Global Financial Marketplace

Stocks aren’t supposed to crash in December.  Most of the time we see a nice “Santa Claus rally” to close out the year, and so what happened on Tuesday is definitely extremely unusual.  The Dow Jones Industrial Average fell 799 points, which was the fourth largest single day point decline in stock market history.  In fact, there was not a single day during the entire financial crisis of 2008 when the Dow dropped by as many points as it did on Tuesday.  Many believed that this “stock market correction” would be limited to October, but then it stretched into November, and now it has extended into the “safe month” of December.  What in the world is going on out there?

It would be difficult to overstate the carnage that we just witnessed.  The Russell 2000 had its worst day in seven years, financial stocks plunged 4.4 percent, and as you will see below FAANG stocks lost enough money to literally buy McDonald’s.

There are many factors that are influencing the markets right now, but the biggest thing that spooked investors on Tuesday was an inversion of the yield curve…

Just when it looked like the battered bull was healing, the Dow Jones Industrial Average suffered a drop of nearly 800 points Tuesday when the bond market sent an ominous signal: The yield on the two-year U.S. government bond rose above the interest rate paid out by five-year notes.

Why the pessimism over that obscure-sounding shift? Historically, when short-term rates rise above longer rates – which is dubbed an “inversion of the yield curve” – it signals an economic slowdown is coming.

However, it should be noted that the yield on two year bonds has not yet risen above the yield on 10 year bonds, and until that happens many investors will still not consider the yield curve to have “officially” inverted yet.

But any way that you want to look at it, what has been happening in the bond market is really bad news for the big banks, because it is going to eat into their profits.  In an article posted on Tuesday, CNN explained how this works…

The flattening yield curve also affects the income banks collect from lending, since banks pay interest on short-term rates and lend at long-term rates. They make money off the difference.

Once the yield on two year bonds fell below the yield on five year bonds, investors took that as a sign of big trouble for the financial sector, and they started dumping bank stocks like crazy…

The flattening yield curve caused investors to bail on bank stocks on concern the phenomenon may hurt their lending margins. The SPDR S&P Bank ETF (KBE) dropped 5.3 percent. Shares of J.P. Morgan Chase, Citigroup and Bank of America all declined more than 4 percent. Citigroup and Morgan Stanley both reached 52-week lows along with Regionals Financial, Citizens Financial and Capital One.

Of course this is just a continuation of a trend that has been building for quite some time, and at this point the damage that has been done is immense.

The following numbers come from Zero Hedge…

• Global Systemically Important Banks are down 30% from 52-week highs.
• US Financials down 14.5% from 52-week highs.
• Goldman Sachs is down 33% from 52-week highs.

We haven’t seen anything like this since 2008, and we will want to watch the “too big to fail” banks very carefully during the weeks ahead.

Meanwhile, the FAANG stocks have been getting monkey-hammered as well.

By the end of the day on Tuesday, those stocks had combined to lose more than 140 billion dollars in market value…

• Facebook fell 2.2 percent, losing $7.6 billion in implied market value
• Amazon fell 5.9 percent, losing $50.8 billion in implied market value
• Apple fell 4.4 percent, losing $38.5 billion in implied market value
• Netflix fell 5.2 percent, losing $6.5 billion in implied market value
• Alphabet fell 4.8 percent, losing $37.5 billion in implied market value

That would be enough money to buy McDonald’s.

Yes, I am talking about the entire company.

Yesterday, I talked about the psychological shift that we have been witnessing.  Instead of endlessly promoting the idea that the U.S. economy is “booming”, the mainstream media is now using phrases such as “economic slowdown”, “the next recession” and “market crash”.  Here are just a few examples…

–“Dow plunges nearly 800 points on rising fears of an economic slowdown”

–“Worry Less About Inflation and More About Recession”

–“The years of easy money in the stock market are coming to an end”

Normally, the markets get very sleepy during the time period between Thanksgiving and Christmas, but that has not happened this year.

The markets will be closed on Wednesday due to the passing of former president George H.W. Bush, and perhaps this “time out” will have soothed a lot of nerves by the time the markets reopen on Thursday.

But as I have warned before, this crisis is not even close to being over.

In fact, it is only just beginning.

We have been waiting for a long time for the largest financial bubble in American history to burst, and now it is starting to happen.  It is being called “the Everything Bubble”, and as it implodes we are going to see things happen that we have never seen before.

When historians look back on this time of history someday, the crisis of 2008 will be just a footnote compared to what is coming.  It has taken decades of very foolish decisions to get us to this point, and the consequences for our unwise choices are going to be far more painful than most people would dare to imagine.

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.

George Soros avoided a loss of more than 17 million dollars by dumping shares of Facebook, Netflix and Goldman Sachs just before the big crash started happening.  In other words, he made out like a bandit by selling at the peak of the market.  Is he smarter than all the rest of us, did he have some inside information, or was he simply lucky?  In recent months, tech stocks have lost approximately a trillion dollars in value, and many investors have been absolutely devastated.  But not George Soros.  According to the most recent filing with the SEC, Soros Fund Management was able to dump shares in Facebook and Netflix just in time…

Soros Fund Management, which Soros founded and chairs, exited social-network giant Facebook (FB) completely in the third quarter, while also slashing positions in Netflix stock (NFLX) and Goldman Sachs Group stock (GS). Those three stocks have tumbled in the fourth quarter so far, with Facebook and Goldman setting new lows Tuesday. They are down almost 20% and 15%, respectively, so far this quarter. Highflying streaming-content giant Netflix has tumbled almost 29% since the end of September.

Soros saved a chunk of cash by selling: Barron’s estimates that, had he maintained positions in those stocks, he would have unrealized losses of about $17.7 million so far in the fourth quarter.

Perhaps we will never know what prompted those moves, but with George Soros these strange “coincidences” have happened again and again throughout his career.

Unfortunately, the top executives at the major tech companies were not as prescient, and so some of them have literally lost billions of dollars…

Amazon CEO Jeff Bezos has lost a stunning $42 billion since early September, according to the Bloomberg Billionaires Index, as the e-commerce giant’s stock has dropped more than 25 percent.

Embattled Facebook CEO Mark Zuckerberg has also taken a beating as reports indicate he’s lost some $34 billion since late July and is now worth $52 billion – ranking as the seventh-richest person in the world.

Google chiefs Larry Page and Sergey Brin have lost a combined $20 billion from their peak wealth in July as the search engine’s stock has dropped 20 percent and closed in a bear market on Monday for the first time since 2011.

Could you imagine losing 42 billion dollars?

If I lose 42 dollars I get upset.  So I couldn’t even imagine how I would feel if I lost $42,000,000,000.

The atmosphere on Wall Street has completely shifted over the last couple of months.  Not too long ago those of us that were calling for a bear market were being mocked, but nobody is mocking anymore.

One of the big things that has been propping up the stock market in recent years has been corporate buybacks.  In fact, I wrote a major article about this not too long ago that you can find right here.  Big corporations have literally been spending hundreds of billions of dollars to prop up their own stock prices, and many of these corporations have been going into tremendous amounts of debt in order to do this.

For a long time General Electric was one of the biggest offenders.  They borrowed billions upon billions of dollars for stock repurchases, and it worked for a while.  But now GE shares have been absolutely tanking, and they can’t keep the game going anymore because they are drowning in about 100 billion dollars of debt.  The following comes from an excellent Marketwatch article…

GE was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone. Since the highest net income recorded by the company during those years was $8.8 billion in 2016, with 2015 and 2017 recording a loss, it has managed to lose more on its share repurchases during those three years than it made in operations, by a substantial margin.

Even more important, GE has now left itself with minus $48 billion in tangible net worth at Sept. 30, with actual genuine tangible debt of close to $100 billion. As the new CEO Larry Culp told CNBC last Monday: “We have no higher priority right now than bringing those leverage levels down.”

GE was once one of the greatest corporations on the entire planet, but now they stand on the precipice of collapse because they were addicted to borrowing money for stock buybacks.

Of course GE is far from alone.  Other corporations that have gone into serious amounts of debt in order to fund share repurchases are also now paying a very great price for doing so.  Ultimately, it was a giant Ponzi scheme of epic proportions, but now the game is collapsing.

In my first novel, there is a stock market collapse that begins in the fall, and things begin to deteriorate very rapidly in this country thereafter.  Unfortunately, we are starting to watch a very similar scenario play out right in front of our eyes.  In recent years a booming stock market has been a big point of pride for a lot of Americans, but now that bubble is bursting.

For many people, money is more important than anything else in life.  In fact, a recent survey discovered that Americans find more meaning and purpose in life from “career” and “money” than they do from “faith”.

But when “the god of money” fails, how are most Americans going to respond?

I do not believe that the United States is going to handle another economic meltdown very well.  We are already a deeply angry and divided nation, but at least our debt-fueled “prosperity” has kept things relatively calm.

If that “prosperity” completely disappears, we are going to have a complete and utter national nightmare on our hands.

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.

Thanksgiving week was not supposed to be like this.  Normally things are slow in the days leading up to Thanksgiving as investors prepare to gorge themselves with turkey and stuffing as they gather with family and friends.  But this year the stock market is crashing, and Wall Street is in panic mode.  On Tuesday, the Dow Jones Industrial Average closed at 24,465.64, which is nearly 2,500 points lower than the all-time high of 26,951.81 that was set in early October.  But as I noted yesterday, what has been happening to tech stocks is even more dramatic.  Each one of the FAANG stocks is now down by more than 20 percent, and they have combined to lose more than a trillion dollars in value.  We haven’t seen anything like this since the financial crisis of 2008, and at this point all of Wall Street’s gains for 2018 have been completely wiped out.

Fear is a very powerful motivator, and right now a lot of investors are feverishly getting out of the market because they are afraid of losing their paper profits.

One analyst is describing what is going on as a rush for the exits…

“The highways will be crowded this evening as the Thanksgiving rush will begin in earnest, but this morning investors are rushing for the exits,” Paul Hickey, co-founder of Bespoke Investment Group, wrote to clients on Tuesday.

But for many tech investors, the truth is that the cattle have already left the barn.

Just check out how much market capitalization the “big five” have already lost.  The following numbers come from CNBC…

• Facebook: $253 billion
• Amazon: $280 billion
• Apple: $253 billion
• Netflix: $67 billion
• Alphabet: $164 billion

When you add those figures together, you get a grand total of 1.02 trillion dollars.

If you were alive when Jesus was born, and you spent a million dollars every day since then, you still would not have spent a trillion dollars by now.

A trillion dollars is an amount of money so vast that it is difficult to comprehend, and those that hesitated to sell at the peak of the market mania are never going to get that money back.

And many believe that the tech losses are just beginning because several of these companies have now entered “death cross” territory…

This could be the final nail in the coffin for the FANG trade.

Three of the companies within the big-tech quartet have entered into death crosses, with Facebook, Netflix and Google parent Alphabet seeing their 50-day moving averages cross below their 200-day moving averages.

We shall see what happens in the days ahead, but right now things do not look good.

Apple was supposed to be the strongest and most profitable of the FANG companies, but slowing sales have suddenly changed everything.  In fact, Goldman Sachs just cut their price target for the stock…

Goldman Sachs slashed its Apple price target on Tuesday. The firm said in a note there is a “weakness in demand for Apple’s products in China and other emerging markets,” as well as a disappointing reception for the iPhone XR model.

As the trade war intensifies, many in China have been encouraging a boycott of American goods.

Could this be one of the reasons why Apple phone sales are slowing over there?

The trade war is also being singled out as one of the reasons why the stock market as a whole is falling.  The following comes from CNN…

The losses have been sparked by a flurry of concerns about everything from higher interest rates and crashing oil prices to the US-China trade war. But the overarching theme is that investors are bracing for the end of the fantastic economic and profit growth that marked the past year. Analysts expect a deceleration in 2019 driven by tariffs, the fading impact of the tax cuts and higher borrowing costs caused by the Federal Reserve.

“Put simply, stocks have already started to price in the risk of an economic slowdown,” Goldman Sachs chief US equity strategist David Kostin wrote to clients on Tuesday.

Ultimately, people buy stocks because they believe in the future.  If investors believe that they will get more money back than they are originally investing, they will buy stocks.  But if they don’t believe that will be the case, they won’t buy stocks.

For a long time, there was a tremendous amount of optimism about the future on Wall Street, but now that has disappeared.  Without that relentless optimism, it is inevitable that stock ratios will return to their long-term averages, and the S&P 500 sales to price ratio is telling us that stock prices still have a very long way to fall.

But our system will not be able to handle a decline of that magnitude.  There is more leverage on Wall Street today than ever before, and a huge decline in stock prices would lead to a meltdown unlike anything we have ever witnessed.

If we break 20,000 on the Dow, the panic on Wall Street will be off the charts, and the flow of credit will be absolutely strangled. As a result, economic activity would crash at a pace that would make 2008 look like a Sunday picnic.

Our economy is more dependent on Wall Street than ever, and it is absolutely imperative that we have a healthy financial system.  Now that the financial system is starting to crumble, a lot of people are becoming highly alarmed.

But according to Larry Kudlow, we have absolutely nothing to worry about…

‘Corrections come and go,’ he told reporters at the White House, saying that the economy is strong overall.

‘I’m reading some of the weirdest stuff how a recession is in the future,’ Kudlow said. ‘Nonsense.’

‘Recession is so far in the distance I can’t see it,’ he said after appearing in a Fox Business Network interview.

It would be wonderful if Kudlow turns out to be correct.  But in “Get Prepared Now”, I warned about what can happen when we allow others to do our thinking for us.  What is happening on Wall Street should be obvious to everyone, and no amount of optimistic chatter is going to change that.

And the truth is that even the mainstream media is starting to acknowledge the reality of what we are now facing.  CNBC just took a poll of global finance executives, and they discovered that more than half of them believe that the Dow will fall below 23,000…

More than half of the members of the CNBC Global CFO Council think the Dow Jones Industrial Average will fall below 23,000 — roughly 2,000 points from its current level — before the stock market barometer is ever able to top the 27,000 level. The 23,000 level would equate to another 8 percent in decline among the Dow group of stocks before the selling stops.

Ultimately the Dow is going to go much lower than 23,000, and it will shake Wall Street to the core.

But for now, hopefully everyone can have a happy Thanksgiving, because it is likely that there won’t be many happy days for investors after that as this financial meltdown accelerates.

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.

These large stock market declines are starting to become a regular thing, and tech stocks are getting hit particularly hard.  But we have been in a bull market for such a long time that many investors are having a difficult time comprehending what is happening.  Many just keep believing that their beloved tech stocks will eventually bounce back because they just can’t accept the fact that the party is over.  At this point, all of the “FANG stocks” have officially entered bear market territory.  Facebook is down 39.5 percent from their 52 week high, Amazon is down 25.4 percent, Netflix is down 35.6 percent and Google is down 20.3 percent.  And since many throw in Apple to make the acronym “FAANG”, we should also note that Apple’s stock price is now down more than 20 percent from the peak.  The tech stock crash that so many have been waiting for has arrived, and many analysts believe that it is going to get a whole lot worse.

The combined market value of Facebook, Amazon, Netflix and Google has fallen by 610 billion dollars so far.

Just think about that for a moment.

Most Americans don’t even realize that tech stocks have been crashing, and many of them simply assume that their investments are safe.

And at one time Facebook was considered to be a very safe investment, but now 39.5 percent of the value of Facebook has already been completely wiped out.

It looks like November will be Facebook’s third month in a row in the red, and that will be the longest monthly losing streak that it has ever had.

A lot of people are shocked that this is happening so rapidly.  But really the only surprise is that it has taken this long for these massively overvalued stocks to crash and burn.

The truth is that these companies have been priced beyond perfection.  So when even the smallest piece of bad news comes along, investors can start to panic.

For example, one of the big reasons why Apple has declined so much is because production orders for all three of the new iPhones that were unveiled in September have been slashed.  It looks like iPhone sales are not going to be at quite the level everyone had anticipated, and Wall Street responded by throwing a huge temper tantrum.

And things look even more ominous for Facebook.  As Joel Kulina of Wedbush recently noted, the number of people that are using Facebook on a daily basis in North America is falling…

Joel Kulina of Wedbush says problems in the company have been evident longer than this month. “If you go back to that earnings report back in July, they missed across the board and what really jumps out at me is that we’re seeing declining daily and monthly active users in North America or stalling active user metrics in North America, declining in Europe and the only regions that are seeing growth is in Asia where the average revenue per user is much lower than the Western world,” Kulina said.

When Facebook decided to start censoring people for their political views on a massive basis, that was the beginning of the end for the company.  At this point they have alienated millions upon millions of users that were once addicted to the service, and that is damage that will never be repaired.

And it is inevitable that something newer, better and more engaging will eventually come along.  Not too long ago, MySpace was the unbeatable giant in social media, but then Facebook came along and crushed them.  Now it is clear that Facebook has peaked, and the void that is being created as Facebook declines will certainly be filled by someone else.

But what we are witnessing in the financial marketplace is not just about tech stocks.  This is a broad-based global decline, and it has been going on for quite some time.

In fact, just check out the following tidbit from Simon Black…

Deutsche Bank says 89% of all asset classes it tracks are negative this year – the worst year since 1901.

This is often how a big downturn begins: gradually, then suddenly. Asset prices stew and fester, slowly grinding downward for months while people maintain hope that prices will recover.

Yes, you read that correctly.

89 percent of all the asset classes that they track are down in 2018.

That is an absolutely astounding number.

We haven’t seen anything like this since the last financial crisis.  Most people seem to assume that the problems that caused the last financial crisis have been fixed, but that is not the case at all.  Instead, things were patched together and the global financial bubble was made even bigger.  Here is more from Simon Black…

Instead of giving million-dollar mortgages to unemployed borrowers with a history of default, investors are loaning billions of dollars to money-losing zombie businesses, or to governments that are already in debt up to their eyeballs, all while pretending these are safe, credible investments.

Total global debt back in 2008 was about $173 trillion, worth about 280% of GDP.

Today total global debt is $250 trillion, worth about 320% of GDP. It’s only gotten worse.

Now the “Bubble To End All Bubbles” is starting to burst, and great chaos is ahead.  What we experienced in 2008 and 2009 is nothing compared to what is in front of us, and most Americans have absolutely no idea what is coming.

At the moment, one key thing to keep a close eye on is the high yield bond market.

High yield bonds (also known as “junk bonds”) crashed really hard just before the financial crisis of 2008 erupted, and now it is happening again.

Even if high yield bonds didn’t go down any further, they have already dropped to a level that indicates that stocks still have a lot more room to fall.

But if high yield bonds do continue to plummet like this, it is a clear indication that it is time to put your crash helmet on.

These are interesting times, and I have a feeling that they are about to get a whole lot more interesting.

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.