Bonds

An Indicator With A 100% Perfect Track Record Of Predicting Recessions Says That Another One Is Coming

You can believe that we will somehow beat the odds this time if you want, but history is completely against you.  One of the biggest reasons why there is so much anxiety on Wall Street right now is because of how the yield curve is behaving.  We have seen yield curve inversions before each of the last seven U.S. recessions, and now it has happened again.  Perhaps this helps to explain why insiders are dumping stocks right now as if there will be no tomorrow.  If you were looking for a giant waving red flag to tell you that it is time to run for the exits, it doesn’t get much better than this.  This week, we watched the yield curve do something that it hasn’t done in 12 years…

The spread between the 10-year Treasury yield and the 2-year rate fell to negative 5 basis points, its lowest level since 2007. This is called a yield curve inversion. Experts fear it because in the past it has preceded recessionary periods. The 3-month Treasury bill rate also traded higher than the 30-year bond yield.

“The primary thing is yields are going down and going down with some acceleration,” said Art Cashin, the director of floor operations at UBS.

In addition, the spread between 3 month Treasury bonds and 10 year Treasury bonds just hit negative 50 basis points.  We haven’t seen that happen since March 2007.

And as David Rosenberg has noted, when the spread between 3 month Treasury bonds and 10 year Treasury bonds goes negative for at least three months, we have a recession 100% of the time…

We now have had three months of a 3-mo/10-yr yield curve inversion. The track record this has had in predicting recessions: 100%.

Yes, it is theoretically possible that this indicator could be proven wrong this time.

But do you really want to bet against an indicator with a track record of 100% accuracy?

Plus, we have a trade war with China to deal with this time around.  Hopeful comments from President Trump briefly bolstered the markets on Monday, but over in China prominent voices continue to pour cold water on the notion that a deal will happen any time soon.  Here is an example from Tuesday…

Sentiment was also dampened after Hu Xijin, editor-in-chief of the Global Times in China, tweeted that China is “putting so much emphasis on trade talks,” adding that “it’s more and more difficult for the US to press China to make concessions” as China’s economy becomes increasingly driven by its domestic growth. China announced measures aimed at boosting consumption, including potentially removing car-buying restrictions.

Unless one side chooses to fold like a 20 dollar suit, there isn’t going to be a resolution to this trade war any time in the near future, and that is going to mean a tremendous amount of pain for the U.S., China and the entire global economy.

Another indication that things are about to get bad is the fact that investors are starting to flock to precious metals.

Gold and silver are considered to be “safe haven assets” during a financial crisis, and right now gold and silver are both surging…

Gold prices are moderately higher in early U.S. trading, while the silver market is again sharply higher and hit another two-year high overnight. Bullish technical postures in both metals continue to invite the chart-based buyers to climb on board the long side. A weaker U.S. dollar index is also supportive to the precious metals markets today. December gold futures were last up $4.60 an ounce at 1,541.90. December Comex silver prices were last up $0.295 at $18.075 an ounce.

But for most hard working Americans, it is going to be far more important to build up an emergency fund as we head deeper into this new crisis, and this is something that I have written about repeatedly.  The reason why so many Americans lost their homes during the last recession was because they were living right on the edge financially.  It is imperative that you have a financial cushion so that you can pay your basic expenses when things start getting really hard.

Unfortunately, it is often young people that get the hardest during an economic downturn, and this is something that Annie Lowrey discussed in her most recent article…

Recessions are never good for anyone. A sputtering economy means miserable financial, emotional, and physical-health consequences for everyone from infants to retirees. But the next one—if it happens, when it starts happening — stands to hit this much-maligned generation particularly hard. For adults between the ages of 22 and 38, after all, the last recession never really ended.

Millennials got bodied in the downturn, have struggled in the recovery, and are now left more vulnerable than other, older age cohorts. As they pitch toward middle age, they are failing to make it to the middle class, and are likely to be the first generation in modern economic history to end up worse off than their parents. The next downturn might make sure of it, stalling their careers and sucking away their wages right as the millennials enter their prime earning years.

I understand that a lot of people may not want to hear this, but every economic indicator is telling us that a U.S. recession is coming, and many experts believe that it will be far worse than the last one.

If you prepare in advance for what is coming, that is going to help to take fear out of the equation.  Because when things get really crazy, it is those that don’t understand what is happening that are going to give in to fear, depression and despair.

We have not seen an economic environment like this in a decade, and there is no reason to believe that a miracle is going to come along and rescue us from the storm that is now looming above us.

The months ahead promise to be quite “interesting”, and not in a good way.

About the author: Michael Snyder is a nationally-syndicated writer, media personality and political activist. He is the author of four books including Get Prepared Now, The Beginning Of The End and Living A Life That Really Matters. His articles are originally published on The Economic Collapse Blog, End Of The American Dream and The Most Important News. From there, his articles are republished on dozens of other prominent websites. If you would like to republish his articles, please feel free to do so. The more people that see this information the better, and we need to wake more people up while there is still time.

We Just Witnessed The Biggest U.S. Bond Crash In Nearly 2 Years – What Does This Mean For The Stock Market?

U.S. bonds have not fallen like this since Donald Trump’s stunning election victory in November 2016.  Could this be a sign that big trouble is on the horizon for the stock market?  It seems like bonds have been in a bull market forever, but now suddenly bond yields are spiking to alarmingly high levels.  On Wednesday, the yield on 30 year U.S. bonds rose to the highest level since September 2014, the yield on 10 year U.S. bonds rose to the highest level since June 2011, and the yield on 5 year bonds rose to the highest level since October 2008.  And this wasn’t just a U.S. phenomenon.  We saw bond yields spike all over the developed world on Wednesday, and the mainstream media is attempting to put a happy face on things by blaming a “booming economy” for the bond crash.  But the truth is not so simple.  For U.S. bonds, Bill Gross says that it was a lack of foreign buyers that drove yields higher, and he says that this may only be just the beginning…

And, according to Gross, the carnage may not end here: “Lack of foreign buying at these levels likely leading to lower Treasury prices,” echoing what we said last week. And as foreign investors pull back from US paper, look for even higher yields, and an even higher dollar, which in turn risks re-inflaming the EM crisis that had mercifully quieted down in recent weeks.

I believe that Gross is right on target.

And Jeffrey Gundlach has previously warned that when yields get to this level that it would be a “game changer”…

Treasury yields soared Wednesday as economic data fostered optimism about the American economy, sending both the 10-year rate and the 30-year rate above multiyear highs, and beyond what “Bond King” Jeffrey Gundlach dubbed a “game changer.”

The DoubleLine Capital CEO wrote on Twitter in September, “Yields: On the march! 10’s above 3% again, this time without financial media concern. Watch 3.25% on 30’s. Two closes above = game changer.”

For years, it was so easy for bond traders to make money.  Bond yields just kept going down, and bond prices just kept going up.

But now the paradigm appears to be completely changing, and an enormous amount of wealth is going to be wiped out.

Normally, a rotation out of bonds is good for the stock market.  But when bonds move too quickly that is a sign of panic, and that kind of panic can easily spread to equities.  The following comes from Zero Hedge…

As Bloomberg’s Cameron Crise notes, this yield move is entering the “danger zone” for stocks. The 30bps spike in the last 5 weeks falls into the cohort where average and median equity performance has been negative over the following five weeks. Do with that information what you will, but realize that with this kind of price action the bond market is not the equity market’s friend.

In essence, what that is saying is that when bond prices fall this dramatically it usually means that stock prices fall over the following five weeks.

From a longer-term perspective, bond yields are likely to continue to rise because the Federal Reserve seems determined to keep raising interest rates.

In fact, Fed Chairman Jerome Powell says that the low interest rates that we were enjoying during the Obama administration are “not appropriate anymore”…

Federal Reserve Chairman Jerome Powell said the central bank has a ways to go yet before it gets interest rates to where they are neither restrictive nor accommodative.

In a question and answer session Wednesday with Judy Woodruff of PBS, Powell said the Fed no longer needs the policies that were in place that pulled the economy out of the financial crisis malaise.

“The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore,” Powell said.

But Powell knows that every Fed tightening cycle in history has ended in either a stock market crash or a recession.

And he knows that higher interest rates will mean higher bond yields, a stronger dollar and an escalating emerging market debt crisis.

So why is he being so hawkish?

On top of everything else, higher interest rates will also mean higher rates on mortgages, auto loans, credit cards and student loans.  The following comes from my good friend Mac Slavo…

As Forbes reported, when the Federal Reserve Board (The Fed) changes the rate at which banks borrow money, this typically has a ripple effect across the entire economy including equity prices, bond interest rates, consumer and business spending, inflation, and recessions. As far as the big picture goes, there is often a delay of a year or more between when interest rates are initially raised, and when they begin to have an effect on the economy.  As consumers, however, we feel these increases almost immediately.  Americans will begin to feel the burn in the floating rate debt they are holding.  This includes credit cards, student loans, home mortgages, and equity loans because all move right along with the Fed.

This story is not going to end well.

As I have tried to explain to my readers so many times, the Federal Reserve has far, far more control over the economy than the White House does.

It is the Federal Reserve that is responsible for creating “the everything bubble”, and it is the Federal Reserve that will be responsible for ending this bubble.

And when this bubble ends, the economic pain is going to be off the charts.  Hopefully the American people will be in a mood to finally shut down the Federal Reserve at that point, because that insidious organization is truly at the heart of our long-term economic and financial problems.

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

The Last Days Warrior Summit is the premier online event of 2018 for Christians, Conservatives and Patriots.  It is a premium-members only international event that will empower and equip you with the knowledge and tools that you need as global events begin to escalate dramatically.  The speaker list includes Michael Snyder, Mike Adams, Dave Daubenmire, Ray Gano, Dr. Daniel Daves, Gary Kah, Justus Knight, Doug Krieger, Lyn Leahz, Laura Maxwell and many more. Full summit access will begin on October 25th, and if you would like to register for this unprecedented event you can do so right here.

The Stock Market Falls Another 724 Points! What In The World Is Happening On Wall Street?

We just witnessed the 5th largest single day stock market crash in U.S. history.  On Thursday the Dow Jones Industrial Average plunged 724 points, and many believe that this is just the beginning of another huge wave down for stock prices.  After this latest dramatic decline, the Dow is now down 3.1 percent so far in 2018, and overall it is down 9.99 percent from the all-time high in January.  A 10 percent decline is officially considered to be “correction” territory, and that means that we are just about there.

So why are stock prices falling so much?  Well, USA Today is blaming the potential for a trade war with China, the latest Facebook scandal and “the impact of rising interest rates on the economy”…

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

Of course the possibility of a trade war between the two largest economies on the planet is certainly the greatest concern that the markets are grappling with at the moment.  According to Ian Winer, any sign of retaliation by China “will really spook people”…

“A global trade war, whether it’s real or perceived, is what’s weighing on the market,” said Ian Winer, head of equities at Wedbush Securities. “There’s this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people.”

Trump announced tariffs on about $50 billion worth of Chinese imports on Thursday afternoon. It’s not clear which products will be hit, but the action is aimed at curbing China’s troubling theft of US intellectual property.

And we can be quite sure that China will retaliate.

In fact, before the end of the day on Thursday the Chinese embassy boldly declared that China will “fight to the end”…

The Chinese embassy released a statement late Thursday saying China “would fight to the end..with all necessary measures.”

What people need to understand is that China has been taking advantage of us for decades.

For example, many U.S. vehicles cost three times as much in China because of all the tariffs that China slaps on them.  But we have been allowing China to flood our shores with giant mountains of super cheap goods with no tariffs at all.

This is why we have been buying far more from China than they have been buying from us.  It has been an unfair playing field.  As a result of our massive trade deficit with China, they have been systematically getting wealthier and we have been getting poorer.

Since China joined the WTO in 2001, we have lost more than 70,000 manufacturing facilities and millions of good paying jobs.  We have to beg China to lend us back a lot of the money that we send to them, and as a result the Chinese now own more than a trillion dollars of our national debt.

So we simply cannot afford to continue to allow China to take advantage of us, but if we start standing up to them it is inevitable that they will strike back. Here are just a few of the things that they could do…

1. Impose higher tariffs on all US exports to China

2. Restrict market access for US firms in China

3. Provide preferential treatment to US competitors

4. Restrict US travels by Chinese nationals

5. Sell US treasuries and buy other government bonds

But what is the alternative?

Should we just continue to allow China to walk all over us?

Hopefully we can negotiate with China without causing a horrible trade war, because without a doubt trade wars are not good for the global economy…

Trade wars are bad for the global economy, as they cause prices that consumers and businesses pay for goods and services to rise. A rise in inflationary pressures could prompt the U.S. central bank to speed up its pace of interest rate hikes, which could slow economic growth. Trade skirmishes can also hurt U.S. exports and corporate earnings.

And in the short-term, any news about a potential trade war will continue to rattle the financial markets.  At this point more than half of the companies on the S&P 500 are already in “correction territory”, and dozens of companies are already down at least 20 percent from their one year highs…

The U.S. stock market is under pressure once again, with more than half the S&P 500 falling into correction territory.

More than 275 components in the broad index were down at least 10 percent from their 52-week highs as of 11:04 a.m. ET. Of those companies, 84 were in bear-market territory, or down at least 20 percent from their one-year high.

As most of you already know, my race for Congress is extremely close and voting day is on May 15th.  If you would like to send someone to Washington that understands the long-term economic and financial challenges that we are facing, I would very much encourage you to get involved.  If you would like to make a financial contribution, there are several ways that you can do that…

Donate By Credit Card Online: https://secure.anedot.com/michaelsnyderforcongress/donate

Donate By Paypal: https://donorbox.org/michael-snyder-for-congress

Donate By Check: Make your check out to “Michael Snyder For Congress” and send it to the following address…

Michael Snyder For Congress
PO Box 1136
Bonners Ferry, ID 83805

We have already seen more financial shaking in 2018 than we have during any year since the great financial crisis of 2008.

Hopefully things will settle down in the days ahead, but I wouldn’t count on it.  Our long-term economic and financial problems are really starting to catch up with us, and Donald Trump is trying to navigate our ship through some very rough waters.

As always, let us hope for the best, but let us also get prepared for the worst.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District.  If you would like to help him win on May 15th, you can donate online, by Paypal or by sending a check made out to “Michael Snyder for Congress” to P.O. Box 1136 – Bonners Ferry, ID 83805.  To learn more, please visit MichaelSnyderForCongress.com.

The Dow Jones Industrial Average Falls Another 420 Points As Investors Panic About A Potential Trade War

Many had been hoping that the financial shaking on Wall Street that we witnessed in February would subside in March, but so far that is definitely not the case.  On Thursday, the Dow fell another 420 points as investors fretted about the potential for a trade war.  Over the past month, we have seen many days when stock prices have been way down and other days when stock prices have been way up.  This is precisely the sort of wild volatility that we would expect to see if a major financial crisis was brewing, and the truth is that our financial system is far more vulnerable today than it was back in 2008.

Many Americans have assumed that the U.S. economy must be in great shape since the stock market has just kept going up for the past several years.  But the reality of the matter is that stock prices are no longer connected to economic reality whatsoever.  The U.S. economy has not grown by 3 percent or more in 12 years, but stock prices have been shooting into the stratosphere thanks to relentless central bank intervention.

But what goes up must eventually come down, and on Thursday we witnessed another stunning decline…

The Dow Jones industrial average closed 420.22 points lower at 24,608.98 after rising more than 150 points earlier in the day. The 30-stock index fell as much as 586 points.

The S&P 500 declined 1.4 percent to end at 2,677.67 — erasing its year-to-date gains — with industrials as the worst-performing sector. It also briefly broke below its 100-day moving average, a key technical level. The Nasdaq composite fell 1.3 percent to 7,180.56 and dipped below its 50-day moving average.

So why did this happen?

Well, the mainstream media is placing the blame for Thursday’s decline on Trump’s new tariffs…

President Trump said Thursday he will impose heavy tariffs on imported steel and aluminum that could increase American jobs in those sectors but also raise prices.

The actions could hurt a number of industries including automakers and suppliers, boat and plane manufacturers and even beer companies.

There’s also concern the move could trigger a “trade war” in which countries would retaliate by imposing tariffs, or other measures, in response.

Yes, there will be some adjustments in the short-term, but Trump is quite correct to impose these sorts of tariffs on nations that are taking advantage of us.

For decades we have allowed China and other major exporting countries to greatly take advantage of us, and as a result we have lost more than 70,000 manufacturing facilities and millions of good paying jobs.

Of course China and other countries that have been taking advantage of us may try to strike back after being hit by these new tariffs, and many fear that this could result in a trade war.  The following comes from CNBC…

“One of the largest fears we have is we’ve got tariffs. We could have trade wars, and it could blow up NAFTA negotiations, and nobody wins a trade war,” said Art Hogan, chief market strategist at B. Riley FBR.

We are always going to need to trade with the rest of the world, but we need trade agreements that are fair.

In the end, we simply cannot sacrifice American companies and American middle class jobs just to make the rest of the world happy with us.  I fully support President Trump’s America First agenda, and when I go to Washington I am going to work very hard to help President Trump bring jobs back to this country.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District.  If you would like to help him win on May 15th, you can donate online, by Paypal or by sending a check made out to “Michael Snyder for Congress” to P.O. Box 1136 – Bonners Ferry, ID 83805.  To learn more, please visit MichaelSnyderForCongress.com.

The Dow Falls 1,032 Points! Has The Financial Crisis Of 2018 Officially Arrived?

We haven’t seen this kind of a bloodbath on Wall Street since the great financial crisis of 2008.  Prior to this week, the largest single day decline for the Dow Jones industrial average that we had ever seen was 777 points.  That record was absolutely shattered on Monday when the Dow fell 1,175 points, and on Thursday the Dow dropped another 1,032 points.  This was the third decline greater than 500 points within the last five trading days, and the Dow is poised to post its worst week since the dark days of October 2008.  So is this just a “correction”, or has the financial crisis of 2018 officially arrived?

At this point, many of the experts are pointing to the bond market as the primary reason why stock prices are crashing.  The following comes from CNBC…

There’s a not-so-quiet rebellion going on in the bond market, and it threatens to take 10-year yields above 3 percent much faster than expected just a few weeks ago.

As a result, the bumpy ride for stocks could continue for a while.

And without a doubt, analysts such as Jeff Gundlach clearly warned that there would be big trouble for stocks as bond yields rose…

Gundlach had correctly predicted that if the 10-year U.S. Treasury note yield went above 2.63 percent, U.S. stock investors would be spooked.

“Clearly, the market gets shaky when the 10-year hits 2.85 percent,” Gundlach said. “Just look at this week, and today. Makes one consider what could be coming if 10s push over 3 and 30s (30-year Treasury bond) over 3.22 percent.”

The 10-year yield is currently trading around 2.83 percent. Gundlach said it is “hard to love bonds at even a 3 percent” yield. “Rising interest rates are a problem and the U.S. is in debt and there is massive bond supply,” Gundlach said.

Moving forward, it will be important to keep a close eye on bond yields.  Every time they start going back up, we are likely to see stock prices go down…

“We’re in a vicious cycle here. If the yields go up, you have to sell stocks. If you sell stocks, and they crash, yields come back down,” said Art Hogan, chief market strategist at B. Riley FBR.

The bond market’s struggle to price in higher interest rates has been kneecapped each time the stock market reacts and sells off. Strategists expect the two markets to ultimately find an equilibrium but not without more sharp swings.

This is one of the reasons why the budget deal going through Congress right now is such a bad idea.  Hundreds of billions of dollars of additional spending on top of what we are already doing is going to push up bond yields, and that is just going to make the pressure on Wall Street even worse.

Of course the folks over at the Federal Reserve could intervene, but they don’t seem inclined to do that at this point.  Late last year the Fed finally removed artificial life support from the financial system, and at first everything seemed to be going well.  But now a new crisis is brewing, and we shall see if the Fed still remains determined to keep raising rates.  The following comes from Peter Schiff…

“The Fed were dragging their feet in raising rates while Obama was president.  They talked about raising rates but at the end of the day, they barely moved them up. The pace of hikes has increased since Trump was elected, but part of the reason for that…I mean, the media is not talking down the economy; if anything they’re overhyping the economy.  Everybody’s talking about how strong the economy is, how everything is great. Everybody is taking credit for this great economy. The Fed wants to take credit for it, Trump wants to take credit for it, so if everybody wants to talk about how great the economy is, the Fed doesn’t have any excuse if it doesn’t raise rates…in order to keep up the pretense that the economy is as strong as everybody thinks, the Fed is in this box where it has to raise rates.

But they [the Fed] can’t tell the truth that it’s really a bubble, and if we raise rates, we’re gonna prick it, so they’re kinda in this bind.  And they are still telegraphing that they’re gonna raise rates three or four times this year.  And that is the problem.“

It has been my contention for a very long time that the greatest financial bubble in human history would not be able to continue without artificial support from the Fed and other global central banks.

Once the Fed finally ended their artificial support for the markets late last year, I anticipated that there would be trouble, but stock prices continued to rise through the holiday season.

But now reality is setting in, and investors are rushing like mad for the exits.  I really like how Brandon Smith described the current state of affairs in his recent article…

After I predicted the election of Donald Trump, I also predicted that central banks would begin pulling the plug on life support for equities markets. This did in fact take place with the Fed’s continued program of interest rate increases and the reduction of their balance sheet, which effectively strangles the flow of cheap credit to banking and corporate institutions that fueled stock buybacks for years. Without this constant and ever expansionary easy fiat, there is nothing left to act as a crutch for stocks except perhaps blind faith. And blind faith in the economy always ends up being smacked down by the ugly realities of mathematics.

Without artificial support, gravity will try to pull stock valuations back to their long-term averages.  That would mean a decline for the Dow of at least 10,000 more points, but major financial institutions are so highly leveraged and Wall Street has become such a giant casino that our system literally cannot handle that sort of a decline.

The only way that the game can continue is for the Fed and other global central banks to intervene and prop up the absurd financial bubble that they originally created.

Absent that, this crisis is likely to go from bad to worse, and we may soon find ourselves facing a financial panic unlike anything that we have ever seen before.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Just A Coincidence?: The Dow Goes From Being 567 Points Down To 567 Points Up At The Closing Bell

Seriously?  We were expecting that Tuesday would be an unusual day on Wall Street, and that was definitely the case.  At the low point, the Dow Jones industrial average was down 567 points, but at the closing bell it was up 567 points.  That is a swing of more than 1000 points, but what is more surprising is the exact symmetry of those numbers.  Is this just some sort of bizarre coincidence?

At the opening bell, stock prices collapsed and many were concerned that we were heading for another really bad day for investors.  According to CNBC, the Dow was down 567 points at the lowest point…

The Dow Jones industrial average opened with a big whoosh lower, then rallied all the way back. As of 3:41 p.m. ET, the Dow is 600 points higher and trading at a new session high. At its session low it was down by 567 points.

But then momentum shifted and the Dow soared.  By the end of the Day, the Dow Jones industrial average was up 567 points.  The following comes from CNN…

The Dow plunged 567 points at the open on Tuesday and briefly sank into correction territory — a drop of 10% from its record high. But those losses quickly vanished, and the index ended the day up 567.

It was the Dow’s biggest point gain since August 2015 and the fourth-largest in history. The percentage gain of 2.3% is the biggest since January 2016.

It is not unusual to see market swings of this magnitude during times of high volatility.  Even during times of panic, at some point the sellers get exhausted and investors looking for buying opportunities come surging in.  On Tuesday, this shift in momentum came almost immediately after the opening…

“I thought we were going to see the bottom within five minutes of when we opened. I think that’s basically what we’re seeing,” said Ed Keon, portfolio manager at QMA, the quantitative and dynamic asset allocation business of PGIM. “At these levels, stocks represent pretty good value and we’re adding to equity exposure.” Keon said it’s too early to call a bottom but he expects that the worse is over.

But just because the Dow was up more than 500 points today does not mean that the crisis is over.

It is important to remember that there are wild swings both ways during any market crisis.  For example, 9 of the 20 best days in stock market history were right in the middle of the financial crisis of 2008.  So if a new financial crisis is indeed brewing, we would certainly expect to see days when the Dow rises dramatically.

Markets tend to do well when things are calm, and they tend to go down when things get choppy.  So the fact that there was such volatility on Wall Street today is not a good sign.

Hopefully things will settle down, because the markets will not be able to handle too much more shaking.  There is so much leverage on Wall Street today, and as Carl Icahn recently told CNBC, one of these days all of this leverage is “going to blow up the market”…

Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market.

The market is a “casino on steroids” with all these exchange-traded funds and exchange-traded notes, he said.

These funds, especially the leveraged ones, are the “fault lines” that will eventually lead to an earthquake on Wall Street, he said. “These are just the beginnings of a rumbling.”

Wednesday will be a key day.  If the markets are nice and calm, that will be a really good sign.

But if we see tremendous movement in one direction or the other, that could indicate that more shaking is on the way.

In any event, the absurdly inflated stock prices of today are simply not sustainable.  Stock valuations always return to their long-term averages eventually, and that will be true in this case as well.

What goes up must come down, and we have certainly witnessed this with Bitcoin and other cryptocurrencies lately.  As far as stocks are concerned, the best that we can hope for in the long-term is a soft landing, but history tells us that is usually not how giant financial bubbles come to an end.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

-1,175 Points! We Just Witnessed The Largest One Day Stock Market Crash Ever

The mainstream media seems so surprised that the stock market is crashing, but the truth is that it isn’t a surprise at all.  In fact, this crash is way, way overdue.  If the Dow Jones industrial average fell another 10,000 points, stock prices would still be overvalued.  I have been warning and warning and warning that this would happen, because stock valuations always return to their long-term averages eventually.  On Monday, the Dow was down a staggering 1,175 points, which was the largest single day decline that we have ever seen by a very wide margin.  In fact, it shattered the old record by nearly 400 points.

Shortly after 3 PM, all hell broke loose on Wall Street.  The Dow dropped by more than 800 points in just 10 minutes.  At one point on Monday, the Dow was down nearly 1,600 points, but a brief rally cut those losses roughly in half.  However, the rally did not last long and stock prices collapsed hard as the market closed.  At this moment, the Dow is already down more than 2,200 points from the peak of the market, and we are not too far from officially entering “correction” territory.

Once stocks start falling, it can trigger a massive rush for the exits, and that is what happened on Monday.  In particular, investors started to panic once the Dow broke through the 50-day moving average…

“As soon as we broke the 50-day moving average … we saw volatility spike,” said Jeff Kilburg, CEO of KKM Financial. “It’s just been downhill from there.”

Other waves of selling were triggered once the 25,000 and 24,000 barriers on the Dow were breached.  In order to protect against losing too much money, many investors have stop losses set at psychologically-important levels.  The following comes from MarketWatch…

Amplifying the slump was computer-programmed trade set to dump shares at certain levels. According to traders, the Dow DJIA, -4.60% was set to trigger trades once it fell below 25,000 and 24,000, for example, and 2,700 for the S&P 500.

Markets almost always go down faster than they go up, and once panic begins to spread on Wall Street it doesn’t take much to create a massive stampede.

In the end, this next financial crisis will be far worse than it should have been.  The Federal Reserve and other global central banks have endlessly manipulated the financial markets, and they created the biggest financial bubble in human history.

When an irrational financial bubble is growing, it can seem like things are wonderful.  But all such bubbles eventually burst, and the bursting of the bubble often does far more damage than the good that was accomplished by the manipulation of the markets.

So was there anything specific that caused the panic on Wall Street on Monday?

Yes, interest rates are rising, but as Bloomberg has noted, there wasn’t really anything noteworthy in the news that triggered the selling…

While Friday’s market rout came amid U.S. wage data on Friday that pointed to quickening inflation, which would lead to higher rates and, in turn, rising borrowing costs for companies, the selling Monday came amid few major data points.

“I think sentiment was a little too optimistic,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “What was driving the market up in January? It wasn’t the fundamentals, as good as they were, it was excessive confidence.”

Ultimately, time simply runs out on all irrational financial bubbles.  It is interesting to note that the Tulip price index began to crash on this exact date in 1637, and we may look back and point to February 5th as the key moment when the “financial crisis of 2018” started.

Once again, let us hope for some type of a bounce tomorrow.  Often stock prices do rebound quite a bit after an enormous decline, and many are hoping that stock prices will soar on Tuesday.

But so far the news after the market closed in New York has all been bad.  For example, CNBC is reporting that XIV has fallen more than 80 percent after hours…

An exchange-traded security which is supposed to be a bet on calm markets was collapsing after hours.

The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) is down more than 80 percent in extended trading Monday. The security, issued by Credit Suisse, is supposed to give the opposite return of the Cboe Volatility index (VIX), the market’s widely followed turbulence gauge.

And as I write this article, it looks like markets all over Asia are going to be way down at the opening.

If stock prices keep collapsing, it could actually cause a major financial crisis.  So many financial institutions are deeply leveraged today, and many of them simply would not be able to handle a stock market decline of 30, 40 or 50 percent.

In particular, if things start to really unravel it will be important to pay special attention for any mention of “derivatives” in the financial news.  Once those dominoes start falling, we will see financial pain on a scale unlike anything that we have ever seen before in U.S. history.

Also, let us not forget that trouble signs continue to emerge for the “real economy”.  Just today, we learned that another major retail chain has filed for bankruptcy…

Bon-Ton Stores, the corporate parent of several department store chains, tumbled into Chapter 11 bankruptcy protection as the company seeks a fresh lease on life.

Bon-Ton, whose brands include Boston Store, Carson’s, Elder-Beerman and Younkers, had been on a fast track toward bankruptcy court after it recently announced plans to close 47 of its 260 stores.

I cannot stress enough that what happened on Monday is not a surprise.  The only surprise is that it took this long to happen.

Stock valuations need to fall another 40 or 50 percent just to get back to their long-term averages, and whether that happens very rapidly or takes an extended period of time, the truth is that stock valuations will return to those long-term averages.

Unfortunately for us, the central banks have created a bubble of such enormity that it could potentially collapse the entire global financial system when it finally fully bursts.

Let us hope for calmer markets on Tuesday, but let us also be mindful that at some point we are going to pay an exceedingly great price for years and years of horribly foolish decisions.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

-666 Points: We Just Witnessed The 6th Largest Single Day Stock Market Decline In U.S. History

On Friday, the Dow Jones Industrial Average fell 666 points (665.75 points to be precise), and many are pointing out that this was the 6th largest single day crash that we have ever seen.  This decline happened on the 33rd day of the year, and it was the worst day for the stock market by far since President Trump entered the White House.  I have been repeatedly warning that we are way overdue for a stock market crash, and many are concerned that we may be on the precipice of another great financial crisis.  We shall see what happens on Monday, because that will set the tone for the rest of the week.  If we see another huge decline early Monday morning, that could easily set off full-blown panic selling on Wall Street.

Rising interest rates appear to have been the trigger for the enormous market drop on Friday.  The following comes from the New York Post…

“We all know that many bull markets have ended by the Federal Reserve as they raise the rates to the point of slowing the economy down perhaps too much,” Quincy Krosby, chief market strategist at Prudential Financial, told The Post.

“It’s come on quickly and it caught the market off guard,” Krosby said.

The Dow sell-off brought it below the 26,000 plateau — to 25,520.96 — the biggest points drop since Dec. 1, 2008.

It is quite rare for the market to drop this much in a single day.  The largest single daily decline was a 777 point drop in 2008, and overall the Dow has fallen by more than 600 points less than 10 times throughout history…

The index posted a loss of nearly 666 points, its sixth-worst decline ever on a points basis.

The last time the index posted a drop of more than 600 points was June 24, 2016, the day after the Brexit vote.

The eight other times the Dow closed more than 600 points lower all took place in the last 18 years. Half occurred during the financial crisis in 2008.

My readers have heard me explain over and over that markets tend to go down a lot faster than they go up.

Once a market landslide begins, the movement can be absolutely breathtaking.  But none of this should come as any sort of a surprise, because even the Washington Post admits that “speculation of a market pullback” has been seemingly everywhere in recent days…

The airwaves and online chatter have been flooded in recent weeks with speculation of a market pullback like the one that thundered in on Friday.

“It looks like the beginning of a market correction,” said Luke Tilley, chief economist at Wilmington Trust, the wealth and investment advisory arm of M&T Bank. “It’s not something that is very surprising, given the low volatility that we saw in 2017.”

Right now we are in the terminal phase of a historic “double bubble” in both stocks and bonds.  Many times we will see one or the other get clobbered on a particular day, but Friday was a “bloodbath” for all asset classes…

Yesterday’s US equity market collapse and simultaneous bond market bloodbath was the biggest combined loss since December 2015, but perhaps more ominously, the week’s combined loss in bonds and stocks was the worst since Feb 2009.

So what will next week bring?

Hopefully things will settle down and we will see the markets start to bounce back.  After a huge decline, that is often what happens.

But it would be foolish to ignore the fear that appears to be growing on Wall Street.  At this point, even Bloomberg is openly wondering if this “is the start of something big?”…

Looking at the week’s drumbeat, you can’t help but wonder, is this the start of something big? Warnings about valuations have been pouring forth from bears for so long that barely anyone listens anymore. With the S&P 500 up almost 50 percent in less than two years, some see the end of the blissfully easy money that equities have spewed out for 13 straight months.

“It’s the turning point of volatility,” said Jeffrey Schulze, chief investment strategist at Clearbridge Investments, which manages $137 billion. “We were all very fortunate to go through a year like 2017. But there’s a number of different dynamics this year that will make volatility more part of the equation than it has been in quite some time.”

If the stock market does crash in 2018, it will not be a surprise.

The only surprise will be that it took this long to happen.

As I have stated over and over again, stock prices would need to fall by at least 40 or 50 percent just to get valuations back to their long-term averages, and stock prices always return to their long-term averages eventually.

Hopefully our day of reckoning has not arrived and this financial bubble can continue for a little while longer.

But if financial markets do begin to crash horribly this year, nobody will be able to say that they were not warned well ahead of time.

Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

+ More