Stocks

What In The World Just Happened To The New York Stock Exchange?

New York Stock Exchange - Public DomainDo you believe that the New York Stock Exchange shut down because of a “technical glitch” on Wednesday?  At 11:32 AM on Wednesday morning, trading on the New York Stock Exchange was halted due to “internal technical issues”, and it did not resume until 3:10 PM.  Officials insist that there is no evidence that a cyberattack caused the technical problems even though hactivists had hinted that something may happen the night before.  Adding to the suspicion is the fact that United Airlines and the Wall Street Journal also experienced very serious “technical glitches” on Wednesday.  Others found it very curious that trading on the NYSE was halted just after Chinese stocks had absolutely plummeted the night before.  In fact, Hong Kong’s Hang Seng Index experienced the largest one day decline that we have witnessed since November 2008.  So is there more going on here than meets the eye?

Overall, the Dow was down 261 points on Wednesday, and the Dow and the S&P 500 both closed below their 200 day moving averages.  Iron ore had its biggest daily price drop ever, and the price of oil continued to decline.  But it was the stunning shut down of the New York Stock Exchange that made headlines all over the world…

The New York Stock Exchange, United Airlines and the Wall Street Journal have all fallen victim to a series of massive technical glitches within hours of each other.

NYSE halted all trading for ‘technical reasons’ at 11:32am and only reopened at 3:10pm – but says the problem is an internal one and not the result of a cyberattack.

It comes as tens of thousands of United Airlines passengers were stranded at U.S. airports on Wednesday morning after all of the carrier’s flights were grounded nationwide due to a computer system glitch.

The Wall Street Journal was also left unable to publish after its systems came under attack and has been forced to switch to an alternative site design.

In response to the shut down, the following photo began circulating on Twitter…

But was it really just a “technical glitch”?

Of course they probably would never admit it publicly if it was a cyberattack.  We live at a time when the authorities are much more concerned with keeping everyone calm than they are about telling us the truth.  So in the end all we can really do is speculate about what really happened.

But what we do know is that the stock market crash in China got even worse the night before this shutdown.  The Shanghai Composite Index and the Hang Seng Index both declined by almost six percent overnight.  Overall, the Shanghai Composite Index is now down by more than 30 percent in less than a month, and the Chinese version of the NASDAQ is down by more than 40 percent…

In just three weeks, stocks listed on mainland China’s most prominent exchange have fallen by more than 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over the 21 days.

Government regulators have now banned, for six months, Chinese executives from selling stock in their own companies. This is only one of a number moves made by panicked officials.

At this point, trading for approximately 45 percent of all stocks on the Shanghai and Shenzhen exchanges has been suspended.  So as a result the selling has bled over to the Hang Seng Index in Hong Kong, and this has caused tremendous chaos…

Hong Kong’s benchmark stock gauge plunged the most since the global financial crisis as an equity rout in mainland China rippled across Asia.

The Hang Seng Index fell 5.8 percent to 23,516.56 at the close today, the biggest drop since November 2008, after slumping as much as 8.6 percent.

Even though the Chinese have been trying all sorts of crazy things to stop the crash, nothing has worked.  Instead, the selling restrictions have only seemed to fuel the panic even more…

“Investors are disappointed and afraid that the Chinese policy makers lost control of the market,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “With no end in sight to the plunge, sentiment has turned cold. With liquidity drying up in the mainland, the Hong Kong market is being sold instead –- the only thing it can do is just quietly take the storm.”

Meanwhile, things over in Europe have become more ominous as well.  As I wrote about yesterday, EU officials have declared this week to be “the final deadline” for making a deal with Greece.  On Wednesday, Greece applied for a new three year emergency loan, and European officials have said that they will consider it…

A race to save Greece from bankruptcy and keep it in the euro gathered pace on Wednesday when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request.

Greek Prime Minister Alexis Tsipras called in a speech to the European Parliament for a fair deal, acknowledging Greece’s historic responsibility for its plight, after EU leaders gave him five days to come up with convincing reforms.

The government submitted a request to the European Stability Mechanism bailout fund to lend an unspecified amount “to meet Greece’s debt obligations and to ensure stability of the financial system”. It promised to begin implementing tax and pension measures sought by creditors as early as Monday.

But there is still a tremendous amount of skepticism about whether a deal can be reached.  The Greeks want debt relief, but the Germans have completely ruled out any sort of a debt haircut.  Most of the rest of the EU nations are siding with the Germans, and unless the Greek government caves in at the last moment it appears that a “Grexit” is quite likely.

For most people, the events of 2008 have long since faded from their memories.  After years of soaring stock prices, many in the financial world have become extremely comfortable.  But as we are seeing in China, what goes up must eventually come down.

And the shut down of the New York Stock Exchange today should be a huge wake up call for all of us.  We have become extraordinarily dependent on computers and technology, and this makes us exceedingly vulnerable.  Someday, we might just experience a cyberattack that causes a tremendous amount of permanent damage that cannot be undone.

What will we do then?

Our world is becoming increasingly unstable, and events are beginning to accelerate as we enter the second half of 2015.

So what comes next?  Please feel free to share what you think by posting a comment below…

European Stocks, Chinese Stocks And Commodities Are All Crashing – Are U.S. Stocks Next?

European Stock Market Crash - Public DomainA global stock market crash has begun.  European stocks are crashing, Chinese stocks are crashing, and commodities are crashing.  And guess what?  All of those things happened before U.S. stocks crashed in the fall of 2008 too.  In so many ways, it seems like we are watching a replay of the financial crisis of 2008, but this time around the world is in far worse shape financially.  Global debt levels are at an all-time high, the 75 trillion dollar global shadow banking system could implode at any time, and there are hundreds of trillions of dollars in derivatives that threaten to wipe out major banks all over the planet.  The last major worldwide financial crash was almost seven years ago, and very little has been done since that time to prepare for the next one.  If global markets do not calm down, we could see carnage in the months ahead that is absolutely unprecedented.

For months, European authorities have been promising us that a “Grexit” is already “priced in” to the markets and that any “contagion” from the Greek crisis will be “contained”.  Of course everyone knew that was just a smokescreen.  Just in the past couple of days since the Greek “no” vote, European stocks have already been crashing.  The following comes from Zero Hedge…

Does this look contained to you?

Portugal, Spain, and Italy all collapsing…

European Stocks Crashing - Zero Hedge

As I mentioned at the top of this article, European stocks started crashing well before U.S. stocks started crashing during the last financial crisis.  If you doubt this, just look at this chart, and this chart and this chart.

Will the same thing happen again this time?

And just like I have warned repeatedly, European bond yields have started to soar.  When bond yields go up, bond prices go down, so many bond investors are losing a tremendous amount of money right now.  Here is more from Zero Hedge…

Who’s next?

European bond risk is anything but “contained” as GGB 10Y Yields top 18%…

European Bond Yields - Zero Hedge

If there is not a last minute deal between Greece and her creditors, what we have witnessed so far in the bond markets will just be the tip of the iceberg.  In the months ahead, we could witness a bond crash unlike anything that we have ever seen in all of history.  Just consider what Egon von Greyerz recently told Eric King…

There is no liquidity in this market and this is where we will soon see a problem. We will see the bond market totally seizing up in the next few months. Eric, people simply don’t understand that this is a much bigger problem than Greece.

So we are talking about a worldwide problem, not just a Greek problem. The majority of the $100 trillion bond market is worthless, and of course a ticking time-bomb of over $1 quadrillion worth of derivatives is linked to that. This means that, sadly, we are heading into a major contagion that will lead to financial catastrophe for the world. This will also lead to an implosion of all bubble assets across the globe.

Hmm – there is that word “derivatives” again.

It is funny how that keeps popping up.

As things unravel over in Europe, a lot of desperate Europeans are feverishly purchasing physical gold.  The following comes from Bloomberg…

European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.

Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.

Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6.

Meanwhile, Chinese stocks have continued to fall.  Overall, Chinese stocks have fallen 27 percent since the peak, and a whopping 3.2 trillion dollars of “paper wealth” has been wiped out in China in just the last three weeks.

At this point things are so bad that about one-fourth of all stocks in China have already suspended trading according to CNN…

The turmoil in China’s stock market is so bad that some companies are calling it quits.

Over 700 Chinese companies have halted trading to “self preserve,” according to the state media. That means about a quarter of the companies listed on China’s two big exchanges — the Shanghai and Shenzhen — are no longer trading.

Desperate measures are being employed to try to stop the stock market crash in China.  For example, over the weekend an alliance of securities brokerages pledged to invest “at least 120 billion yuan” in order to stabilize stock prices…

China’s top 21 securities brokerages said on Saturday they would collectively invest at least 120 billion yuan ($19.3 billion) to help stabilize the country’s stock markets after a slump of nearly 30 percent since mid-June. In addition, 57 Chinese mutual funds are reportedly investing 2.2 billion yuan in stock funds.

The Chinese central bank has gotten involved as well.  In fact, the People’s Bank of China has taken the dramatic step of actually directly loaning money to brokerages…

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

In addition, the Chinese government has taken the following steps to intervene…

-All short selling of stocks has been banned.

-China’s national social security fund has been banned from selling stocks, but they can continue to buy stocks.

-Local media has been banned from using the terms “equity disaster” and “rescue the market” in their news reports.

But despite everything that you just read, Chinese stocks have still been falling.

Meanwhile, global commodity prices are crashing.  Just check out this chart.  This is also something that happened before U.S. stocks crashed back in 2008.

Thankfully, U.S. stocks have not started crashing yet.  But it should be noted that the “smart money” in the United States has been selling stocks like crazy since the “no” vote in the Greek referendum.  And if the patterns that we witnessed seven years ago hold up, it is just a matter of time before we experience a stock market crash too.

Incredibly, there are a lot of people out there that very strongly believe that everything is going to be just fine.  They have tremendous faith in the central bankers and in our political leaders, and they are assuring all the rest of us that there is no possible way that the global financial system could be brought down again.

I truly wish that they were right.  If everything was going to be just fine, instead of writing about the coming economic collapse I could write about sports or do a blog dedicated to LOLcats.  But of course the truth is that the “hopetimists” are dead wrong.

A great shaking is coming to our world, and life as we know it is about to change in a major way.

Greece Votes NO – Let The Chaos Begin…

No - Public DomainThe result of the referendum in Greece is a great victory for freedom, but it is also threatens to unleash unprecedented economic chaos all across Europe.  With almost all of the votes counted, it is being reported that approximately 61 percent of Greeks have voted “no” and only about 39 percent of Greeks have voted “yes”.  This is a much larger margin of victory for the “no” side than almost everyone was anticipating, and it represents a stunning rejection of European austerity.  Massive celebrations have erupted on the streets of Athens and other major Greek cities, but the euphoria may not last long.  Greek Prime Minister Alexis Tsipras is promising that Greece will be able to stay in the euro, but that gives EU bureaucrats and the IMF a tremendous amount of power, because at this point the Greek government is flat broke.  Without more money from the EU and the IMF, the Greek government will not be able to pay its bills and virtually all Greek banks will inevitably collapse.  Meanwhile, the rest of Europe is about to experience a tremendous amount of pain as financial markets respond to the results of this referendum.  The euro is already plummeting, and most analysts expect European bond yields to soar and European stocks to drop substantially when trading opens on Monday morning.

Personally, I love the fact that the Greek people decided not to buckle under the pressure being imposed on them by the EU and the IMF.  But amidst all of the celebration, the cold, hard reality of the matter is that your options are extremely limited when you are out of money.

How is the Greek government going to pay its bills without any money?

How are the insolvent Greek banks going to operate without any money?

How is the Greek economy going to function without any money?

Now that the Greek people have overwhelmingly rejected the demands of the creditors, it will be very interesting to see what the EU and the IMF do.  Prior to the referendum, European leaders were insisting that a “no” vote would put an end to negotiations and would force Greece to leave the euro.

Now that the results are in, are they going to change their tune?  Because the ball is definitely in their court…

“This does two things: it legitimises the stance of the Greek government and it leaves the ball in Europe’s court,” ANZ Bank analysts said in a note.

“Europe either folds or Greece goes bankrupt; over to you Merkel.”

So would they actually let Greece go bankrupt?

It is going to be fascinating to watch what happens over the next few days.  Right now, Greek banks are on life support.  If the European Central Bank decides to pull the plug, they would essentially destroy the entire Greek banking system.  The only thing that can keep Greek banks alive and kicking is more intervention from the ECB.  The following comes from the New York Times…

Now that Greek voters have said no to the economic demands of its international creditors, the fate of the country’s struggling banks is in the hands of the European Central Bank.

Greece’s banks, closed since last Monday because they are perilously low on cash, have been kept alive in recent weeks by emergency loans from the European Central Bank. On Monday, the central bank’s policy makers plan to convene to determine how much longer they are willing to prop up the Greek banks, now that the country has essentially said no to the unpopular dictates of the other eurozone countries.

Of much greater concern to the rest of the world is how financial markets are going to respond to all of this.  As I write this article, things already appear to be unraveling.  The following comes from CNBC…

Germany’s Dax is indicated sharply lower from Friday’s close at around 4 percent, while the euro was down 2 percent against the yen as the news emerged. U.S. stocks are expected to open around 1 percent lower Monday, according to recent stock futures data.

What could be most important for those worried about contagion from the Greek crisis is how Portuguese, Spanish and Italian government bonds perform in Monday morning trade.

If these peripheral euro zone countries, often lumped in with Greece, suffer a sharp spike in yields, this could cause alarm about whether Greece leaving the currency might cause further contagion to other weaker euro zone economies.

This could potentially become a “trigger event” that unleashes a wave of financial panic all over Europe.  And once financial panic begins, it is very difficult to end.

If the EU and the IMF want to avoid a crisis, they could just give in to the new Greek government.  But that would be politically risky for certain high profile European leaders.  For instance, Angela Merkel would face a huge backlash back home if she conceded to the new Greek government now.  And other German leaders are already calling the referendum result a “disaster”…

German politicians branded the result a ‘disaster’, with the country’s economy minister Sigmar Gabriel Sigmar accusing Tsipras of ‘tearing down the last bridges on which Greece and Europe could have moved towards a compromise’.

He added: ‘Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness.’

And the president of the European Parliament, a German, told a German radio station over the weekend that a “no” vote would almost certainly mean that the Greeks will be forced out of the euro…

“If after the referendum, the majority is a ‘no,’ they will have to introduce another currency because the euro will no longer be available for a means of payment,” Martin Schulz, European Parliament president, said on German radio.

That is pretty strong language, eh?

Here is yet another quote from Schulz…

“Without new money, salaries won’t be paid, the health system will stop functioning, the power network and public transport will break down, and they won’t be able to import vital goods because nobody can pay,” he said.

So at this point it is all up to the EU and the IMF, and in particular the focus will be on the Germans.

What will they decide to do?

Will they give in, or will they force the Greeks to leave the euro?

If the Greeks do transition from the euro to a new currency, it will be a process that takes months (if not longer).  You just can’t change ATMs, computer systems, cash registers, etc. overnight.  So a move to the drachma  would not be as simple as many are suggesting…

British firms like De La Rue, which prints 150 currencies worldwide, are believed to have been contacted with a view to providing such services.

It’s done in great secrecy to prevent currency speculation. The other big problem is the logistical challenges of switching a currency. All ATMs, computers and other machinery of commerce that bears the euro symbol will have to be adjusted. It could, and would, take months.

And if Greece does leave, it will be a massive shock for global financial markets.  Faith in the European project will be shattered, the euro will drop like a rock, bond yields all over the continent will rise to unsustainable levels and major banks all over Europe will fail.

I think that the following quote from Romano Prodi sums things up quite well…

Romano Prodi, former chief of the European Commission and Italy’s ex-premier, said it is the EU’s own survival that is now at stake as the botched handling of the Greek crisis escalates into a catastrophe. “If the EU cannot resolve a small problem the size of Greece, what is the point of Europe?“

Meanwhile, we should all keep in mind that a financial crisis has already erupted over in Asia as well.  Chinese stocks have lost 30 percent of their value in just the last three weeks.  In fact, the amount of “paper wealth” wiped out in China over the past three weeks is approximately equivalent to “10 times Greece’s gross domestic product”…

A dizzying three-week plunge in Chinese equities has wiped out $2.36 trillion in market value — equivalent to about 10 times Greece’s gross domestic product last year.

The great financial collapse of 2015 is well underway, and it should be a very interesting week for global markets.

But no matter what happens this week, we all need to keep in mind that this is just the tip of the iceberg.

A “perfect storm” is on the way, and we all need to get prepared for it while we still can.

Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

Question Button - Public DomainThe second largest stock market in the entire world is collapsing right in front of our eyes.  Since hitting a peak in June, the most important Chinese stock market index has plummeted by well over 20 percent, and more than 3 trillion dollars of “paper wealth” has been wiped out.  Of course the Shanghai Composite Index is still way above the level it was sitting at exactly one year ago, but what is so disturbing about this current crash is that it is so similar to what we witnessed just prior to the great financial crisis of 2008 in the United States.  From October 2006 to October 2007, the Shanghai Composite Index more than tripled in value.  It was the greatest stock market surge in Chinese history.  But after hitting a peak, it began to fall dramatically.  From October 2007 to October 2008, the Shanghai Composite Index absolutely crashed.  In the end, more than two-thirds of all wealth in the market was completely wiped out.  You can see all of this on a chart that you can find right here.  What makes this so important to U.S. investors is the fact that Chinese stocks started crashing well before U.S. stocks started crashing during the last financial crisis, and now it is happening again.  Is this yet another sign that a U.S. stock market crash is imminent?

Over the past several months, I have been trying to hammer home the comparisons between what we are experiencing right now and the lead up to the U.S. financial crisis in the second half of 2008.  Today, I want to share with you an excerpt from a New York Times article that was published in April 2008.  At that time, the Chinese stock market crash was already well underway, but U.S. stocks were still in great shape…

The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.

This sounds almost exactly like what is happening in China right now.  First we witnessed a ridiculous Chinese stock market bubble form, and now we are watching a nightmarish sell off take place.  This next excerpt is from a Reuters article that was just published…

Shanghai’s benchmark share index crashed below 4,000 points for the first time since April – a key support level that analysts said had been seen as a line in the sand that Beijing had to defend, below which more conservative investors would start ejecting from their leveraged positions, widening the rout.

Chinese markets, which had risen as much as 110 percent from November to a peak in June, have collapsed at an incredibly rapid pace in since June 12, losing more than 20 percent in jaw-dropping volatility as money surges in and out of the market.

That drop has wiped out nearly $3 trillion in market capitalization, more than the GDP of Brazil.

Did you catch that last part?

The amount of wealth that has been wiped out during this Chinese stock market crash is already greater than the entire yearly GDP of Brazil.

To me, that is absolutely incredible.

And now that the global financial system is more interconnected than ever, what goes on over in China has a greater impact on the rest of the globe than ever before.  Today, China has the largest economy on the planet on a purchasing power basis, and the Chinese stock market “is the second largest in the world in terms of market capitalization”…

Just as in 1929, flighty retail investors make up the bulk of China’s stock market and, just as in 1929 in the U.S., they have heavily margined their accounts. The Financial Times puts the number of retail investors in the Chinese stock market at 80 to 90 percent of the total market. Retail investors, unlike sophisticated institutional investors, are prone to panic selling, which explains the wild intraday swings in the Shanghai Composite over the past week.

Last night, the Shanghai Composite broke a key technical support level, closing below 4,000 at 3,912.77. The index is now down 24 percent since it peaked earlier this month and has wiped out more than $2.4 trillion in value. China’s stock market is the second largest in the world in terms of market capitalization, with the U.S. ranking number one.

Making world markets even more worried about the situation in China, its regulators are showing a similar brand of leadership as Mario Draghi. After previously pledging to trim back risky margin lending, they have now done a complete flip flop and are permitting individual brokerage firms to avoid selling out accounts that miss margin calls by setting their own guidelines on the amount of collateral needed.

I know that a lot of Americans don’t really care about what happens over in Asia, but when the second largest stock market in the entire world crashes, it is a very big deal.

The great financial crisis of 2015 has now begun, and it is just going to get much, much worse.  On Thursday, Ron Paul declared that “the day of reckoning is at hand“, and I agree with him.

So what comes next?

The following is what Phoenix Capital Research is anticipating…

By the time it’s all over, I expect:

1)   Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2)   The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3)   Japan to have defaulted and very likely enter hyperinflation.

4)   US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5)   Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

I tend to agree with most of that. I don’t agree that the euro is going to go away, but I do agree that the eurozone is going to break up and be reconstituted in a new form eventually.  And yes, we are going to see tremendous inflation all over the world down the road, but I wouldn’t say that it is imminent in Japan or anywhere else.  But overall, I think that is a pretty good list.

So what do you think is coming?  Please feel free to join the discussion by posting a comment below…

Signs Of Financial Turmoil In Europe, China And The United States

Earth In Peril - Public DomainAs we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday…

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example…

And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge…

As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America…

“High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”…

Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.“

Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week…

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

“I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

And you know what they say – the bigger they come the harder they fall.

When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.

The Economic Depression In Greece Deepens As Tsipras Prepares To Deliver ‘The Great No’

No Cards - Public DomainAs Greece plunges even deeper into economic chaos, Greek Prime Minister Alexis Tsipras says that his government is prepared to respond to the demands of the EU and the IMF with “the great no” and that his party will accept responsibility for whatever consequences follow.  Despite years of intervention from the rest of Europe, Greece is a bigger economic mess today than ever.  Greek GDP has shrunk by 26 percent since 2008, the national debt to GDP ratio in Greece is up to a staggering 175 percent, and the unemployment rate is up above 25 percent.  Greek stocks are crashing and Greek bond yields are shooting into the stratosphere.  Meanwhile, the banking system is essentially on life support at this point.  400 million euros were pulled out of Greek banks on Monday alone.  No matter what happens in the coming days, many believe that it is now only a matter of time before capital controls like we saw in Cyprus are imposed.

Over the past several months, there have been endless high level meetings over in Europe regarding this Greek crisis, but none of them have fixed anything.  And even Jeroen Dijsselbloem admits that the odds of anything being accomplished during the meeting of eurozone finance ministers on Thursday is “very small”…

Some officials believe Thursday’s meeting of eurozone finance ministers will be perhaps the last chance to stop Greece sliding into default and towards leaving the euro.

However the president of the so-called Eurogroup, Jeroen Dijsselbloem, said the chance of an accord was “very small”.

And it is certainly not just Dijsselbloem that feels this way.  At this point pretty much everyone is resigned to the fact that there is not going to be a deal any time soon.  The following comes from Reuters…

“People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it’s stuck,” said a senior EU diplomat, who declined to be named.

“It’s very dangerous, and we may have an accident.”

EU officials insist that it is Greece that needs to back down, but the Greeks have no intention of backing down.  Just consider the words of Greek Prime Minister Alexis Tsipras.  He says that he is not afraid to deliver “the great no” to the rest of Europe…

Greek Prime Minister Alexis Tsipras said he’s ready to assume responsibility for the consequences of rejecting an unfair deal with creditors.

In a sign that he’s being taken at his word, officials from the Netherlands, Portugal and Germany said they were bracing for a breakdown in talks that could roil the currency bloc.

With a viable solution “the Greek government recently elected by the Greek people will bear the cost of carrying through,” Tsipras told reporters in Athens on Wednesday. Without one, “we will assume the responsibility to say ‘the great no’ to a continuation of the catastrophic policies.”

To me, that sounds like a man that is not going to back down.  And to call it “the great no” is not an exaggeration at all.  I think that he realizes that this “great no” will unleash financial chaos all over Europe.

For Greece, the consequences would likely be catastrophic.  At least that is what the Bank of Greece thinks…

Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.

All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.

And no matter how confident the Germans appear to be right now, the truth is that a Greek debt default would be a complete and total nightmare for the rest of Europe as well.  The euro would drop like a rock, stocks would crash all over Europe and bond yields would go crazy.  And that is just for starters.

So we desperately need to see a deal.  But with each passing day that seems less and less likely.

In fact, a Greek parliament committee on public debt just released a new report containing their preliminary findings.  This report is not legally binding, but it does show the mood of the Greek parliament, and what this report says is absolutely stunning.  It concluded that the Greek government is under absolutely no obligation to repay its debts.  Just check out the following excerpt from the report…

All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.

In other words, what this report is saying is that the Greek government should never pay back any of this debt.  That certainly is not going to sit well with the officials from the EU and the IMF.

And what happens if other financially troubled nations in the eurozone decide that their debts are “illegal” and “odious” as well?

Globally, there are more than 76 trillion dollars worth of bonds floating around out there, and the yields on those bonds are based on the assumption that they will always be paid off.  If nations such as Greece start defaulting, that will throw the entire global financial system into a state of tremendous chaos.

Of course the Greek financial system is already in a state of tremendous chaos.  At this point, many believe that it is just a matter of time before capital controls are imposed.  This is something that I have warned about in the past.  The following description of what capital controls in Greece may look like comes from Bloomberg…

No one knows the specifics for Greece, but here’s what happened in Cyprus: ATM withdrawals were capped at 300 euros a person per day. Transfers of more than 5,000 euros abroad were subject to approval by a special committee. Companies needed documents for each payment order, with approvals for over 200,000 euros determined by available liquidity. Parents couldn’t send children that were studying abroad more than 5,000 euros a quarter. Cypriots traveling abroad could carry no more than 1,000 euros with them. Termination of fixed-term deposits was prohibited, while payments with credit and debit cards were capped at 5,000 euros. Checks couldn’t be cashed.

Since most Greeks do not want to have their money trapped in the banks, they have been pulling out cash and hiding it at home at a record breaking pace.  This is precisely what we would expect to see when a nation is on the verge of total financial collapse…

“Everybody’s doing it,” said Joanna Christofosaki, in front of a Eurobank cash dispenser in the leafy Athens neighbourhood of Kolonaki. “Our friends have all done it. Nobody wants their money to be worthless tomorrow. Nobody wants to be unable to get at it.”

A researcher in the archaeology department at the Academy of Athens, Christofosaki said she knew plenty of people who had “€10,000 somewhere at home” and plenty of others who chose to keep their stash at the office. Was she among them? “If I was, I certainly wouldn’t tell you.”

As I wrote about yesterday, I believe that this is the beginning of the next great European financial crisis.

Eventually, it will spread all over the planet.

Unfortunately, even though global debt levels have never been higher and the signs of the coming financial implosion are all around us, most people have been lulled into a false sense of security.

Most people just assume that everything is going to turn out okay somehow.

The second half of this year is going to be much different from the first half, but most people will not be convinced until everything starts completely falling apart.

By then, it may be far too late to do anything about it.

Is The Stock Market Overvalued?

Stock Market Overvalued - Public DomainAre stocks overvalued?  By just about any measure that you could possibly name, stocks are at historically high prices right now.  From a technical standpoint, the stock market is more overvalued today than it was just prior to the last financial crisis.  The only two moments in U.S. history that even compare to our current state of affairs are the run up to the stock market crash of 1929 and the peak of the hysteria just before the dotcom bubble burst.  It is so obvious that stocks are in a bubble that even Janet Yellen has talked about it, but of course she will never admit that the Federal Reserve has played a key role in creating this bubble.  They say that hindsight is 20/20, but what is happening right in front of our eyes in 2015 is so obvious that everyone should be able to see it.  Just like with all other financial bubbles throughout our history, someday people will look back and talk about how stupid we all were.

Why can’t we ever learn from history?  We just keep on making the same mistakes over and over again.  And without a doubt, some of the smartest members of our society are trying to warn us about what is coming.  For example, Yale economics professor Robert Shiller has repeatedly tried to warn us that stocks are overvalued…

I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.

But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what’s going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, “Do you think the stock market is overvalued, undervalued, or about right?” Lately, what I call “valuation confidence” captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000.

Other analysts prefer to use different valuation indicators than Shiller does.  But no matter which indicators you use, they all show that stocks are tremendously overvalued in mid-2015.  For instance, just consider the following chart.  It comes from Doug Short, and it shows the average of four of his favorite valuation indicators.  As you can see, there is only one other time in all of our history when stocks have been more overvalued than they are today according to the average of these four indicators…

Four Valuation Indicators - Doug Short

Another danger sign that many analysts are pointing to is the dramatic rise in margin debt that we have seen in recent years.  Investors are borrowing tremendous amounts of money to fund purchases of stock.  This is something that we witnessed during the dotcom bubble, it was something that we witnessed just prior to the financial collapse of 2008, and now it is happening again.  In fact, margin debt just surged to a brand new all-time record high.  Once again, the following chart comes from Doug Short…

NYSE Margin Debt - Chart by Doug Short

All of this margin debt has helped drive stocks to ridiculous highs, but it can also serve to drive stock prices down very rapidly when the market turns.  This was noted by Henry Blodget of Business Insider in a recent editorial…

What is “margin debt”?

It’s the amount of money stock investors have collectively borrowed via traditional margin accounts to fund stock purchases.

In a bull market, the growth of margin debt serves as a turbocharger that helps drive stock prices higher.

As with a home mortgage, the more investors borrow, the more house or stock they can buy. So as margin debt grows, collective buying power grows. The borrowed money gets used to fund new stock purchases, which helps drives the prices of those stocks higher. The higher prices, in turn, allow traders to borrow more money to fund additional purchases. And so on.

It’s a self-reinforcing cycle.

The trouble is that it’s a self-reinforcing cycle on the way down, too.

If the overall U.S. economy was absolutely booming, these ultra-high stock prices would not be as much of a concern.  But the truth is that the financial markets have become completely divorced from economic reality.  Right now, corporate profits are actually falling and our exports are way down.  U.S. GDP shrunk during the first quarter, and there are a whole host of economic trouble signs on the horizon.  I am calling this a “recession within a recession“, and I believe that we are heading into another major economic downturn.

Unfortunately, our “leaders” are absolutely clueless about what is coming.  They assure us that everything is going to be just fine – just like they did back in 2008 before everything fell apart.  But the truth is that things are already so bad that even the big banks are sounding the alarm.  For instance, just consider the following words from Deutsche Bank…

At issue is whether or not the Fed in particular but the market in general has properly understood the nature of the economic problem. The more we dig into this, the more we are afraid that they do not. So aside from a data revision tsunami, we would suggest that the Fed has the outlook not just horribly wrong, but completely misunderstood.

Ultimately, most people believe what they want to believe.

Our politicians want to believe that the economy is going to get better, and so do the bureaucrats over at the Federal Reserve.  The mainstream media wants to put a happy face on things, and they want all of us to continue to have faith in the system.

Unfortunately for them, the system is failing.  I truly do hope that this bubble can last for a few more months, but I don’t see it going on for much longer than that.

The greatest financial crisis in U.S. history is fast approaching, and it is going to be extraordinarily painful.

When it arrives, it is not just going to destroy faith in the system.  In the end, it is going to destroy the system altogether.

Stocks Began Falling Right At This Time Of The Year Just Prior To The Last Financial Crisis

Stock Market Crash Bear - Public DomainHave you heard of the saying “sell in May and go away”?  Traditionally, the period from May through October has been a time of weakness for stocks.  In fact, on average stocks hit their lowest point of the year on October 27th.  And most people don’t remember this, but the Dow Jones Industrial Average actually began plunging right at this time of the year just prior to the financial crisis of 2008.  Most people do remember the huge stock crash that happened in the fall of that year, but the market actually started to slide in May.  Throughout the first four and a half months of 2008, stocks moved up and down in a fairly narrow range, and the Dow closed at a short-term peak of 13,028.16 on May 19th.  From there it was all downhill for the rest of the year.  So will a similar thing happen in 2015 as we approach the next great financial crisis?  Since March 20th, the Dow Jones Transportation Average has already fallen by almost 800 points.  So will the Dow Jones Industrial Average soon follow?  Well, only time will tell, but the Dow was down 190 points on Tuesday.  Signs of trouble are popping up all over the place, and the “smart money” is getting out while the getting is good.

The chart that I have posted below shows how the Dow Jones Industrial Average performed during 2008.  As you can see, stocks began plummeting long before the financial crisis in the fall.  From May 19th through early July, the Dow fell by about 2,000 points.  Should we expect to see a similar pattern this summer?…

Dow Jones Industrial Average 2008

Like I stated earlier in this article, red flags and warning signs are starting to pop up all over the place.  The following are just a few of the trouble signs that we have seen this week…

-On Tuesday, the VIX (a closely watched measure of market volatility) jumped by the highest percentage that we have seen so far in 2015.  As I have explained so often before, markets tend to go up in calm markets and they tend to go down in volatile markets.  So the fact that volatility is on the rise is not a good sign.

-The U.S. dollar index is surging again.  In fact, we just witnessed the largest seven day rise in the U.S. dollar index since the collapse of Lehman Brothers.  This is another indication that big trouble is ahead.  For much more on this, please see my previous article entitled “Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…”

-Thanks to the ongoing Greek crisis, the euro is falling again.  It just hit a fresh one-month low, and if I am right it is going to go quite a bit lower as the European financial crisis intensifies.

-In the U.S., orders for durable goods have fallen year over year for four months in a row.  When orders for durable goods start going negative for a few months, it is usually a signal that we are entering a recession.

-After rebounding a little bit, the price of crude oil is falling again.  It just hit a new one-month low, and the number of oil rigs in operation has declined for 24 weeks in a row.  Once again, this is highly reminiscent of what happened back in 2008.

-Unfortunately, it isn’t just oil that is declining.  A whole host of other commodity prices are going down right now as well.  This happened just prior to the financial crisis of 2008, and it is a sign that we are heading into a deflationary economic slowdown.

The reason why I talk so much about what happened the last time around is that we should be able to learn from it.

Looking back, there were so many warning signs leading up to the financial crisis of 2008 but most people totally missed them.  Now, so many of those exact same signs are appearing once again, but they are being ignored.

Only this time the global financial system is in far worse shape than it was back in 2008.  Debt levels all over the planet have absolutely exploded over the past seven years, and the debt to GDP ratio for the entire world is now up to a mind blowing 286 percent.  In the United States, our national debt has approximately doubled since just prior to the last recession, and at this point it is mathematically impossible to pay it off.  We are in the midst of the greatest stock market bubble of all time, the greatest bond bubble of all time (76 trillion dollars) and the greatest derivatives bubble of all time.  Anyone that cannot see the trouble that is approaching is willingly blind.

In the western world, we have extremely short attention spans and we suffer deeply from something called “normalcy bias”.  The following is how “normalcy bias” is defined by Wikipedia…

The normalcy bias, or normality bias, is a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster and its possible effects. This may result in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations.

The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It can result in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.

That is such a perfect description of what is happening in the western world today.  But just because things have always been a certain way in our past does not mean that they will continue to be that way in the future.  A great economic storm is rapidly approaching, and the signs of the times are all around us.

Hopefully more people will start listening to the warnings, because we have almost run out of time to prepare.

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