Global Financial Markets

Mass Carnage: Stocks, Bonds, Gold, Silver, Europe And Japan All Get Pummeled

Car AccidentCan you smell that?  It is the smell of panic in the air.  As I have noted before, when financial markets catch up to economic reality they tend to do so very rapidly.  Normally we don’t see virtually all asset classes get slammed at the same time, but the bucket of cold water that Federal Reserve Chairman Ben Bernanke threw on global financial markets on Wednesday has set off an epic temper tantrum.  On Thursday, U.S. stocks, European stocks, Asian stocks, gold, silver and government bonds all over the planet all got absolutely shredded.  This is not normal market activity.  Unfortunately, there is nothing “normal” about our financial markets anymore.  Over the past several years they have been grossly twisted and distorted by the Federal Reserve and by the other major central banks around the globe.  Did the central bankers really believe that there wouldn’t be a great price to pay for messing with the markets?  The behavior that we have been watching this week is the kind of behavior that one would expect at the beginning of a financial panic.  Dick Bove, the vice president of equity research at Rafferty Capital Markets, told CNBC that what we are witnessing right now “is not normal. It is not normal for all markets to move in the same direction at the same point in time due to the same development.”  The overriding emotion in the financial world right now is fear.  And fear can cause investors to do some crazy things.  So will global financial markets continue to drop, or will things stabilize for now?  That is a very good question.  But even if there is a respite for a while, it will only be temporary.  More carnage is coming at some point.

What we have witnessed this week very much has the feeling of a turning point.  The euphoria that drove the Dow well over the 15,000 mark is now gone, and investors all over the planet are going into crisis mode.  The following is a summary of the damage that was done on Thursday…

-U.S. stocks had their worst day of the year by a good margin.  The Dow fell 354 points, and that was the biggest one day drop that we have seen since November 2011.  Overall, the Dow has lost more than 550 points over the past two days.

-Thursday was the eighth trading day in a row that we have seen a triple digit move in the Dow either up or down.  That is the longest such streak since October 2011.

-The yield on 10 year U.S. Treasuries went as high as 2.47% before settling back to 2.42%.  That was a level that we have not seen since August 2011, and the 10 year yield is now a full point above the all-time low of 1.4% that we saw back in July 2012.

– The yield on 30 year U.S. Treasuries hit 3.53 percent on Thursday.  That was the first time it had been that high since September 2011.

-The CBOE Volatility Index jumped 28 percent on Thursday.  It hit 20.49, and this was the first time in 2013 that it has risen above 20.  When volatility rises, that means that the markets are getting stressed.

-European stocks got slammed too.  The Bloomberg Europe 500 index fell more than 3 percent on Thursday.  It was the worst day for European stocks in 20 months.

-In London, the FTSE fell about 3 percent.  In Germany, the DAX fell 3.3 percent.  In France, the CAC-40 fell 3.7 percent.

-Things continue to get even worse in Japan.  The Nikkei has fallen close to 17 percent over the past month.

-Brazilian stocks have fallen by about 15 percent over the past month.

-On Thursday the price of gold got absolutely hammered.  Gold was down nearly $100 an ounce.  As I am writing this, it is trading at $1273.60.

-Silver got slammed even more than gold did.  It fell more than 8 percent.  At the moment it is trading at $19.57.  That is ridiculously low.  I have a feeling that anyone that gets into silver now is going to be extremely happy in the long-term if they are able to handle the wild fluctuations in the short-term.

-Manufacturing activity in China is contracting at a rate that we haven’t seen since the middle of the last recession.

-For the week ending June 15th, initial claims for unemployment benefits in the United States rose by about 18,000 from the previous week to 354,000.  This is a number that investors are going to be watching closely in the months ahead.

Needless to say, Thursday was the type of day that investors don’t see too often.  The following is what one stock trader told CNBC…

“It’s freaking, crazy now,” said one stock trader during the 3 p.m. ET hour as the Dow sunk more than 350 points. “Even defensive sectors are getting smoked. The super broad-based sell off between commodities, bonds, equities – I wouldn’t say it’s panic, but we’ve seen aggressive selling on the lows.”

Unfortunately, this may just be the beginning.

In fact, Mark J. Grant has suggested that we may see even more panic in the short-term…

Yesterday was the first day of the reversal. There will be more days to come.

What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin’s absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here.

The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force.

If we see global interest rates start to shift in a major way, that is going to be huge.

Why?

Well, it is because there are literally hundreds of trillions of dollars worth of interest rate derivatives contracts sitting out there…

The interest rate derivatives market is the largest derivatives market in the world. The Bank for International Settlements estimates that the notional amount outstanding in June 2009 were US$437 trillion for OTC interest rate contracts, and US$342 trillion for OTC interest rate swaps. According to the International Swaps and Derivatives Association, 80% of the world’s top 500 companies as of April 2003 used interest rate derivatives to control their cashflows. This compares with 75% for foreign exchange options, 25% for commodity options and 10% for stock options.

If interest rates begin to swing wildly, that could burst the derivatives bubble that I keep talking about.

And when that house of cards starts falling, we are going to see panic that is going to absolutely dwarf anything that we have seen this week.

So keep watching interest rates, and keep listening for any mention of a problem with “derivatives” in the mainstream media.

When the next great financial crash comes, global credit markets are going to freeze up just like they did in 2008.  That will cause economic activity to grind to a standstill and a period of deflation will be upon us.  Yes, the way that the Federal Reserve and the federal government respond to such a crisis will ultimately cause tremendous inflation, but as I have written about before, deflation will come first.

It would be wise to build up your emergency fund while you still can.  When the next great financial crisis fully erupts a lot of people are going to lose their jobs and for a while it will seem like hardly anyone has any extra money.  If you have stashed some cash away, you will be in better shape than most people.

Crushed Car By UCFFool

Are We On The Verge Of Witnessing The Death Of The Paper Gold Scam?

Gold BarsThe legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin.  And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate.  So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold?  When that moment arrives, it will represent the end of the paper gold scam.  Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them.  Instead of cooling off demand for precious metals, it has unleashed a massive “gold rush” all over the globe.  Meanwhile, word has been spreading among wealthy families in both North America and Europe that they had better grab their physical gold out of the banks while they still can.  This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on.  The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets.

For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.

Posted below are quotes from people that know precious metals far better than I do.  What these experts are saying is more than a little bit disturbing…

–CME President Terry Duffy: What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.

–Billionaire Eric Sprott: So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what’s going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.

When we hear about the LBMA not willing to deliver gold, and JP Morgan’s inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It’s the real physical market that you have to rely on.

–JS Kim: FACT #1: COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2. Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults.

FACT #2: One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a “binding” contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well.

FACT #3: Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2, the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral.

–Jim Sinclair: I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges.

Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’

The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing.

–Ronald Stoeferle: We’re seeing this rush to physical gold not only in the retail market, but also for the institutional players…[it’s] just overwhelming…I [estimate] a 130-to-1 [ratio of paper to physical gold]…and I think in the last week we were really close to [triggering] a default of the paper market.

–Gerhard Schubert, head of Precious Metals at Emirates NBD: I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.

–James Turk: Another indication of the demand for large bars is the huge drawdown in the gold stock in COMEX warehouses. It is noteworthy that COMEX reports show the drawdown is largely the result of dealers removing their inventory, their working stock. When that happens, you know the availability of supply is constrained.

What all of this means, Eric, is one thing. If the central planners want to keep the precious metals at these low prices, to meet the demand for physical metal they will need to empty more metal from central bank vaults, or borrow metal from the ETFs as some have suggested is happening. Otherwise, the central planners will have to step back and stop their intervention, thereby letting the price of gold and silver rise so that demand tapers off, bringing demand and supply of physical metal back toward some kind of balance.

We’ve seen this same situation several times over the last twelve years. It is what I have been calling a “managed retreat.” Despite the current weakness, I firmly believe we have again entered a critical period where the central planners will need to retreat once again in order to let the gold and silver prices climb higher.

–The Golden Truth: And then I get a call from a close friend in NYC last Friday.   His career has been in private wealth management in the private bank department of the Too Big To Fail banks.  He’s been looking for work and chats with old colleagues all the time.  He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.

This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact.  He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment.  The Bundesbank/Fed and the ABN/Amro situations triggered this move.  He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it’s very wealthy clients assuring them their bars were safe, in allocated accounts.  He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100’s of millions in investment portfolios to competitors.  His wording was “these people are putting a gun to the heads of private banks and demanding their gold.”

I know this information is good because I know my friend’s background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend’s source said that there’s no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.

Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting – supposedly – in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes.  After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years.  To this day, the time required for that shipment has never been explained.  Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.

And regarding the ABN/Amro situation.  ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out.  About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.

I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.

*****

So what does all of this mean?

It means that we are entering a period when there will be unprecedented volatility for precious metals.  There will be tremendous ups and downs as this crisis plays out and the bankers try to keep the paper gold scam from completely unraveling.

Meanwhile, nations such as China continue to stockpile gold as if the end of the world was coming.

According to Zero Hedge, Chinese gold imports set a brand new all-time record high in March…

Quite the contrary: as export data released by the Hong Kong Census and Statistics Department overnight showed, Chinese gold imports in March exploded to an all time record high of 223.5 tons.

And the number for April is expected to be even higher.

Does China know something that the rest of us do not?

We are also seeing a rapid decoupling between spot prices and physical prices.  In fact, it is quickly getting to the point where the spot price of gold and the spot price of silver are becoming irrelevant.

For example, demand for silver coins has become so intense that some dealers are charging premiums of up to 30 percent over spot price for silver eagles.

That would have been regarded as insane a few years ago, but people are now willing to pay these kinds of premiums.  People are recognizing the importance of actually having physical gold and silver in their possession and they are willing to pay a significant premium in order to get it.

We are moving into uncharted territory.  The paper gold scam is rapidly coming to an end.  In the long-term, this will greatly benefit those that are holding significant amounts of physical gold and silver.

The Beginning Of The End by Michael Snyder

Is There Going To Be A Stock Market Crash In The Fall?

Is the stock market going to crash by the end of this year?  Are we on the verge of major financial chaos on a global scale? Well, this is the time of the year when investors start getting nervous.  We all remember what happened during the fall of 1929, the fall of 1987 and the fall of 2008.  However, it is important to keep in mind that we do not see a stock market crash in the fall of every year.  Some years the stock market cruises through the months of September, October, November and December without any problems whatsoever.  But this year conditions certainly seem to be right for a “perfect storm” to develop.  Technical indicators are screaming that a stock market decline is imminent and sources in the financial industry all over the world are warning that a massive crisis is on the way.  What you are about to read should alarm you.  But it is not a guarantee that anything will or will not happen.  When Ben Bernanke gives his speech at the Jackson Hole summit on Friday he could announce to the rest of the world that the Federal Reserve has decided to launch QE3 and that the Fed will be printing up trillions of new dollars.  If that happened global financial markets would leap for joy.  So it is always a dangerous thing when anyone out there tries to tell you that they can “guarantee” what is about to happen in the financial world.  There are just so many moving parts.  But if we do not see major intervention by the governments of the world or by global central banks a major financial crisis could rapidly develop this fall.  The conditions are certainly right for a stock market collapse, and we could easily see a repeat of what happened back in 2008.

The truth is that the second half of 2012 looks a little bit more like the second half of 2008 with each passing day.

Just check out what Bob Janjuah of Nomura Securities has been saying….

Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides.

Others are issuing similar warnings.  For example, the following is what a couple of Bank of America analysts said in a report the other day….

Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.

There has been an unusual amount of chatter in the financial world about the September to December time frame.

That could mean something or it could mean nothing.

But is is very interesting to watch what some top financial insiders are doing with their stocks right now.

Dennis Gartman, the publisher of the Gartman Leter, has dumped all of his stocks at this point.

As I have written about previously, George Soros has dumped all of his stock in banking giants JP Morgan, Citigroup and Goldman Sachs.

Are they just being paranoid?

Or do they know something that we do not?

If you are looking for the next “Lehman Brothers moment” in the United States, you might want to watch Morgan Stanley.  Morgan Stanley was heavily involved in the Facebook IPO disaster, earlier this year their credit rating was downgraded, and now there are persistent rumors that Morgan Stanley is in big trouble and that it will be allowed to fail.  You can check out some of these rumors for yourself here, here and here.

But of course as I have said all along the center of the coming crisis is going to be in Europe, and many analysts agree with me.  For example, the following is what the chairman of Casey Research, Doug Casey, had to say during a recent interview….

Europe is a full cycle ahead of the U.S. Its governments and its banks are both bankrupt. It’s a couple of drunks standing on the street corner holding each other up at this point. Europe is in much worse shape than the U.S. It’s highly regulated, highly taxed and much more socially unstable.

Europe is going to be the epicenter of the coming storm. Japan is waiting in the wings, as is China. This is going to be a worldwide phenomenon. Of course, the U.S. will be in it, too. We’re going to see this all over the world.

Much of southern Europe is already experiencing depression-like conditions.  Unemployment in both Greece and Spain is well above 20 percent and both economies are steadily shrinking.

Money is flowing out of Spanish banks at an unprecedented rate right now.  Just take a look at these charts.  The only thing that is going to keep the Spanish banking system from totally collapsing is outside intervention.

But the truth is that all of Europe is in big trouble.  Even German companies are slashing job right now. For example, check out what Siemens is up to….

German engineering conglomerate Siemens (SIEGn.DE) is in early internal talks to cut thousands of jobs in response to a weakening economy, particularly in Europe, a German newspaper reported.

Decisions could be made in October or November, according to daily Boersen-Zeitung, which did not specify its sources.

A Siemens spokesman declined to comment.

We are living in the greatest debt bubble in the history of the world, and at some point that bubble is going to burst in a very messy way.

It is vital that people understand that our system is not even close to sustainable.

Knowing exactly when it will collapse is not nearly as important as understanding that a collapse is absolutely inevitable.

I think what former World Bank economist Richard Duncan had to say recently is very helpful….

“The explosion in credit drove economic growth in the U.S. and around the world, and now that’s the only thing that’s keeping us from collapsing in a debt/deflation spiral,” he said. “[What] I think everybody needs to understand is that the kind of economy that we have now, it’s not capitalism. It has very little in common with capitalism. Capitalism was an economic system in which the government played very little role …. Under capitalism, gold was money and the government had nothing to do with it. Now the central bank creates the money and manipulates its value.”

And he is very right.

We aren’t seeing a failure of capitalism.

What we are witnessing is the failure of debt-based central banking.

And if you think that the global elite are not aware of what is happening then you have not been paying attention.

This summer the global elite have been preparing very hard.  Either they are getting very paranoid or they know things that we do not.

If you want to catch up on what the global elite have been up to recently, check out these three articles that I have published previously….

-“Are The Government And The Big Banks Quietly Preparing For An Imminent Financial Collapse?”

-“Startling Evidence That Central Banks And Wall Street Insiders Are Rapidly Preparing For Something BIG”

-“Jacob Rothschild, John Paulson And George Soros Are All Betting That Financial Disaster Is Coming”

If you are waiting for the nightly news to tell you what to do, then you have not learned anything.

Did anyone in the mainstream media warn you about what was about to happen back in 2008?

Of course not.

The “authorities” insisted that everything was going to be just fine and many average Americans were absolutely wiped out.

So don’t expect someone to come along and nicely inform you that your retirement savings are about to be absolutely devastated.

In this day and age it is absolutely critical for people to learn to think for themselves.

Barack Obama is not going to save you.

Mitt Romney is not going to save you.

The U.S. Congress is not going to save you.  They are too busy living the high life at taxpayer expense.

The system is not looking out for you.  Nobody is really going to care if your financial planning gets turned upside down.  This is a cold, cruel world and you need to understand how the game is played.  The financial insiders are looking out for themselves and most of them usually are able to avoid financial disaster.

Average folks like you and I are normally not so fortunate.

There are lots of warning signs that indicate that this fall could be a very turbulent time for global financial markets.

Ignore them at your own peril.

Kicking The Can Down The Road

Has Europe finally been saved this time?  Has this latest “breakthrough” solved the European debt crisis?  Of course not, and you should know better by now.  European leaders have held 18 summits since the beginning of the debt crisis.  After most of the preceding summits, global financial markets responded with joy because European leaders had reached “a deal” which would supposedly solve the crisis.  But a few weeks after each summit it would become clear that nothing had been solved and that the financial crisis had actually gotten even worse than before.  How many times do they expect us to fall for the same sorry routine?  Nothing in Europe has been solved.  You can’t solve a debt problem with more debt.  European leaders are just kicking the can down the road.  More debt will relieve some of the short-term pressure, but in a few weeks it will be apparent that the underlying problems in Europe continue to grow.  Unfortunately, there is not an unlimited amount of EU bailout money, so once all of these “financial bullets” have been fired European leaders are going to find that kicking the can down the road will not be so easy anymore.  The truth is that the financial crisis in Europe has not been cancelled – it has just been put off for a few weeks or a few months.

Do you solve the problems of a credit card addict by giving that person another credit card?  Of course not.  You may delay the short-term financial problems of the credit card addict by giving that person another credit card, but in the process you make the long-term problems even worse.

Well, that is essentially what is happening in Europe.  European governments and the European financial system have become ridiculously dependent on debt.  By giving European debt junkies another “hit” or two it may relieve a bit of short-term suffering but it doesn’t solve anything.

Just think about it.

Did the first bailout package solve the problems in Greece?

No.

Did the second bailout package solve the problems in Greece?

No.

Today, the Greek financial system is a complete and total mess, and Greek politicians are saying that a third bailout package may be necessary.

Many are claiming that Italy and Spain have been “saved” by this new deal, but that is a joke.

Yes, the ability to inject bailout funds directly into troubled banks is going to keep some of them going for a little while.  But the deal also calls for a new governing body to be established that will supervise those banks.  Will that governing body be established in time to even provide the short-term help that is needed?

Yes, spending bailout funds to buy up Spanish debt and Italian debt will artificially suppress bond yields for a time.

We have seen this before.

But what happened?

After the bond buying program was over, bond yields started spiking again.

So do the Europeans plan to suppress bond yields forever?

Of course not.  There is not enough bailout money to do that.

Let’s review the equation that I have shared in previous articles….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Have any of those elements been removed?

No.

Bond yields will be suppressed for a period of time, but that will not last forever, and all of the other underlying issues are still there.

Meanwhile, the rest of Europe continues to follow the Greek economy into economic depression.

The Spanish economy shrunk again in the second quarter of 2012, and austerity in that nation has barely even begun.

As a recent CNBC article detailed, the big spending cuts are still coming….

The conservatives, who inherited from the outgoing Socialists one of the euro zone’s highest public deficits, at 8.9 percent of GDP in 2011, have said they will shrink the shortfall to 5.3 percent this year and 3 percent in 2013.

Austerity has absolutely shredded the Greek economy, and we are starting to see that same pattern be repeated all over Europe.

When you spend far more money than you bring in for decades, eventually you have to go through a very painful adjustment.  What is going on in Greece should be a lesson for all of us.  Debt allows you to live above your means, but the consequences of going into way too much debt can be absolutely horrific.

More debt can delay the consequences of a debt problem but it cannot solve a debt problem.  The following is what Jim Rogers told CNBC on Friday….

“Just because now you have a way to get them (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said on Friday.

“People need to stop spending money they don’t have. The solution to too much debt is not more debt. All this little agreement does is give them (banks) a chance to have even more debt for a while longer,” he added.

But if you just went by the headlines in most of the newspapers around the world you would think that European leaders had discovered the cure for cancer or something.

Sadly, the truth is that they are simply choosing to fire off a few of the “financial bullets” that they still have left as a recent Washington Post article described….

The European bailout funds don’t have unlimited resources. If they throw $125 billion at Spain’s banks and another couple hundred billion toward Italy, pretty soon they’ll be running low. The only entity with unlimited euros is the European Central Bank. And right now, there’s no talk of using the ECB to provide bailouts. Which means that this latest move might have just forestalled the crisis, rather than ending it permanently.

So what comes next?

Bruce Krasting believes that the “half-life of this bailout will be measured in weeks”.  The following is his summary of what he sees coming next in Europe….

If I’m right, after a few weeks things turn south again in the capital markets. Then what?

– More LTRO. No – there is no more collateral. All of the swill loans have already been hocked.

– Cut ECB % rate. Doesn’t matter. It won’t change conditions in Italian or Spanish funding markets one bit.

– A spending plan of <1% of GDP. That won’t put a dent in the recession that is building.

– Brussels buys more sovereign bonds to avoid a catastrophe of Italian 10-year exceeding 7% (capitulation). Sorry. There are “wise men” in Germany who will simply not allow this to happen in the scale that is required.

– The ECB goes Defcon 1 and launches a E2T QE program. No – same answer as above.

– Merkel does a 180 and embraces Euro bonds. No chance in hell.

–The US or China are going to start buying EU bonds? Lunacy – not happening.

-The IMF will come to the rescue? No way – the IMF does not have the resources to solve anyone’s problems.

In other words, kicking the can down the road is going to get quite a bit harder after the current “sugar high” wears off.

Europe is still headed for the greatest financial crisis since the Great Depression (at least) and European leaders seem powerless to stop it.

Of course the United States is also facing a crisis of too much debt and a great day of reckoning is on the way for this country as well.

So yes, the global economy is still heading for collapse and there is still a multitude of reasons to be extremely concerned about the second half of 2012.

What is your opinion about all of this?

Do you think that European leaders will be able to keep kicking the can down the road?

Please feel free to post a comment with your opinion below….

22 Red Flags That Indicate That Very Serious Doom Is Coming For Global Financial Markets

If you enjoy watching financial doom, then you are quite likely to really enjoy the rest of 2012.  Right now, red flags are popping up all over the place.  Corporate insiders are selling off stock like there is no tomorrow, major economies all over Europe continue to implode, the IMF is warning that the eurozone could actually break up and there are signs of trouble at major banks all over the planet.  Unfortunately, it looks like the period of relative stability that global financial markets have been enjoying is about to come to an end.  A whole host of problems that have been festering just below the surface are starting to manifest, and we are beginning to see the ingredients for a “perfect storm” start to come together.  The greatest global debt bubble in human history is showing signs that it is getting ready to burst, and when that happens the consequences are going to be absolutely horrific.  Hopefully we still have at least a little bit more time before the global financial system implodes, but at this point it doesn’t look like anything is going to be able to stop the chaos that is on the horizon.

The following are 22 red flags that indicate that very serious doom is coming for global financial markets….

#1 According to CNN, the level of selling by insiders at corporations listed on the S&P 500 is the highest that it has been in almost a decade.  Do those insiders know something that the rest of us do not?

#2 Home prices in the United States have fallen for six months in a row and are now down 35 percent from the peak of the housing market.  The last time that home prices in the U.S. were this low was back in 2002.

#3 It is now being projected that the Greek economy will shrink by another 5 percent this year.

#4 Despite wave after wave of austerity measures, Greece is still going to have a budget deficit equivalent to about 7 percent of GDP in 2012.

#5 Interest rates on Italian and Spanish sovereign debt are rapidly rising.  The following is from a recent RTE article….

Spain’s borrowing rate nearly doubled in a short-term debt auction as investors fretted over the euro zone’s determination to deal with its debts. 

And Italy raised nearly €3.5 billion in a short-term bond sale today but at sharply higher interest rates amid fresh concerns over the euro zone outlook, the Bank of Italy said.

#6 The government of Spain recently announced that its 2011 budget deficit was much larger than originally projected and that it probably will not meet its budget targets for 2012 either.

#7 Amazingly, bad loans now make up 8.15 percent of all loans on the books of Spanish banks.  That is the highest level in 18 years.  The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.

#8 One key Spanish stock index has already fallen by more than 19 percent so far this year.

#9 The Spanish government has announced a ban on all cash transactions larger than 2,500 euros.  Many are interpreting this as a panic move.

#10 It is looking increasingly likely that a major bailout for Spain will be needed.  The following is from a recent Reuters article….

Economic experts watching Spain don’t know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.

#11 Analysts at Moody’s Analytics are warning that Italy has now reached financially unsustainable territory….

“Italy is already out of fiscal space, in our estimate.” said Moody’s. “Its debt levels relative to GDP already exceed a manageable level. The manageable limit for Italian 10-year bond yields is estimated at 4.2pc. As of Wednesday, Italian 10-year yields were 5.46pc.”

#12 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.

#13 There is even trouble in European nations that have been considered relatively stable up to this point.  For example, the Dutch government collapsed on Monday after austerity talks broke down.

#14 The head of the IMF, Christine Lagarde, says that there are “dark clouds on the horizon” for the global economy.

#15 The top economist for the IMF, Olivier Blanchard, recently made this statement: “One has the feeling that at any moment, things could get very bad again.”

#16 A recent IMF report admitted that the current financial crisis could lead to the break up of the eurozone….

Under these circumstances, a break-up of the euro area could not be ruled out. The financial and real spillovers to other regions, especially emerging Europe, would likely be very large.

This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.

#17 George Soros is publicly declaring that the European Union could soon experience a collapse similar to what happened to the Soviet Union.

#18 A member of the European Parliament, Nigel Farage, stated during one recent interview that it is inevitable that some major banks in Europe will collapse….

There are going to be some serious banking collapses and the impact of that on some sovereign states, will be serious. I’m afraid we’ve gotten to a point where we really can’t stop this now. We’re beginning to reach a stage where however much false money you create, the problem becomes bigger than the people trying to solve it. We are very close to that point.

When I talk about the threats and the risk that this thing could wind up in some kind of rebellion, some sort of awful social cataclysm, they (other European politicians) are now very worried indeed. They will talk to you in private, but in public, nobody dares utter a word.

I think the deterioration, in the last two or three weeks, in the eurozone is very serious indeed. It’s the bond spreads in Italy and Spain. It’s the fact that youth unemployment is now over 50% in some of these Mediterranean countries.

It’s riot and disorder on the streets. And yet a month ago I was here and there was Herman Van Rumpuy telling us, ‘We’ve turned the corner. Everything is solved. There are no more problems with the eurozone.’ What a pack of jokers they look like.”

#19 The IMF is projecting that Japan will have a debt to GDP ratio of 256 percent by next year.

#20 Goldman Sachs is projecting that the S&P 500 will fall by about 11 percent by the end of 2012.

#21 Over the past six months, hundreds of prominent bankers have resigned all over the globe.  Is there a reason why so many are suddenly leaving their posts?

#22 The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives.  That is approximately 3 times the size of the entire global economy.  It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.

The financial crisis of 2008 was just a warm up act for what is coming.  The too big to fail banks are larger than ever, the governments of the western world are in far more debt than they were back then, and the entire global financial system is more unstable and more vulnerable than ever before.

But this time the epicenter of the financial crisis will be in Europe.

Outside of Europe, most people simply do not understand how truly nightmarish the European economic crisis really is.

Spain, Italy and Portugal are all heading for an economic depression and Greece is already in one.

The European Central Bank was able to kick the can down the road a little bit by expanding its balance sheet by about a trillion dollars over the last nine months, but the truth is that the underlying problems in Europe just continue to get worse and worse.

It truly is like watching a horrible car wreck happen in slow motion.

The good news is that there is still a little time to get yourself into a better position for the next financial crisis.  Don’t leave yourself financially exposed to the next crash.

Sadly, just like back in 2008, most people will never even see this next crisis coming.

So do you have any other red flags to add to the list above?  Please feel free to post a comment with your thoughts below….

Europe Tries To Kick The Can Down The Road But It Will Only Lead To Financial Disaster

Have you heard the good news?  Financial armageddon has been averted.  The economic collapse in Europe has been cancelled.  Everything is going to be okay.  Well, actually none of those statements is true, but news of the “debt deal” in Europe has set off a frenzy of irrational exuberance throughout the financial world anyway.  Newspapers all over the globe are declaring that the financial crisis in Europe is over.  Stock markets all over the world are soaring.  The Dow was up nearly 3 percent today, and this recent surge is helping the S&P 500 to have its best month since 1974.  Global financial markets are experiencing an explosion of optimism right now.  Yes, European leaders have been able to kick the can down the road for a few months and a total Greek default is not going to happen right now.  However, as you will see below, the core elements of this “debt deal” actually make a financial disaster in Europe even more likely in the future.

The two most important parts of the plan are a 50% “haircut” on Greek debt held by private investors and highly leveraging the European Financial Stability Facility (EFSF) to give it much more “firepower”.

Both of these elements are likely to cause significant problems down the road.  But most investors do not seem to have figured this out yet.  In fact, most investors seem to be buying into the hype that Europe’s problems have been solved.

There is a tremendous lack of critical thinking in the financial community today.  Just because politicians in Europe say that the crisis has been solved does not mean that the crisis has been solved.  But all over the world there are bold declarations that a great “breakthrough” has been achieved.  An article posted on USA Today is an example of this irrational exuberance….

Investors — at least for now — don’t have to worry about a financial collapse like the one in 2008, after Wall Street investment bank Lehman Bros. filed for bankruptcy, sparking a global financial crisis.

“Financial Armageddon seems to have been taken off the table,” says Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Wow, doesn’t that sound great?

But now let’s look at the facts.

You can’t solve a debt problem with even more debt.  But that is what this debt deal is trying to do.

The politicians in Europe did not want to raise more money for the EFSF the “hard way”.  Voters in Germany (and other European nations) are overwhelmingly against contributing even more cash to a fund that many see as a financial black hole.

So what do you do when more money is needed but nobody wants to contribute?

You borrow it.

Essentially, this debt deal calls for the EFSF to become four or five times larger by “leveraging” the existing funds in the EFSF.

But isn’t that risky?

Of course it is.

There are some leaders in Europe that recognize this.  For example, an article in The Telegraph notes the reservations that the president of the Bundesbank has about this plan….

Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot.

He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds.

So who is going to fund all of this new debt?

Well, it turns out that the Europeans are counting on the same folks that the U.S. government is constantly borrowing money from.

The Chinese.

French President Nicolas Sarkozy has already spoken directly with Chinese President Hu Jintao about funding this new bailout effort.

So is borrowing money from the Chinese to fund bailouts for Greece and other weak sisters in Europe sound policy?

Of course not.

And the sad thing is that this expanded EFSF is still not going to be enough to solve the financial problems in Europe.

According to an article in The Telegraph, a recent survey of economists found that most of them do not believe that this new plan is going to raise enough money….

The plan to increase the European Financial and Stability Facility to €1  trillion on paper was attacked by economists as not enough to “stave off” worsening debt problems in Italy and Spain.

In a survey of economists, 26 of 48 thought the firepower was not enough.

But the worst part of this new plan is the 50 percent “haircut” that private investors are being forced to take.

This is essentially a partial default by the Greek government.  A lot of folks are going to get hit really hard by losses from this.  Instead of making financial institutions in Europe stronger, these losses are going to make a lot of them even weaker.

Normally, in the event of a default, credit default swap contracts would be triggered.  But apparently because this was considered to be a “voluntary” haircut, that is not going to happen in this instance.

A Bloomberg article explained this in greater detail.  The following is a brief excerpt….

The EU agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules.

That means that investors and financial institutions all over the world are just going to have to eat these losses.

Greek Prime Minister George Papandreou is already acknowledging that a number of Greek banks will have to be nationalized because of the severity of this “haircut”.  A recent CNBC article detailed this….

The haircut is expected to impose big losses on the country’s banks and state-run pension funds, which are up their necks in toxic Greek government bonds of about 100 billion euros.

The government will replenish pension funds’ capital, but banks may face temporary nationalisation, Papandreou said.

“It is very likely that a large part of the banks’ shares will pass into state ownership,” Papandreou said. He pledged, however, that these stakes will be sold back to private investors after the banks’ restructuring.

So where will the Greek government get the funds to “replenish” the capital of those banks?

That is a very good question.

But we haven’t even discussed the worst part of this “debt deal” yet.

If you don’t remember any other part of this article, please remember this.

The debt deal in Europe sends a very frightening message to the market.

The truth is that Europe could have totally bailed out Greece without any sort of a “haircut” taking place.

But they didn’t.

So now investors all over the globe have got to be thinking that if they are holding Portuguese bonds, Italian bonds or Spanish bonds there is a really good chance that they will be forced to take a massive “haircut” at some point as well.

At this time last year, the yield on two year Italian bonds was about 2.5 percent.  Now it is about 4.5 percent.  As investors begin to price in the probability of having to take a future “haircut” on Italian debt, those bond yields are going to go much, much higher.

That means that it is going to become much more expensive for the Italian government to borrow money and that also means that it is going to become much more difficult for the Italians to get their financial house in order.

In essence, the haircut on Greek debt is a signal to investors that they should require a much higher rate of return on the debt of all of the PIIGS.  This is going to make the financial collapse of all of the PIIGS much more likely.

Remember, about this time last year the yield on two year Greek bonds was about 10 percent.  Today, it is over 70 percent.

As I wrote about in a previous article, the western world is in debt up to its eyeballs right now and trying to kick the can down the road is not going to solve anything.

Our leaders may succeed in delaying the pain for a while, but it most definitely is coming.

Greece, Portugal, Ireland and Italy all have debt to GDP ratios that are well over 100% right now.  Spain is in a huge amount of trouble as well.

When you add up all the debt, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.

If Italy or Spain goes down, the rest of Europe is going to be helpless to stop it.  There simply is not going to be enough money to bail either one of them out.

That is why this “debt deal” is so alarming.  All investors in Italian or Spanish debt will now have to factor in the probability that they will be required to accept a 50 percent haircut at some point in the future.

If the markets behave rationally (and if the ECB does not manipulate them too much), it appears inevitable that bond yields over in Europe are going to rise substantially, and that will put tremendous additional financial strain on governments all over Europe.

Basically, we have got a huge mess on our hands, and this debt deal just made it a lot worse.

Yes, a financial collapse has been averted in Greece for the moment, but the truth is that there is no real reason to be celebrating this deal.

A massive financial storm is coming to Europe, and this “debt deal” has made that all the more certain.

Once again, politicians in Europe have tried to kick the can down the road, but in the end their efforts are only going to lead to complete and total financial disaster.

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.

Nervous Breakdown? 21 Signs That Something Big Is About To Happen In The Financial World

Will global financial markets reach a breaking point during the month of October?  Right now there are all kinds of signs that the financial world is about to experience a nervous breakdown.  Massive amounts of investor money is being pulled out of the stock market and mammoth bets are being made against the S&P 500 in October.  The European debt crisis continues to grow even worse and weird financial moves are being made all over the globe.  Does all of this unusual activity indicate that something big is about to happen?  Let’s hope not.  But historically, the biggest stock market crashes have tended to happen in the fall.  So are we on the verge of a “Black October”?

The following are 21 signs that something big is about to happen in the financial world and that global financial markets are on the verge of a nervous breakdown….

#1 We are seeing an amazing number of bets against the S&P 500 right now.  According to CNN, the number of bets against the S&P 500 rose to the highest level in a year last month.  But that was nothing compared to what we are seeing for October.  The number of bets against the S&P 500 for the month of October is absolutely astounding.  Somebody is going to make a monstrous amount of money if there is a stock market crash next month.

#2 Investors are pulling a huge amount of money out of stocks right now.  Do they know something that we don’t?  The following is from a report in the Financial Post….

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.

About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.

#3 Siemens has pulled more than half a billion euros out of two major French banks and has moved that money to the European Central Bank.  Do they know something or are they just getting nervous?

#4 On Monday, Standard & Poor’s cut Italy’s credit rating from A+ to A.

#5 The European Central Bank is purchasing even more Italian and Spanish bonds in an attempt to cool down the burgeoning financial crisis in Europe.

#6 The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank have announced that they are going to make available an “unlimited” amount of money to European commercial banks in October, November and December.

#7 So far this year, the largest bank in Italy has lost over half of its value and the second largest bank in Italy is down 44 percent.

#8 Angela Merkel’s coalition is getting embarrassed in local elections in Germany.  A recent poll found that an astounding 82 percent of all Germans believe that her government is doing a bad job of handling the crisis in Greece.  Right now, public opinion in Germany is very negative toward the bailouts, and that is really bad news for Greece.

#9 Greece is experiencing a full-blown economic collapse at this point.  Just consider the following statistics from a recent editorial in the Guardian….

Consider first the scale of the crisis. After contracting in 2009 and 2010, GDP fell by a further 7.3% in the second quarter of 2011. Unemployment is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million. These are figures reminiscent of the Great Depression of the 1930s.

#10 In 2009, Greece had a debt to GDP ratio of about 115%.  Today, Greece has a debt to GDP ratio of about 160%.  All of the austerity that has been imposed upon them has done nothing to solve their long-term problems.

#11 The yield on 1 year Greek bonds is now over 129 percent.  A year ago the yield on those bonds was under 10 percent.

#12 Greek Deputy Finance Minister Filippos Sachinidis says that Greece only has enough cash to continue operating until next month.

#13 Italy now has a debt to GDP ratio of about 120% and their economy is far, far larger than the economy of Greece.

#14 The yield on 2 year Portuguese bonds is now over 17 percent.  A year ago the yield on those bonds was about 4 percent.

#15 China seems to be concerned about the stability of European banks.  The following is from a recent Reuters report….

A big market-making state bank in China’s onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, two sources told Reuters on Tuesday.

#16 European central banks are now buying more gold than they are selling.  This is the first time that has happened in more than 20 years.

#17 The chief economist at the IMF says that the global economy has entered a “dangerous new phase“.

#18 Israel has dumped 46 percent of its U.S. Treasuries and Russia has dumped 95 percent of its U.S. Treasuries.  Do they know something that we don’t?

#19 World financial markets are expecting that the Federal Reserve will announce a new bond-buying plan this week that will be designed to push long-term interest rates lower.

#20 If some wealthy investors believe that the Obama tax plan has a chance of getting through Congress, they may start dumping stocks before the end of this year in order to avoid getting taxed at a much higher rate in 2012.

#21 According to a study that was recently released by Merrill Lynch, the U.S. economy has an 80% chance of going into another recession.

When financial markets get really jumpy like this, all it takes is one really big spark to set the dominoes in motion.

Hopefully nothing really big will happen in October.

Hopefully global financial markets will not experience a nervous breakdown.

But right now things look a little bit more like 2008 every single day.

None of the problems that caused the financial crisis of 2008 have been fixed, and the world financial system is more vulnerable today than it ever has been since the end of World War II.

As I wrote about yesterday, the U.S. economy has never really recovered from the last financial crisis.

If we see another major financial crash in the coming months, the consequences would be absolutely devastating.

We have been softened up and we are ready for the knockout blow.

Let’s just hope that the financial world can keep it together.

We don’t need more economic pain right about now.

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