The Next Great Depression

Guess What Happened The Last Time Bond Yields Crashed Like This?…

April 19, 2015April 20, 2015 by Michael

If a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis. This is called a “flight to safety” or a “flight to quality“. In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down. As you will see below, this is exactly what we witnessed during the financial crisis of 2008. U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace. Well, it is starting to happen again. In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market. So is this another sign that we are on the precipice of a significant financial panic?

Back in 2008, German bonds actually began to plunge well before U.S. bonds did. Does that mean that European money is “smarter” than U.S. money? That would certainly be a very interesting theory to explore. As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

So what are German bonds doing today?

As you can see from this next chart, the yield on 10 year German bonds has been steadily falling since the beginning of last year. At this point, the yield on 10 year German bonds is just barely above zero…

And amazingly, most German bonds that have a maturity of less than 10 years actually have a negative yield right now. That means that investors are going to get back less money than they invest. This is how bizarre the financial markets have become. The “smart money” is so concerned about the “safety” of their investments that they are actually willing to accept negative yields. I don’t know why anyone would ever put their money into investments that have a negative yield, but it is actually happening. The following comes from Yahoo…

The world’s scarcest resource right now is safe yield, and the shortage is getting more extreme. Most German government bonds that mature in less than 10 years now have negative yields – part of some $2 trillion worth of paper with yields below zero.

This is what happens when the European Central Bank begins a trillion-euro bond-buying binge with rates already miniscule.

Yesterday, ECB boss Mario Draghi – unfazed by the protest stunt at his press conference – reaffirmed his plan to keep bidding for paper that yields more than -0.2% – that’s minus 0.2%.

Yes, the ECB is driving a lot of this, but it is still truly bizarre.

So what about the United States?

Well, first let’s take a look at what happened back in 2008. In the chart below, you can see the “flight to safety” that took place in late 2008 as investors started to panic…

And we have started to witness a similar thing happen in recent months. The yield on 10 year U.S. Treasuries has plummeted as investors have looked for safety. This is exactly the kind of chart that we would expect to see if a financial crisis was brewing…

What makes all of this far more compelling is the fact that so many other patterns that we have witnessed just prior to past financial crashes are happening once again.

Yes, there are other potential explanations for why bond yields have been going down. But when you add this to all of the other pieces of evidence that a new financial crisis is rapidly approaching, quite a compelling case emerges.

For those that do not follow my website regularly, I encourage you to check out the following articles to get an idea of what I am talking about…

-“Guess What Happened The Last Time The Price Of Oil Crashed Like This?…”

-“Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…”

-“10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW”

-“Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…”

-“7 Signs That A Stock Market Peak Is Happening Right Now”

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

Of course no two financial crashes ever look exactly the same.

The crisis that we are moving toward is not going to be precisely like the crisis of 2008.

But there are similarities and patterns that we can look for. When things start to get bad, investors act in predictable ways. And so many of the things that we are watching right now are just what we would expect to see in the lead up to a major financial crisis.

Sadly, most people are not willing to learn from history. Even though it is glaringly apparent that we are in a historic financial bubble, most investors on Wall Street cannot see it because they do not want to see it. They want to believe that somehow “things are different this time” and that stocks will just continue to go up indefinitely so that they can keep making lots and lots of money.

And despite what you may think, I actually want this bubble to continue for as long as possible. Despite all of our problems, life is still relatively good in America today – at least compared to what is coming.

I like to refer to this next crisis as our “third strike”.

Back in 2000 and 2001, the dotcom bubble burst and we experienced a painful recession, but we didn’t learn any lessons. That was strike number one.

Then came the financial crash of 2008 and the worst economic downturn since the Great Depression. But we didn’t learn any lessons from that either. Instead, we just reinflated the same old financial bubbles and kept on making the exact same mistakes as before. That was strike number two.

This next financial crisis will be strike number three. After this next crisis, I don’t believe that there will ever be a return to “normal” for the United States. I believe that this is going to be the crisis that unleashes hell in our nation.

So no, I am not eager for that to come. Even though there is no way that this bubble of debt-fueled false prosperity can last indefinitely, I would like for it to last at least a little while longer.

Because what comes after it is going to be truly terrible.

Huge Trouble Is Percolating Just Under The Surface Of The Global Economy

April 15, 2015April 15, 2015 by Michael

Did you know that the number of publicly traded companies declaring bankruptcy has reached a five year high? And did you know that Chinese exports are absolutely collapsing and that Chinese economic growth in 2014 was the weakest in over 20 years? Even though things may seem to be okay on the surface for the global economy at the moment, that does not mean that big trouble is not percolating just under the surface. On Wednesday, investors cheered as stocks soared to new highs, but almost all of the economic news coming in from around the planet has been bad. The credit rating on Greek debt has been slashed again, global economic trade is really slowing down, and many of the exact same financial patterns that we saw just before the crash of 2008 are repeating once again. All of this reminds me of the months leading up to the implosion of Lehman Brothers. Most people were feeling really good about things, but huge trouble was brewing just underneath the surface. Finally, one day we learned that Lehman Brothers had “suddenly” collapsed, and then all hell broke loose.

If the economy is actually “getting better” like we are being told by the establishment media, then why are so many big companies declaring bankruptcy? According to CNBC, the number of publicly traded companies declaring bankruptcy has hit a five year high…

The number of bankruptcies among publicly traded U.S. companies has climbed to the highest first-quarter level for five years, according to a Reuters analysis of data from research firm bankruptcompanynews.com.

Plunging prices of crude oil and other commodities is one of the major reasons for the increased filings, and bankruptcy experts said a more aggressive stance by lenders may also be hurting some companies.

It is interesting to note that the price of oil is being named as one of the primary reasons why this is happening.

In an article entitled “Anyone That Believes That Collapsing Oil Prices Are Good For The Economy Is Crazy“, I warned about this. If the price of oil does not bounce back in a huge way, we are going to see a lot more companies go bankrupt, a lot more people are going to lose their jobs, and a lot more corporate debt is going to go bad.

And of course this oil crash has not just hurt the United States. All over the world, economic activity is being curtailed because of what has happened to the price of oil…

In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

But it isn’t just oil. We appear to be moving into a time when things are slowing down all over the place.

In a recent article, Zero Hedge summarized some of the bad economic news that has come in just this week…

Mortgage Apps tumble, Empire Fed slumps, and now Industrial Production plunges… Against expectations of a 0.3% drop MoM, US Factory Output was twice as bad at -0.6% – the worst since August 2012 (and lamost worst since June 2009). This is the 4th miss in a row.

If we are indeed heading into another economic downturn, that is really bad news, because at the moment we are in far worse shape than we were just prior to the last recession.

To help illustrate this, I want to share with you a couple of charts.

This first chart comes from the Federal Reserve Bank of St. Louis, and it shows that after you adjust for inflation, median income for the middle class is the lowest that it has been in decades…

This next chart shows that median net worth for the middle class is also the lowest that it has been in decades after you adjust for inflation…

The middle class is being systematically destroyed. For much more on this, please see this recent article that I published. And now we are on the verge of another major economic slowdown. That is not what the middle class needs at all.

We are also getting some very disturbing economic news out of China.

In 2014, economic growth in China was the weakest in more than 20 years, and Chinese export numbers are absolutely collapsing…

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

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

This is a clear sign that global economic activity is slowing down in a big way.

In addition, Chinese home prices are now falling at a faster pace then U.S. home prices fell during the subprime mortgage meltdown…

It appeared as though things went from bad to worse nearly overnight; China’s National Bureau of Statistics said that contrary to hopes that there would be a modest rebound, the average new home price in China fell at the fastest pace on record in February, from the previous year.

Reuters reported that average new home prices in China’s 70 major cities fell 5.7 percent, year to year, in February – marking the sixth consecutive drop after January’s decline of 5.1 percent.

Things continue to get worse in Europe as well.

This week we learned that the credit rating for Greek government debt has been slashed once again…

Standard & Poor’s has just cut Greece’s credit rating to “CCC+” from “B-” with a negative outlook.

S&P said it expected Greece’s debt to be “unsustainable.” It cited the potential for dissolving liquidity in the government, banks and economy.

And according to the Financial Times, we could actually be on the verge of witnessing a Greek debt default…

Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, according to people briefed on the radical leftist government’s thinking.

The government, which is rapidly running out of funds to pay public sector salaries and state pensions, has decided to withhold €2.5bn of payments due to the International Monetary Fund in May and June if no agreement is struck, they said.

So I hope that those that are euphoric about the performance of their stock portfolios are taking their profits while they still can.

Huge trouble is percolating just under the surface of the global economy, and it won’t be too long before the financial markets start feeling the pain.

5 Charts Which Show That The Next Economic Crash Is Dead Ahead

March 30, 2015March 30, 2015 by Michael

When an economic crisis is coming, there are usually certain indicators that appear in advance. For example, commodity prices usually start to plunge before a recession begins. And as you can see from the Bloomberg Commodity Index which you can find right here, this has already been happening. In addition, I have previously written about how the U.S. dollar went on a great run just before the financial collapse of 2008. This is something that has also been happening over the past few months. Some people would have you believe that nobody can anticipate the next great economic downturn and that to try to do so is just an exercise in “guesswork”. But that is not the case at all. We can look back over history and see patterns that keep repeating. And a lot of the exact same patterns that happened just before previous stock market crashes are happening again right now.

For example, let’s talk about the price of oil. There are only two times in history when the price of oil has fallen by more than 50 dollars in a six month time period. One was just before the financial crisis in 2008, and the other has just happened…

As a result of crashing oil prices, we are witnessing oil rigs shut down in the United States at a blistering pace. In fact, almost half of all oil rigs in the U.S. have already shut down. The following commentary and chart come from Wolf Richter…

In the latest week, drillers idled another 41 oil rigs, according to Baker Hughes. Only 825 rigs were still active, down 48.7% from October. In the 23 weeks since, drillers have idled 784 oil rigs, the steepest, deepest cliff-dive in the history of the data:

We are looking at a full-blown fracking bust, and this bust is already having a dramatic impact on the economies of states that are heavily dependent on the energy industry.

For example, just check out the disturbing number that just came out of Texas…

The crash in oil prices is hammering the Texas economy.

The latest manufacturing outlook index from the Dallas Fed plunged again in March, to -17.4 from -11.2 in February, indicating deteriorating business conditions in the state.

Ouch.

But this pain is going to be felt far beyond Texas. In recent years, Wall Street banks have made a massive amount of money packaging up energy industry loans, bonds, etc. and selling them off to investors.

If that sounds similar to the kind of behavior that preceded the subprime mortgage meltdown, that is because it is.

Now those loans, bonds, etc. are going bad as the fracking bust intensifies, and whoever is left holding all of this worthless paper at the end of the day is going to lose an extraordinary amount of money. Here is more from Wolf Richter…

It suited Wall Street just fine: according to Dealogic, banks extracted $31 billion in fees from the US oil and gas industry and its investors over the past five years by handling IPOs, spin-offs, “leveraged-loan” transactions, the sale of bonds and junk bonds, and M&A.

That’s $6 billion in fees per year! Over the last four years, these banks made over $4 billion in fees on just “leveraged loans.” These loans to over-indebted, junk-rated companies soared from about $40 billion in 2009 to $210 billion in 2014 before it came to a screeching halt.

For Wall Street it doesn’t matter what happens to these junk bonds and leveraged loans after they’ve been moved on to mutual funds where they can decompose sight-unseen. And it doesn’t matter to Wall Street what happens to leverage loans after they’ve been repackaged into highly rated Collateralized Loan Obligations that are then sold to others.

At the same time, we are also witnessing a slowdown in global trade. This usually happens when economic conditions are about to turn sour, and that is why it is so alarming that the total volume of global trade in January was down 1.4 percent from December. According to Tyler Durden of Zero Hedge, that was the largest drop since 2011…

Presenting the latest data from the CPB Netherlands Bureau for Economic Policy Analysis, according to which in January world trade by volume dropped by a whopping 1.4% from December: the biggest drop since 2011!

We are seeing some troubling signs in the U.S. as well.

I shared the following chart in a previous article, but it bears repeating. It comes from Charles Hugh Smith, and it shows that new orders for consumer goods are falling at a rate not seen since the last recession…

Well, what about the stock market? It was up more than 200 points on Monday. Isn’t that good news?

Yes, but the euphoria on Wall Street will not last for long.

When corporate earnings per share either start flattening out or start to decline, that is a huge red flag. We saw this just prior to the stock market crash of 2008, and it is happening again right now. The following commentary and chart come from Phoenix Capital Research…

Take a look at the below chart showing current stock levels and changes in forward Earnings Per Share (EPS). Note, in particular how divergences between EPS and stocks tend to play out (hint look at 2007-2008).

We all know what came next.

And guess what?

According to CNBC, a lot of the “smart money” is pulling their money out of the stock market right now while the getting is good…

Recent market volatility has sent stock market investors rushing for the exits and into cash.

Outflows from equity-based funds in 2015 have reached their highest level since 2009, thanks to a seesaw market that has come under pressure from weak economic data, a stronger dollar and the the prospect of monetary tightening.

Funds that invest in stocks have seen $44 billion in outflows, or redemptions, year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows in five of the last six weeks, including $6.1 billion in just the last week.

It doesn’t matter if you are a millionaire “on paper” today.

What matters is if the money is going to be there when you really need it.

At the moment, a whole lot of people have been lulled into a false sense of complacency by the soaring stock market and by the bubble of false economic stability that we have been enjoying.

But under the surface, there is a whole lot of turmoil going on.

Those that are looking for the signs are going to see the next crisis approaching well in advance.

Those that are not are going to get absolutely blindsided by what is coming.

Don’t let that happen to you.

10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

March 18, 2015March 18, 2015 by Michael

If you believe that ignorance is bliss, you might not want to read this article. I am going to dispel the notion that there has been any sort of “economic recovery”, and I am going to show that we are much worse off than we were just prior to the last economic crisis. If you go back to 2007, people were feeling really good about things. Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low. But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end. Of course it didn’t come to an end – it was just the first wave of our problems. The waves that come next are going to be the ones that really wipe us out. Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis. Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow. We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

For each of the charts that I am about to share with you, I want you to focus on the last shaded gray bar on each chart which represents the last recession. As you will see, our economic problems are significantly worse than they were just before the financial crisis of 2008. That means that we are far less equipped to handle a major economic crisis than we were the last time.

#1 The National Debt

Just prior to the last recession, the U.S. national debt was a bit above 9 trillion dollars. Since that time, it has nearly doubled. So does that make us better off or worse off? The answer, of course, is obvious. And even though Barack Obama promises that “deficits are under control”, more than a trillion dollars was added to the national debt in fiscal year 2014. What we are doing to future generations by burdening them with so much debt is beyond criminal. And so what does Barack Obama want to do now? He wants to ramp up government spending and increase the debt even faster. This is something that I covered in my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“.

#2 Total Debt

Over the past 40 years, the total amount of debt in the United States has skyrocketed to astronomical heights. We have become a “buy now, pay later” society with devastating consequences. Back in 1975, our total debt level was sitting at about 2.5 trillion dollars. Just prior to the last recession, it was sitting at about 50 trillion dollars, and today we are rapidly closing in on 60 trillion dollars.

#3 The Velocity Of Money

When an economy is healthy, money tends to change hands and circulate through the system quite rapidly. So it makes sense that the velocity of money fell dramatically during the last recession. But why has it kept going down since then?

#4 The Homeownership Rate

Were you aware that the rate of homeownership in the United States has fallen to a 20 year low? Traditionally, owning a home has been a sign that you belong to the middle class. And the last recession was really rough on the middle class, so it makes sense that the rate of homeownership declined during that time frame. But why has it continued to steadily decline ever since?

#5 The Employment Rate

Barack Obama loves to tell us how the unemployment rate is “going down”. But as I will explain later in this article, this decline is primarily based on accounting tricks. Posted below is a chart of the civilian employment-population ratio. Just prior to the last recession, approximately 63 percent of the working age population of the United States was employed. During the recession, this ratio fell to below 59 percent and it stayed there for several years. Just recently it has peeked back above 59 percent, but we are still very, very far from where we used to be, and now the next economic downturn is rapidly approaching.

#6 The Labor Force Participation Rate

So how can Obama get away with saying that the unemployment rate has gone down dramatically? Well, each month the government takes thousands upon thousands of long-term unemployed workers and decides that they have been unemployed for so long that they no longer qualify as “part of the labor force”. As a result, the “labor force participation rate” has fallen substantially since the end of the last recession…

#7 The Inactivity Rate For Men In Their Prime Working Years

If things are “getting better”, then why are so many men in their prime working years doing nothing at all? Just prior to the last recession, the inactivity rate for men in their prime working years was about 9 percent. Today it is just about 12 percent.

#8 Real Median Household Income

Not only is a smaller percentage of Americans employed today than compared to just prior to the last recession, the quality of our jobs has gone down as well. This is one of the factors which has resulted in a stunning decline of real median household income.

I have shared these next numbers before, but they bear repeating. In America today, most Americans do not make enough to support a middle class lifestyle on a single salary. The following figures come directly from the Social Security Administration…

-39 percent of American workers make less than $20,000 a year.

-52 percent of American workers make less than $30,000 a year.

-63 percent of American workers make less than $40,000 a year.

-72 percent of American workers make less than $50,000 a year.

We all know people that are working part-time jobs because that is all that they can find in this economy. As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.

#9 Inflation

Even as our incomes have stagnated, the cost of living just continues to rise steadily. For example, the cost of food and beverages has gone up nearly 50 percent just since the year 2000.

#10 Government Dependence

As the middle class shrinks and the number of Americans that cannot independently take care of themselves soars, dependence on the government is reaching unprecedented heights. For instance, the federal government is now spending about twice as much on food stamps as it was just prior to the last recession. How in the world can anyone dare to call this an “economic recovery”?

So you tell me – are things “getting better” or are they getting worse?

To me, it is crystal clear that we are in much worse condition than we were just prior to the last economic crisis.

And now things are setting up in textbook fashion for the next great economic crisis. Unfortunately, most Americans are totally clueless about what is going on and the vast majority are completely and totally unprepared for what is coming.

Or could it be possible that I am wrong? Whether you agree or disagree with me, please feel free to add to the discussion by posting a comment below…

14 Signs That Most Americans Are Flat Broke And Totally Unprepared For The Coming Economic Crisis

February 23, 2015February 23, 2015 by Michael

When the coming economic crisis strikes, more than half the country is going to be financially wiped out within weeks. At this point, more than 60 percent of all Americans are living paycheck to paycheck, and a whopping 24 percent of the country has more credit card debt than emergency savings. One of the primary principles that any of these “financial experts” that you see on television will teach you is to have a cushion to fall back on. At the very least, you never know when unexpected expenses like major car repairs or medical bills will come along. And in the event of a major economic collapse, if you do not have any financial cushion at all you will be a sitting duck. Yes, I know that there are millions upon millions of families out there that are just trying to scrape by from month to month at this point. I hear from people that are deeply struggling in this economy all the time. So I don’t blame them for not being able to save lots of money. But if you are in a position to build up an emergency fund, you need to do so. We have been experiencing an extended period of relative economic stability, but it will not last. In fact, the time for getting prepared for the next great economic downturn is rapidly running out, and most Americans are not ready for it at all. The following are 14 signs that most Americans are flat broke and totally unprepared for the coming economic crisis…

#1 According to a survey that was just released, 24 percent of all Americans have more credit card debt than emergency savings.

#2 That same survey discovered that an additional 13 percent of all Americans do not have any credit card debt, but they do not have a single penny of emergency savings either.

#3 At this point, approximately 62 percent of all Americans are living paycheck to paycheck.

#4 Adults under the age of 35 in the United States currently have a savings rate of negative 2 percent.

#5 More than half of all students in U.S. public schools come from families that are poor enough to qualify for school lunch subsidies.

#6 A study that was conducted last year found that more than one out of every three adults in the United States has an unpaid debt that is “in collections“.

#7 One survey discovered that 52 percent of all Americans really cannot even financially afford the homes that they are living in right now.

#8 According to research conducted by Atif Mian of Princeton University and Amir Sufi of the University of Chicago Booth School of Business, 40 percent of Americans could not come up with $2000 right now without borrowing it.

#9 That same study found that 60 percent of Americans could not say yes to the following question…

“Do you have 3 months emergency funds to cover expenses in case of sickness, job loss, economic downturn?”

#10 A different study discovered that less than one out of every four Americans has enough money stored away to cover six months of expenses.

#11 Today, the average American household is carrying a grand total of 203,163 dollars of debt.

#12 It is estimated that less than 10 percent of the entire U.S. population owns any gold or silver for investment purposes.

#13 48 percent of all Americans do not have any emergency supplies in their homes whatsoever.

#14 53 percent of all Americans do not even have a minimum three day supply of nonperishable food and water in their homes.

Perhaps none of this concerns you.

Perhaps you think that this bubble economy can persist indefinitely.

Well, if you won’t listen to the more than 1200 articles that set out the case for the coming economic collapse on my website, perhaps you will listen to former Federal Reserve Chairman Alan Greenspan. The following is what he recently told one interviewer…

We asked him where he thought the gold price will be in five years and he said “measurably higher.”

In private conversation I asked him about the outstanding debts… and that the debt load in the U.S. had gotten so great that there has to be some monetary depreciation. Specially he said that the era of quantitative easing and zero-interest rate policies by the Fed… we really cannot exit this without some significant market event… By that I interpret it being either a stock market crash or a prolonged recession, which would then engender another round of monetary reflation by the Fed.

He thinks something big is going to happen that we can’t get out of this era of money printing without some repercussions – and pretty severe ones – that gold will benefit from.

And as I have stressed so frequently, the signs that the next crisis is almost here are all around us.

For example, the Baltic Dry Index has just plunged to a fresh record low, and things have already gotten so bad that some global shippers are now filing for bankruptcy…

The unintended consequences of a money-printed, credit-fueled, mal-investment-boom in commodities (prices – as opposed to physical demand per se) and the downstream signals that sent to any and all industries are starting to bite. The Baltic Dry Index has plunged once again to new record lows and the collapse of the non-financialized ‘clean’ indicator of the imbalances between global trade demand and freight transport supply has the real-world effects are starting to be felt, as Reuters reports the third dry-bulk shipper this month has filed for bankruptcy… in what shippers call “the worst market conditions since the ’80s.”

Perhaps you do see things coming.

Perhaps you do want to get prepared.

If you are new to all of this, and you don’t quite know how to get started preparing, please see my previous article entitled “89 Tips That Will Help You Prepare For The Coming Economic Depression“. It will give you some basic tips that you can start implementing right away.

And of course one of the most important things is something that I talked about at the top of this article.

If at all possible, you have got to have an emergency fund. When the coming economic storm strikes, your family is going to need something to fall back on.

If you are trusting in the government to save you when things fall apart, you will be severely disappointed.

Two More Harbingers Of Financial Doom That Mirror The Crisis Of 2008

February 12, 2015February 12, 2015 by Michael

The stock market continues to flirt with new record highs, but the signs that we could be on the precipice of the next major financial crisis continue to mount. A couple of days ago, I discussed the fact that the U.S. dollar is experiencing a tremendous surge in value just like it did in the months prior to the financial crisis of 2008. And previously, I have detailed how the price of oil has collapsed, prices for industrial commodities are tanking and market behavior is becoming extremely choppy. All of these are things that we witnessed just before the last market crash as well. It is also important to note that orders for durable goods are declining and the Baltic Dry Index has dropped to the lowest level on record. So does all of this mean that the stock market is guaranteed to crash in 2015? No, of course not. But what we are looking for are probabilities. We are looking for patterns. There are multiple warning signs that have popped up repeatedly just prior to previous financial crashes, and many of those same warning signs are now appearing once again.

One of these warning signs that I have not discussed previously is the wholesale inventories to sales ratio. When economic activity starts to slow down, inventory tends to get backed up. And that is precisely what is happening right now. In fact, as Wolf Richter recently wrote about, the wholesale inventories to sales ratio has now hit a level that we have not seen since the last recession…

In December, the wholesale inventory/sales ratio reached 1.22, after rising consistently since July last year, when it was 1.17. It is now at the highest – and worst – level since September 2009, as the financial crisis was winding down:

Rising sales gives merchants the optimism to stock more. But because sales are rising in that rosy scenario, the inventory/sales ratio, depicting rising inventories and rising sales, would not suddenly jump. But in the current scenario, sales are not keeping up with inventory growth.

Another sign that I find extremely interesting is the behavior of the yield on 10 year U.S. Treasury notes. As Jeff Clark recently explained, we usually see a spike in the 10 year Treasury yield about the time the market is peaking before a crash…

The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it’s at 2%. That’s a 35-basis-point spike – a jump of 21% – in less than two weeks.

And it’s the first sign of an impending stock market crash.

As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.

For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.

In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.

Let’s be clear… not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.

Once again, just because something has happened in the past does not mean that it will happen in the future.

But the fact that so many red flags are appearing all at once has got to give any rational person reason for concern.

Yes, the Dow gained more than 100 points on Thursday. But on Thursday we also learned that retail sales dropped again in January. Overall, this has been the worst two month drop in retail sales since 2009…

Following last month’s narrative-crushing drop in retail sales, despite all that low interest rate low gas price stimulus, January was more of the same as hopeful expectations for a modest rebound were denied. Falling 0.8% (against a 0.9% drop in Dec), missing expectations of -0.4%, this is the worst back-to-back drop in retail sales since Oct 2009. Retail sales declined in 6 of the 13 categories.

And economic activity is rapidly slowing down on the other side of the planet as well.

For example, Chinese imports and exports both fell dramatically in January…

Chinese imports collapsed 19.9% YoY in January, missing expectations of a modest 3.2% drop by the most since Lehman. This is the biggest YoY drop since May 2009 and worst January since the peak of the financial crisis. Exports tumbled 3.3% YoY (missing expectations of 5.9% surge) for the worst January since 2009. Combined this led to a $60.03 billion trade surplus in January – the largest ever. But apart from these massive imbalances, everything is awesome in the global economy (oh apart from The Baltic Dry at record lows, Iron Ore near record lows, oil prices crashed, and the other engine of the world economy – USA USA USA – imploding).

In light of so much bad economic data, it boggles my mind that stocks have been doing so well.

But this is typical bubble behavior. Financial bubbles tend to be very irrational and they tend to go on a lot longer than most people think they will. When they do finally burst, the consequences are often quite horrifying.

It may not seem like it to most people, but we are right on track for a major financial catastrophe. It is playing out right in front of our eyes in textbook fashion. But it is going to take a little while to unfold.

Unfortunately, most people these days do not have the patience to watch long-term trends develop. Instead, we have been trained by the mainstream media to have the attention spans of toddlers. We bounce from one 48-hour news cycle to the next, eagerly looking forward to the next “scandal” that is going to break.

And when the next financial crash does strike, the mainstream media is going to talk about what a “surprise” it is. But for those that are watching the long-term trends, it is not going to be a surprise at all. We will have seen it coming a mile away.

Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

February 10, 2015February 10, 2015 by Michael

Over the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time. That was in mid-2008 – just before the greatest financial crash since the Great Depression. A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997. Today, the globe is more interconnected than ever. Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars. When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world. It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar. The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction. So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.

Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.

But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.

As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.

Yes, someday the U.S. dollar will essentially be toilet paper. But that is not in our immediate future. What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.

This is what we witnessed in 2008, and this is happening once again right now.

Just look at the chart that I have posted below. You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008. And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…

At the moment, almost every major currency in the world is falling relative to the U.S. dollar.

For example, this next chart shows what the euro is doing relative to the dollar. As you can see, the euro is in the midst of a stunning decline…

Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro. As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90. If that happens, the chart above will soon resemble a waterfall.

And of course it isn’t just the euro that is plummeting. The yen has been crashing as well. The following chart was recently posted on the Crux…

Unfortunately, most Americans have absolutely no idea how important all of this is. In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars. But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.

Investors are starting to get nervous. At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse. If this turns into a panic, we are going to have one giant financial mess on our hands.

The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth. The following comes from U.S. News & World Report…

In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.

They also deposit money in foreign banks, which facilitates higher lending. The reason for this is simple: Bond payments and interest rates in emerging markets are much higher than in the U.S. Why deposit cash in the U.S. and earn 0.25 percent, when you could earn 6 percent in Indonesia? With the dollar strengthening, the interest payments on any bond denominated in U.S. dollars becomes more expensive.

Additionally, the deposit in the Indonesian bank may still be earning 6 percent, but that is on Indonesian rupiahs. After converting the rupiahs to U.S. dollars, the extra interest doesn’t offset the loss from the exchange. As investors get nervous, the higher interest on emerging market debt and deposits becomes less alluring, and they flee to safety. It may start slowly, but history tells us it can quickly spiral out of control.

Over the past few months, I have been repeatedly stressing that so many of the signs that we witnessed just prior to previous financial crashes are happening again.

Now you can add the skyrocketing U.S. dollar to that list.

If you have not seen my previous articles where I have discussed these things, here are some places to get started…

“Guess What Happened The Last Time The Price Of Oil Crashed Like This?…”

“Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…”

“10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW”

The warnings signs are really starting to pile up.

When we look back at past financial crashes, there are recognizable patterns that can be identified.

Anyone with half a brain should be able to see that a large number of those patterns are unfolding once again right before our eyes.

Unfortunately, most people in this world end up believing exactly what they want to believe.

No matter how much evidence you show them, they will not accept the truth until it is too late.

Birth Pangs Of The Coming Great Depression

January 29, 2015January 29, 2015 by Michael

The signs of the times are everywhere – all you have to do is open up your eyes and look at them. When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together. But as the time for delivery approaches, they become much more frequent and much more intense. Economically, what we are experiencing right now are birth pangs of the coming Great Depression. As we get closer to the crisis that is looming on the horizon, they will become even more powerful. This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years. The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis. In addition, “Dr. Copper” and other industrial commodities continue to plunge. This almost always happens before we enter an economic downturn. Meanwhile, as I mentioned the other day, orders for durable goods are declining. This is also a traditional indicator that a recession is approaching. The warning signs are there – we just have to be open to what they are telling us.

And of course there are so many more parallels between past economic downturns and what is happening right now.

For example, volatility has returned to the markets in a big way. On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.

This is precisely how markets behave just before they crash. When markets are calm, they tend to go up. When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.

At the same time, almost every major global currency is imploding. For much more on this, see the amazing charts in this article.

In particular, I am greatly concerned about the collapse of the euro. The Swiss would not have decoupled their currency from the euro if it was healthy. And political events in Greece are certainly not going to help things either. Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point. And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.

And I haven’t even mentioned the oil crash yet.

There is only one other time in all of history when the price of oil collapsed by more than 60 dollars, and that was just prior to the horrific financial crisis of 2008.

Since the last financial crisis, the oil industry has been a huge source for job growth in this country. The following is an excerpt from a recent CNN article…

The oil sector has added over a half million jobs — many of them high paying — since the recession ended in June 2009. That’s 13% of all US job growth over that period.

Now energy companies and related sectors are laying off thousands. Expect that trend to continue, bears say.

But losing good jobs is just the tip of the iceberg of this oil crisis.

At this point, the price of oil has already dropped to a catastrophically low level. The longer it stays at this level, the more damage that it is going to do. If the price of oil stays at this level for all of 2015, we are going to have a complete and total financial nightmare on our hands…

For the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. The world is now fast approaching a world reserve currency shift. If we see 8 to 12 months at these oil prices; U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock market and U.S. economy.

…and this time there will be nothing left to catch the falling knife before it hits the American economy right in the heart. Not the FED nor the U.S. government can stop what’s coming. Liquidity will freeze up, our credit will be downgraded, the stock market will start to collapse, and then we can expect the FED to come in and hyper-inflate the dollar. This will cause the world to finish abandoning the world reserve currency in the last rungs of trade. This will be the end of the petrodollar.

Something that I have not discussed so far this year is the looming crisis in emerging market debt.

As economic problems spread around the world, a number of “emerging markets” are in danger of having their debt downgraded. And many investment funds have rules that prohibit them from holding any debt that is not “investment grade”. Therefore, we could potentially see some of these giant funds dumping massive amounts of emerging market debt if downgrades happen.

This is a really big deal. As a Business Insider article recently detailed, we could be talking about hundreds of billions of dollars…

Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor’s, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade.

If Moody’s and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt.

Russia may have company. Almost $260 billion worth of sovereign and corporate bonds – nearly a tenth of outstanding emerging market (EM) debt – is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits “falling angels”.

And no article of this nature would be complete without mentioning derivatives.

I could not possibly overemphasize the danger that the 700 trillion dollar derivatives bubble poses to the global financial system.

As we enter the coming Great Depression, derivatives are going to play a starring role. Wall Street has been pumped full of funny money by global central banks, and our financial markets have been transformed into the greatest casino in the history of the world. When this house of cards comes crashing down, and it will, it is going to be a financial disaster unlike anything that the planet has ever seen.

And yes, global central banks are very much responsible for setting the stage for what we are about to experience.

I really like the way that David Stockman put it the other day…

The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.

Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running.

What is the consequence of this drastic financial repression along the entire yield curve? The answer is bond prices which keep rising regardless of credit risk, inflation or taxes; and rampant carry trade speculation that can’t get out of its own way because central banks have made the financial gamblers’ cost of goods—the “funding” cost of their trades—-essentially zero.

Of course I am not the only one warning that a new Great Depression is coming. For instance, just consider what British hedge fund manager Crispin Odey is saying…

British hedge fund manager Crispin Odey thinks we’ve entered an economic downturn that is “likely to be remembered in a hundred years,” and central banks won’t be able to stop it.

In his Odey Asset Management investor letter dated Dec. 31, Odey writes that the shorting opportunity “looks as great as it was in 07/09.”

“My point is that we used all our monetary firepower to avoid the first downturn in 2007-09,” he writes, “so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World Effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”

Even though most average citizens are completely oblivious to what is happening, many among the elite are heeding the warning signs and are feverishly getting prepared. As Robert Johnson told a stunned audience at the World Economic Forum the other day, they are “buying airstrips and farms in places like New Zealand“. They can see the horrifying storm forming on the horizon and they are preparing to get out while the getting is good.

It can be very frustrating to write about economics, because things in the financial world can take an extended period of time to play out. Sadly, most people these days have extremely short attention spans. We live in a world of iPhones, iPads, YouTube videos, Facebook updates and 48 hour news cycles. People no longer are accustomed to thinking in long-term time frames, and if something does not happen right away we tend to get bored with it.

But the economic world is not like a game of “Angry Birds”. Rather, it is very much like a game of chess.

And unfortunately for us, checkmate is right around the corner.

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