Financial News

If History Is Any Indication, Junk Bonds And Copper Are Telling Us Exactly Where Stocks Are Heading Next

Stock Market - Public DomainYields on the riskiest junk bonds are absolutely soaring and the price of copper just hit a fresh six year low.  To most people, those pieces of financial news are meaningless.  But if you understand history, and you are aware of the patterns that immediately preceded previous stock market crashes, then you know how how huge both of those signs are.  During the summer of 2008, junk bond prices absolutely cratered as junk bond yields skyrocketed.  This was a very clear signal that financial markets were about to crash, and sure enough a couple of months later it happened.  Now the exact same thing is happening again.  The following comes from a Wall Street On Parade article that was posted on Tuesday entitled “Keep Your Eye on Junk Bonds: They’re Starting to Behave Like ‘08“…

According to data from Bloomberg, corporations have issued a stunning $9.3 trillion in bonds since the beginning of 2009. The major beneficiary of this debt binge has been the stock market rather than investment in modernizing the plant, equipment or new hires to make the company more competitive for the future. Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets.

Now, with commodity prices resuming their plunge and currency wars spreading, concerns of financial contagion are back in the markets and spreads on corporate bonds versus safer, more liquid instruments like U.S. Treasury notes, are widening in a fashion similar to the warning signs heading into the 2008 crash. The $2.2 trillion junk bond market (high-yield) as well as the investment grade market have seen spreads widen as outflows from Exchange Traded Funds (ETFs) and bond funds pick up steam.

And right now we are seeing the most volatility in the junkiest of the junk bonds.

The following comes from Wolf Richter, and my jaw just about dropped to the floor when I first saw this…

This chart of yields at the riskiest end of the junk bond market – bonds rated CCC and below – shows what happened. These bonds have been selling off over the past 12 months, with exception of the sucker rally earlier this year, and their yields more than doubled from less than 7.9% in June a year ago to 16.2% by Thursday evening. And Thursday was a massacre:

riskiest junk bonds

On Thursday, yields jumped 2.6 percentage points, from 13.58% to 16.18%, as these junk bonds plunged. Those kinds of single-day vertigo-inducing sell-offs are rare in normal times, and there haven’t been any since the Financial Crisis.

Amazingly, the Federal Reserve is actually thinking about raising interest rates in this environment.

If that sounds like a really bad idea to you, that is because it is a really bad idea.

Raising interest rates would just add fuel to the fire of this junk bond rout.  DoubleLine Capital’s co-founder Jeffrey Gundlach agrees with me…

“To raise interest rates when junk bonds are nearly at a four-year low is a bad idea,” Gundlach said in a telephone interview.

Gundlach, widely followed for his prescient investment calls, said if the Fed begins raising interest rates in September, “it opens the lid on Pandora’s Box of a tightening cycle.”

Gundlach said the selling pressure in copper and commodity prices driven by worries over China’s growth outlook “should be a huge concern. It is the second-biggest economy in the world.”

Meanwhile, as Gundlach mentioned, the price of copper continues to plunge.

On Tuesday, it set a brand new six year low.  It is now the lowest that it has been since the days of the last financial crisis.

And as you can see from this excerpt from a recent Investment Research Dynamics article, the price of copper started crashing before the stock market crash of 2008…

I wanted to keep this simple and just look at what is considered perhaps the best barometer of global economic activity:

Copper Chart - Investment Research Dynamics

You’ll note that the price of copper is headed lower and is back to the price level where it was in the middle of 2008, right before the great financial collapse.  You’ll note that $3.6 trillion in Federal Reserve money printing – on top of trillions in Bank of Japan, ECB and People’s Bank of China money printing – has not been able to keep the price of copper from crashing again.

In case you haven’t figured it out by now, the global financial system is in real trouble.

Another sign that rough waters are ahead is the fact that global shipping has fallen into a dramatic slump.  The following comes from the Telegraph…

World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs.

Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days.

Global economic activity is clearly slowing down, and there are 23 nations around the planet that are already experiencing stock market crashes.

The financial markets of the western world have not totally crashed just yet, but they are more leveraged and more vulnerable than ever.  The following comes from Zero Hedge…

  • The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.
  • The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.
  • Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.
  • Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.
  • The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.
  • The Central Banks have no idea how to exit their strategies. Fed minutes released from 2009 show Janet Yellen was worried about how to exit when the Fed’s balance sheet was $1.3 trillion (back in 2009). Today it’s over $4.5 trillion.

As I explained during a recent interview with Kate Dalley of Fox News radio, what is coming should be obvious to anyone that is willing to look at the numbers honestly.

The global financial system is going to crash.

Yes, this crisis is going to take years to fully play out, but by the time it is all said and done it is going to be much worse than what we experienced back in 2008 and 2009.

So buckle up tight and hold on for your life, because we are in for one wild ride.

We Just Witnessed The Worst Week For Global Financial Markets In 3 Years

Global Financial Markets Crash - Public DomainIs this the start of the next major financial crisis?  The nightmarish collapse of the price of oil is creating panic in financial markets all over the planet.  On June 16th, U.S. oil was trading at a price of $107.52.  Since then, it has fallen by almost 50 dollars in less than 6 months.  This has only happened one other time in our history.  In the summer of 2008, the price of oil utterly collapsed and we all remember what happened after that.  Well, the same patterns that we witnessed back in 2008 are happening again.  As the price of oil crashed in 2008, so did prices for a whole host of other commodities.  That is happening again.  Once commodities started crashing, the market for junk bonds started to implode.  That is also happening again.  Finally, toward the end of 2008, we witnessed a horrifying stock market crash.  Could we be on the verge of another major one?  Last week was the worst week for the Dow in more than three years, and stock markets all over the world are crashing right now.  Bad financial news continues to roll in from the four corners of the globe on an almost hourly basis.  Have we finally reached the “tipping point” that so many have been warning about?

What we witnessed last week is being described as “a bloodbath” that was truly global in scope.  The following is how Zero Hedge summarized the carnage…

  • WTI’s 2nd worst week in over 3 years (down 10 of last 11 weeks)
  • Dow’s worst worst week in 3 years
  • Financials worst week in 2 months
  • Materials worst week since Sept 2011
  • VIX’s Biggest week since Sept 2011
  • Gold’s best week in 6 months
  • Silver’s last 2 weeks are best in 6 months
  • HY Credit’s worst 2 weeks since May 2012
  • IG Credit’s worst week in 2 months
  • 10Y Yield’s best week since June 2012
  • US Oil Rig Count worst week in 2 years
  • The USDollar’s worst week since July 2013
  • USDJPY’s worst week since June 2013
  • Portugal Bonds worst week since July 2011
  • Greek stocks worst week since 1987

The stock market meltdown in Greece is particularly noteworthy.  After peaking in March, the Greek stock market is down 40 percent since then.  That includes a 20 percent implosion in just the past three trading days.

And it isn’t just Greece.  Financial markets all over Europe are in turmoil right now.  In addition to crashing oil prices, there is also renewed concern about the fundamental stability of the eurozone.  Many believe that it is inevitable that it is headed for a break up.  As a result of all of this fear, European stocks also had their worst week in over three years…

European stock markets closed sharply lower on Friday, posting their biggest weekly loss since August 2011, as commodity prices continued to fall and and shares in oil-related firms came under renewed pressure from the weak price for crude.

The pan-European FTSEurofirst 300 unofficially ended 2.6 percent lower, down 5.9 percent on the week as the energy sector once again weighed heavily on wider benchmarks, falling over 3 percent.

But despite all of the carnage that we witnessed in the U.S. and in Europe last week, things are actually far worse for financial markets in the Middle East.

Just check out what happened on the other side of the planet on Sunday…

Stock markets in the Persian Gulf got drilled Sunday as worries about further price declines grew. The Dubai stock index fell 7.6% Sunday, the equivalent of a 1,313-point plunge in the Dow Jones industrial average. The Saudi Arabian market fell 3.3%.

Overall, Dubai stocks are down a whopping 23 percent over the last two weeks, and full-blown stock market crashes are happening in Qatar and Kuwait too.

Like I said, this is turning out to be a truly global financial panic.

Another region to keep an eye on is South America.  Argentina is a financial basket case, the Brazilian stock market is tanking big time, and the implied probability of default on Venezuelan debt is now up to 93 percent…

Swaps traders are almost certain that Venezuela will default as the rout in oil prices pressures government finances and sends bond prices to a 16-year low.

Benchmark notes due 2027 dropped to 43.75 cents on the dollar as of 11:35 a.m. in New York, the lowest since September 1998, as crude extended a bear market decline. The upfront cost of contracts to insure Venezuelan debt against non-payment for five years is at 59 percent, bringing the implied probability of default to 93 percent, the highest in the world.

So what does all of this mean for the future?

Are we experiencing a repeat of 2008?

Could what is ahead be even worse than that?

Or could this just be a temporary setback?

Recently, Howard Hill shared a few things that he looks for to determine whether a major financial crisis is upon us or not…

The first condition is a serious market sector correction.

According to some participants in the market for energy company bonds and loans, such a correction is already underway and heading toward a meltdown (the second condition). Others are more sanguine, and expect a recovery soon.

That smaller energy companies have issued more junk-rated debt than their relative size in the economy isn’t under debate. Of a total junk bond market estimated around $1.2 trillion, about 18% ($216 billion, according to a Bloomberg estimate) has been issued by energy-related companies. Yet those companies represent a far smaller share of the economy or stock market capitalization among the universe of junk-rated companies.

If the beaten-down prices for junk energy bonds don’t stabilize or recover a bit, we might see the second condition: a spiral of distressed sales of bonds and loans. This could happen if junk bond mutual funds or other large holders sell into an unfriendly market at low prices, and then other holders of those bonds succumb to the pressure of fund redemptions or margin calls and sell at even lower prices.

The third condition, which we can’t determine directly, would be pressure on Credit Default Swap dealers or hedge funds to make deposits as the prices of the CDS move against them. AIG was taken down when collateral demands were made to support existing CDS agreements, and nobody knew it until they were going under. There simply isn’t a way to know whether banks or dealers are struggling until the effect is already metastasizing.

I think that he makes some really good points.

In particular, I think that watching how junk bonds perform over the next few weeks will be extremely telling.

Last week was truly a bloodbath for high yield debt.

But perhaps things will stabilize this week.

Let’s hope so, because this is the closest that we have been to another major financial crisis since 2008.

Jim Cramer Is Predicting Bank Runs In Spain And Italy And Financial Anarchy Throughout Europe

During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks.  This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using.  In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog.  It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal.  There are already rumors that the “smart money” is pulling out of Spanish and Italian banks.  So could we see some of these banks collapse?  Would they get bailed out if they do collapse?  It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.

Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press.  He is obviously very, very disturbed about the direction that Europe is heading in….

But what is Europe supposed to do?  Even though “austerity measures” have been implemented in many eurozone nations, the truth is that they are all still running up more debt.  Are European nations just supposed to run up massive amounts of debt indefinitely and pretend that there will never been any consequences?

That is apparently what Barack Obama wants.  During the G-8 summit that just concluded, Obama urged European leaders to pursue a “pro-growth” path.

Of course to Obama a “pro-growth” economic plan includes spending trillions of dollars that you do not have without any regard for what you are doing to future generations.

Germany has been trying to get the rest of the eurozone to move much closer to living within their means, but as the recent elections in France and Greece demonstrated, much of the rest of the eurozone is not too thrilled with the end of debt-fueled prosperity.

In Greece, the recent elections failed to produce a new government, so new elections will be held on June 17th.

Many EU politicians are trying to turn these upcoming elections into a referendum on whether Greece stays in the eurozone or not.  If the next Greek government is willing to honor the austerity agreements that have been previously agreed to, then Greece will probably stay in the eurozone for a while longer.  If the next Greek government is not willing to honor the austerity agreements that have been previously agreed to, then Greece will probably be forced out of the eurozone.

The following is what John Praveen, the chief investment strategist at Prudential International Investments Advisers, had to say about the political situation in Greece recently….

“If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets”

Right now, polls show the leading anti-austerity party, Syriza, doing very well.  The leader of Syriza, Alexis Tsipras, has declared that he plans “to stop the experiment” with austerity and that what the rest of the eurozone has tried to do in Greece is a “crime against the Greek people“.

But the Germans do not see it that way.  The Germans just want the Greeks to stop spending far more money than they bring in.

The Germans do not want to endlessly bail out the Greeks if the Greeks are not willing to show some financial discipline.

As we approach the June 17th elections, the financial markets are likely to be quite nervous.  According to Art Hogan of Lazard Capital Partners, many investors are deeply concerned about how “sloppy” a great exit from the euro could be….

“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be”

Most Greek citizens want to remain in the eurozone and most European politicians want Greece to remain in the eurozone, but it is looking increasingly likely as if that may not happen.

In fact, there are reports that preparations are rapidly being made for a Greek exit.  According to Reuters, “contingency plans” for the printing of Greek drachmas have already been drawn up….

De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday.

And even EU officials are now acknowledging that plans for a Greek exit from the euro are being developed.  The following is what EU Trade Commissioner Karel De Gucht said during one recent interview….

“A year and a half ago, there may have been the danger of a domino effect,” he said, “but today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”

When these kinds of things start to become public, that is a sign that officials really do not expect Greece to remain a part of the euro.

And Greece is rapidly beginning to run out of money.  According to a recent Ekathimerini article, the Greek government is likely to run out of money at the end of June….

The public coffers are seen running dry at the end of June, but this will depend on two key factors. First, revenue collection: In the first 10 days of May, inflows were about 15 percent lower than projected but there are fears that the slide may reach 50 percent. The GAO will have a picture for the first 20 days on May 23, while the last three days of the month are considered crucial, when 1.5 billion euros of the month’s budgeted total of 3.6 billion are expected to flow in.

Second, whether the IMF and EFSF installments are disbursed: This is not certain, as the decision will be purely political for both providers and evidently partly linked to political developments. Earlier this month the eurozone approved a disbursement 1 billion short of the 5 billion euros that were expected.

If Greece runs out of money and if the rest of Europe cuts off the flow of euros, Greece would essentially be forced to leave the euro.

So the last half of June looks like it could potentially be a key moment for Greece.

Meanwhile, the Greek banking system is struggling to survive as hundreds of millions of euros get pulled out of it.  The following is from a recent CNN article….

The Greek financial system is straining hard for cash.

Consumers and businesses are making massive withdrawals from Greece’s banks — leading to concern the beleaguered nation could be forced out of the eurozone by a banking crisis even before its government runs out of cash.

Deposits are the lifeblood of any bank, and Greeks pulled 800 million euros out of the banking system on Tuesday alone, the most recent day for which figures are available.

If Greece does leave the euro and the Greek banking system does collapse, that is going to be a clear signal that a similar scenario will be allowed to play out in other eurozone nations.

That is why Jim Cramer, myself and many others are warning that there could soon be bank runs all over the eurozone.

Sadly, the banking crisis in Europe just seems to get worse with each passing day.

For example, the Telegraph has reported that wealthy individuals are starting to pull money out of Spanish banking giant Santander….

Customers with large deposits have started withdrawing cash from Santander, the bank has admitted, as it tried to reassure concerned members of the public that their money is safe.

Round and round we go.  Where all this will stop nobody knows.

If Greece does end up leaving the euro, that could set off a chain of cascading events that could potentially be absolutely catastrophic.

Former Italian Prime Minister Romano Prodi recently stated that the “whole house of cards will come down” if Greece leaves the euro.

And if the “house of cards” does come down in Europe, that is going to greatly destabilize the global derivatives market.

You see, the truth is that the global derivatives market is very delicately balanced.  The assumption most firms make is that things are not going to deviate too much from what is considered “normal”.

If we do end up seeing “financial anarchy” in Europe, that is going to greatly destabilize the system and we could rapidly have a huge derivatives crisis on our hands.

And as we saw with JP Morgan recently, losses from derivatives can add up really fast.

Originally, we were told that the derivatives losses that JP Morgan experienced recently came to a total of only about 2 billion dollars.

Now, we are told that it could be a whole lot more than that.  According to the Wall Street Journal, JP Morgan could end up losing about 5 billion dollars (or more) before it is all said and done….

J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the “London whale,” in a sign that the size of its bets could bog down the bank’s unwinding of the trades and deepen its losses by billions of dollars.

The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.

And if Europe experiences a financial collapse, the losses experienced by U.S. firms could make that 5 billion dollars look like pocket change.  The following is from a recent article by Graham Summers….

According to Reuters once you include Spain and Italy as well as Credit Default Swaps and indirect exposure to Europe, US banks have roughly $4 TRILLION in potential exposure to the EU.

To put that number in perspective, the entire US banking system is $12 trillion in size.

Interesting days are ahead my friends.

Let us hope for the best, but let us also prepare for the worst.

Bad Financial News Keeps Pouring In: 14 Facts That Just Might Scare The Living Daylights Out Of You

Will the bad financial news ever stop?  A lot of people in the financial world were hoping for a much better fourth quarter after an absolutely disastrous third quarter.  Well, if Monday was any indication, October could end up being a really rough month for global financial markets.  So much bad financial news keeps pouring in that it really is a challenge to try to keep track of it all.  Greece seems to get closer to defaulting on their debts with each passing day, and it appears that Germany is not going to contribute any more bailout money beyond what they have already committed to.  Major banks on both sides of the Atlantic are on the verge of collapse, and investors all over the world are afraid that we may have another “Lehman Brothers moment” soon.  Shares of American Airlines dropped a staggering 33 percent on Monday as rumors that they will soon be entering bankruptcy swirled.  Yes, things certainly are getting interesting.  Back in 2008, the governments of the western world saved the financial system with gigantic bailouts that were absolutely unprecedented.  If the financial system crashes again at some point in the coming weeks or months, will the political will for more bank bailouts be there?  If not, what is going to happen to the banking system?

On both sides of the Atlantic, the big banks are highly leveraged, they have taken on a ton of risk and they are very deeply exposed to derivatives.  It is as if virtually nobody learned any lessons during the financial crisis of 2008.  Once again we are facing a situation where if a couple of financial dominoes fall it could send dozens of others tumbling to the ground.

Some very significant things happened on Monday.  But the media has gotten so used to reporting on tremendous financial instability that Monday’s events mostly got brushed to the side.  Instead, Amanda Knox captured most of the headlines.

But the reality is that some really, really monumental stuff has been going down.

The following are 14 facts that just might scare the living daylights out of you….

#1 On Monday, the Dow was down 258 points.  Lately it seems as though the Dow has been going up or down by several hundred points almost every single day, and that much volatility is not a good sign for the health of the financial system.

#2 Shares of Wall Street banking giant Morgan Stanley fell by another 8 percent on Monday.  Overall, shares of Morgan Stanley have declined by more than 50 percent since February.

#3 Bank of America stock dropped down to $5.53 a share on Monday.  Just a few years ago, it was trading for more than $50 a share.

#4 There are reports that Goldman Sachs may actually show a loss for the third quarter of 2011 and that yearly bonuses for employees may be slashed to next to nothing.  Yes, not too many people are going to have sympathy for Goldman Sachs, but this just shows how bad things are getting out there for the big Wall Street banks.

#5 Normally Goldman Sachs is quite upbeat, but lately they have been coming out with some really frightening reports.  For example, a new report from Goldman Sachs declares that there is a 40 percent chance that we are entering a “Great Stagnation“.

#6 Shares of European banking giant Dexia plunged by about 10 percent on Monday on rumors that it will soon need a significant bailout.  The stocks of major banks all across Europe have been getting absolutely hammered for weeks.

#7 Shares of American Airlines fell by 33 percent on Monday on rumors that the airline is about to enter bankruptcy.  Amazingly, trading in the stock was stopped 7 different times on Monday.

#8 It is being reported that approximately 240 pilots for American Airlines have retired in the last two months alone.  All of those pilots are retiring so that they can shield their pensions from the upcoming bankruptcy filing.

#9 Nearly the entire airline industry got hit really hard on Monday.  Shares of United Continental, U.S. Airways and Delta were all down more than 10 percent.

#10 Overall, U.S. stocks fell by 14 percent during the third quarter of 2011, and now the fourth quarter is off to a very rocky start.

#11 The incoming head of the European Central Bank, Mario Draghi, has publicly admitted that major European banks are having “funding problems“.  Just like back in 2008, we are rapidly heading for a giant “credit crunch”.

#12 A shocking new Bloomberg survey has found that approximately one out of every three international investors expects a “global economic meltdown” within the next 12 months, and 70 percent of them believe that the global economy is “deteriorating”.  Perhaps they have been reading The Economic Collapse Blog too much.

#13 Financial markets in Europe were rocked on Monday when it was revealed that Greece is not going to hit the deficit reduction targets set for it either this year or next year despite all of the severe austerity measures that have already been implemented.  Needless to say, a lot of financial authorities in Europe were very displeased by this news.

#14 German Finance Minister Wolfgang Schaeuble is publicly declaring that Germany will not contribute any more money to the European bailout fund.

The truth is that the political will for more bailouts has totally dried up in Germany.

The recent vote by the Bundestag to approve money for the European rescue fund should not be misinterpreted.

That vote simply approved money that was part of a deal that was agreed to over two months ago.

What is more important is what many major German politicians said after the vote.  Essentially, the overwhelming consensus is that Germany is done contributing money.  Once the money is gone from the current bailout pool (which is not anywhere close to what is really needed), there will be no more money from Germany.

That means that the era of the bailouts in Europe is drawing to a close.

In a recent editorial, Ambrose Evans-Pritchard described the situation in Germany in this manner….

The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.

Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go “this far, and no further”.

Let that last phrase sink in.

Basically, what politicians all over Germany are saying is that Germany has now done all that it is going to do.

The implications of this are huge.

Ambrose Evans-Pritchard recognized this in his editorial.  In fact, the usually reserved journalist actually used all caps for six straight sentences and broke out some very strong language that is very uncharacteristic for him….

Repeat after me:

THERE WILL BE NO FISCAL UNION.

THERE WILL BE NO EUROBONDS.

THERE WILL BE NO DEBT POOL.

THERE WILL BE NO EU TREASURY.

THERE WILL BE NO FISCAL TRANSFERS IN PERPETUITY.

THERE WILL BE A STABILITY UNION – OR NO MONETARY UNION.

Get used to it. This is the political reality of Europe, since nothing of importance can be done without Germany. All else is wishful thinking, clutching at straws, and evasion. If this means the euro will shed some members or blow apart – as it almost certainly does – then the rest of the world must prepare for the day.

Basically, this is his way of saying that “the sky is falling” and that the financial system of Europe is doomed.

If you have followed the writing of Ambrose Evans-Pritchard for any length of time, then you know that he is one of the most respected financial journalists in the world and that he is not prone to indulge in much “doom and gloom”.  For him to say what he did is very significant.

But even if there were no financial problems in Europe, the United States would probably be slipping into another recession anyway.

Right now our economy is a total mess, and all kinds of people are coming out of the woodwork and are trying to take credit for “calling” the upcoming recession.

Some of the pronouncements are so bold that you would think that some half-crazed blogger wrote them.  For example, just check out the following quote from a report recently put out by the Economic Cycle Research Institute….

“Here’s what ECRI’s recession call really says: If you think this is a bad economy, you haven’t seen anything yet.”

But do the American people really need some experts to tell them that we are going into another recession?

The American people know what is going on.

According to one recent poll, 90 percent of the American people believe that economic conditions in the United States are “poor”.  According to another recent poll, 80 percent of the American people believe that we are actually in a recession right now.

So perhaps the American people are actually ahead of most of the so-called “experts”.

In any event, economic conditions in the United States continue to get worse.  The average American family is having a harder and harder time getting to the end of each month.  According to a Harris Interactive survey taken near the end of last year, 77 percent of all Americans are now living paycheck to paycheck.  In 2007, the same survey found that only 43 percent of Americans were living paycheck to paycheck.

At least Barack Obama is not talking so much about an “economic recovery” these days.  When asked recently if Americans are better off today than they were four years ago, Obama said the following….

“Well, I don’t think they’re better off than they were four years ago.”

Finally, something that we can all agree with Barack Obama about.

Sadly, things are about to get even worse.

Pay close attention to all of the bad financial news that keeps pouring in.

Just like in 2008, something really big is happening.

When the current bailout fund in Europe runs out in a few months, things could really start to unravel.

If Greece (or any other eurozone nation for that matter) defaults, it could set off a chain of financial events so catastrophic that it just might scare the living daylights out of all of us.

Let us hope for the best, but let us also prepare for the worst.

Tremendous fear and panic has gripped the financial world, and the underlying problems causing this crisis are not going to be solved any time soon.

We are about to enter unprecedented territory.

Hold on tight.