Are we about to witness one of the largest stock market crashes in U.S. history? Swiss investor Marc Faber is the publisher of the “Gloom, Boom & Doom Report”, and he has been a regular guest on CNBC for years. And even though U.S. stocks have been setting new record high after new record high in recent weeks, he is warning that a massive stock market crash is in our very near future. According to Faber, we could “easily” see the S&P 500 plunge all the way down to 1,100. As I sit here writing this article, the S&P 500 is sitting at 2,181.74, so that would be a drop of cataclysmic proportions. The following is an excerpt from a CNBC article that discussed the remarks that Faber made on their network on Monday…
The notoriously bearish Marc Faber is doubling down on his dire market view.
The editor and publisher of the Gloom, Boom & Doom Report said Monday on CNBC’s “Trading Nation” that stocks are likely to endure a gut-wrenching drop that would rival the greatest crashes in stock market history.
“I think we can easily give back five years of capital gains, which would take the market down to around 1,100,” Faber said, referring to a level 50 percent below Monday’s closing on the S&P 500.
Of course Faber is far from alone in believing that the market is heading for hard times. Just recently, I wrote about how legendary investor Jeffrey Gundlach is warning that “stocks should be down massively” and that he believes this is the time to “sell everything“.
And on Tuesday, Donald Trump told Fox News that the stock market is “a big bubble”…
“If rates go up, you’re going to see something that’s not pretty,” the billionaire businessman told Fox News during a Tuesday morning phone interview. “It’s all a big bubble.”
Worries that the Fed has created a market bubble have shadowed the second-longest bull market in history as the central bank has kept its key rate near zero and expanded its balance sheet by $3.8 trillion in order to pump liquidity into the financial system.
Trump actually has a vested interest in seeing the stock market go down, because that would help his chances in November.
In a previous article on The Most Important News, I explained that the stock market has indicated who would win the presidential election 86 percent of the time since 1928. During the final three months before election day, if the stock market goes up the incumbent party almost always wins. But if the stock market goes down, the incumbent party almost always loses. The only times this correlation has not held up since 1928 were in 1956, 1968 and 1980.
For the moment, the stock market is defying the laws of economics, and that is a very good thing for Hillary Clinton. But if this bubble suddenly bursts and the market starts catching up with economic reality, that is going to turn out to be very favorable for Donald Trump.
And without a doubt, the fundamental economic numbers just continue to get worse. Earlier today, we learned that productivity in the U.S. has now been falling for three quarters in a row…
Productivity, a sore spot for the U.S. economy over the past few years, has now declined in three straight quarters, according to data released Tuesday.
Productivity in the second quarter unexpectedly fell 0.5%, well below expectations, the Labor Department said. Economists surveyed by MarketWatch had forecast a 0.3% gain in productivity in the quarter.
Productivity is down 0.4% from a year earlier, the first year-over-year decline since the second quarter of 2013.
On Tuesday we also learned that real estate sales in Las Vegas were down about 10 percent in July compared to the same period a year ago, and things are not looking so good in San Francisco either. Just check out what has been going on at Twitter…
Twitter is shaking up San Francisco. It’s the city’s 10th largest employer, and second largest tech employer, after Salesforce. But it hasn’t yet figured out, despite a decade of trying, how to make money. Last October, it announced that it would lay off 8% of its workforce. A couple of weeks ago, it reported a second-quarter net loss of $107 million along with disappointing user metrics and lousy projections. Its shares have lost 74% since their miracle-IPO-hype peak at the end of December 2014.
And now Twitter is dumping nearly one third of its total office space on the San Francisco sublease market.
Las Vegas and San Francisco are both prone to huge “booms” and “busts”. So the fact that it appears that both cities are starting to move into the “bust” end of the cycle is a very ominous sign.
Conditions are changing, and now is the time to position yourself for the exceedingly challenging times that are coming. As I end this article today, I want to share with you something written by Jim Quinn. He recently went out to visit his son Kevin in Colorado for a couple of weeks, and the following is how he ended his article about that trip…
After spending a week in this stunning paradise, it’s tougher than you know to go back to my two and half hour daily round trip commute into the slums of West Philly. John Muir’s words were right 100 years ago and they are right today. I am losing precious days and my days are spent trying to make money. I’ve got responsibilities. I’ve got bills to pay. I’ve got kids to get through college. We’ve got aging parents to help. I work because I have to.
I’m not learning anything in this trivial world of distractions and iGadgets. I don’t fit into this materialistic society. I don’t do small talk. I have no patience for fools. I prefer solitude. If I can survive this despicable rat race for seven more years, I’ll be joining Kevin in Colorado and living the life I’d like to live. The sun is setting and time is slipping away. Those mountains are calling me home.
I can definitely identify with what Jim is going through, because I once experienced similar emotions.
To Jim and everyone else that hopes that someday in the future they will be able to live the lives that they would like to be living right now, I would say this…
Don’t put it off.
Seize the day and find a way to make your dreams a reality.
Things are rapidly changing in this country, and if you keep putting off the life you want to be living for too long it may end up slipping away for good.
One thing that you have to appreciate about Donald Trump is that unlike most politicians, he actually says what is on his mind. On Tuesday, Trump told Fox Business that he had already gotten out of the stock market, and that he foresees “very scary scenarios” ahead for investors. And of course things have already started to get a bit ominous for those holding stocks over the last week and a half. The Dow Jones Industrial Average has now closed down for seven days in a row, and that is the longest losing streak that we have seen since the panic of last August. Over the past 12 months we have seen virtually every other major global stock market experience at least one major crash. Could the U.S. markets be next?
What Trump told Fox Business earlier today was actually right on the money. Our financial markets have been artificially inflated by the Federal Reserve, and all artificial bubbles of this nature eventually burst. The following comes from a Bloomberg article that was posted on Tuesday entitled “Trump Urges Exit From Market Boosted by ‘Artificially Low’ Rates“…
Donald Trump on Tuesday said interest rates set by the Federal Reserve are inflating the stock market and recommended 401(k)-holders to get out of equities, just like he did.
“I did invest and I got out, and it was actually very good timing,” the Republican presidential nominee said in a phone interview with Fox Business. “But I’ve never been a big investor in the stock market.”
“Interest rates are artificially low,” Trump said. “The only reason the stock market is where it is is because you get free money.”
Trump’s comments come at a time when we are getting a whole host of bad news about the U.S. economy. We just learned that U.S. GDP grew at a meager 1.2 percent annual rate during the second quarter, the rate of homeownership in the United States just hit an all-time record low, and corporate earnings have now been falling for five quarters in a row.
But perhaps most alarming of all is what is happening to the price of oil. As I discussed yesterday, the price of oil has plunged well over 20 percent since June 8th, and it was down again on Tuesday.
As I write this article, the price of U.S. oil is sitting at just $39.66. The psychologically-important 40 dollar barrier has been broken, but the price of oil doesn’t even have to go down another penny to do immense damage to the U.S. economy. If it just stays at this price, we are going to bleed more energy industry jobs, more energy companies are going to default on their debts, and more financial institutions that are exposed to the energy industry are going to get into serious trouble.
All the ingredients are there for a major financial crisis, and perhaps that explains why so many investors are flocking to precious metals such as gold and silver right now.
The price of gold has gone up for six trading days in a row, and silver is approaching 21 dollars an ounce.
Meanwhile, things continue to unravel on the other side of the planet. In Europe, let’s just say that the recent bank stress tests did not go as well as many were hoping…
If the goal of the EBA Stress Tests was to reassure investors and regain confidence that ‘all is well’ in Europe’s increasingly fragile and systemically interconnected banking system, then it has utterly failed. The broadest European bank stock index is now down 7% from the post-stress-test spike highs, Italian banks are at record lows and being halted (despite Renzi’s promises), Commerzbank is struggling with capital raise chatter, and Deutsche Bank and Credit Suisse are tumbling after being booted from the Stoxx 50.
It is funny – every time I write a major article about Deutsche Bank, their stock goes to a new record low.
And it has just happened again. Less than a week ago, I posted this article, and on Tuesday Deutsche Bank plummeted to a brand new record low as renewed fears about the health of the bank spooked investors.
Problems at Deutsche Bank and Credit Suisse are now becoming so obvious that even mainstream analysts are admitting that they are “causing some anxiety”…
“Deutsche Bank and Credit Suisse … are dropping to where they were after the Brexit vote,” said Bruce Bittles, chief investment strategist at Baird. “That’s causing some anxiety.”
Deutsche and Credit Suisse’s U.S.-listed shares closed down 3.75 percent and 4.67 percent, respectively.
In Europe nobody is waiting for financial stocks to crash, because they are already crashing.
A “too big to fail” crisis is rapidly unfolding across the entire continent, but most Americans are totally oblivious to what is going on over there. Instead, our major news outlets are feeding us an endless barrage of negative headlines about Donald Trump and a steady stream of positive headlines about Hillary Clinton.
I wonder who they want to win the election?
Of course I am being sarcastic. The days when the mainstream media at least pretended to be “independent” are long gone.
But as far as the stock market is concerned, I am quite confident that Donald Trump will be vindicated.
And if you don’t want to believe Donald Trump, I would encourage you to consider what Jeffrey Gundlach, the chief executive of DoubleLine Capital, has been saying. He has been right about the markets in recent years over and over again, and just a few days ago he publicly stated that “stocks should be down massively” and that now is the time to “sell everything“.
Unfortunately, very few people are likely to change course at this stage. Most of those that could see the warning signs have already gotten out of the market, and those that prefer to have blind faith in the system are not likely to listen to warnings from men like Trump and Gundlach.
So now it is just a waiting game.
We shall see if Trump and Gundlach are right, and those that end up on the correct side of the equation are probably going to make a boatload of money during the months ahead.
Over the last two trading days, European banks have lost 23 percent of their value. Let that number sink it for a bit. In just a two day stretch, nearly a quarter of the value of all European banks has been wiped out. I warned you that the Brexit vote “could change everything“, and that is precisely what has happened. Meanwhile, the Dow was down another 260 points on Monday as U.S. markets continue to be shaken as well. Overall, approximately three trillion dollars of global stock market wealth has been lost over the last two trading days. That is an all-time record, and any doubt that we have entered a new global financial crisis has now been completely eliminated.
But of course the biggest news on Monday was what happened to European banks. The Brexit vote has caused financial carnage for those institutions unlike anything that we have ever seen before. Just check out this chart from Zero Hedge…
I knew that things would be bad if the UK voted to leave the European Union, but I didn’t know that they would be this bad.
Prior to all of this, a whole bunch of “too big to fail” banks all over Europe were already in the process of imploding, and now this chaotic financial environment may push several of them into full-blown collapse mode simultaneously. Just consider the following commentary from Wolf Richter…
Healthy big banks would get over Brexit and the political turmoil it is spawning, particularly non-UK banks. But there are no healthy big banks in Europe. And non-UK banks are crashing just as hard, and some harder. This is about a banking crisis morphing into a financial crisis.
These bank stocks got crushed on Friday. And they got crushed again today. Italian banks have been reduced to penny stocks. Spanish banks are getting closer. Commerzbank, Germany’s second largest bank, and still partially owned by the German government as a consequence of the last bailout, is well on the way.
One institution that I have been warning about for months is German banking giant Deutsche Bank. On Monday, their stock fell another 5.77 percent to a fresh all-time closing low of 13.87. I have been convinced that Deutsche Bank is going to zero for a long time, but these days it seems in quite a hurry to get there.
Of course Deutsche Bank is far from alone. The following are other “too big to fail” European banks that have lost at least one-fifth of their value over the past two trading days…
-Royal Bank of Scotland
-Lloyds Banking Group
-Banca Monte dei Paschi di Siena
This is what a full-blown financial crisis looks like, and U.S. banks have been getting hit very hard too…
The Brexit contagion is spreading as USD liquidity and counterparty risk in the interconnected global financial system has reached US banks with Goldman at 3 year lows and BofA and Citi plunging over 12%. This happens just two days after the Fed released its latest stress test results finding that none of the 33 banks tested would need additional capital in case of a “severe” financial crisis. That conclusion may be tested soon.
Meanwhile, the British pound continues to get absolutely pummeled. As I write this, the GBP/USD is down to 1.32, and some are now warning that the British pound may hit parity with the U.S. dollar by the end of the year.
One of the reasons why I expect the British pound to continue to tumble is because the global elite have to show the British people that they made the wrong decision, and they need to scare off any other countries that would consider holding similar votes.
So it was no surprise that the elite had two of their major credit rating agencies downgrade the UK on Monday…
Two major rating agencies downgraded the United Kingdom’s credit rating on Monday.
S&P Global Ratings lowered the UK to AA from AAA, with a “negative” outlook. And, Fitch cut its rating to AA from AA+, with a negative outlook as well.
And as I mentioned yesterday, Bank of America and Goldman Sachs have already projected that the UK economy is heading into recession.
As much economic and financial pain as possible will be inflicted upon the British people, and meanwhile they will be bombarded by mainstream news stories telling them that they made a stupid decision.
Hopefully the British people will stand strong and will not give in to the pressure.
But of course it isn’t just the British people that will be feeling the pain. The Brexit vote has sent shockwaves all over the planet, and global investors are losing tremendous amounts of money. For instance, here in the United States approximately 1.3 trillion dollars of stock market wealth has been wiped out so far…
Brexit isn’t just a European problem after all. The United Kingdom’s decision to quit the European Union is costing U.S. investors a pretty penny.
U.S.-based companies in the broad Russell 3000, including online advertising company Alphabet (GOOGL), software maker Microsoft (MSFT) and global bank JPMorgan Chase (JPM), have suffered a collective loss of $1.3 trillion since Friday’s shocker from the United Kingdom, according to a USA TODAY analysis of data from S&P Global Market Intelligence.
Hopefully tomorrow will be better. It is very rare for global financial markets to crash for three days in a row, but it could happen. More likely, however, is that we will see some kind of temporary bounce as long as some really negative event doesn’t hit the news.
But let there be no doubt about what has just happened. The collapse of Lehman Brothers was the “trigger event” that really accelerated the crisis of 2008, and now it appears as though the Brexit vote will be the “trigger event” that greatly accelerates the crisis of 2016.
Global investors had already lost trillions over the past 12 months, and a full-blown financial implosion was going to happen no matter how the vote turned out, but thanks to British voters the fun and games have arrived early.
Unfortunately, only a very small fraction of the population understands just how bad things are going to get in the months ahead…
More stock market wealth was lost on Friday than on any other day in world history. As you will see below, global investors lost two trillion dollars on the day following the Brexit vote. And remember, this is on top of the trillions that global investors have already lost over the past 12 months. It is important to understand that the Brexit vote was not the beginning of a new crisis – it has simply accelerated a global financial crisis that started last year and that was already in the process of unfolding. As I noted on Friday, we have been waiting for “the next Lehman Brothers moment” that would really unleash fear and panic globally, and now we have it. The next six months should be absolutely fascinating to watch.
According to CNBC, the total amount of money lost on global stock markets on Friday surpassed anything that we had ever seen before, and that includes the darkest days of the financial crisis of 2008…
Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.
The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.
And of course many of the wealthiest individuals on the planet got absolutely hammered. According to Bloomberg, the 400 richest people in the world lost a total of $127.4 billion dollars on Friday…
The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.
Could you imagine losing a billion dollars on a single day?
I am sure that Bill Gates and Jeff Bezos are not shivering in their boots quite yet, but what if the markets keep on bleeding like they did in 2008?
On the other hand, globalist magnate George Soros made a ton of money on Friday because he had positioned himself for a Brexit ahead of time. The following comes from the London Independent…
The billionaire who predicted Brexit would bring about “Black Friday” and a crisis for the finances of ordinary people appears to have profited hugely from the UK’s surprise exit from the EU.
George Soros is widely known as the man who “broke” the Bank of England in 1992, when he bet against the pound and made a reported £1.5bn.
Although the exact amount Mr Soros has gained after Brexit is not known, public filings show he doubled his bets earlier this year that stocks would fall.
So what will happen on Monday when the markets reopen?
Personally, I don’t think that it will be as bad as Friday.
But I could be wrong.
In early trading, Dow futures, S&P 500 futures and Nasdaq futures are all down…
Dow futures fell by 90 points in early trading, while S&P 500 futures slipped 11 points, and NASDAQ futures dipped 24 points. Gold futures rose, in a reflection of sustained demand for safe-haven assets.
And at this moment, the British pound is getting absolutely crushed. It is down to 1.33, and I would expect to see it fall a lot lower in the weeks and months to come.
Well, the truth is that now that the British people have voted to leave the EU, the globalists have to make it as painful as possible on them in order to send a warning to other nations that may consider leaving. I think that a recent article by W. Ben Hunt explained this very well…
What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain). Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.
The elite need a crisis now in order to show everyone that globalism is the answer and not the problem. If the British people were allowed to thrive once they walked away, that would only encourage more countries to go down the exact same path. This is something that the elite are determined to avoid.
The Brexit vote has barely sunk in, and Bank of America and Goldman Sachs are already projecting a recession for the United Kingdom. Sadly, I believe that this is what we will see happen.
But it won’t just be the British that suffer.
On Friday, European banking stocks had their worst day ever. In particular, Deutsche Bank fell an astounding 17.49 percent to an all-time record closing low of 14.72. I have warned repeatedly about the implosion of Deutsche Bank, and this crisis could be the catalyst for it.
In addition, I have repeatedly warned about the slow-motion meltdown that is happening in Japan. On Friday, Japanese stocks lost 1286 points, and the yen surged in the exact opposite direction that the government is trying to send it…
Tokyo, we have a problem.
Last week, market tumult stemming from the U.K.’s vote to quit the European Union drove the British pound to its weakest levels in three decades.
Yet it also sent investors flocking to traditional safe haven assets like the U.S. dollar, gold and the yen, the latter surging against every major currency as the results of Brexit became clear: Dollar/yen spiked from a Thursday high near 107 to a two-year low near 99.
Just like in 2008, there will be days when global markets will be green. When that happens, it will not mean that the crisis is over.
If you follow my work closely, then you know that it is imperative to look at the bigger picture. Over the past 12 months, there have been some very nice market rallies around the world, but investors have still lost trillions of dollars overall.
What happens on any one particular day is not the story. Rather, the key is to focus on the long-term trends.
And without a doubt, this Brexit vote could be “the tipping point” that greatly accelerates our ongoing woes…
“Brexit is the biggest global monetary shock since 2008,” said David Beckworth, a scholar at the Mercatus Center at George Mason University, in a blog post on Friday. “This could be the tipping point that turns the existing global slowdown of 2016 into a global recession.”
We were already dealing with a new global economic crisis without the Brexit vote. But what this does is it introduces an element of panic and fear that had been missing up until this current time.
And markets do not like panic and fear very much. In general, markets tend to go up when things are calm and predictable, and they tend to go down when chaos reigns.
Unfortunately, I believe that we are going to see quite a bit more chaos for the rest of 2016, and the trillions that were lost on Friday may turn out to be just the tip of the iceberg.
Has the next Lehman Brothers moment arrived? Late Thursday night we learned that the British people had voted to leave the European Union, and this could be the “trigger event” that unleashes great financial panic all over the planet. Of course stocks have already been crashing all over the globe over the past year, but up until now we had not seen the kind of stark fear that the crash of 2008 created following the collapse of Lehman Brothers. The British people are certainly to be congratulated for choosing to leave the tyrannical EU, and if I could have voted I would have voted to “leave” as well. But just as I warned 10 days ago, choosing to leave will “throw the entire continent into a state of economic and financial chaos”. And “Black Friday” was just the beginning – the pain from this event is going to continue to be felt for months to come.
The shocking outcome of the Brexit vote caught financial markets completely off guard, and the carnage that we witnessed on Friday was absolutely staggering…
-The Dow Jones Industrial Average plunged 610 points, and this represented the 9th largest one day stock market crash in the history of the Dow.
-The Nasdaq was hit even harder than the Dow. It declined 4.12 percent which was the biggest one day decline since 2011.
-Overall, Black Friday erased approximately 800 billion dollars of stock market wealth in the United States.
-Thursday was the worst day ever for the British pound, and investors were stunned to see it collapse to a 31 year low.
-Friday was the worst day ever for European banking stocks.
-Friday was the worst day for Italian stocks since 1997.
-Friday was the worst day for Spanish stocks since 1987.
-Japan experienced tremendous chaos as well. The Nikkei fell an astounding 1286 points, and this was the biggest drop that we have seen in more than 16 years.
-Banking stocks all over the planet got absolutely pummeled on Black Friday. The following comes from USA Today…
Stocks of some British-based banks suffered double-digit losses in heavy U.S. trading. Barclays (BCS) shares plunged 20.48% to close at $8.89. HSBC (HSBC) shares closed down 9.04% at $30.68. And shares of Royal Bank of Scotland (RBS) plummeted 27.5% to a $5.43 close.
Top U.S. banks also suffered from the Brexit fallout, although not as badly as their British counterparts.
Shares of JPMorgan Chase (JPM) closed down 6.95% at $59.60. Bank of America (BAC) shares fell 7.41% to a $13 close. Citigroup (C) shares dropped 9.36% to close at $40.30. And Wells Fargo (WFC) closed 4.59% lower at $45.71.
-Friday was the best day for gold since the collapse of Lehman Brothers.
-George Soros made a killing on Black Friday because he had already positioned his company to greatly benefit from the Brexit vote ahead of time.
But please don’t think that “Black Friday” was just a one day thing. As I warned before, the Brexit vote “could be the trigger that changes everything“. And if you don’t believe me on this, perhaps you will listen to former Federal Reserve Chairman Alan Greenspan. This is what he told CNBC on Friday…
“This is the worst period, I recall since I’ve been in public service,” Greenspan said on “Squawk on the Street.”
“There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away.”
I completely agree with Greenspan on this point. This “corrosive effect” on global markets is not going to go away any time soon. Sure there will be days when the markets are green just like there were after the collapse of Lehman Brothers, but overall the trend will be down.
Now that the United Kingdom has decided to leave the EU, financial markets have been gripped by fear and uncertainty, and there is a great deal of concern that this Brexit “could harm the economies of everyone involved”…
Important British trading partners — including India and China — indicated they were worried that an exit would create regulatory and political volatility that could harm the economies of everyone involved.
The U.K.’s Treasury itself reported that its analysis showed the nation “would be permanently poorer” if it left the EU and adopted any of a number of likely alternatives. “Productivity and GDP per person would be lower in all these alternative scenarios, as the costs would substantially outweigh any potential benefit of leaving the EU,” a summary of the report said.
This threat even extends to the United States. CNN just published an article that lists four ways the U.S. could be significantly affected by all of this…
1. Fears that the EU may be falling apart
2. Volatile markets slow down the engine of U.S. growth
3. Brexit triggers a strong dollar, which hurts U.S. trade
4. Brexit forces the Fed to rewrite its rate hike playbook
Fortunately we are now heading into the weekend, and that might have a calming effect on the markets.
Or it might just cause financial tension to build up to an extremely high level which will subsequently be released on Monday morning.
We shall see.
RCB’s Charlie McElligott is warning that Black Friday was just the beginning and that “today is the appetizer for Monday”.
And UBS derivatives strategist Rebecca Cheong says that we could see more than a hundred billion dollars of selling over the next two to three trading days…
Strategies designed to mitigate risk will actually add to downward pressure in the S&P 500 over the next week as computerized selling ramps up to keep pace with falling prices. It reminds Cheong of the rapid stock selling that roiled markets in August, when the S&P 500 fell 11 percent to a 10-month low while facing similar behavior from algorithmic traders.
“The bigger the down move today, the more they have to sell, which would basically create a vicious cycle,” Cheong, head of Americas equity derivatives strategy at UBS, said in a phone interview. “We’ll see front-loaded selling in the range of $100 billion to $150 billion over the next two to three days. It could be very similar to August in terms of model-based selling.”
Personally, I am hoping for calm when the markets open on Monday. But without a doubt, something has now shifted as a result of this Brexit vote, and things have suddenly become a whole lot more serious.
So what do you believe we will see happen next week?
Please feel free to tell us what you think by posting a comment below…
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
Over the past 12 months, stock market investors around the planet have lost trillions of dollars. Since this time last June, stocks have crashed in 6 of the world’s 8 largest economies, and stocks in the other two are down as well. The charts that you are about to see are absolutely stunning, and they are clear evidence that a new global financial crisis has already begun. Of course it is true that we are still in the early chapters of this new crisis and that there is much, much more damage to be done, but let us not minimize the carnage that we have already witnessed.
In general, there have been three major waves of financial panic over the past 12 months. Late last August we saw the biggest financial shaking since the financial crisis of 2008, then in January and February there was an even bigger shaking, and now a third “wave” has begun in June. Not all areas around the globe have been affected equally by each wave, but without a doubt this new financial crisis is a global phenomenon.
The charts that I am about to show you come from Trading Economics. It is an absolutely indispensable website that is packed full of useful data, and I encourage everyone to check it out.
Let’s talk about China first. The Chinese economy is the second largest on the entire planet, and since this time last year Chinese stocks are down an astounding 40 percent…
As things have started to unravel in China, the Chinese have been selling off U.S. debt and U.S. stocks like crazy. The following comes from Bloomberg…
For the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy.
The People’s Bank of China, owner of the world’s biggest foreign-exchange reserves, burnt through 20 percent of its war chest since 2014, dumping about $250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows.
While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines.
Unfortunately for China, their economy just continues to slow down, and George Soros is so alarmed by this and a potential “Brexit” that he has been selling off stocks and buying enormous amounts of gold in anticipation of an even bigger global downturn.
Japan has the third largest economy in the world, and over the past year Japanese stocks are down a total of 26 percent from the peak…
Personally, I have been extremely alarmed by what has been happening in Japan lately. Japanese stocks were down almost 500 points last night, and overall the Nikkei is down a whopping 1,800 points so far in June.
Of course the Japanese economy as a whole is essentially a basket case at this point. For a detailed analysis of this, please see my previous article entitled “Watch Japan – For All Is Not Well In The Land Of The Rising Sun“.
Germany has the fourth largest economy in the world, and over the past year their stocks have fallen 19 percent from the peak of the market…
The key thing to watch for in Germany are serious troubles at their biggest bank. I wrote a long article about the slow-motion implosion of Deutsche Bank last month, and just this week Deutsche Bank stock hit an all-time low.
The fifth largest economy on the planet belongs to the United Kingdom, and since last June their stocks have fallen about 13 percent…
One week from today, the “Brexit” vote will be held in the UK, and if they vote to leave the EU that could have very serious economic and financial implications for them and for the rest of Europe as well. For an in-depth look at this, please see my previous article entitled “June 23, 2016: The Brexit Vote Could Change EVERYTHING And Plunge Europe Into Financial Chaos“.
France has the sixth largest economy in the world, and over the past year French stocks are down 20 percent from the peak of the market…
The French economy is really struggling these days, and we have not heard much about it in the U.S. media, but there have been tremendous riots in major cities in France in recent weeks.
The seventh largest economy on our planet belongs to India. Even though India is facing some very serious economic problems, their stocks are doing okay for the moment. Even though stocks in India are down over the past 12 months, we have not seen a major financial crisis over there just yet.
But there is definitely a major crisis in the eighth largest economy in the world. Italian stocks are down a staggering 32 percent from the peak of the market. That means approximately a third of all stock market wealth in Italy is already gone…
Earlier this year, I wrote about the horrifying collapse of the Italian banking system that has greatly accelerated since the start of 2016. It looks like virtually all of their big banks will ultimately need to be bailed out, and this threatens to become a far bigger crisis than the crisis in Greece ever was.
And let us not leave off the ninth largest economy in the world. Not too long ago, CNN ran an article entitled “Brazil: Economic collapse worse than feared“. So not only are they admitting that the ninth largest economy on the globe is collapsing, they are also admitting that it is even worse than what the experts had anticipated.
So did I leave anyone off the list?
Ah yes, I haven’t even addressed what has been going on in the United States yet.
U.S. stocks did crash last August, but then they recovered.
Then they crashed again in January, but then they recovered again.
Now U.S. stocks have been taking another tumble here in June, but we are being assured that there is nothing to worry about.
Meanwhile, the underlying numbers for the U.S. economy just continue to get worse and worse and worse. If you have any doubt about this, please see the article that I posted yesterday entitled “15 Facts About The Imploding U.S. Economy That The Mainstream Media Doesn’t Want You To See“.
Hopefully this article will clear a lot of things up. In this piece, I have presented undeniable evidence that a new global financial crisis has begun over the past 12 months. We have not seen global stock declines of this nature since the great financial crisis of 2008, but much worse is still to come.
I would love to be wrong about that last part.
It would be wonderful if the worst was now behind us and good times for the global financial system were ahead.
Unfortunately, every single indicator that I am watching is telling me just the opposite.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering. After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out.
As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years.
Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“…
BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.
Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.
BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.
Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low.
And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent.
Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year.
But I just found out that the true number is much worse than that.
According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″…
Bankruptcy filings are flying in the American oil patch.
At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese.
That represents a 379% spike from the previous year when oil prices were substantially higher.
With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone.
A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported.
What we desperately need is for the price of oil to go back up.
Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon…
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
And of course all of this is incredibly bad news for financial institutions all over the world.
During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN…
It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.
Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks.
Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone.
This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet.
At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today…
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
I think that the author of this editorial is correct.
I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”.
In fact, I believe that is what we are steamrolling toward right now.
We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump.
But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts.
Many people believed that this day of reckoning would never come, but now it is here.
The “coming nightmare” is now upon us, and this is just the start.
The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008.
On Tuesday junk bonds continued to crash, the price of oil briefly dipped below 28 dollars a barrel, Deutsche Bank was forced to deny that it is on the verge of collapse, but the biggest news was what happened in Japan. The Nikkei was down a staggering 918 points, but that stock crash made very few headlines in the western world. If the Dow had crashed 918 points today, that would have been the largest single day point crash in all of U.S. history. So what just happened in Japan is a really big deal. The Nikkei is now down 23.1 percent from the peak of the market, and that places it solidly in bear market territory. Overall, a total of 16.5 trillion dollars of global stock market wealth has been wiped out since the middle of 2015. As I stated yesterday, this is what a global financial crisis looks like.
Just as we saw during the last financial crisis, the big banks are playing a starring role, and this is definitely true in Japan. Right now, Japanese banking stocks are absolutely imploding, and this is what drove much of the panic last night. The following numbers come from Wolf Richter…
- Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
- Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
- Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
- Nomura plunged a juicy 9.1%, down 42% since June 2015
A lot of analysts have been very focused on the downturn in China in recent months, but I think that it is much more important to watch Japan right now.
I have become fully convinced that the Japanese financial system is going to play a central role in the initial stages of this new global financial meltdown, and so I encourage everyone to keep a close eye on the Nikkei every single night.
Meanwhile, the stock price of German banking giant Deutsche Bank crashed to a record low on Tuesday. If you will recall, Deutsche Bank reported a loss of 7.6 billion dollars in 2015, and I wrote quite a bit about their ongoing problems yesterday.
Things have gotten so bad that now Deutsche Bank has been forced to come out and publicly deny that they are in trouble…
Deutsche Bank co-CEO John Cryan moved to quell fears about the bank’s stability Tuesday with a surprise memo saying its balance sheet “remains absolutely rock-solid.”
The comments come as investors grow increasingly nervous about the health of European banks, which have taken a hit on the fall in energy prices and which face rising concerns over their cash levels.
Of course Lehman Brothers issued the same kind of denials just before they collapsed in 2008. Cryan’s comments did little to calm the markets, and even Jim Cramer saw right through them…
“You know, Deutsche Bank puts out a note saying, ‘listen, don’t worry, all good.’ Reminds me of JPMorgan saying if you have to say that you’re creditworthy then it’s already too late.”
Another thing that Lehman Brothers did just before they collapsed in 2008 was to lay off workers. We have seen a number of major banks do this lately, including Deutsche Bank…
Cryan, 55, has been seeking to boost capital buffers and profitability by cutting costs and eliminating thousands of jobs as volatile markets undermine revenue and outstanding regulatory probes raise the specter of fresh capital measures to help cover continued legal charges. The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while the shares have dropped about 42 percent.
The following chart comes from Zero Hedge. Nobody on the Internet does a better job with charts than Zero Hedge does. I would recommend visiting them right after you visit The Economic Collapse Blog each day (wink wink). This chart shows that Deutsche Bank stock has already fallen lower than it was during any point during the last financial crisis…
Deutsche Bank is the biggest and most important bank in the biggest and most important economy in the EU, and it has exposure to derivatives that is approximately 20 times Germany’s GDP.
If that doesn’t alarm you, I don’t know what will.
The biggest financial bubble in the history of the world has entered a terminal phase, and the parallels to the last financial crisis have become so apparent that just about anyone can see them at this point. Just consider some of the ominous warnings that we have seen recently…
Billionaire Carl Icahn, for example, recently raised a red flag on a national broadcast when he declared, “The public is walking into a trap again as they did in 2007.”
And the prophetic economist Andrew Smithers warns, “U.S. stocks are now about 80% overvalued.”
Smithers backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively.
Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to “Sell Everything” because “in a crowded hall, the exit doors are small.”
And let’s not forget that famous billionaire retail magnate Hugo Salinas Price has warned that the global economy “is going into a depression“.
The chaos that we have seen this week is simply a logical progression of the crisis that began during the second half of last year. If you were to create a checklist of all the things that you would expect to see during the initial stages of a new financial crisis, all of the boxes would be checked.
In the days ahead, keep your eyes on Germany and Japan.
Yes, the Italian banking system is completely collapsing right now, but I believe that what is happening in Germany is going to be the key to the meltdown of Europe, and I am convinced that Deutsche Bank is going to be the star of the show.
Meanwhile, don’t underestimate what is taking place in Japan.
The Japanese still have the third largest economy on the entire planet, and their financial system is essentially a Ponzi scheme built on top of a house of cards that has a rapidly aging population as the foundation.
As Japan falls, that will be a signal that financial Armageddon is now upon us.
And after last night, it appears that moment is a lot closer than a lot of us may have thought.
As stocks continue to crash, you can blame the Federal Reserve, because the Fed is more responsible for creating the current financial bubble that we are living in than anyone else. When the Federal Reserve pushed interest rates all the way to the floor and injected lots of hot money into the financial markets during their quantitative easing programs, this pushed stock prices to wildly artificial levels. The only way that it would have been possible to keep stock prices at those wildly artificial levels would have been to keep interest rates ultra-low and to keep recklessly creating lots of new money. But now the Federal Reserve has ended quantitative easing and has embarked on a program of very slowly raising interest rates. This is going to have very severe consequences for the markets, but Janet Yellen doesn’t seem to care.
There is a reason why the financial world hangs on every single word that is issued by the Fed. That is because the massively inflated stock prices that we see today were a creation of the Fed and are completely dependent on the Fed for their continued existence.
Right now, stock prices are still 30 to 40 percent above what the economic fundamentals say that they should be based on historical averages. And if we are now plunging into a very deep recession as I contend, stock prices should probably fall by a total of more than 50 percent from where they are now.
The only way that stock prices could have ever gotten this disconnected from economic reality is with the help of the Federal Reserve. And since the U.S. dollar is the primary reserve currency of the entire planet, the actions of the Fed over the past few years have created stock market bubbles all over the globe.
But the only way to keep the party going is to keep the hot money flowing. Unfortunately for investors, Janet Yellen and her friends at the Fed have chosen to go the other direction. Not only has quantitative easing ended, but the Fed has also decided to slowly raise interest rates. The Fed left rates unchanged on Wednesday, but we were told that we are probably still on schedule for another rate hike in March.
So how did the markets respond to the Fed?
Well, after attempting to go green for much of the day, the Dow started plunging very rapidly and ended up down 222 points.
The markets understand the reality of what they are now facing. They know that stock prices are artificially high and that if the Fed keeps tightening that it is inevitable that they will fall back to earth.
In a true free market system, stock prices would be far, far lower than they are right now. Everyone knows this – including Jim Cramer. Just check out what he told CNBC viewers earlier today…
Jim Cramer was tempted to resurface his “they know nothing” rant after hearing the Fed speak on Wednesday. He was hoping that a few boxes on his market bottom checklist might be checked off, but it seems that the bear market has not yet run its course.
“The Fed’s wishy-washy statement on interest rates today left stocks sinking back into oblivion after a nice rally yesterday,” the “Mad Money” host said.
Without artificial help from the Fed, stocks will most definitely continue to sink into oblivion.
That is because these current stock prices are not based on anything real.
And so as this new financial crisis continues to unfold, the magnitude of the crash is going to be much worse than it otherwise would have been.
It has often been said that the higher you go the farther you have to fall. Because the Federal Reserve has pumped up stock prices to ridiculously high levels, that just means that the pain on the way down is going to be that much worse.
It is also important to remember that stocks tend to fall much more rapidly than they rise. And when we see a giant crash in the financial markets, that creates a tremendous amount of fear and panic. The last time there was great fear and panic for an extended period of time was during the crisis of 2008 and 2009, and this created a tremendous credit crunch.
During a credit crunch, financial institutions because very hesitant to lend to one another or to anyone else. And since our economy is extremely dependent on the flow of credit, economic activity slows down dramatically.
As this current financial crisis escalates, you are going to notice certain things begin to happen. If you own a business or you work at a business, you may start to notice that fewer people are coming in, and those people that do come in are going have less money to spend.
As economic activity slows, employers will be forced to lay off workers, and many businesses will shut down completely. And since 63 percent of all Americans are living paycheck to paycheck, many will suddenly find themselves unable to meet their monthly expenses. Foreclosures will skyrocket, and large numbers of people will go from living a comfortable middle class lifestyle to being essentially out on the street very, very rapidly.
At this point, many experts believe that the economic outlook for the coming months is quite grim. For example, just consider what Marc Faber is saying…
It won’t come as a surprise to market watchers that “Dr. Doom” Marc Faber isn’t getting any more cheerful.
But the noted bear at least found a sense of humor on Wednesday into which he could channel his bleakness.
The publisher of the “Gloom, Boom & Doom Report” told attendees at the annual “Inside ETFs” conference that the medium-term economic outlook has become “so depressing” that he may as well fill a newly installed pool with beer instead of water.
If the Federal Reserve had left interest rates at more reasonable levels and had never done any quantitative easing, we would have been forced to address our fundamental economic problems more honestly and stock prices would be far, far lower today.
But now that the Fed has created this giant artificial financial bubble, the coming crash is going to be much worse than it otherwise would have been. And the tremendous amount of panic that this crash will cause will paralyze much of the economy and will ultimately lead to a far deeper economic downturn than we witnessed last time around.
Once the Fed started wildly injecting money into the system, they had no other choice but to keep on doing it.
By removing the artificial support that they had been giving to the financial markets, they are making a huge mistake, and they are setting the stage for an economic tragedy that will affect the lives of every man, woman and child in America.