Yes, This Is A Financial Crisis – 11 TRILLION Dollars In Stock Market Wealth Was Wiped Out In The 3rd Quarter

Dollars - Public DomainDid you know that 11 trillion dollars in global stock market wealth was wiped out during the third quarter of 2015?  When I was emailed this figure by a friend, I was stunned for a moment.  I knew that things were bad, but were they really this bad? When I first received this information, I had just finished a taping for a television show in which I had boldly declared that 5 trillion dollars of stock market wealth had been wiped out around the world.  Unfortunately, the final number has turned out to be much larger than that.  Over the past three months, the stock markets of all major global economies have been crashing simultaneously, and 11 trillion dollars of “paper wealth” has now completely vanished.  The following comes from Fortune

Global equity markets suffered a bruising third quarter, shedding $11 trillion worth of global shares over three months, according to Bloomberg.

It was the market’s worst quarter since 2011. The prolonged slump was due to low prices for commodities such as oil, instability in China’s markets, and the anticipation that the U.S. Federal Reserve will soon raise interest rates.

In light of this number, how in the world is it possible that there is still anyone out there that is claiming that “nothing happened” over the past few months?

In China, they sure aren’t claiming that “nothing happened”.  Chinese stocks are down about 40 percent from the peak of the market.

In Germany, they sure aren’t claiming that “nothing happened”.  As of a few days ago a quarter of all German stock market wealth had been wiped out since the peak earlier this year.

Yes, things have been a bit milder in the United States.  So far, stocks are only down about 10 percent or so, but we did see some truly remarkable things happen over the past three months.  We witnessed the 8th largest single day stock market crash on a point basis in U.S. history, we witnessed the 10th largest single day stock market crash in U.S. history, and we witnessed the single greatest intraday stock market crash in all of U.S. history.  On August 24th the Dow plunged 1,089 points before bouncing back.

But every time the markets have an up day there are all these people running around declaring that “the crash is over”.  Well, that is not how financial markets work.  They “stair-step” on the way up and they do the same thing on the way down.

And without a doubt, U.S. stocks still have a long, long way to go down.

In recent years, stocks have soared to unbelievably unrealistic levels.  One of the most popular methods of measuring the true value of stocks is something called the cyclically-adjusted price to earnings ratio.  It was developed by economist Robert Shiller of Yale University, and it attempts to accurately show how much we are paying for stocks in relation to how much those corporations are actually earning.  When this number is very high, stocks are overvalued, and when this number is very low stocks are undervalued.

Earlier this year, CAPE hit a peak of about 27, and by the beginning of August it was still sitting up around 26.  The only times CAPE has been higher has been just before other stock market bubbles have been burst…

CAPE - from Wikipedia

It would take a total drop of about 40 percent from the peak of the market just to get back to average.  So far the Dow has fallen about 10 percent or so, so it is going to take another 30 percent crash just to get to a point where stock prices are considered “normal” once again.

Another very common measurement of stock values shows the exact same thing.  The ratio of corporate equities to GDP is also known as “the Buffett Indicator” because Warren Buffett loves it so much.  When stock prices get very high in relation to the size of the overall economy that is a sign that stocks are overvalued, and when stock prices get very low in relation to the size of the overall economy that is a sign that stocks are undervalued.

The chart below was recently posted by dshort.com and it shows that stock prices would have to fall more than 40 percent just to get back to the historical average (the mean).

The Buffett Indicator - Doug Short

Right now, lots of Americans are rushing to get back into the stock market because “September is over” and they figure that stocks are a good value now since they have gone down a good bit.

But as you can clearly see from the charts that I have just shared, U.S. stocks are still a terrible value.

Even if we don’t experience a “black swan event” like a major natural disaster, a large scale terror attack or the collapse of a globally important financial institution in the months ahead, it is inevitable that stocks will go down a lot more at some point.  Stocks simply cannot defy gravity forever.  These bubbles have always ended in crashes in the past, and the same thing is going to happen again this time.

People that are trying to tell you that “things are different this time” simply refuse to learn from history.

I am writing this piece while waiting for a plane at Denver International Airport.  I missed my connection because my first flight was delayed by about an hour.  So I am just sitting here watching people walk past.  Most of them are just living their lives without any idea of the disaster that is about to hit this country.

Over the past few days I have been reflecting on the fact that our nation has willingly chosen this path.  We willingly chose to go into so much debt.  We willingly chose to send millions of good paying jobs overseas.  We willingly chose to pump up these financial bubbles.  We willingly chose to reject the values of our forefathers.  We willingly chose men like Barack Obama, Harry Reid and John Boehner to represent us in Washington.

The things that are coming are the logical consequences for decisions that we have collectively made as a nation.

There are still many out there that do not believe that we will have to face any consequences for what we have done.

Unfortunately for all of us, they are not going to have to wait very long at all to see how incredibly wrong they were.

11 Red Flag Events That Just Happened As We Enter The Pivotal Month Of August 2015

Red Flags - Public DomainAre you ready for what is coming in August?  All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal.  In July, we saw things start to turn.  As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet.  I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter.  Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…

#1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday.  Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.

#2 As James Bailey has pointed out, the most important trendline for the S&P 500 has finally been broken after holding up for six years.  This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.

#3 The IMF is indicating that it will not take part in the new Greek debt deal.  As a result, the whole thing may completely fall apart

Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 percent of GDP.

The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.

#4 Italy is going down the exact same path as Greece, but Italy is going to be a much larger problem for Europe because it has a far, far larger economy.  This week, we learned that youth unemployment in Italy has reached a 38-year high of 44 percent, and Italy’s debt to GDP ratio has now hit 135 percent.

#5 The Canadian economy has officially entered a new recession.  This is something that was not supposed to happen.

#6 The price of oil plummeted close to 20 percent during the month of July.  It was the worst month for the price of oil that we have seen since October 2008, which just happened to be during the height of the last financial crisis.

#7 Commodities just had their worst month in almost four years.  As I have written about previously, we witnessed a collapse in commodity prices just before the stock market crash of 2008 too.

#8 Thanks to Barack Obama, the U.S. coal industry is imploding, and some of the largest coal producers in the entire country have just announced that they are declaring bankruptcy

On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.

Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.

#9 For the month of July, the Shanghai Composite Index was down 13.4 percent.  Despite unprecedented government intervention to prop up the market, it was the worst month for Chinese stocks since October 2009.

#10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009.  Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.

#11 Chevron is another oil giant that has seen earnings plunge.  In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.

And in this list I didn’t even mention the economic chaos that is happening down in South America.  For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.

To a certain extent, I can understand why most Americans are not alarmed about the months ahead.  The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead.  At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015.  But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.

A few weeks ago, I authored a piece entitled “The Last Days Of ‘Normal Life’ In America“, and I stand by every single word of that article.  I truly believe that the era of debt-fueled prosperity that we have been enjoying for so long is coming to an end, and our standard of living will never again get back to this level.

Just yesterday, I had the chance to go over and stock up on some emergency supplies at a dollar store.  It always astounds me what you can still buy for a dollar.  The combined cost of raw materials, manufacturing, packaging, shipping and retailing most of these items shouldn’t be less than a dollar, but thanks to having the reserve currency of the world we are still able to go to these big box stores and fill up our carts with lots and lots of extremely inexpensive merchandise.

Unfortunately, this massively inflated standard of living is going to come crashing to a halt.  This next financial crisis is going to destroy the system that is currently producing such comfortable lifestyles for the vast majority of us, and that will be an extremely painful experience.

So enjoy this summer for as long as it lasts.  Even though August threatens to be pivotal, it is going to be nothing compared to what will follow.

Fall and winter are coming.

Prepare while there is still time to do so.

The Economic Collapse