The VIX

The Dow Falls Another 138 Points As Geopolitical Shaking Forces Investors To Race For The Exits

Stock prices just keep on falling, and many analysts are now wondering if a full-blown stock market crash is in our near future.  On Thursday, the S&P 500 and the Dow both closed at 2 month lows after Donald Trump dropped “the mother of all bombs” in Afghanistan.  It was the first time that one of these bombs has ever been used in live combat, and it is being reported that each of these bombs weighs 22,000 pounds and costs 16 million dollars to make.  Of course Trump was trying to send a very clear message to the rest of the world by dropping this bomb, and investors interpreted it as a sign that we are getting even closer to war.

The financial markets will be closed on Friday for the long holiday weekend, and with so much uncertainty about what may happen in Syria and in North Korea, many investors wanted to get their money out of the market while they still could.  The historic losing streak for S&P 500 tech stocks extended to 10 days in a row on Thursday, and all of the major stock indexes are now below their 50 day moving averages for the first time since the election.

And the VIX closed above 16 to close the week, which many analysts saw as a sign that more market volatility is on the way…

The fear index on Thursday hit 16.22, its highest since Nov. 10, after closing above its 200-day moving average on Monday for the first time since Nov. 8.

“The VIX confirmed a breakout above its 200-day moving average [Tuesday], supporting a pickup in volatility in the days ahead,” BTIG’s chief technical strategist, Katie Stockton, said in a Wednesday note.

On Tuesday, I wrote about how geopolitical instability is causing many investors to seek out safe havens such as gold and silver, and that trend continued on Thursday.  As I write this, the price of gold is sitting at $1289.20, and the price of silver is up to $18.50.  Of course if the French election goes badly for the globalists or we see a full-blown shooting war erupt in either Syria or North Korea, those prices will go far, far higher.

For quite a while I have been very strongly warning that these ridiculously inflated stock prices were not sustainable.  It was inevitable that they would start to decline, because the underlying economic numbers simply did not support them.

And just today we got some more bad news.  According to Zero Hedge, the mortgage business at one of America’s biggest banks has been absolutely crashing…

When we reported Wells Fargo’s Q4 earnings back in January, we drew readers’ attention to one specific line of business, the one we dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, specifically in Q4 Wells’ mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014.”

Fast forward one quarter when what was already a troubling situation, just got as bad as it has been since the financial crisis for America’s largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its ‘bread and butter’ is virtually gone, and in Q1 the amount of all-important Mortgage Applications has tumbled by a whopping 23% to just $59 billion, below the lows hit in early 2014, and at fresh lows since the financial crisis.

Unfortunately, what is going on at Wells Fargo is just part of an enormous “loan collapse” that we are witnessing all over the nation.

This is exactly what we would expect to see if a new recession was beginning.  When economic conditions show down, banks and other lending institutions begin to get tighter with their money, and a tightening of credit causes economic activity to slow down even further.

It can be exceedingly difficult to break out of such a cycle once it starts.

But the mainstream media doesn’t seem to understand these things.  Instead, they are pointing the blame at other sources for the emerging economic slowdown.  For example, consider the following excerpt from a CNN article entitled “Americans have become lazy and it’s hurting the economy”…

Americans have become lazy, argues economist Tyler Cowen.

They don’t start businesses as much as they once did. They don’t move as often as they used to. And they live in neighborhoods that are about as segregated as they were in the 1960s.

All of this is causing the U.S. to stagnate economically and politically, Cowen says in his new book: “The Complacent Class: The Self-Defeating Quest for the American Dream.” Growth is far slower than it was in the 1960s, 70s and 80s and productivity growth is way down, despite everyone claiming they are working so hard.

No, our economic problems are not the result of Americans being too lazy.

Rather, the truth is that we have accumulated way too much debt as a society, we have been way too greedy, and there has been way too much manipulation by the Federal Reserve and other central banks.

For decades we have been living way above our means.  We have been able to do this by stealing trillions upon trillions of dollars from future generations of Americans, and now a day of reckoning is rapidly approaching.

Unfortunately for Donald Trump, he just happens to be the president at this moment in history, and so much of the blame for what is about to happen will be pinned on him.  The following comes from a recent interview with Peter Schiff…

Trump doesn’t want to preside over a major decline in our standard of living, but ultimately that has to happen. Because this is the consequence of all this excess consumption that went on before he was president. You know, we sacrificed our future to indulge our past. The future is now the present. We’re here, and it’s time to pay the piper.

Schiff is precisely correct.

For decades we have just kept sacrificing the future in order to inflate our current standard of living.

But the funny thing about the future is that it always arrives at some point, and now we are going to pay an enormously high price for being so exceedingly reckless all these years.

If A Few Ebola Cases Can Make The Stock Market Crash This Much, What Would A Full-Blown Pandemic Mean?

Stock Market Crash Ebola - Public DomainIs Ebola going to cause another of the massive October stock market crashes that Wall Street is famous for?  At one point on Wednesday, the Dow was down a staggering 460 points.  It ultimately closed down just 173 points, but this was the fifth day in a row that the Dow has declined.  And of course Ebola is one of the primary things that is being blamed for this stunning stock market drop.  Since September 19th, we have seen the S&P 500 fall about 7 percent and the Nasdaq fall nearly 10 percent.  The VIX (the most important measure of volatility on Wall Street) shot up an astounding 22 percent on Wednesday.  So many of the ominous signs for the markets that I wrote about on Tuesday are now even worse.  If a handful of Ebola cases in the United States can cause this much panic in the financial world, what would a full-blown pandemic look like?

Of course Ebola is not the only reason why stocks are declining.  Just look at what is happening over in Europe.  The European Stoxx 600 index is already down a whopping 11.4 percent from the high that it hit just 18 days ago.  That is officially considered to be “correction” territory.

And Greece experienced a full-blown stock market collapse on Wednesday…

As if the world didn’t have enough to be worried about (ISIS, Ebola, slowing China, Ukraine, slowing Germany, Fed tightening, etc.) now look what’s back: Greece. And in a big way.

The stock market is down over 9% on Wednesday, which is about as big as crashes come.

And the banks are getting absolutely smashed.

In general, markets tend to fall faster than they rise.

When there is a sudden downturn, the price action can be violent.  And just like we saw back in 2008, financial stocks are leading the way.  Just check out what happened to some of the biggest banks in America before the final bell sounded…

Volume leader Bank of America, down 5%, Citigroup, off 5.5%, and JP Morgan, down 4.6%, were particularly hard hit.

And thanks to Ebola fears, airline stocks plummeted as well…

Airline stocks were roiled by the prospects of curtailed travel due to the spreading Ebola virus. United Continental fell 4% and American Airlines was off 4.3%. Among tech stocks, Intel lost 3.3%. Apple fell 1.7% and Microsoft slipped 2.3%.

An increasing number of voices are concerned that we could be on the verge of a repeat of what happened back in 2008.

For example, Professor Steve Keen, the head of Economics, History & Politics at Kingston University in London, wrote the following in a piece for CNN entitled “Brace yourself for another financial crash“…

My acceleration indicator has been flagging that the stock market was due for a fall since mid-2013.

It’s a tribute to the power of the Fed’s Quantitative Easing that the market continued to defy the gravity of decelerating debt for so long. QE was really a program to inflate asset prices since, as my colleague Michael Hudson puts it, “the Fed’s helicopter money fell on Wall Street, not Main Street”.

But with QE being unwound, the stock market is now back under the control of the not so tender mercies of excessive private debt.

So welcome to the New Crisis — same as the Old Crisis. The roller coaster ride is likely to continue.

Others are even more pessimistic.  For example, just check out what Daniel Ameduri of Future Money Trends recently told his readers…

“If it drops below 15,000 points I would suggest people start buying food and ammo, because this depression is about to turn nasty.”

However, keep in mind that not that much has really changed from a month or two ago.

Yes, we now have had three confirmed cases of Ebola in the United States, but this could be just the beginning.

At first, the fear of Ebola will be worse than the disease.

But if a worst-case scenario does develop in the United States where hundreds of thousands of people are getting the virus, the fear such a pandemic will create will be off the charts.

In the midst of a full-blown Ebola pandemic, we wouldn’t just be talking about a 10 percent, 20 percent or 30 percent stock market decline.

Rather, we would be talking about the greatest stock market collapse in the history of stock market collapses.  In essence, there would not be much of a market at all at that point.

And if Ebola does start spreading wildly in this country, we would have a credit crunch that would make 2008 look like a Sunday picnic.

During times of extraordinary fear, financial institutions do not want to lend money to each other or to consumers.  But our economy is entirely based on debt.  If credit were to stop flowing, we would essentially not have an economy.

That is why we need to pray that this Ebola crisis stops here.  But thanks to the incompetence of Barack Obama and the CDC, there has been a series of very grave errors in trying to contain this disease.  This display of incompetence would be absolutely hilarious if we weren’t talking about a disease that could potentially kill millions of us.

Let us hope for the best, but let us also prepare for the worst.  That means stocking up on the food and supplies that you will need to stay isolated for an extended period of time.  As we have seen so many times in the past, basic essentials fly off of store shelves during any type of an emergency.  During an extended Ebola pandemic, those essentials would be in very short supply and prices on the basics would absolutely skyrocket.  Those that have taken the time to get prepared now will be way ahead of the game.

And if there were dozens or hundreds of people in your community that were contagious, you would definitely not want to go to a grocery store or anywhere else where large numbers of people circulate.

The key during any major pandemic is to keep yourself and your family isolated from the virus.  This is basic common sense, but it is something that Barack Obama does not seem to understand.  As I write this, he still has not done anything to restrict air travel between the United States and West Africa.  Hopefully this very foolish decision will not result in scores of dead Americans.