Investing

The Price Of Silver Explodes Past 20 Dollars An Ounce As The European Banking Crisis Deepens

July 4, 2016July 4, 2016 by Michael

Have you seen what the price of silver has been doing? On Monday, it exploded past 20 dollars an ounce, and as I write this article it is sitting at $20.48. Earlier today it actually surged above 21 dollars an ounce for a short time before moving back just a bit. In late March, I told my readers that silver was “ridiculously undervalued” when it was sitting at $15.81 an ounce, and that call has turned out to be quite prescient. The Friday before last, silver started the day at $17.25 an ounce, and it is up more than 18 percent since that time. Overall, silver is up more than 30 percent for the year, and that makes it one of the best performing investments of 2016. So what is causing this sudden surge in the price of silver? This is something that we will discuss below…

This sudden spike in the price of silver has definitely caught a lot of analysts off guard. Some are suggesting that the fact that the Fed is now less likely to raise rates after the Brexit and the fact that the dollar has been slipping a bit lately are the primary reasons for silver’s rise…

This isn’t a gradual increase either. It’s an explosive growth spurt. Just three months ago silver had reached an 11 month high. Now silver prices have reached a 23 month high. Several factors appear to be influencing these gains, including a weakening dollar, and the fact that the Fed may cut interest rates in light of the Brexit vote.

Personally, I don’t buy those explanations.

To me, the continuing implosion of major banks over in Europe is the main factor that is driving investors to safe haven assets such as silver.

Rumors continue to spread that Deutsche Bank is essentially insolvent at this point, and many are watching for the imminent collapse of the largest and most important bank in Germany. When this happens, it will be a much, much more cataclysmic event for the global financial system than the collapse of Lehman Brothers was back in 2008.

But today I want to focus on the ongoing implosion of the major banks in Italy.

Italy has the 8th largest economy on the entire planet, and their banks are drowning in approximately 400 billion dollars worth of non-performing debt.

The Italian government would like to bail these banks out, but the rest of the EU appears ready to block that effort because it would violate EU rules. As a result, the big Italian banks experienced a bloodbath on Monday…

Italy’s Banca Monte dei Paschi di Siena SpA BMPS, -13.99% closed down 14%. The move came after a report that the European Central Bank is pushing the lender to draft a new plan aimed at reducing non-performing loans.

Other Italian bank shares were lower, with Banca Popolare dell’Emilia Romagna BPE, -6.73% down 6.7%, Intesa Sanpaolo SpA ISP, -3.04% off 3% and Banca Popolare di Milano SpA PMI, -1.40% lower by 1.4%.

And these stunning declines come on the heels of last week’s nightmare…

As a reminder, the Euro Stoxx Banks index was down -0.88% last week and is nearly 19% down from its pre-referendum levels. Italian Banks are at the heart of that weakness with the likes of Unicredit, Intesa, Banco Monte dei Paschi and UBI down -9.78%, -3.44%, -15.79% and -6.11% respectively last week, in the process sending Italian stocks to levels not seen since Draghi’s famous “whatever it takes” speech.

So what happens when all of the major banks of a country collapse at the exact same time?

Basically, Italy is facing “financial Armageddon” if nothing is done, and so some Italian politicians are desperate to step in and do something about this crisis even if it means defying the EU…

The Financial Times reported Sunday that Italy was prepared “to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress … despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues.”

Citing “several officials and bankers familiar with the plans,” the FT said that the threat has raised alarm along Europe’s regulators “who fear such a brazen intervention would devastate the credibility of the union’s newly implemented banking rule book during its first real test.”

But of course the rest of the EU is not about to let this happen because it would be a gross violation of European Union rules…

Michael Hewson, chief market analyst at CMC Markets UK, said: “Under current EU state aid rules any attempts to help banks must involve a bail-in process that doesn’t involve using taxpayer’s money.

“Italian Prime Minister Matteo Renzi has tried to argue that the Brexit uncertainty has destabilised Italy’s already fragile banks.

“The reality is the problems of Italy’s banks predate last week’s Brexit vote, and he knows it.”

So what is going to happen?

Could Italy be forced to leave the EU?

Will the rest of the European Union eventually cave in and save Italy?

We all remember how difficult it was for the EU to save Greece, and they are just the 44th largest economy on the planet.

So where in the world are they going to come up with the resources to rescue the 8th largest economy on the planet?

Immediately following the Brexit vote on the Friday before last, we witnessed the biggest one day global stock market loss in world history. But since that time many global markets have bounced back, and a lot of people seem convinced that the crisis has passed.

Unfortunately, the truth is that the crisis is just getting started. As I warned before the Brexit vote, European banks were going to continue to implode no matter what the result was, and that is definitely what we are seeing come to pass right now.

Without bailouts, virtually all of the major banks in Italy are going to fail. It is just a matter of time. And each of those failures would send financial shockwaves all over the planet.

Personally, I am convinced that the second half of 2016 is going to be even more eventful that the first half of 2016, and this new global economic crisis is going to continue to accelerate.

Unfortunately, most Americans are preoccupied reading about Taylor Swift’s new boyfriend and things of that nature, and so they are totally oblivious to the global events that are about to turn their lives totally upside down.

The Stock Market Crash Of 2016: Stocks Have Already Crashed In 6 Of The World’s 8 Largest Economies

June 16, 2016June 16, 2016 by Michael

Over the past 12 months, stock market investors around the planet have lost trillions of dollars. Since this time last June, stocks have crashed in 6 of the world’s 8 largest economies, and stocks in the other two are down as well. The charts that you are about to see are absolutely stunning, and they are clear evidence that a new global financial crisis has already begun. Of course it is true that we are still in the early chapters of this new crisis and that there is much, much more damage to be done, but let us not minimize the carnage that we have already witnessed.

In general, there have been three major waves of financial panic over the past 12 months. Late last August we saw the biggest financial shaking since the financial crisis of 2008, then in January and February there was an even bigger shaking, and now a third “wave” has begun in June. Not all areas around the globe have been affected equally by each wave, but without a doubt this new financial crisis is a global phenomenon.

The charts that I am about to show you come from Trading Economics. It is an absolutely indispensable website that is packed full of useful data, and I encourage everyone to check it out.

Let’s talk about China first. The Chinese economy is the second largest on the entire planet, and since this time last year Chinese stocks are down an astounding 40 percent…

As things have started to unravel in China, the Chinese have been selling off U.S. debt and U.S. stocks like crazy. The following comes from Bloomberg…

For the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy.

The People’s Bank of China, owner of the world’s biggest foreign-exchange reserves, burnt through 20 percent of its war chest since 2014, dumping about $250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows.

While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines.

Unfortunately for China, their economy just continues to slow down, and George Soros is so alarmed by this and a potential “Brexit” that he has been selling off stocks and buying enormous amounts of gold in anticipation of an even bigger global downturn.

Japan has the third largest economy in the world, and over the past year Japanese stocks are down a total of 26 percent from the peak…

Personally, I have been extremely alarmed by what has been happening in Japan lately. Japanese stocks were down almost 500 points last night, and overall the Nikkei is down a whopping 1,800 points so far in June.

Of course the Japanese economy as a whole is essentially a basket case at this point. For a detailed analysis of this, please see my previous article entitled “Watch Japan – For All Is Not Well In The Land Of The Rising Sun“.

Germany has the fourth largest economy in the world, and over the past year their stocks have fallen 19 percent from the peak of the market…

The key thing to watch for in Germany are serious troubles at their biggest bank. I wrote a long article about the slow-motion implosion of Deutsche Bank last month, and just this week Deutsche Bank stock hit an all-time low.

The fifth largest economy on the planet belongs to the United Kingdom, and since last June their stocks have fallen about 13 percent…

One week from today, the “Brexit” vote will be held in the UK, and if they vote to leave the EU that could have very serious economic and financial implications for them and for the rest of Europe as well. For an in-depth look at this, please see my previous article entitled “June 23, 2016: The Brexit Vote Could Change EVERYTHING And Plunge Europe Into Financial Chaos“.

France has the sixth largest economy in the world, and over the past year French stocks are down 20 percent from the peak of the market…

The French economy is really struggling these days, and we have not heard much about it in the U.S. media, but there have been tremendous riots in major cities in France in recent weeks.

The seventh largest economy on our planet belongs to India. Even though India is facing some very serious economic problems, their stocks are doing okay for the moment. Even though stocks in India are down over the past 12 months, we have not seen a major financial crisis over there just yet.

But there is definitely a major crisis in the eighth largest economy in the world. Italian stocks are down a staggering 32 percent from the peak of the market. That means approximately a third of all stock market wealth in Italy is already gone…

Earlier this year, I wrote about the horrifying collapse of the Italian banking system that has greatly accelerated since the start of 2016. It looks like virtually all of their big banks will ultimately need to be bailed out, and this threatens to become a far bigger crisis than the crisis in Greece ever was.

And let us not leave off the ninth largest economy in the world. Not too long ago, CNN ran an article entitled “Brazil: Economic collapse worse than feared“. So not only are they admitting that the ninth largest economy on the globe is collapsing, they are also admitting that it is even worse than what the experts had anticipated.

So did I leave anyone off the list?

Ah yes, I haven’t even addressed what has been going on in the United States yet.

U.S. stocks did crash last August, but then they recovered.

Then they crashed again in January, but then they recovered again.

Now U.S. stocks have been taking another tumble here in June, but we are being assured that there is nothing to worry about.

Meanwhile, the underlying numbers for the U.S. economy just continue to get worse and worse and worse. If you have any doubt about this, please see the article that I posted yesterday entitled “15 Facts About The Imploding U.S. Economy That The Mainstream Media Doesn’t Want You To See“.

Hopefully this article will clear a lot of things up. In this piece, I have presented undeniable evidence that a new global financial crisis has begun over the past 12 months. We have not seen global stock declines of this nature since the great financial crisis of 2008, but much worse is still to come.

I would love to be wrong about that last part.

It would be wonderful if the worst was now behind us and good times for the global financial system were ahead.

Unfortunately, every single indicator that I am watching is telling me just the opposite.

*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*

George Soros Is Preparing For Economic Collapse – Does He Know Something That You Don’t?

June 9, 2016 by Michael

Why is George Soros selling stocks, buying gold and making “a series of big, bearish investments”? If things stay relatively stable like they are right now, these moves will likely cost George Soros a tremendous amount of money. But if a major financial crisis is imminent, he stands to make obscene returns. So does George Soros know something that the rest of us do not? Could it be possible that he has spent too much time reading websites such as The Economic Collapse Blog? What are we to make of all of this?

The recent trading moves that Soros has made are so big and so bearish that they have even gotten the attention of the Wall Street Journal…

Worried about the outlook for the global economy and concerned that large market shifts may be at hand, the billionaire hedge-fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.

Soros Fund Management LLC, which manages $30 billion for Mr. Soros and his family, sold stocks and bought gold and shares of gold miners, anticipating weakness in various markets. Investors often view gold as a haven during times of turmoil.

Hmmm – it sounds suspiciously like George Soros and Michael Snyder are on the exact same page as far as what is about to happen to the global economy.

You know that it is very late in the game when that starts happening…

One thing that George Soros is particularly concerned about that I haven’t been talking a lot about yet is the upcoming Brexit vote. If the United Kingdom leaves the EU (and hopefully they will), the short-term consequences for the European economy could potentially be absolutely catastrophic…

Mr. Soros also argues that there remains a good chance the European Union will collapse under the weight of the migration crisis, continuing challenges in Greece and a potential exit by the United Kingdom from the EU.

“If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,” he said.

The Brexit vote will be held two weeks from today on June 23rd, and we shall be watching to see what happens.

But Soros is not just concerned about a potential Brexit. The economic slowdown in China also has him very worried, and so he has directed his firm to make extremely bearish wagers.

According to the Wall Street Journal, the last time Soros made these kinds of bearish moves was back in 2007, and it resulted in more than a billion dollars of gains for his company.

Of course Soros is not alone in his bearish outlook. In fact, Goldman Sachs has just warned that “there may be significant risk to the downside for the market”…

Goldman Sachs is getting nervous about stocks.

In a note to clients, equity strategist Christian Mueller-Glissmann outlined the firm’s fears that there may be significant risk to the downside for the market.

Ultimately, George Soros and Goldman Sachs are looking at the same economic data that I share with my readers on a daily basis.

As I have been documenting for months, almost every single economic indicator that you can possibly think of says that we are heading into a recession.

For instance, just today I was sent a piece by Mike Shedlock that showed that federal and state tax receipts are really slowing down just like they did just prior to the last two recessions…

US federal personal tax receipts receipts are falling fast. So is the Evercore ISI State Tax Survey.

The last two times the survey plunged this much, the US was already in recession.

Is it different this time?

And online job postings on LinkedIn have now been falling precipitously since February after 73 months in a row of growth…

After 73 consecutive months of year-over-year growth, online jobs postings have been in decline since February. May was by far the worst month since January 2009, down 285k from April and down 552k from a year ago.

Last week, the government issued the worst jobs report in nearly six years, and the energy industry continues to bleed good paying middle class jobs at a staggering rate. The following comes from oilprice.com…

That may seem counterintuitive in an industry that has been rapidly shedding workers, with more than 350,000 people laid off in the oil and gas industry worldwide.

Texas is one place feeling the pain. Around 99,000 direct and indirect jobs in the Lone Star state have been eliminated since prices collapsed two years ago, or about one third of the entire industry. In April alone there were about 6,300 people in oil and gas and supporting services that were handed pink slips. Employment in Texas’ oil sector is close to levels not seen since the aftermath of the financial crisis in 2009. “We’re still losing big chunks of jobs with each passing month,” Karr Ingham, an Amarillo-based economist, told The Houston Chronicle.

At this point it is so obvious that we have entered a new economic downturn that I don’t know how anyone can possibly deny it any longer.

Unfortunately, the reality of what is happening has not sunk in with the general population yet.

Just like 2008, people are feverishly racking up huge credit card balances even though we stand on the precipice of a major financial crisis…

American taxpayers are quick to criticize the federal government for its ever-increasing national debt, but a new study released Wednesday found taxpayers are also saddled with debt, and are likely to end 2016 with a record high $1 trillion in outstanding balances.

Wallethub, a site that recommends credit cards based on consumers’ needs, said that will be the highest amount of credit card debt on record, surpassing even the years during and before the Great Recession. The site said the record high was in 2008, when people owed $984.2 billion on their credit cards.

Will we ever learn?

This has got to be one of the worst possible times to be going into credit card debt.

Sadly, the “dumb money” will continue to act dumb and the “smart money” (such as George Soros) will continue to quietly position themselves to take advantage of the crisis that is already starting to unfold.

We can’t change what is happening to the economy, but we do have control over the choices that we make.

So I urge you to please make your choices wisely.

Donald Trump Is Starting To Sound Just Like The Economic Collapse Blog (And That Is A Good Thing)

April 3, 2016April 3, 2016 by Michael

Guess what Donald Trump is saying now? Last week, I discussed how Robert Kiyosaki and Harry Dent are warning that a major crisis is inevitable, but I didn’t expect Donald Trump to come out and say essentially the exact same thing. On Saturday, the Washington Post released a stunning interview with Donald Trump in which he boldly declared that we heading for a “very massive recession”. He also warned that we are currently in “a financial bubble” and that “it’s a terrible time right now” to be investing in stocks. These are things that you may be accustomed to hearing on The Economic Collapse Blog, but to hear them from the frontrunner for the Republican nomination is another thing altogether.

Whether you plan to vote for Donald Trump or not, at least we can all appreciate that he doesn’t talk like a politician. He tells it like he sees it, and he told the Washington Post that he considers the official unemployment rate that is put out by the Obama administration to be completely fraudulent…

“First of all, we’re not at 5 percent unemployment. We’re at a number that’s probably into the twenties if you look at the real number,” Trump said. “That was a number that was devised, statistically devised to make politicians — and, in particular, presidents — look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number.”

And before you dismiss this, perhaps you should consider that the Federal Reserve also considers the government unemployment number to be so inaccurate that they secretly have been calculating the unemployment rate on their own…

Because it distrusted the Labor Department’s unemployment statistics, the Federal Reserve — without any fanfare — started calculating its own jobless rate two years ago.

And the Fed’s calculation, called the Labor Market Conditions Index, or LMCI, shows that the US unemployment rate in February was 5.8 percent. That’s much higher than the 4.9 percent official jobless rate reported by the Labor Department.

Of course if truly honest numbers were being used, the unemployment rate would not be anywhere close to this range. According to John Williams of shadowstats.com, the broadest measure of unemployment is currently sitting at 22.9 percent.

And just last week I showed my readers that 23.2 percent of all Americans in their prime working years do not have a job right now, and that inactivity rates for both men and women in the U.S. are currently far higher than they were during the last recession.

So when Donald Trump says that we are at an unemployment number “that’s probably into the twenties”, I would have to rate that statement as mostly true.

Of course things are about to get a whole lot worse. According to Challenger, Gray & Christmas, job cut announcements by major firms were up 32 percent during the first quarter of 2016 compared to the first quarter of 2015.

When big corporations are doing well, they tend to hire more people. But when their earnings start to go down, one of the very first things they tend to do is to lay people off.

Sadly, that is what we are starting to see right now. According to Wolf Richter, it is being projected that corporate earnings per share for the first quarter will decline a whopping 8.5 percent compared to one year ago…

Even analysts who estimate pro-forma, ex-bad-items, non-GAAP earnings that S&P 500 companies propagate to look better and that these analysts use to inflate their stock-price targets, just threw in the towel on the quarter.

They expect these inflated earnings per share for the first quarter to plunge 8.5% from a year ago, according to FactSet. If this holds after S&P 500 companies report their ex-bad-items earnings, it would be the worst EPS decline since Q3 2009.

It would also be the fourth quarter in a row of year-over-year earnings declines, a phenomenon that last happened during the Great Recession from Q4 2008 through Q3 2009.

In the past, we have almost always seen corporate profit margins peak and start declining before a recession hits. The following chart comes from Jesse Felder, and it shows that this has happened prior to almost every recession in the post-World War II era, and now it is happening again…

Why can’t more people see this?

For months, I have been pointing out to my readers how history is repeating. The exact same patterns that have happened just prior to previous recessions are happening again, but most people just refuse to see the truth.

It is absolutely maddening, and it is just more evidence of how “dumbed-down” our society has become.

Yes, U.S. stocks rebounded substantially in March, but that was not based on the economic fundamentals. Just look at the following chart from Zero Hedge. At some point stock prices and corporate earnings will start converging once again. There is simply no way in the world that stock prices can stay disconnected from reality indefinitely…

So when Donald Trump says that we are in “a financial bubble” and that “it’s a terrible time right now” to be investing in stocks, I would have to rate those statements as absolutely true.

I would also have to rate his statement that we are heading toward a “very massive recession” as absolutely true as well, and legendary investor Jim Rogers agrees with me. In fact, he recently told Bloomberg that there is “a 100 percent probability that the U.S. economy would be in a downturn within one year“.

For a legendary investor such as Jim, that is quite a bold statement to make. And of course most American families already feel like they are in an economic downturn. This is something that my wife and I talked about during our most recent show…

The truth is that the U.S. economy has never even gotten close to recovering to the level it was at just prior to the last recession, and now the next major crisis is upon us.

But this new crisis is not going to be like the last one. It is going to be much, much worse before it is all said and done, and what is coming is going to bring America to her knees. This is something that I discuss in my new book. The economic devastation that is coming is going to be unlike anything that any of us have ever known, and it is going to shake America to the very core.

So enjoy the remaining days of “normal life in America” while you still can.

A lot of people are using this time to party, but if you are wise you are using it to prepare.

Why Investing In Silver Is Vastly Superior To Investing In Gold Right Now

March 20, 2016March 20, 2016 by Michael

When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price. We witnessed this during the last financial crisis, and it is starting to happen again. Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews. In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up. Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint. In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now.

I should start out by disclosing that my wife and I have been able to put away a little bit of silver over the years. I wish that it could have been a lot more, but so often there are other priorities that need to be addressed. For example, I have always said that people need to take care of their emergency food storage first before even thinking about any kind of investments.

But if you have money left over after taking care of the basics, I am fully convinced that silver is a wonderful investment for the mid to long term. In this article, I am going to explain why this is the case. However, I have always warned that you have got to be ready for a rollercoaster ride if you get into precious metals. So if you can’t handle the ups and downs, you should probably avoid them altogether.

As I write this article, the price of gold is sitting at $1254.30 an ounce.

Meanwhile, the price of silver is sitting at just $15.81 an ounce.

That means that the price of gold is currently more than 79 times higher than the price of silver. For the ratio between gold and silver to be this high is truly unusual.

You see, the truth is that there is only about 17 times as much silver as there is gold in the Earth’s crust. And currently silver is being mined at about an 11 to 1 ratio to gold.

So it makes sense that throughout history gold has typically sold at about a 15 to 1 ratio to silver.

During the years to come, I do believe that gold will multiply in price.

But I am also convinced that the price of silver will go up much, much faster.

As they both skyrocket in price, the price ratio between gold and silver will shift very quickly from 79 to 1 in the direction of 15 to 1.

Perhaps we may never even get all the way back to 15 to 1, but if we even got to 40 to 1 or 30 to 1, what that would mean for silver would be history making.

Let us also keep in mind that unlike gold, silver is constantly being used up in thousands of different industrial applications. The following comes from Jeff Nielson…

Over the past quarter century, more silver-based patents have been created than with any other metal on the planet. But not only does silver have unparalleled versatility, it is an extremely potent metal, meaning that in many of its commercial applications it is used in only trace amounts.

Why is this of significance? Because in such tiny quantities it is economically impractical to ever recycle any of this silver, at prices anywhere near the (absurd) levels of recent decades. Thus this silver is being consumed in tiny amounts, but in billions and billions of consumer products, over a span of decades.

Unlike gold, our stockpiles of silver are disappearing. As previously mentioned, for at least the last thirty years, the only way that our strong demand for silver could be satisfied has been through consuming portions of these stockpiles.

It has been estimated that approximately one billion ounces of silver have been used in consumer products over the past ten years alone.

Even if the world could somehow avoid the great financial turmoil that has already begun, the truth is that eventually a great demand crunch for silver would come just based on how much of it we are steadily consuming.

At less than 16 dollars an ounce right now, silver is ridiculously undervalued.

Those that are wise see this, and they are stocking up on silver coins at an unprecedented level. Just check out these numbers…

Silver Eagle sales will likely jump by 25% in the first quarter due to deteriorating market conditions. During the first three months last year the U.S. Mint sold 12 million Silver Eagles. Already, sales of Silver Eagles have reached 13 million. There are two weeks remaining in March and the U.S. Mint will likely sell another two million. This will put total Silver Eagle sales for the first quarter at 15 million….. the highest ever.

I have always said that I believe that the price of silver will eventually go over $100 an ounce.

When that happens, those that got in today will be exceedingly happy with their returns.

Others are projecting even greater gains. For instance, investing legend Egon von Greyerz believes that the price of silver could ultimately go as high as $660 an ounce, and Jeff Nielson believes that $1,000 an ounce for silver would be a fair price.

But once again, don’t even think about getting into precious metals until you have the basics squared away. It is often said that you can’t eat gold or silver, and that is very true.

In our new television show, my wife and I are always going to tell it to you straight. A lot of people out there are relaxing right now because they think that the recent stock market rally means that the crisis is over. What they don’t understand is that this new financial crisis is just in the very early chapters. There are going to be more ups and more downs, and the shaking that we have seen so far is just the beginning.

Many of you may not want to believe me at this moment, but by the end of 2016 life in America is going to look dramatically different than it does right now. So please get prepared while you are still able to do so.

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

May 4, 2015 by Michael

Warren Buffett believes “that bonds are very overvalued“, and a recent survey of fund managers found that 80 percent of them are convinced that bonds have become “badly overvalued“. The most famous bond expert on the planet, Bill Gross, recently confessed that he has a sense that the 35 year bull market in bonds is “ending” and he admitted that he is feeling “great unrest”. Nobel Prize–winning economist Robert Shiller has added a new chapter to his bestselling book in which he argues that bond prices are “irrationally high”. The global bond bubble has ballooned to more than 76 trillion dollars, and interest rates have never been lower in modern history. In fact, 25 percent of all government bonds in Europe actually have a negative rate of return at this point. There is literally nowhere for the bond market to go except for the other direction, and when this bull market turns into a bear it will create chaos and financial devastation all over the planet.

In a recent piece entitled “A Sense Of Ending“, bond guru Bill Gross admitted that the 35 year bull market in bonds that has made him and those that have invested with him so wealthy is now coming to an end…

Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial “obits”, although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

And the way that he ended his piece sounds rather ominous…

I wish to still be active in say 2020 to see how this ends. As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang. But if so, like death, only the timing is in doubt. Because of this sense, however, I have unrest, increasingly a great unrest. You should as well.

Bill Gross is someone that knows what he is talking about. I would consider his words very carefully.

Another renowned financial expert, Yale professor Robert Shiller, warned us about the stock bubble in 2000 and about the real estate bubble in 2005. Now, he is warning about the danger posed by this bond bubble…

In the first edition of his landmark book “Irrational Exuberance,” published in 2000, the Yale professor of economics and 2013 Nobel Laureate presciently warned that stocks looked especially expensive. In the second edition, published in 2005 shortly before the real estate bubble crashed, he added a chapter about real estate valuations. And in the new edition, due out later this month, Shiller adds a fresh chapter called “The Bond Market in Historical Perspective,” in which he worries that bond prices might be irrationally high.

For years, ultra-low interest rates have enabled governments around the world to go on a debt binge unlike anything the world has ever seen. Showing very little restraint since the last financial crisis, they have piled up debts that are exceedingly dangerous. If interest rates were to return to historical norms, it would instantly create the greatest government debt crisis in history.

A recent letter from IceCap Asset Management summarized where we basically stand today…

Considering:

1) governments are unable to eliminate deficits

2) global government debt is increasing exponentially

3) 0% interest rates are allowing governments to borrow more to pay off old loans and fund deficits

4) Global growth is declining despite money printing and bailouts And, we’ve saved the latest and greatest fact for last: as stunning as 0% interest rates sound, the mathematically-challenged-fantasyland called Europe has just one upped everyone by introducing NEGATIVE INTEREST RATES.

As of writing, over 25% of all bonds issued by European governments has a guaranteed negative return for investors.

Germany can borrow money for 5 years at an interest rate of NEGATIVE 0.10%. Yes, instead of Germany paying you interest when you lend them money, you have to pay them interest.

These same negative interest rate conditions exist across many of the Eurozone countries, as well as Denmark, Sweden and Switzerland.

Negative interest rates are by nature irrational.

Why in the world would you pay someone to borrow money from you?

It doesn’t make any sense at all, and this irrational state of affairs will not last for too much longer.

At some point, investors are going to come to the realization that the 35 year bull market for bonds is finished, and then there will be a massive rush for the exits. This rush for the exits will be unlike anything the bond market has ever seen before. Robert Wenzel of the Economic Policy Journal says that this coming rush for the exits will set off a “death spiral”…

Anyone who holds the view that the Fed will not soon raise interest rates,and soon, fails to understand the nature of the developing crisis. It will be led by a collapse of the bond market.

Market forces, somewhat misleadingly called bond-vigilantes, will lead the charge.

I am not as bearish in the short-term on the stock market. The equity markets will be volatile because of the climb in rates and look scary at times but the death spiral will be in the bond market.

As this death spiral accelerates, we are going to see global interest rates rise dramatically. And considering the fact that more than 400 trillion dollars in derivatives are directly tied to interest rates, that is a very scary thing.

And in case you are wondering, the stock market will be deeply affected by all of this as well. I believe that we are going to witness a stock market crash even greater than what we experienced in 2008, and other experts are projecting similar things. For example, just consider what Marc Faber recently told CNBC…

“For the last two years, I’ve been thinking that U.S. stocks are due for a correction,” Faber said Wednesday on CNBC’s “Trading Nation.” “But I always say a bubble is a bubble, and if there’s no correction, the market will go up, and one day it will go down, big time.”

“The market is in a position where it’s not just going to be a 10 percent correction. Maybe it first goes up a bit further, but when it comes, it will be 30 percent or 40 percent minimum!” Faber asserted.

Where we are right now is at the end of the party. There are some that want to keep on dancing to the music for as long as possible, but most can see that things are winding down and people are starting to head for the exits.

The irrational global financial bubble that investors have been enjoying for the past few years has stretched on far longer than it should have. But that is the way irrational bubbles work – they just keep going even when everyone can see that they have become absolutely absurd. However, eventually something always comes along and bursts them, and once that happens markets can crash very, very rapidly.

11 Signs That We Are Entering The Next Phase Of The Global Economic Crisis

April 23, 2015 by Michael

Well, the Nasdaq finally did it. It has climbed all the way back to where it was at the peak of the dotcom bubble. Back in March 2000, the Nasdaq set an all-time record high of 5,048.62. On Thursday, after all these years, that all-time record was finally eclipsed. The Nasdaq closed at 5056.06, and Wall Street greatly rejoiced. So if you invested in the Nasdaq at the peak of the dotcom bubble, you are just finally breaking even 15 years later. Unfortunately, the truth is that stocks have not been soaring because the U.S. economy is fundamentally strong. Just like the last two times, what we are witnessing is an irrational financial bubble. Sometimes these irrational bubbles can last for a surprisingly long time, but in the end they always burst. And even now there are signs of economic trouble bubbling to the surface all around us. The following are 11 signs that we are entering the next phase of the global economic crisis…

#1 It is being projected that half of all fracking companies in the United States will be “dead or sold” by the end of this year.

#2 The rig count just continues to fall as the U.S. oil industry implodes. Incredibly, the number of rigs in operation in the United States has fallen for 19 weeks in a row.

#3 McDonald’s has announced that it will be closing 700 “poor performing” restaurants in 2015. Why would McDonald’s be doing this if the economy was actually getting better?

#4 As I wrote about the other day, we could be right on the verge of a Greek debt default. In fact, we learned on Thursday that the Greek government has been “running on empty” for months…

Greece warned it will go bankrupt next week after failing to stump up enough cash to pay millions of public sector workers and its international debts.

Deputy finance minister Dimitras Mardas set alarm bells ringing yesterday when he declared the country had been ‘running on empty’ since February.

With a debt repayment deadline looming on May 1, Greece faces the deeply damaging prospect of having to snub its own employees to make a €200m payment to the International Monetary Fund.

#5 Coal accounts for approximately 40 percent of all electrical generation on the entire planet. When the price of coal starts to drop, that is a sign that economic activity is slowing down. Just prior to the last financial crisis in 2008, the price of coal shot up dramatically and then crashed really hard. Well, guess what? The price of coal has been crashing again, and it is already lower than it was at any point during the last recession.

#6 The price of iron ore has been crashing as well. It is down 35 percent in the last nine months, and David Stockman believes that this is because of a major deflationary crisis that is brewing in China…

There is no better measure of the true contraction underway in China than the price of iron ore. The Wall Street stock peddlers will tell you not to be troubled by the 70% plunge from the 2012 highs and the 35% drop just in the last nine months. According to them, its all the fault of the big global miners who went overboard opening up massive new iron ore pits and mining infrastructure.

#7 At this point, China accounts for more total global trade than anyone else in the world. That is why it is so alarming that Chinese imports and exports are both absolutely collapsing…

China’s monthly trade data shows exports fell in March from a year ago by 14.6% in yuan terms, compared to expectations for a rise of more than 8%.

Imports meanwhile fell 12.3% in yuan terms compared to forecasts for a fall of more than 11%.

#8 The number of publicly traded companies in the United States that filed for bankruptcy during the first quarter of 2015 was more than double the number that filed for bankruptcy during the first quarter of 2014.

#9 New home sales in the United States just declined at their fastest pace in almost two years.

#10 U.S. manufacturing data has been shockingly weak lately…

On the heels of weak PMIs from Europe and Asia, Markit’s US Manufacturing PMI plunged to 54.2 in April (from 55.7). Against expectations of a rise to 55.6, this is the biggest miss on record. Of course, this is ‘post-weather’ so talking-heads will need to find another excuse as New Orders declined for the first time since Nov 2014.

#11 When priced according to “the average blue-collar hourly wage“, U.S. stocks are the most expensive that they have ever been in history right now. To say that this financial bubble is overdue to burst is a massive understatement.

For a long time, I have been pointing to 2015 as a major “turning point” for the global financial system, and I still feel that way.

But for the first four months of this year, things have been surprisingly quiet – at least on the surface.

So what is going on?

Well, I believe that what we are experiencing right now is the proverbial “calm before the storm”. There is all sorts of turmoil brewing just beneath the surface, but for the moment things seem like they are running along just fine to most people. Unfortunately, this period of quiet is not going to last much longer.

And those that are “in the know” are already moving their money in anticipation of what is coming. For example, consider the words of Snapchat founder and CEO Evan Spiegel…

Fed has created abnormal market conditions by printing money and keeping interest rates low. Investors are looking for growth anywhere they can find it and tech companies are good targets – at these values, however, all tech stocks are expensive – even looking at 5+ years of revenue growth down the road. This means that most value-driven investors have left the market and the remaining 5-10%+ increase in market value will be driven by momentum investors. At some point there won’t be any momentum investors left buying at higher prices, and the market begins to tumble. May be 10-20% correction or something more significant, especially in tech stocks.

It may not happen next week, or even next month, but big financial trouble is coming.

And when it finally arrives, it is going to shock the world, even though anyone with any sense can see the coming crisis approaching from a mile away.

Guess What Happened The Last Two Times The S&P 500 Was Up More Than 200% In Six Years?

March 11, 2015March 11, 2015 by Michael

Just a few days ago, the bull market for the S&P 500 turned six years old. This six year period of time has been great for investors, but what comes next? On March 9th, 2009 the S&P 500 hit a low of 676.53. Since that day, it has risen more than 200 percent. As you will see below, there are only two other times within the last 100 years when the S&P 500 performed this well over a six year time frame. In both instances, the end result was utter disaster. And as you take in this information, I want you to keep in mind what I said in my previous article entitled “7 Signs That A Stock Market Peak Is Happening Right Now“. What we are witnessing at this moment is classic “peaking behavior”, and there is a long way to go down from here. So if historical patterns hold up, those with lots of money in the stock market could soon be in for a whole lot of trouble.

According to Societe Generale analyst Andrew Lapthorne, there was an S&P 500 bull market run of more than 200 percent over a six year time period that ended in 1929.

We all know what happened that year.

And there was another S&P 500 bull market run of more than 200 percent over a six year time period that ended in 1999. In the end, all of those gains were wiped out when the dotcom bubble burst.

And now we are near the end of another great bull market for the S&P 500. The following is an excerpt from a recent Business Insider article…

“Such a strong six year run up in US equities has only been seen twice since 1900, i.e., back in 1929 and 1999, neither of which ended well,” Lapthorne wrote.

It’s anyone’s guess what happens next. But Lapthorne and his colleagues have slanted bearish.

So how will this current bull market end?

Needless to say, a lot of people are not very optimistic about that right now.

And there was another very interesting bull market that ended in 1987…

On Aug. 12, the S&P 500 dipped to 102.42, setting the stage for the third-biggest bull market in stocks since 1929. Inflation and unemployment fell. In 1984, President Reagan would cruise to reelection with an ad telling voters “It’s morning again in America.” By 1987, the stock market had tripled. Shareholders who were able to see beyond the gloom of the early 1980s reaped a huge return.

Of course a lot of those huge stock market returns were eliminated in a single day. On October 19th, 1987 the Dow declined by more than 22 percent during a single trading session. That day is still known as “Black Monday” up to this present time.

Markets tend to go down a lot faster than they go up. So if your stock portfolio has gone up substantially over the past few years, good for you. But keep in mind that all of your gains can be wiped out very rapidly. Millions of people experienced this during the last financial crisis, and millions more will experience this during the next one.

And as I keep reminding people, so many of the exact same patterns that we witnessed just prior to the last great stock market collapse are happening once again.

For example, just yesterday I explained that there has been only one other time over the past decade when we have seen the U.S. dollar surge in value in such a short period of time.

That was in 2008, just prior to the last financial crisis.

Another example is what has happened to the price of oil. Since the middle of last year, the price of oil has fallen by more than 50 dollars a barrel.

In all of history, that has happened only one other time.

That was in 2008, just prior to the last financial crisis.

I could go on and on. I could talk about margin debt, price/earnings ratios, industrial commodities, etc.

But you know what? Despite all of the warning signs there are still people out there that are eagerly pouring money into the stock market.

Back in 2005 and 2006, I knew people that were hurrying to buy homes before they got “priced out of the market”. So they did everything that they could to scrape together down payments and they took on mortgages that were larger than they could really afford.

And in the end they got burned.

Today, people are doing similar things. For instance, my friend Bob recently sent me an article that I could hardly believe. It turns out that an “expert” on CNBC is encouraging people “to take out a 7 year loan with a rapidly amortizing asset as collateral in order to buy stocks.”

Yikes!

Let me be clear. The really, really, really dumb money is jumping into the stock market right now. Those that are pouring money into stocks today are really going to get hit hard when the crash comes.

And it isn’t just me saying this.

Just consider the words of billionaire hedge fund manager Crispin Odey…

Mr Odey is best known for his big macroeconomic calls, including foreseeing the 2008 global credit crisis; piling into insurers in the wake of September 2001 attacks; and picking the recent oil price rout. He famously paid himself £28 million in 2008 after shorting credit crisis casualties, including British lender Bradford & Bingley. Mr Odey’s fund returned 54.8 per cent that year.

“The market’s reaction to all of this is leave it to the professionals, leave it to those great guys, the central bankers, because they saved the day in 2009,” he said. “These guys are kind of relying on central banks pulling a rabbit out of a hat.”

The risk is that this time, monetary policy may be ineffective: “We need the crisis to reformulate policy. Central banks are not all singing and all dancing, they cannot basically avoid the natural consequences of what we are doing.”

An inadequate supply-side response to the plunge in commodity prices as the resources industry declines to reduce production was in effect stimulating supply into falling demand.

“The trouble is today the players, whether they are the miners or the oil companies or the Saudis or anybody else, they are not doing the right things. This is the first time in my career where economics 101 doesn’t work at all.”

But it was also true that the world has not had a major recession for 25 years and thanks to frequent interventions, “there is a sensation we don’t have a business cycle”. Stocks are enjoying a six-year bull market but he also hinted at liquidity issues bubbling under the surface.

“I just think that you and I have got grandstand seats here [to an imminent market shock] and my point is having found myself in the second quarter of last year selling a lot of equities and starting to go short, I found out just how illiquid it all was. You never actually see it until people try and get out of these things.”

It was unclear to Mr Odey what central banks could do to prevent a crash.

The warning signs are clear.

Soon the time for warning will be over and the crisis will be here.

I hope that you are getting ready.

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