Stocks

What Really Happened In 2015, And What Is Coming In 2016…

January 3, 2016January 3, 2016 by Michael

A lot of people were expecting some really big things to happen in 2015, and most of them did not happen. But what did happen? It is my contention that a global financial crisis began during the second half of 2015, and it threatens to greatly accelerate as we enter 2016. During the last six months of the year that just ended, financial markets all over the planet crashed, trillions of dollars of global wealth was wiped out, and some of the largest economies in the world plunged into recession. Here in the United States, 2015 was the worst year for stocks since 2008, nearly 70 percent of all investors lost money last year, and it is being projected that the final numbers will show that close to 1,000 hedge funds permanently shut down within the last 12 months. This is what the early stages of a financial crisis look like, and the worst is yet to come.

If we were entering another 2008-style crisis, we would expect to see junk bonds crashing. When financial trouble starts, it usually doesn’t start with the biggest and strongest companies. Instead, it usually starts percolating on the periphery. And right now bonds of firms that are considered to be on the risky side of things are rapidly losing value.

In the chart below, you can see that a high yield bond ETF that I track very closely known as JNK started crashing in the middle of 2008. This crash began to unfold before the horrific crash of stocks in the fall. Investors that saw junk bonds crashing in advance and pulled their money out of stocks in time saved an enormous amount of money.

Now, for the very first time since the last financial crisis, we are seeing junk bonds crash again. In December, there was finally a sustained crash through the psychologically-important 35.00 level, and at this point JNK is sitting a bit below 34.00. This stunning decline is a giant red flag that tells us that stocks will soon follow in the exact same direction…

In 2015, Third Avenue Management shocked Wall Street when they froze withdrawals from a 788 million dollar mutual fund that was highly focused on junk bonds. Investors that couldn’t get their money out began to panic, and other mutual funds now find themselves under siege. If junk bonds continue to crash, this will just be the beginning of the carnage.

One of the big reasons why junk bonds are crashing is because of the crash in the price of oil. Over the past 18 months, the price of oil has plummeted from $108 a barrel to $37 a barrel.

There has only been one other time in all of history when we have ever seen an oil price crash of this magnitude. That was in 2008 – just before the greatest financial crisis since the Great Depression…

Why can’t people see the parallels?

Crashes are happening all around us, and yet so many of the “experts” seem completely blind to what is going on.

Unlike 2008, the price of oil is not expected to rapidly rebound any time soon. The following comes from CNN…

Crude prices dropped a whopping 35% last year and are hovering around $37 a barrel. That’s a level not seen since the global financial crisis.

It won’t get better any time soon. Most oil experts believe prices will bounce back in late 2016, but they expect more pain first.

Goldman Sachs forecasts that oil will average about $38 a barrel in February, even lower than for most of 2015.

Meanwhile, the prices of industrial commodities have been crashing as well. For example, the chart below shows that the price of copper started crashing hard just before the great financial crisis of 2008, and the exact same thing is happening once again right before our very eyes…

Things are unfolding just as we would expect they would during the initial stages of a new global financial crisis.

And we have already seen a full blown stock market crash in many of the largest economies around the planet. For instance, just look at what has been happening in Brazil. The Brazilians have the 7th largest economy in the world, and Goldman Sachs says that they have plunged into an “outright depression“. In the chart below, you can see the sharp downturn that took place in August, and Brazilian stocks actually kept falling all the way through the end of 2015…

We see a similar thing when we look at our neighbor to the north. Canada has the 11th largest economy on the entire planet, and I recently wrote a lengthy article about the economic difficulties that the Canadians are now facing. 2015 was a very bad year for Canadian stocks as well, and they just kept falling steadily all the way through December…

Of course nobody can forget what happened to China. The Chinese have the second largest economy on the globe, and news about their economic slowdown in making headlines almost every single day now.

Last summer, Chinese stocks crashed about 40 percent, and they did manage to bounce back just a bit since then. But they are still down about 30 percent from the peak of the market…

And there is plenty more that we could talk about. European stocks just had their second worst December ever, and Japanese stocks are down about 500 points in early trading as I write this article.

Here in the United States, the Dow Jones Industrial Average, Dow Transports, the S&P 500 and the Russell 2000 all had their worst years since 2008. As I mentioned the other day, 674 hedge funds shut down during the first nine months of 2015, and it is being projected that the final total for the year will be up around 1000.

But we aren’t hearing much about this financial carnage on the news yet, are we?

Many people that I talk to still think that “nothing is happening”, but don’t you dare say that to Warren Buffett.

He lost 7.8 billion dollars in 2015.

How would you feel if you lost 7.8 billion dollars in a single year?

The truth, of course, is that signs of financial chaos are erupting all around us. Corporate profits are plunging, the bond distress ratio just hit the highest level that we have seen since the last financial crisis, and corporate debt defaults have risen to the highest level that we have seen in about seven years.

If you run a business, you may have noticed that fewer people are coming in and it seems like those that do come in have less money to spend. Economic activity is slowing down, and inventories are piling up. In fact, wholesale inventories have now risen to the highest level that we have seen since the last recession…

Do you notice a theme?

So many things that have not happened in six or seven years are now happening again.

History may not repeat, but it sure does rhyme, and it astounds me that more people cannot see that 2015/2016 is looking eerily similar to a replay of 2008/2009.

Another number that I watch closely is the velocity of money. When an economy is running well, money tends to circulate efficiently through the system. But when an economy gets into trouble, people get scared and start holding on to their money. As you can see from the chart below, the velocity of money declined during every single recession since 1960. This is precisely what one would expect. And of course during the recession that started in 2008, the velocity of money plunged precipitously. But then a funny thing happened when that recession supposedly “ended”. The velocity of money just kept going down, and now it has fallen to an all-time record low…

A big reason for this is the ongoing decline of the middle class. In 2015, we learned that middle class Americans now make up a minority of the population for the first time ever.

But if you go back to 1971, 61 percent of all Americans lived in middle class households.

Meanwhile, the share of the income pie that the middle class takes home has also continued to shrink.

In 1970, the middle class brought home approximately 62 percent of all income. Today, that number has fallen to just 43 percent.

As the middle class is systematically destroyed, the number of Americans living in poverty just continues to grow. And those that often suffer the most are the children. It may be hard for you to believe, but the number of homeless children in the U.S. has increased by 60 percent over the past six years.

60 percent!

How in the world can anyone dare to claim that “things are getting better”?

Anyone that says that should be ashamed of themselves.

We are in the midst of a long-term economic collapse that is now accelerating once again.

Anyone that tries to tell you that “things are getting better” and that 2016 is going to be a better year than 2015 is simply not being honest with you.

A new global financial crisis erupted during the last six months of 2015, and this new financial crisis is going to intensify throughout the early months of 2016. Financial institutions will begin falling like dominoes, and this will result in a great credit crunch around the world. Businesses will fail, unemployment will skyrocket and millions will suddenly be faced with economic despair.

By the time it is all said and done, this new financial crisis will be even worse than what we experienced back in 2008, and the suffering that we will see around the world will be off the charts.

So does that mean that I am down about this year?

Not at all. In fact, my wife and I are greatly looking forward to 2016. In the midst of all the chaos and darkness, there will be great opportunities to do good and to make a difference.

What a great shaking comes, people go looking for answers. And I think that this will be a year when millions of people start to understand that our politicians and the mainstream media are not telling them the truth.

Yes, great challenges are coming. But now is not a time to dig a hole and try to hide from the world. Instead, this will be a time for those that have prepared in advance to love others, help others and show them the truth.

What about you?

Are you ready to be a light during the dark times that are coming?

Please feel free to join the conversation by posting a comment below…

2015 Was The Worst Year For The Stock Market Since 2008

December 31, 2015December 31, 2015 by Michael

It’s official – 2015 was a horrible year for stocks. On the last day of the year, the Dow Jones Industrial Average was down another 178 points, and overall it was the worst year for the Dow since 2008. But of course the Dow was far from alone. The S&P 500, the Russell 2000 and Dow Transports also all had their worst years since 2008. Isn’t it funny how these things seem to happen every seven years? But compared to other investments, stocks had a relatively “good” year. In 2015, junk bonds, oil and industrial commodities all crashed hard – just like they all did just prior to the great stock market crash of 2008. According to CNN, almost 70 percent of all investors lost money in 2015, and things are unfolding in textbook fashion for much more financial chaos in 2016.

Globally, over the past 12 months we have seen financial shaking unlike anything that we have experienced since the last great financial crisis. During the month of August markets all over the world started to go haywire, and at one point approximately 11 trillion dollars of financial wealth had been wiped out globally according to author Jonathan Cahn.

Since that time, U.S. stocks rebounded quite a bit, but they still ended red for the year. Other global markets were not nearly as fortunate. Some major indexes finished 2015 down 20 percent or more, and European stocks just had their second worst December ever.

I honestly don’t understand the “nothing is happening” crowd. The numbers clearly tell us that a global financial crisis began in 2015, and it threatens to accelerate greatly as we head into 2016.

Actually, there are a whole lot of people out there that would be truly thankful if “nothing” had happened over the past 12 months. For example, there are five very unfortunate corporate CEOs that collectively lost 20 billion dollars in 2015…

Five CEOs of companies in the Russell 1000 index, including Nicholas Woodman of camera maker GoPro (GPRO), Sheldon Adelson of casino operator Las Vegas Sands (LVS) and even the famed investor Warren Buffett of Berkshire Hathaway (BRKA), lost more money on their companies’ shares than any other CEOs this year, according to a USA TODAY analysis of data from S&P Capital IQ.

These five CEOs were handed a whopping collective $20 billion loss on their company stock in 2015. Each and every one of these CEOs lost $1 billion or more – based on the average number of shares they’ve owned this year.

The biggest loser of the group was Warren Buffett.

He lost an astounding 7.8 billion dollars in 2015.

Do you think that he believes that “nothing happened” this past year?

And if “nothing happened”, then why are hedge funds “dropping like flies” right now? The following comes from Zero Hedge…

Two days, ago we noted that hedge funds are now dropping like flies in a year in which generating alpha has become virtually impossible for the majority of the vastly overpaid 2 and 20 “smart money” out there (and where levered beta is no longer the “sure thing” it used to be when the Fed was pumping trillions into stocks) when we reported that Seneca Capital, the $500 million multi-strat hedge fund belonging to Doug Hirsh (of Sohn Investment Conference fame), is shutting down.

And just within the last 24 hours, another very prominent hedge fund has collapsed. SAB Capital, which once managed more than a billion dollars, is shutting down after huge losses this year. Here is more from Zero Hedge…

It turns out that despite our intention, the question was not rhetorical because just a few hours later Bloomberg answered when it reported that the latest hedge fund shutdown casualty was another iconic, long-term investor: Scott Bommer’s SAB Capital, which as of a year ago managed $1.1 billion, and which after 17 years of managing money and after dropping roughly 11% in the first eight month of 2015, has decided to return all outside client money, and converting the hedge fund into a family office (after all one has to preserve one’s offshore tax benefits).

Overall, 674 hedge funds shut down during the first nine months of this year, and the final number for 2015 will actually be far higher because the rate of closings has accelerated as we have approached the end of this calendar year. When the final numbers come in, I would not be surprised to hear that 1,000 hedge funds had closed up shop in 2015.

Meanwhile, underlying economic conditions continue to deteriorate.

Corporate profits are steadily falling, the bond distress ratio just hit the highest level that we have seen since September 2009, and corporate debt defaults have risen to the highest level that we have seen since the last recession.

And this week we got a couple of new numbers that indicate that the U.S. economy is slowing down much faster than anticipated.

The first big surprise was the Dallas Fed’s general business activity index…

The Dallas Fed’s general business activity index plunged to -20.1 in December from -4.9 in November. This was much worse than the -7.0 expected by economists.

Any reading below 0 signals contraction, and this index has been below 0 all year.

The next big surprise was the Chicago purchasing manager index…

The Chicago purchasing manager index unexpectedly plunged to 42.9 in December, its lowest reading since July 2009.

Any reading below 50 signals a contraction in business activity.

This was down from 48.7 in November and much worse than the 50.0 expected by economists.

When the final numbers for the fourth quarter are in a few months from now, I believe that they will show that the U.S. economy officially entered recession territory at this time.

And the truth is that deep recessions have already started for some of the other biggest economies on the planet. For example, I recently wrote about the deep troubles that Canada is now experiencing, and things have already gotten so bad in Brazil that Goldman Sachs is referring to that crisis as “an outright depression“.

Many people seem to assume that since I have a website called “The Economic Collapse Blog” that I must want everything to fall apart. But that is not true at all. I love my country, I enjoy my life, and I would be perfectly content to spend 2016 peacefully passing the time here in the mountains with my wonderful wife. The longer things can stay somewhat “normal”, the better it is for all of us.

Unfortunately, for decades we have been making incredibly foolish decisions as a society, and the consequences of those decisions are now catching up with us in a major way.

Jonathan Cahn likes to say that “a great shaking is coming”, and I very much agree with him.

In fact, I think that it is going to be here a lot sooner than most people think.

So buckle up, because I believe that 2016 is going to be quite a wild ride.

The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno

December 20, 2015December 20, 2015 by Michael

If the stock market crash of last Thursday and Friday had all happened on one day, it would have been the 7th largest single day decline in U.S. history. On Friday, the Dow Jones Industrial Average was down 367 points after finishing down 253 points on Thursday. The overall decline of 620 points between the two days would have been the 7th largest single day stock market crash ever experienced in the United States if it had happened within just one trading day. If you will remember, this is precisely what I warned would happen if the Federal Reserve raised interest rates. But when news of the rate hike first came out on Wednesday, stocks initially jumped. This didn’t make any sense at all, and personally I was absolutely stunned that the markets had behaved so irrationally. But then we saw that on Thursday and Friday the markets did exactly what we thought they would do. The chief economist at Gluskin Sheff, David Rosenberg, is calling the brief rally on Wednesday “a head-fake of enormous proportions“, and analysts all over Wall Street are bracing for what could be another very challenging week ahead.

When the Federal Reserve decided to lift interest rates, they made a colossal error. You don’t raise interest rates when a global financial crisis has already started. That is absolutely suicidal. It is the kind of thing that you would do if you were trying to bring down the global financial system on purpose.

Surely the “experts” at the Federal Reserve can see what is happening. Junk bonds have already crashed, just like they did in 2008. The price of oil has crashed, just like it did in 2008. Commodity prices have crashed, just like they did in 2008. And more than half of all major global stock market indexes are already down at least 10 percent for the year so far.

You don’t raise interest rates in that kind of an environment.

You would have to be utterly insane to do so.

The Federal Reserve has thrown fuel onto a global financial inferno that is already raging, and things could spiral out of control very rapidly.

As far as this upcoming week is concerned, we have now entered “liquidation season”. Investors are going to be pulling their money out of poorly performing hedge funds before the end of the calendar year, and as CNBC has pointed out, more hedge funds have already failed in 2015 than at any point since the last financial crisis…

Liquidation season occurs when clients of poorly performing hedge funds ask for their money back. It tends to occur at the end of a quarter or year. In response, hedge funds must sell stocks in the open market to raise the money that needs to be returned to investors.

That means if a hedge fund performed poorly this year; it is probably flooded with liquidation requests right now. In fact, there have been more failed hedge funds this year than any time since 2008.

The dominoes are starting to fall. We have already seen funds run by Third Avenue Management, Stone Lion Capital Partners and Lucidus Capital Partners collapse. Amazingly, there are some people out there that are still attempting to claim that “nothing is happening” even in the midst of all of this chaos.

As they say, “denial” is not just a river in Egypt.

And this crisis is going to get even worse as we head into 2016. Egon von Greyerz, the founder of Matterhorn Asset Management, is convinced that we will soon see “one disaster after another”…

Greyerz predicts, “I think we will have one disaster after another, first in the junk bond market, then in emerging markets and, after that, the subprime markets. Subprime car loans and student loans I see as another massive problem area. It is going to be one thing after another that will unravel. Since 2008, when the world almost went under, we have printed or increased credit by 50% or by $70 trillion, and the world economy is still struggling to survive. I think the real change in confidence will come down when markets come down. . . . I think things will come down very quickly.”

And I think that he is right on target. The global financial system is more interconnected today than ever before, and when one financial institution fails, it inevitably affects dozens of others. And the failures that we have already seen are already spreading a wave of fear and panic that may be difficult to stop. The following comes from Business Insider, and I think that it is a pretty good explanation of what we could see next…

Funds such as Third Avenue and Lucidus close, liquidating their portfolios.
Investors, spooked by the closures and the risk that they might not be able to get their money out of these funds, make a rush for the exits while they still can.
That creates even more selling pressure.
Funds sell the assets that are easiest to sell as they look to reduce risk, which pushes the selling pressure from the risky parts of the market to the higher-quality part of the market.
Things evolve from there.

If you have been waiting for the next financial crisis to arrive, you can stop, because it is already unfolding right in front of our eyes.

The only question is how bad it is going to become.

In the final analysis, I find myself agreeing quite a bit with Charles Hugh Smith, the author of “A Radically Beneficial World: Automation, Technology and Creating Jobs for All“. He believes that the ridiculous monetary policies of the Federal Reserve have played a primary role in setting the stage for this new crisis, and that now this giant financial “Death Star” that they have created “is about to blow up”…

By slashing rates to zero, the Fed ruthlessly eliminating safe returns for savers, pension funds, insurers and the millions of people with 401K retirement nesteggs. In effect, the Fed-Farce has pushed everyone into risk assets–and then played another Dark Side mind-trick by masking the true dangers of these risky assets.

As oil-sector debt blows up, as junk bonds blow up, and emerging markets blow up, we are finally starting to see the real costs of going over to the Dark Side of endless credit expansion and throwing the gasoline of near-zero interest rates on the speculative fires of financialization.

The Fed’s hubris has led it to the Dark Side, and now its Death Star of impaired debt, phantom collateral, speculative frenzy and bogus mind-tricks is about to blow up.

Personally, instead of saying that it “is about to blow up”, I would have said that it is already blowing up.

We have already seen trillions upon trillions of dollars of wealth wiped out around the world.

Energy companies are failing, giant hedge funds are going under, and the 7th largest economy on the entire planet has already plunged into “an outright depression“.

Everyone that warned of financial disaster in the second half of 2015 has been proven right, but this is just the beginning. Now that the Federal Reserve has thrown gasoline onto the fire, our problems are only going to accelerate as we head into 2016.

So for the upcoming year, let us hope for the best, but let us also prepare for the worst.

December 14th To 18th: A Week Of Reckoning For Global Stocks If The Fed Hikes Interest Rates?

December 13, 2015December 13, 2015 by Michael

Are we about to witness widespread panic in the global financial marketplace? This week is shaping up to be an absolutely critical week for global stocks. Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and last week stocks really started to slide all over the world. Here in the United States, the Dow Jones Industrial Average is down about 600 points over the past week or so, and at this point it is down more than 1000 points from the peak of the market. That brings us to this week, during which the Federal Reserve is expected to raise interest rates for the very first time since the last financial crisis. If that happens, that could potentially be enough to accelerate this “slide” into a full-blown crash.

And just look at what is already happening. Trading for stocks in the Middle East has opened for the week, and we are already witnessing tremendous carnage…

Following Friday’s further freefall in crude oil prices, The Middle East is opening down notably. Abu Dhabi, Saudi, and Kuwait are lower; Israel is weak and UAE and Qatar are tumbling, but Dubai is worst for now. Dubai is down for the 6th day in a row (dropping over 3% – the most in a month) extending the opening losses to 2-year lows. The 11% drop in the last 6 days is the largest since the post-China-devaluation global stock collapse. Leading the losses are financial and property firms.

Things in Asia look very troubling as well. As I write this, the Japanese market has just opened, and the Nikkei is already down 508 points.

In recent days I have been explaining to my readers how everything is lining up in textbook fashion for another major market crash. In particular, the implosion of junk bonds is a major red flag. Late last week, Third Avenue Management shocked Wall Street by freezing withdrawals from a 788 million dollar credit mutual fund. The following comes from Bloomberg…

A day after a prominent Wall Street firm shocked investors by freezing withdrawals from a credit mutual fund, things only got nastier in the junk-bond market. Prices on the high-risk securities sank to levels not seen in six years and, to add to the growing sense of alarm, billionaire investor Carl Icahn said the selloff is only starting.

“The meltdown in High Yield is just beginning,” Icahn, who’s been betting against the high-yield market, wrote on his verified Twitter account Friday.

Icahn’s comments come as junk-bond investors, already stung by the worst losses since 2008, are the most nervous they’ve been in three years after Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund.

What Third Avenue Management just did was absolutely huge. Now investors that have money in any similar funds are going to be racing to get it out. We could be on the verge of a run on bond funds that is absolutely unprecedented. This is so obvious that even CNBC’s Jim Cramer is sounding the alarm…

Friday was a day where Cramer’s ears were burning with concern because of the troubles discovered with a high yield bond fund run by Third Avenue Management. It decided to bar investors from getting their money out of its Focused Credit Fund, because it could not meet demands to get cash back to them in an orderly way.

This was significant because when it tries to sell the bonds needed to satisfy these orders for redemptions, it could destroy the high yield bond market because there are no buyers anywhere near the amount that they want to sell.

“I cannot emphasize enough just how disconcerting this move is,” Cramer said.

I know that for the ordinary person on the street, all of this sounds very complicated.

But it basically comes down to this – anyone that has a lot of money invested in these bond funds is in danger of getting totally wiped out.

In a situation like this, it is those that are “first out the door” that come out as the winners. I like how Wolf Richter explained what we are currently facing…

It works like this: When an “open-end” bond fund starts losing money, investors begin to sell it. Fund managers first use all available cash to pay investors. When the cash is gone, they sell the most liquid securities that haven’t lost much money yet, such as Treasuries. When they’re gone, they sell the most liquid corporate paper. As they go down the line, they sell bonds that have already lost a lot of value. By now the smart money is betting against the fund, having figured out what’s happening. They’re shorting the very bonds these folks are trying to sell.

The longer this goes on, the more money investors lose and the more spooked they get. It turns into a run. And people who still have that fund in their retirement account are getting cleaned out.

Bond funds can be treacherous – especially if they hold dubious paper, which is never dubious until it suddenly is. And when they get in trouble, you want to be among the first out the door.

I would anticipate that we will see more junk bond carnage this week – especially if the Fed raises rates.

And as I have discussed previously, a stock crash almost always follows a junk bond crash. If the Fed does raise rates this week and stocks do start falling significantly, one key day to watch will be Friday. JPM’s head quant Marko Kolanovic has warned that “the largest option expiry in many years” will happen on that day…

This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

A perfect storm for stocks is brewing, and this week could potentially be one of the most chaotic that we have seen in a very long time.

But of course the Federal Reserve could decide to surprise us all by not raising rates, and that would change things substantially.

So what do you think will happen this week?

Please feel free to share your thoughts by posting a comment below…

The Global Commodity Crash Tells Us That A Major Deflationary Financial Crisis Is Imminent

December 10, 2015December 10, 2015 by Michael

If we really are plunging into a deflationary global financial crisis, we would expect to see commodity prices crash hard. That happened just before the great stock market crash of 2008, and that is precisely what is happening once again right now. On Thursday, the Bloomberg Commodity Index closed at 79.1544. The last time that it closed this low was 16 years ago. Not even during the worst moments of the last recession did it ever get so low. Overall, the Bloomberg Commodity Index is down more than 28 percent over the past 12 months, and it has plummeted by more than half since mid-2011. As a result of this stunning commodity collapse, extremely large mining companies such as Anglo American are imploding, giant commodity trading firms such as Glencore and Trafigura are in full-blown crisis mode, and huge portions of the global financial system are in danger of utterly collapsing.

In recent days, I have been trying to stress that many of the exact same patterns that we witnessed just prior to the great stock market crash of 2008 are happening once again. This includes the staggering crash of commodity prices that we are currently witnessing, and even CNN acknowledges that there are parallels to what we experienced seven years ago…

The last time raw materials like copper and oil were this cheap, an economic depression loomed just around the corner.

It’s no secret that commodities in general have had a horrendous 2015. A nasty combination of overflowing supply and soft demand has wreaked havoc on the industry.

But prices for everything from crude oil to industrial metals like aluminum, steel, copper, platinum, and palladium have collapsed even further in recent days.

As I mentioned above, this crash in prices is hitting mining companies really hard. Just this week, the fifth largest mining company in the entire world announced a massive restructuring and will be laying off tens of thousands of workers…

In the latest example of just how bad things have gotten, Anglo American–the world’s fifth largest miner–just kitchen sink-ed it, announcing a sweeping restructuring, a massive round of layoffs, and a dividend cut. The company will reduce its assets by some 60% while headcount will be cut by a whopping 85,000 or, nearly two-thirds.

Overall, the U.S. has lost approximately 123,000 good paying jobs from the mining sector since the end of 2014. And if commodity prices stay low, this sector is going to continue to bleed good paying jobs.

Meanwhile, investors have been dumping the debt of any companies that have anything to do with commodities. This has significantly contributed to the emerging junk bond crisis that I discussed in my last article. As I write this, a high yield bond ETF known as JNK has fallen all the way down to 34.31, which is the lowest that it has been since the last recession. For much more on the junk bond implosion, I would encourage you to read an article that Wolf Richter just put out entitled “Bond King Gets Antsy as Junk Bonds, Which Lead Stocks, Spiral to Heck“.

So why are commodity prices falling so rapidly?

Many analysts are pointing to the economic slowdown in China as the primary reason. For years, the Chinese economy voraciously gobbled up commodities from sources all over the planet, but now things are changing. The Chinese economy is really, really slowing down, and some recently released numbers give us some clues as to the true extent of that slowdown…

-Chinese exports fell 6.8 percent in November on a year over year basis after being down 6.9 percent on a year over year basis in October.

-Chinese imports were down 8.7 percent in November on a year over year basis.

-Chinese manufacturing activity has been contracting for nine months in a row.

-Last week, the China Containerized Freight Index plummeted to 718.58 – the lowest level ever recorded.

And of course it isn’t just China. Goldman Sachs says that the seventh largest economy on the entire planet, Brazil, has plunged into a “depression“. And as I pointed out the other day, of the 93 largest stock market indexes in the entire world, an astonishing 47 of them (more than half) are down at least 10 percent year to date.

Even though stocks slid in the U.S. this week, the major indexes still seem somewhat stable. But this is a bit of an illusion. Yes, the biggest names on Wall Street are still flying high for the moment, but shares of a multitude of smaller and mid-size firms have been plummeting. At this point, nearly 70 percent of all U.S. stocks are already below their 200 day moving averages. This is yet another thing that we would expect to see just before the bottom falls out for stocks.

Everything that I have been writing about this week (see here and here) is perfectly consistent with all of my warnings from earlier this year.

We are plunging into a deflationary financial crisis in textbook fashion. And if the Federal Reserve actually does decide to go ahead with an interest rate hike next week that is just going to make things even worse.

But most people are not patient enough to watch a process play out. Most people that write about “the coming economic collapse” hype it up like it is going to be some sort of big Hollywood blockbuster that is going to happen over a week or a month and then be over. That is definitely not the way that I see things.

To me, “the economic collapse” is something that has been happening for decades, that is still in the process of happening right now, and that will continue to happen as we move forward into the future. The long-term trends that are ripping our economy to shreds continue to intensify, and our leaders are not doing anything to fix our underlying fundamental problems.

And the financial crisis that I warned would start during 2015 and accelerate in 2016 has already begun. More than half of all major global stock market indexes are down by at least 10 percent year to date, and some of them have plummeted by more than 30 or 40 percent. Trillions of dollars of wealth has been wiped out around the globe, and this is just the beginning.

All of the numbers tell us the same thing.

Big trouble is ahead.

My job is to inform you of these things. What you choose to do with this information is up to you.

Guess What Happened The Last Time Junk Bonds Started Crashing Like This? Hint: Think 2008

December 8, 2015December 8, 2015 by Michael

The extreme carnage that we are witnessing in the junk bond market right now is one of the clearest signals yet that a major U.S. stock market crash is imminent. For those that are not familiar with “junk bonds”, please don’t get put off by the name. They aren’t really “junk”. They simply have a higher risk and thus a higher return than other bonds of the same type. And yesterday, I explained why I watch them so closely. If stocks are going to crash, you would expect to see a junk bond crash first. This happened in 2008, and it is happening again right now. On Monday, a high yield bond ETF known as JNK crashed through the psychologically important 35.00 barrier for the very first time since the last financial crisis. On Tuesday, high yield bonds had their worst day in three months, and JNK plummeted all the way down to 34.44. When I saw this I was absolutely stunned. This is precisely the kind of junk bond crash that I have been anticipating that we would soon witness.

Normally, stocks and junk bonds track one another very closely, but just like before the 2008 crash, they have become decoupled in recent months. Anyone that even has an elementary understanding of the financial world knows that this cannot continue indefinitely. And when they start converging once again, the movement could be quite violent.

When I chose to use the word “carnage” to open this article, I was not exaggerating what is going on in the junk bond market one bit. On Tuesday evening, Jeffrey Gundlach used the exact same word to describe what is happening…

Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, said on a webcast on Tuesday that the junk bond market has come under severe selling pressure ahead of the Federal Reserve’s policy meeting next week.

“We are looking at real carnage in the junk bond market,” Gundlach said. Gundlach also said it was too early to buy high-yield junk bonds and energy debt securities. “I don’t like things when they go down every single day.”

Sometimes a chart can be extremely helpful in understanding what is going on. The following chart was posted by Zero Hedge on Tuesday, and it shows that yields on the riskiest junk bonds are heading into the stratosphere…

And for those that are not familiar, it is important to note that when yields go up, bond prices go down. So the chart above is what a “crash” looks like.

Another “leading indicator” that I watch is the behavior of Dow Transports.

Dow Transports started crashing before the Dow Jones Industrial Average did back in August, and now it is happening again…

Dow Transports are in reverse. Down over 3% today, the biggest drop since the Black Monday collapse, Trannies are now below the lows of the Bullard bounce from October 2014 and down a shocking 16% in 2015. This would be the first four-quarters-in-a-row drop in Transports since 1994 and the worst year since 2008…

In addition, we are also seeing trouble signs erupt at major financial institutions just like we did during the run up to the 2008 crash. For example, I have been concerned about Morgan Stanley for quite a while, and on Tuesday we learned that they have just laid off more than a thousand workers…

Struggling Morgan Stanley slashed 1,200 jobs around the world in recent days, a person familiar with the matter told CNNMoney.

The cuts were broad-based and eliminated 25% of the positions within the fixed income and commodities businesses, the person said. Those divisions are grappling with tumbling trading revenue and shrinking fees.

Morgan Stanley also eliminated about 730 back-office jobs like human-resources and IT positions.

Virtually all of the things that we would expect to see just prior to a 2008-style stock market crash are happening right now.

If just two or three leading indicators were flashing red, we could have a really good debate about what they might mean.

But the fact that virtually all of the numbers are screaming a warning at us should mean that the debate is over. Anyone with an open mind should be able to very clearly see what is coming next.

Very quickly, let me give you just 10 signs that indicate that we are right on the precipice of a major recession and a very substantial financial downturn…

1. Global GDP growth has gone negative for the first time since 2009.

2. Corporate earnings growth has turned negative.

3. S&P 500 net profit margins are steeply declining. According to Tony Sagami, “since 1973, there has been only one 60 bps decline in S&P 500 net profit margin that didn’t lead to a recession.”

4. In October, U.S. imports of goods declined by 6.6 percent on a year over year basis.

5. In October, U.S. exports of goods declined by 10.4 percent on a year over year basis.

6. U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.

7. Corporate debt defaults have risen to the highest level that we have seen since the last recession.

8. Credit card numbers that were recently released show that holiday sales have gone negative for the first time since the last recession.

9. The velocity of money in the United States has dropped to the lowest level ever recorded.

10. Of the 93 largest stock market indexes in the entire world, 47 of them (slightly more than half) have already plunged at least 10 percent year to date.

Just like in 2008, other global financial markets are imploding ahead of a U.S. collapse.

On Tuesday, the Dow Jones Industrial Average was down another 162 points, but we are still within 1000 points of the market peak that was set earlier this year. We are still in far better shape than most of the rest of the world, but that will soon change.

I can’t think of a single leading indicator that is telling us that everything is going to be okay. All of the numbers are pointing to major trouble ahead. So I hope that you are being smart and doing what you can to get prepared while there is still time.

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

December 7, 2015December 7, 2015 by Michael

On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.

The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…

One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…

“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.

“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”

Analysts at Goldman Sachs are even more pessimistic than that. According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…

At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.

After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.

That may sound really good to you, especially if you fill up your gas tank frequently. But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…

“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”

Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.

“This was a devastating blow for the U.S. oil industry,” Cramer said.

On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.

I watch a high yield bond ETF known as JNK very closely. On Monday, JNK broke below 35 for the first time since the financial crisis of 2008. Just like 40 dollar oil, this is a key psychological barrier.

So why is this important?

As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again. If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.

Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016. Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…

Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.

In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.

On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.

“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.

What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started. The evidence is all around us, and yet so many choose to be willingly blind.

Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt. And of course all of this manipulation just made our long-term problems even worse. I really like how Peter Schiff put it recently…

What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.

We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.

The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.

And then the party is going to come to an end.

Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.

Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.

27 Major Global Stocks Markets That Have Already Crashed By Double Digit Percentages In 2015

December 6, 2015December 3, 2015 by Michael

Anyone that tries to tell you that a global financial crisis is not happening is not being honest with you. Right now, there are 27 major global stock markets that have declined by double digit percentages from their peaks earlier this year. And this is truly a global phenomenon – we have seen stock market crashes in Asia, Europe, South America, Africa and the Middle East. But because U.S. stocks are only down less than a thousand points from the peak earlier this year, most Americans seem to think that everything is just fine.

The truth, of course, is that everything is not fine. We are witnessing a pattern similar to what we saw back in 2008. Back then, Chinese stocks and other major stock markets started crashing first, and then U.S. stocks followed later.

And it appears that we may have entered the next leg down for markets in the western world this week. The Dow was down another 252 points on Thursday, and all of the major stock indexes in the U.S. are now negative for the year except for the NASDAQ. Unless there is a major turnaround in the coming weeks, the six year winning streak for U.S. stocks is likely over.

But when you step back and look at what has been happening globally, a much more ominous picture emerges. I spent much of the afternoon looking at stock market charts for the largest economies all over the globe. What I discovered was financial carnage that was much worse than I anticipated.

It turns out that there are 27 major global stock markets that have fallen by more than 10 percent from peaks that were set earlier this year. If you want to verify this information for yourself, just go to Trading Economics. As you can see, many of these stock market declines have been quite impressive…

1. China: down more than 30 percent

2. Saudi Arabia: down 26 percent

3. Germany: down about 13 percent

4. United Kingdom: down close to 12 percent

5. Spain: down 15 percent

6. Brazil: down more than 22 percent (13,000 points overall)

7. Kuwait: down 14 percent

8. Turkey: down 16 percent

9. India: down close to 12 percent

10. Chile: down 11 percent

11. Columbia: down about 30 percent

12. Peru: down more than 40 percent

13. Bulgaria: down more than 20 percent

14. Greece: down more than 30 percent

15. Poland: down about 19 percent

16. Malaysia: down 10 percent

17. Egypt: down 32 percent

18. Indonesia: down 18 percent

19. Canada: down 12 percent

20. Ukraine: down 45 percent

21. Morocco: down 13 percent

22. Ghana: down 17 percent

23. Kenya: down 27 percent

24. Australia: down 13 percent

25. Nigeria: down more than 30 percent

26. Taiwan: down 15 percent

27. Thailand: down 20 percent

We have not seen numbers like these since 2008, and trillions of dollars of stock market wealth has been wiped out globally. So the “nothing is happening” crowd is simply dead wrong. Stocks are already crashing all over the planet. Just because the big U.S. stock market crash has not happened quite yet does not mean that a major global financial crisis is not happening.

But do you know what is crashing here in this country?

Junk bonds.

At this point, yields on the riskiest junk bonds have risen to levels that we have not seen since the last financial crisis. As I have discussed repeatedly, yields on junk bonds spiked dramatically just before the stock market crash of 2008, and now it is happening again…

This is precisely the kind of behavior that we would expect to see if a major U.S. stock market crash was imminent. Personally, I watch the junk bond market very, very closely because it is such a key leading indicator. And according to Jeffrey Snider, it appears that “something” is starting to cause junk bonds to sell off at an alarming pace…

There isn’t much as far as confirmation, but it increasingly appears as if “something” just hit the triple hooks (CCC) in the junk bond bubble. At least as far as one view of it, Bank of America ML’s CCC implied yield, there was a huge selloff that brought the yield to a new cycle high (low in price) above even the 2011 crisis peak.

But just like in 2008, a lot of people will not heed the warnings because they don’t have the patience to watch long-term trends play out.

We live in a society where we expect constant instant gratification. We have instant coffee, video on demand and 48 hour news cycles. If something does not happen immediately, most of us quickly lose patience.

On my other website, I include a lot more stories about things that are trending in the news. For example, earlier today I wrote about the horrible shootings in San Bernardino, California and I explained why I believe that Islamic terror is now more of a threat to the American people than ever before.

But on this website I like to take a broader view of things. For months, I have been warning that conditions were perfect for another major global financial crisis, and since that time events have been unfolding in textbook fashion.

And as you can see from the numbers above, we have already entered a new global financial crisis. If you tried to tell someone in China, Brazil or Saudi Arabia that a financial crisis was not happening, they would just laugh at you. We need to start learning that the world doesn’t revolve around the United States.

Of course the U.S. is heading for tremendous difficulties as well. This is something that I covered yesterday. All of the fundamental economic numbers are absolutely screaming “recession”, and yet most of the “experts” are still forecasting good things for the coming year.

Those that do not learn from history are doomed to repeat it. None of the problems that caused the crisis the last time around have been fixed, and most of our “leaders” seem blind to what is happening at this moment even though the exact same patterns that played out in 2008 are playing out once again right in front of our eyes.

If you have been waiting for the next global financial crisis, you can stop, because it is already here.

As we move toward the end of 2015, let us hope for the best, but let us also get prepared for the worst.

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