Economic

The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

Globe Matrix - Public DomainI was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday.  I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already.  Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low.  Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine.  In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates.  Of course the truth is that there is no “economic recovery” on the horizon.  In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis.  This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months.  Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this.  If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.

It is also known as the “Dry Bulk Index”.

Much of the decline of the Baltic Dry Shipping Index is being blamed on China.  The following comes from a Bloomberg report that was posted on Thursday…

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.

So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes.  Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis.  Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…

Baltic Dry Index - Zero Hedge

The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.

Just look at the price of U.S. oil.  It just keeps on falling, and as I write this article it is sitting at $40.40.

The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.

And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.

So don’t be fooled by the temporary “stock market recovery” that we have witnessed.  The underlying economic fundamentals continue to decline.  We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.

At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.

And such an event may be coming sooner than you may think.

We live at a time when global terrorism is surging, relationships between nations are deteriorating and our planet is shaking in wild and unpredictable ways.

It wouldn’t take much to push the financial world into full-blown panic mode.  A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.

The global financial system has never been more primed for another 2008-style crisis.  Thanks to the fragility of the system, it could literally happen any day now.

So keep your eyes open – within weeks our world could be completely and totally different.

If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?

Demolition - Public DomainIf the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession?  The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession.  But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can.  In this article, I want to look at more signs that a dramatic shift is happening in our economy right now.

First of all, let’s consider what is happening to hedge funds.  For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis.  The following is an excerpt from a Business Insider article entitled “Hedge funds keep on imploding” that was posted on Wednesday…

BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer.

“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider.

The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours. The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing.

And those are just two examples.  Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street.

Another troubling sign is the implosion of so many energy companies.  Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard.  Just check out these stock price declines…

-Cabot Oil & Gas down 37.27 percent over the past 12 months

-Southwestern Energy down 68.11 percent over the past 12 months

-Chesapeake Energy down 73.98 percent over the past 12 months

A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink.  If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall.

We are also seeing tremendous turmoil in the retail industry.  The following comes from Investment Research Dynamics…

The retail sales report for October was much worse than expected.  Not only that, but the Government’s original estimates for retail sales in August and September were revised lower.  A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments.  Businesses lower their estimated tax payments when their business activity slows down.

The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom.  Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009.  Here is more from the article that I just quoted above…

Retail sales this holiday season are setting up to be a disaster.  Already most retailers are advertising “pre-Black Friday” sales events.  Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving?  Now retailers are going to cannibalize each other with massive discounting before Thanksgiving.  Anybody notice over the weekend that BMW is now offering $6500 price rebates?   The collapsing economy is affecting everyone, across all income demographics.

Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings.  I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts.  Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”  

I think that a chart would be helpful to give you an idea of how bad things have already gotten.  Jim Quinn shared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry.  As you can see, the numbers have never been this dreadful outside of a recession…

Retail Sales Ex-Autos

But stocks went up 247 points on Wednesday so everything must be great, right?

Wrong.

The stock market has never been a good barometer for the overall economy, and this is especially true these days.

In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well.

One of the things that is keeping stocks afloat for the moment is stock buybacks.  In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks.  The following comes from Wolf Richter…

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.

Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years…

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

Big corporations like to do this for a couple of reasons.  Number one, it pushes the price of the stock higher, and current investors appreciate that.  Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings.

But now corporate profits are falling and it is becoming tougher for big corporations to borrow money.  So look for stock buybacks to start to decline significantly.

Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse.

All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008.

But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.

 

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

Globe Interconnected - Public DomainIf you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived.  Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.  And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world.  So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting.  A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628.  However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China.  China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling.  In October, Chinese exports were down 6.9 percent compared to a year ago.  That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse.  Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September.  China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing.  As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

Chinese Imports Chinese Exports

Other numbers confirm the magnitude of the economic slowdown in China.  I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low…

The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.

The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.

It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.

Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…

–Demand for Chinese steel is down 8.9 percent compared to a year ago.

–China’s rail freight volume is down 10.1 percent compared to last year.

–In October, South Korean exports were down 15.8 percent from a year ago.

–According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114.  What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.

Clearly something very big is happening, and it is affecting the entire planet.  The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple…

In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.”

Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.“

Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.

One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade.  A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…

When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.

And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.

A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.

This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.

Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).

But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately.  As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world.  All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash.  Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans.  This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.

Of course we have seen this happen before.  A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s and the major global recession of 2008 and 2009.

If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.

So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.

The Calm Before The Storm

Storm - Public DomainHave you noticed that things have gotten eerily quiet in the month of October?  After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine.  Other “watchmen” that I highly respect have made the exact same observation.  Even though the economic numbers are screaming that we have entered a global recession, they aren’t really make any headline news.  A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet.  And of course Barack Obama seems bound and determined to start World War III.  On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea.  The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care.  But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.

To me, what we are experiencing at the moment would best be described as “the calm before the storm”.  If you are not familiar with this concept, this is how it is defined by How Stuff Works…

Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.

After a few minutes, you feel a change in the air, and suddenly a line of clouds ominously appears on the horizon — clouds with a look that tells you they aren’t fooling around. You quickly dash in the house and narrowly miss the first fat raindrops that fall right before the downpour. At this moment, you might stop and ask yourself, “Why was it so calm and peaceful right before the storm hit?”

Like so many others, I believe that a great storm is coming, and yet right at this moment things seem so peaceful.

Unfortunately, this period of peace and quiet is not going to last for long, and most Americans know deep down that something is seriously wrong with our nation.  In fact, a new WND/Clout poll has found that 85.3 percent of all likely voters in the United States believe that our country is going in the wrong direction…

The poll found 92.6 percent of those who identified themselves as conservative believe the nation is on the wrong track. Among those who call themselves liberal, 90.9 percent said it is going the wrong direction.

When asked what they think of the American economy after seven years of Obama’s leadership and economic policies, nearly 80 percent described it as “very fragile” or “somewhat fragile.”

Self-identified Democrats, Republicans, liberals and conservatives were in general agreement, with about 75 percent to 80 percent describing the economy as “somewhat fragile” or “very fragile.”

But even though we are steamrolling in the wrong direction, we haven’t suffered any incredibly serious consequences for it yet.

For the moment, this is allowing the mockers to have a field day.  They are fully confident that Barack Obama and the Federal Reserve knew what they were doing after all, and they are gleefully taunting those of us that have been warning of the great disaster that is heading our way.

However, those that are wise are getting prepared.

I think that we could all learn some lessons from what Overstock.com Chairman Jonathan Johnson is doing. The following is an extended excerpt from a recent Zero Hedge article…

*****

One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.

What did Johnson tell the UPMA? Here are some choice quotes:

We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

We also happen to have three months of food supply for every employee that we can live on.

*****

Why would such a seemingly intelligent and successful CEO of a large Internet company do such things?

It is because he can see the writing on the wall.

This period of calm will not last.  A great storm is coming, and when it does arrive those that have not prepared for it are going to suffer tremendously.

Most people have no idea just how fragile our system really is.  Today, some of these “too big to fail” banks supposedly have trillions of dollars in assets, but if you want to withdraw $10,000 or more in cash you have got to give them 24 hours notice to get enough money…

This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRILLIONS of dollars worth of assets on their books.

And with each passing day we see even more signs of the global economic slowdown that is emerging all around us.  For example, we just learned that the China Containerized Freight Index has dropped to the lowest level ever recorded.  China accounts for more global trade than anyone else, and so this is a very clear sign that global economic activity is slowing down dramatically…

By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels.

The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

But for those that don’t want to believe that hard times are on the way, they can take comfort in the eerie period of calm that we are experiencing right now.

What they don’t realize is that this truly is “the calm before the storm”, and the global economic crisis that is ahead of us is going to be far beyond what most people ever dared to imagine was possible.

20 Reasons Why All The People That Quit Prepping After September Are Dead Wrong

Wrong Way - Public DomainMillions of Americans were gearing up for some huge event to happen in September, but the world didn’t end and now many of them have given up entirely on prepping.  Of course the truth is that some absolutely earth-shattering events did take place last month, but because September did not play out exactly as some were anticipating, a lot of people feel very let down.  My contacts in the emergency food industry tell me that sales have dropped off dramatically, and yesterday I was told by someone that I trust that the same is true for those that sell precious metals.  But this should not be happening.  What we witnessed in August and September was just the warm up act, and all of the numbers are absolutely screaming at us that we are right on track for a major global crisis.  In this article I am going to focus on economic and financial issues, but there are so many other things going on around the planet right now that threaten to throw our world into turmoil.  Anyone that thinks that it is safe to “relax” now is simply not paying attention.  The following are 20 reasons why all the people that quit prepping after September are dead wrong…

#1 U.S. exports are down 11 percent for the year so far.  The only other times they have fallen this dramatically since the turn of the century were during the last two recessions.

#2 Since March, the amount of stuff being shipped by truck, rail and air inside the United States has been falling every single month on a year over year basis.  This is a clear indication that economic activity is really slowing down.

#3 Wholesale sales in the U.S. have fallen to the lowest level since the last recession.

#4 The inventory to sales ratio has risen to the highest level since the last recession.  This means that there is a whole lot of unsold inventory that is just sitting around out there and not selling.

#5 Industrial production declined for five months in a row during the first half of 2015.  That is something that has never happened outside of a recession.

#6 Wal-Mart is projecting that its earnings may fall by as much as 12 percent during the next fiscal year.

#7 Don’t expect U.S. consumers to rush in and save the day.  According to brand new numbers from the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

#8 And remember, there are 102.6 million working age Americans that do not even have a job of any kind.

#9 According to Challenger Gray, layoffs at major firms have risen to the highest level that we have witnessed since 2009.

#10 The number of job openings in the United States declined by 5.3 percent during the month of August.  That was a huge plunge for just one month.

#11 According to British banking giant HSBC, the world is already in a “dollar recession“.  Global trade has fallen 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent.

#12 In September, Chinese exports were down 3.7 percent compared to one year ago, and Chinese imports were down a staggering 20.4 percent compared to a year ago.

#13 During the month of August, we witnessed the 8th largest single day stock market crash in U.S. history on a point basis and the 10th largest single day stock market crash in U.S. history on a point basis.  It was the first time ever that the Dow Jones Industrial Average declined by more than 500 points on two consecutive trading days.

#14 On August 24th, we also witnessed the greatest intraday stock market point swing of all time.  From the high point of the day to the low point of the day, the Dow Jones Industrial Average plummeted 1,089 points before recovering.

#15 At one point in September, approximately 11 trillion dollars of stock market wealth had been wiped out around the globe.

#16 At one point in September, Chinese stocks were down about 40 percent from the peak of the market.

#17 At one point in September, German stocks were down about 25 percent from the peak of the market.

#18 Since the last financial crisis, the global economy has added another 50 trillion dollars to our colossal pile of debt.  That means we are far more vulnerable to a crisis than we were the last time around.

#19 The list of global financial giants that are rumored to be in very serious trouble includes Deutsche Bank (the biggest bank in Germany), UBS (the biggest bank in Switzerland) and three of the largest commodity trading firms on the entire planet: Glencore, Trafigura and the Noble Group.  The total collapse of any one of them would easily be another “Lehman Brothers moment” for the global financial system.

#20 Stocks are still in a massive bubble.  In fact, stocks in the U.S. are going to have to fall more than 30 percent from the current levels just to get back to what is considered “normal” or “average”.  The following is an extended excerpt from one of my previous articles…

*****

In recent years, stocks have soared to unbelievably unrealistic levels.  One of the most popular methods of measuring the true value of stocks is something called the cyclically-adjusted price to earnings ratio.  It was developed by economist Robert Shiller of Yale University, and it attempts to accurately show how much we are paying for stocks in relation to how much those corporations are actually earning.  When this number is very high, stocks are overvalued, and when this number is very low stocks are undervalued.

Earlier this year, CAPE hit a peak of about 27, and by the beginning of August it was still sitting up around 26.  The only times CAPE has been higher have been just before other stock market bubbles have burst…

CAPE - from Wikipedia

It would take a total drop of about 40 percent from the peak of the market just to get back to average.  So far the Dow has fallen about 10 percent or so, so it is going to take another 30 percent crash just to get to a point where stock prices are considered “normal” once again.

*****

In this day and age, we are so impatient and our attention spans are pitifully small.  We live in a world of instant coffee, video on demand, and 48 hour news cycles.  Very few of us are willing to take a long term view of things because we have all become accustomed to “living in the now” and focusing on what is in front of us this very instant.

Yes, the headlines are not screaming about a “stock market crash” or an “economic depression” on this particular day in October.

But that doesn’t mean that we are out of the woods by any stretch of the imagination.

The biggest bank in the western world (HSBC) says that a global recession has now begun, and the pain that we have experienced so far is just the tip of the iceberg.

So please don’t think that it is time to relax.

The month of September was not “the end” of anything.

Rather, it was just the beginning…

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

Dominoes Falling - Public DomainWhen the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down.  It is just basic economics.  Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge.  Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now.  But this is just part of a larger trend.  As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent.  The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.

For many years, China has been leading the revolution in global trade.  But now we are witnessing something that is almost unprecedented.  Chinese exports are falling, and Chinese imports are absolutely imploding…

Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’ Alpha Now puts it. Most of these exports are manufactured goods that are shipped by container to the rest of the world.

And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.

This week it was announced that Chinese GDP growth had fallen to the lowest level since the last recession, and that makes sense.  Global economic activity is really slowing down, and this is deeply affecting China.

So what about the United States?

Well, based on the amount of stuff that is being shipped around in our country it appears that our economy is really slowing down too.  The following comes from Wolf Richter, and I shared some of it in a previous article, but I think that it bears repeating…

September is in the early phase of the make-or-break holiday shipping season. Shipments usually increase from August to September. They did this year too. The number of shipments in September inched up 1.7% from August, according to the Cass Freight Index.

But the index was down 1.5% from an already lousy September last year, when shipments had fallen from the prior month, instead of rising. And so, in terms of the number of shipments, it was the worst September since 2010.

It has been crummy all year: With the exception of January and February, the shipping volume has been lower year-over-year every month!

The index is broad. It tracks data from shippers, no matter what carrier they choose, whether truck, rail, or air, and includes carriers like FedEx and UPS.

What major retailers such as Wal-Mart are reporting also confirms that we are in a major economic slowdown.  Wal-Mart recently announced that its earnings would fall by as much as 12 percent during the next fiscal year, and that caused Wal-Mart stock to drop by the most in 27 years.

And of course this is going to have a huge ripple effect.  There are thousands of other companies that do business with Wal-Mart, and Reuters is reporting that they are starting to get squeezed…

Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart Stores. Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week.

The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year.

“The ground is shaking here,” said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas. “Suppliers are going to have to help Wal-Mart get back on track.”

Similar things are going on at some of the other biggest companies in America as well.

For instance, things have gotten so bad for McDonald’s that one franchise owner recently stated that the restaurant chain is “facing its final days”…

“McDonald’s announced in April that it would be closing 700 ‘underperforming’ locations, but because of the company’s sheer size — it has 14,300 locations in the United States alone — this was not necessarily a reduction in the size of the company, especially because it continues to open locations around the world. It still has more than double the locations of Burger King, its closest competitor.”

However, for the franchisees, the picture looks much worse than simply 700 stores closing down.

“We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”

Why would things be so bad at Wal-Mart and McDonald’s if the economy was “recovering”?

Come on now – let’s use some common sense here.

All of the numbers are screaming at us that we have entered a major economic downturn and that it is accelerating.

CNBC is reporting that the number of job openings in the U.S. is falling and that the number of layoffs is rising…

Job openings fell 5.3 percent in August, while a 2.6 percent rise in layoffs and discharges offset a 0.3 percent gain in hires. Finally, the amount of quits — or what Convergex calls its “take this job and shove it” indicator because it shows the percentage of workers who left positions voluntarily — fell to 56.6 percent from 57.1 percent, indicating less confidence in mobility.

And as I discussed the other day, Challenger Gray is reporting that we are seeing layoffs at major firms at a level that we have not witnessed since 2009.

We already have 102.6 million working age Americans that do not have a job right now.  As this emerging worldwide recession deepens, a lot more Americans are going to lose their jobs.  That is going to cause the poverty and suffering in this country to spike even more, if you can imagine that.

Just consider what authorities discovered on the streets of Philadelphia just this week…

Support is flooding in for a homeless Philadelphia family whose two-year-old son was found wandering alone in a park in the middle of the night.

Angelique Roland, 27, and Michael Jones, 24, were sleeping with their children behind cardboard boxes underneath the Fairmount Park Welcome Center in Love Park when the toddler slipped away.

The boy was found just before midnight and handed over to a nearby Southeastern Pennsylvania Transportation Authority police officer, who took him to the Children’s Hospital of Philadelphia.

He was wearing a green, long sleeve shirt, black running pants and had a diaper on, but did not have shoes or socks.

Could you imagine sleeping on the streets and not even being able to provide your two-year-old child with shoes and socks?

These numbers that I write about every day are not a game.  They affect all of us on a very personal level.

Just like in 2008 and 2009, millions of Americans that are living a very comfortable middle class lifestyle today will soon lose their jobs and will end up out in the streets.

In fact, there will be people that will read this article that this will happen to.

So no, none of us should be excited that the global economy is collapsing.  There is already so much pain all around us, and what is to come is beyond what most of us would even dare to imagine.

The Numbers Say That A Major Global Recession Has Already Begun

Global - Public DomainThe biggest bank in the western world has just come out and declared that the global economy is “already in a recession”.  According to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent.  So those that are waiting for the next worldwide economic recession to begin can stop waiting.  It is officially here.  As you will see below, money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun.  Just a few days ago, I explained that the IMF, the UN, the BIS And Citibank were all warning that a major economic crisis could be imminent.  They aren’t just making this stuff up out of thin air, but most Americans still seem to believe that everything is going to be just fine.  The level of blind faith in the system that most people are demonstrating right now is absolutely astounding.

The numbers say that the global economy has not been in this bad shape since the devastating recession that shook the world in 2008 and 2009.  According to HSBC, “we are already in a dollar recession”…

Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. As can be seen in Chart 3 on the following page, global GDP expressed in US dollars is already negative to the tune of USD 1,37trn or -3.4%. That is, we are already in a dollar recession. 

Here is the chart that Zero Hedge posted along with the quote above.  As you can see, the only time global GDP expressed in U.S. dollars has fallen faster in recent years was during the horrible recession of seven years ago…

HSBC Chart

But there are still a whole lot of incredibly clueless people running around out there claiming that “nothing is happening” even though more signs of trouble are erupting all around us every single day.

For instance, just today CNBC published an article entitled “The US is closer to deflation than you think“, and Twitter just announced that it plans to lay off 8 percent of its entire workforce.

But of course the biggest problems are happening in “emerging markets” right now.  The following is an excerpt from an article that was just published in a major British news source entitled “The world economic order is collapsing and this time there seems no way out“…

Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.

China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.

Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.

It is one thing for The Economic Collapse Blog to warn that “the world economic order is collapsing”, but this is one of the biggest newspapers in the UK.

I was writing about these emerging market problems back in July, but at that time very few really understood the true gravity of the situation.  But now giant banks such as Goldman Sachs are calling this the third stage of the ongoing global financial crisis.  The following comes from a recent CNBC piece entitled “Is EM turmoil the third wave of the financial crisis? Goldman thinks so“…

Emerging markets aren’t just suffering through another market rout—it’s a third wave of the global financial crisis, Goldman Sachs said.

“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week.

The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.

You know that it is late in the game when Goldman Sachs starts sounding exactly like The Economic Collapse Blog.  I have been warning about a “series of waves” for years.

When will people wake up?

What is it going to take?

The crisis is happening right now.

Of course many Americans will refuse to acknowledge what is going on until the Dow Jones Industrial Average collapses by several thousand more points.  And that is coming.  But let us all hope that day is delayed for as long as possible, because all of our lives will become much crazier once that happens.

And the truth is that many Americans do understand that bad times are on the horizon.  Just check out the following numbers that were recently reported by CNBC…

The CNBC All-America Economic Survey finds views on the current state of the economy about stable, with 23 percent saying it is good or excellent and 42 percent judging it as fair. About a third say the economy is poor, up 3 points from the June survey.

But the percentage of Americans who believe the economy will get worse rose 6 points to 32 percent, the highest level since the government shutdown in 2013. And just 22 percent believe the economy will get better, 2 points lower than June and the lowest level since 2008, when the nation was gripped by recession.

If you want to believe that everything is going to be just fine somehow, then go ahead and believe that.

All I can do is present the facts.  For months I have been warning about this financial crisis, and now it is playing out as a slow-motion train wreck right in front of our eyes.

We are moving into a period of time during which events are going to start to move much more rapidly, and life as we know it is about to change in a major way for all of us.

Hopefully you have already been preparing for what is about to come.

If not, I wouldn’t want to be in your position.

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

Question Sign Red - Public DomainThe warnings are getting louder.  Is anybody listening?  For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing.  For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“.  And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now.  The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The IMF is actually telling the truth in this instance.  We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.

But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.

The Bank of England, the UN and the Bank for International Settlements have all issued similar ominous warnings.  The following is an excerpt from a recent article in the Guardian…

The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.

I particularly like Andy Haldane’s likening our current situation to a “three-part crisis trilogy”.  I think that is perfect.  And if you are familiar with movie trilogies, then you know that the last episode is usually the biggest and the baddest.

Citigroup economist Willem Buiter also believes that big trouble is on the horizon.  In fact, he is publicly warning of a “global recession” in 2016…

Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.

“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”

Usually when we are plunged into a new crisis there is some sort of “trigger event” that creates widespread panic.  Yesterday, I wrote about the ongoing problems at commodity giants such as Glencore, Trafigura and The Noble Group.  The collapse of any of them could potentially be a new “Lehman Brothers moment”.

But something else happened just yesterday that is also extremely concerning.  Just a couple of weeks ago, I warned that the biggest bank in Germany, Deutsche Bank, was on the verge of massive trouble.  Well, on Wednesday the bank announced a loss of more than 6 billion dollars for the third quarter of 2015…

Deutsche Bank’s new boss John Cryan set about cleaning up Germany’s biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut.

Write downs, impairments and litigation costs all contributed to the loss, the bank said.

Cryan became chief executive in July with a promise to cut costs. The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to ax about 23,000 jobs, or a quarter of the bank’s staff, sources told Reuters last month.

Keep an eye on Germany – the problems there are just beginning.

Something else that I am closely watching is the fact that major exporting nations such as China that used to buy up lots of U.S. government debt are now dumping that debt at an unprecedented pace.  The following comes from Wolf Richter…

Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.

For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.

China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion.

Yes, I know, the stock market went up once again on Thursday, and all of the irrational optimists are once again telling us that everything is going to be just fine.

The truth, of course, is that everything is not going to be just fine.  Ever since I started the Economic Collapse Blog, I have never wavered in my belief that the greatest economic crisis that the United States has ever seen is coming, and I have written well over 1000 articles setting forth the case for the coming collapse in excruciating detail.  Nobody is going to be able to say that I didn’t try to warn them.

Those that have blind faith in Barack Obama, Wall Street, the Federal Reserve and the other major central banks around the planet will continue to mock the idea that a major collapse is coming for as long as they can.

But when the day of reckoning does arrive and crisis coming knocking at their doors, what will they do then?

+ More