going up on credit cards, auto loans and just about every other kind of debt that you can imagine.

This will inevitably slow down economic activity, and it will make the party that is in power in Washington (the Republicans) look bad.

Originally, it was anticipated that the Federal Reserve would raise rates only three times in 2018, but now they are indicating that rates will be raised a total of four times this year.  The following comes from NPR

The Fed also signaled that it will raise rates more this year than previously expected — four times rather than three.

This is economic sabotage, but nobody in the mainstream media will ever admit this.

Most people do not understand that the Federal Reserve has far more power over the performance of the U.S. economy than anyone else does.  It was the Fed’s ultra-low interest rates and easy money policies that fueled the relative economic improvement that we have witnessed early in Trump’s presidency, and it will be the Fed’s policy of aggressively raising rates that will inevitably cause huge economic turmoil in the coming months.

So why would the Federal Reserve do this?

According to Federal Reserve Chair Jerome Powell, the Fed decided to raise interest rates to keep the economy from overheating

The decision reflected an economy that’s getting even stronger. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy from overheating.

“The main takeaway is that the economy is doing very well,” Fed Chairman Jerome Powell said at a news conference. “Most people who want to find jobs are finding them, and unemployment and inflation are low.”

Of course that is a load of nonsense.

As I discussed yesterday, if honest numbers were being used our unemployment rate would be at 21.5 percent, inflation would be at about 10 percent, and GDP growth would be negative.

The U.S. economy is definitely not “overheating”.  In fact, it needs as much help as possible to pull out of the deep slump that it has been in for many, many years.

Fed Chair Jerome Powell is supposed to be a Republican, and I suppose that it is possible that he actually believes that he is doing the right thing for the country by aggressively raising interest rates.

But any sort of an economic slowdown will be extremely favorable for the Democrats.  American voters are notorious for “voting their pocketbooks”, and when things get bad they always blame whoever is in power at the time.

In this case, it will be Donald Trump and the Republicans in Congress that get the blame for what the Federal Reserve has done.

We know that some among the elite are already discussing the possibility of “a crashing economy” as a way to “get rid of Trump”.  In the short-term, however, the best way to neuter Trump politically would be to have Democrats do extremely well in the 2018 mid-term elections.

If the Democrats take back control of either the House or the Senate in November, Trump’s agenda will come to a crashing halt, and thanks to the Federal Reserve that scenario has just become much more likely.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

18 Times The Fed Has Gone Through A Rate Hiking Cycle, And 18 Times It Has Caused A Huge Stock Market Decline And/Or A Recession

Since 1913, the Federal Reserve has engaged in 18 distinct interest rate hiking campaigns, and in every single one of those instances the end result was a large stock market decline, a recession, or both.  Now we are in the 19th rate tightening cycle since 1913, but many of the experts are insisting that things will somehow be different this time.  They assure us that the U.S. economy will continue to grow and that stock prices will continue to soar.  Of course the truth is that if something happens 18 times in a row, there is a really, really good chance that it will happen on the 19th time too.  For years I have been trying to get people to understand that our country has been on an endless roller coaster ride ever since the Fed was created back in 1913.  Things can seem quite pleasant when the economy is on one of the upswings, but the downswings can be extremely painful.

It was economist Lance Roberts that pointed out this correlation between rate hiking cycles and economic troubles.  When I came across his most recent article, it really got my attention

A sustained interest rate hiking campaign, as undertaken by the Fed, has always resulted in negative stock market returns.

Always. Not usually, not might-be-correlated-to. Always. As in, 18 out of 18 times. Until now. When we’ve had the single highest percentage increase in history (93.33% peak to trough, so far).

To support his claims, he posted this chart

So far, however, there hasn’t been a huge stock market drop or a recession during this rate hiking cycle.

Has something changed?

Is the 19th time going to be fundamentally different?

Roberts believes that the unprecedented intervention by the Fed that we have seen in recent years that has fueled corporate buybacks has successfully “delayed the inevitable stock market correction”

So what gives? Of course, it’s the Fed. Having kept interest rates near zero for years on end and having filled corporate coffers with super cheap debt used to fuel market-bubble-sustaining corporate buybacks, the Fed has delayed the inevitable stock market correction.

I definitely agree with Roberts – a colossal stock market correction is inevitably coming.

And the warning signs are all around us.  As I have discussed so many times before, junk bonds are often an early warning sign for a major financial crisis, and it is extremely interesting to note that it looks like Deutsche Bank is planning a “fire sale” of their energy junk bonds.  The following analysis comes from Zero Hedge

Bloomberg reports that Deutsche is planning to sell the loan book as a whole and has marketed it to North American and European peers, said one of the people. The portfolio is expected to sell for par value, said the people, who asked not to be identified because they weren’t authorized to speak publicly; good luck with that!

The bank’s energy business is expected to wrap up on June 30, one of the people said. The bank has been an active lender in the energy space in the past year, participating in the financing of companies including Peabody Energy Corp. and Coronado Australian Holdings Pty., according to data compiled by Bloomberg.

So to summarize: Moody’s is warning that when the economy weakens we will see an avalanche of defaults like we haven’t seen before; Corporate debt-to-GDP and investor risk appetite is reminding a lot of veterans of previous credit peaks; and now the most desperate bank in the world is offering its whole junk energy debt book in a firesale… just as high yield issuance starts to slump.

Wow.

To me, that is one of the strongest indications yet that things are about to take a major turn for the worse for the global financial system.

And even former Federal Reserve chair Ben Bernanke is sounding quite pessimistic these days.  The following comes from a Bloomberg article entitled “Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020”

The stimulus “is going to hit the economy in a big way this year and next year, and then in 2020 Wile E. Coyote is going to go off the cliff,” Bernanke said, referring to the hapless character in the Road Runner cartoon series.

When you read that quote, alarm bells should have been going off in your head.

If his forecast is accurate, that means that the U.S. economy’s Wile E. Coyote moment will come just in time for the 2020 election

The timing of Bernanke’s possible slowdown would line up badly for Trump, who has called the current economy the best ever and faces reelection in late-2020.

Wouldn’t that be convenient for the elite?

U.S. voters tend to be extremely influenced by the performance of the economy, and so a major economic downturn would not bode well for Trump’s chances.

Similarly, if a major crisis erupts during the second half of this year, it will probably mean big problems for Republicans in November.  Timing is everything in politics, and when the next crisis comes most voters won’t even consider the fact that it had been building for a very, very long time.  All they will care about is who is in office at the time.

But for the moment, most of the “experts” are assuring us that things will be rosy for the foreseeable future.  For example, a couple of prominent analysts over at Goldman Sachs are saying that tech stock prices are likely to continue to rise

“Unlike the technology mania of the 1990s, most of this success can be explained by strong fundamentals, revenues and earnings rather than speculation about the future,” strategists Peter Oppenheimer and Guillaume Jaisson wrote in a note. “Given that valuations in aggregate are not very stretched, we do not expect the dominant size and contribution of returns in stock markets to end any time soon.”

And the optimists will continue to be right up until the moment that the bubble finally bursts.

Whenever the Federal Reserve starts raising rates, it always results in a bad ending.

This time will be no different, and anyone that is trying to convince you otherwise is just being delusional.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is the author of four books including The Beginning Of The End and Living A Life That Really Matters.

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