Watch Japan – For All Is Not Well In The Land Of The Rising Sun

Tokyo - Public DomainOne of the epicenters of the global financial crisis that started during the second half of last year is Japan, and it looks like the markets in the land of the rising sun are entering yet another period of great turmoil.  The Nikkei was down another 390 points last night, and it is now down more than 1,300 points since a week ago.  Why this is so important for U.S. investors is because the Nikkei is often an early warning indicator of where the rest of the global markets are heading.  For example, the Nikkei started crashing early last December about a month before U.S. markets started crashing really hard in early January.  So the fact that the Nikkei has been falling very rapidly in recent days should be a huge red flag for investors in this country.

I want you to study the chart below very carefully.  It shows the performance of the Nikkei over the past 12 months.  As you can see, it kind of resembles a giant leaning “W”.  You can see the stock crash that started last August, you can see the second wave of the crash that began last December, and now a third leg of the crash is currently forming…

Nikkei - Federal Reserve

And of course the economic fundamentals in Japan continue to deteriorate as well.  GDP growth has been negative for two out of the last three quarters, Japanese industrial production just experienced the largest one month decline that we have seen since the tsunami of 2011, and business sentiment has sunk to a three year low.

The third largest economy on the entire planet is in a comatose state at this point, and Japanese authorities have been throwing everything but the kitchen sink at it in an attempt to revive it.  Government stimulus programs have pushed the debt to GDP ratio to 229 percent, and the quantitative easing that the Bank of Japan has been engaged in has made the Federal Reserve look timid by comparison.

But none of those extraordinary measures has been successful in stimulating the Japanese economy, so now the Bank of Japan has been been trying negative interest rates.  Unfortunately, these negative rates are also having some unintended consequences.  According to the Wall Street Journal, the negative interest rate program is putting additional stress on the Japanese financial sector…

The Bank of Japan started imposing a minus 0.1% rate on some deposits held by commercial banks in February, meaning that those banks now have to pay a small fee when they add to their money parked at the central bank. The financial sector has suffered amid worries that banks can’t pass on negative interest rate to their depositors and therefore will take a hit to their profits.

I would keep a very close eye on the big banks in Japan.  It is my conviction that there is a lot more brewing under the surface than we are being told about so far.

In addition, many analysts in Japan are complaining that all of this manipulation by the BOJ is essentially destroying normal market behavior.  The following comes from Bloomberg

Nobuyasu Atago, who also had worked at the BOJ and is now the chief economist at Okasan Securities Co., pointed out that instead of serving as a important source of cash for borrowers, the credit market has become a profit center for dealers looking to buy securities from investors and sell them to the central bank. While the strategy may be lucrative now, financial institutions face the risk of massive losses, he said.

“By making the trade with the BOJ the only source of profit, markets are exposed to unexpected volatility when that trade ends and the BOJ moves toward the exit,” Atago said. “Markets are being destroyed.”

The more global central banks try to “fix things”, the more they make our long-term imbalances even worse.

To me, it makes no sense to have a bunch of unelected, unaccountable central planners constantly monkeying with the financial system.  In a true free market system, we would allow market forces to determine the course of events.  But of course we don’t have a free market system anymore.  Instead, what we have is a heavily socialized system that is greatly manipulated by the central planners.

That is why global financial markets gyrate wildly if Janet Yellen so much as sneezes.  They know who holds all the power, and investors are constantly on edge as they wait for the latest pronouncement from our central banking overlords.

At this point, 99 percent of the global population lives in a country with a central bank.  Our world is more deeply divided than ever, and yet somehow everyone in the world has agreed to adopt this insidious system.

It sure is quite a coincidence, isn’t it?

Getting back to Japan, things are so bad now that the Japanese government is actually considering giving gift certificates directly to low-income young people.  The following originally comes from Bloomberg

The Japanese government plans to include gift certificates for low-income young people in its fiscal 2016 supplementary budget, Sankei reports, without saying who provided the information.

Recipients would be able to use them for daily necessities.

The government sees gift certificates as more effective in stimulating consumption than cash handouts, which may be deposited.

This is what the end of democracy looks like.

When the government just starts handing out money like candy, you might as well turn out the lights because the party is over.

Since 2008, global central banks have cut interest rates 637 times and they have injected approximately 12.3 trillion dollars into the global financial system through various quantitative easing programs.

Has all of this monkeying around solved our problems?

Of course not.

Instead, our long-term problems have grown progressively worse and now a new financial crisis has begun.

Keep an eye on Japan, and also keep an eye on Europe.  Huge problems are bubbling right under the surface, and when they come bursting into the open they will deeply affect the United States as well.

*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.*

Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

Question Button - Public DomainThe second largest stock market in the entire world is collapsing right in front of our eyes.  Since hitting a peak in June, the most important Chinese stock market index has plummeted by well over 20 percent, and more than 3 trillion dollars of “paper wealth” has been wiped out.  Of course the Shanghai Composite Index is still way above the level it was sitting at exactly one year ago, but what is so disturbing about this current crash is that it is so similar to what we witnessed just prior to the great financial crisis of 2008 in the United States.  From October 2006 to October 2007, the Shanghai Composite Index more than tripled in value.  It was the greatest stock market surge in Chinese history.  But after hitting a peak, it began to fall dramatically.  From October 2007 to October 2008, the Shanghai Composite Index absolutely crashed.  In the end, more than two-thirds of all wealth in the market was completely wiped out.  You can see all of this on a chart that you can find right here.  What makes this so important to U.S. investors is the fact that Chinese stocks started crashing well before U.S. stocks started crashing during the last financial crisis, and now it is happening again.  Is this yet another sign that a U.S. stock market crash is imminent?

Over the past several months, I have been trying to hammer home the comparisons between what we are experiencing right now and the lead up to the U.S. financial crisis in the second half of 2008.  Today, I want to share with you an excerpt from a New York Times article that was published in April 2008.  At that time, the Chinese stock market crash was already well underway, but U.S. stocks were still in great shape…

The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.

This sounds almost exactly like what is happening in China right now.  First we witnessed a ridiculous Chinese stock market bubble form, and now we are watching a nightmarish sell off take place.  This next excerpt is from a Reuters article that was just published…

Shanghai’s benchmark share index crashed below 4,000 points for the first time since April – a key support level that analysts said had been seen as a line in the sand that Beijing had to defend, below which more conservative investors would start ejecting from their leveraged positions, widening the rout.

Chinese markets, which had risen as much as 110 percent from November to a peak in June, have collapsed at an incredibly rapid pace in since June 12, losing more than 20 percent in jaw-dropping volatility as money surges in and out of the market.

That drop has wiped out nearly $3 trillion in market capitalization, more than the GDP of Brazil.

Did you catch that last part?

The amount of wealth that has been wiped out during this Chinese stock market crash is already greater than the entire yearly GDP of Brazil.

To me, that is absolutely incredible.

And now that the global financial system is more interconnected than ever, what goes on over in China has a greater impact on the rest of the globe than ever before.  Today, China has the largest economy on the planet on a purchasing power basis, and the Chinese stock market “is the second largest in the world in terms of market capitalization”

Just as in 1929, flighty retail investors make up the bulk of China’s stock market and, just as in 1929 in the U.S., they have heavily margined their accounts. The Financial Times puts the number of retail investors in the Chinese stock market at 80 to 90 percent of the total market. Retail investors, unlike sophisticated institutional investors, are prone to panic selling, which explains the wild intraday swings in the Shanghai Composite over the past week.

Last night, the Shanghai Composite broke a key technical support level, closing below 4,000 at 3,912.77. The index is now down 24 percent since it peaked earlier this month and has wiped out more than $2.4 trillion in value. China’s stock market is the second largest in the world in terms of market capitalization, with the U.S. ranking number one.

Making world markets even more worried about the situation in China, its regulators are showing a similar brand of leadership as Mario Draghi. After previously pledging to trim back risky margin lending, they have now done a complete flip flop and are permitting individual brokerage firms to avoid selling out accounts that miss margin calls by setting their own guidelines on the amount of collateral needed.

I know that a lot of Americans don’t really care about what happens over in Asia, but when the second largest stock market in the entire world crashes, it is a very big deal.

The great financial crisis of 2015 has now begun, and it is just going to get much, much worse.  On Thursday, Ron Paul declared that “the day of reckoning is at hand“, and I agree with him.

So what comes next?

The following is what Phoenix Capital Research is anticipating…

By the time it’s all over, I expect:

1)   Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2)   The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3)   Japan to have defaulted and very likely enter hyperinflation.

4)   US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5)   Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

I tend to agree with most of that. I don’t agree that the euro is going to go away, but I do agree that the eurozone is going to break up and be reconstituted in a new form eventually.  And yes, we are going to see tremendous inflation all over the world down the road, but I wouldn’t say that it is imminent in Japan or anywhere else.  But overall, I think that is a pretty good list.

So what do you think is coming?  Please feel free to join the discussion by posting a comment below…

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