Major Financial Crisis

Global Stocks Enter Bear Market: One-Fifth Of All Worldwide Stock Market Wealth Is Already Gone

Stock Market Bear Bull - Public DomainIt’s official – global stocks have entered a bear market.  On Wednesday, we learned that the MSCI All-Country World Index has fallen a total of more than 20 percent from the peak of the market.  So that means that roughly one-fifth of all the stock market wealth in the entire world has already been wiped out.  How much more is it going to take before everyone will finally admit that we have a major financial crisis on our hands?  30 percent?  40 percent?  This new round of chaos began last night in Asia.  Japanese stocks were down more than 600 points and Hong Kong was down more than 700 points.  The nightmare continued to roll on when Europe opened, and European stocks ended up down about 3.2 percent when the markets over there finally closed.  In the U.S., it looked like it was going to be a truly historic day for a while there.  At one point the Dow had fallen 566 points, but a curious rebound resulted in a loss of only 249 points for the day.

As bad as things are in the U.S. right now, the truth is that we still have a long way to go to catch up with the rest of the planet.  Around the world, many major stock indexes are already down more than 30 or 40 percent.  Overall, the MSCI All-Country World Index is now down 20 percent, which officially puts us in bear market territory…

The MSCI All-Country World Index, which measures major developed and emerging markets, fell into a bear market Wednesday, with its decline from early last year now totaling more than 20 percent.

A plunge in U.S. stocks, which caused the Dow Jones industrial average to decline by more than 400 points at one point, pushed the global index into bear territory at midmorning during New York trading.

Japan fell into a bear market as well as the Nikkei 225 index dropped 3.7 percent Wednesday, bringing its total pullback to 22 percent from its high in June.

Much of this chaos is being driven by the price of oil.  On Wednesday the price of U.S. oil dropped below 28 dollars a barrel for a while, and as I write this article Brent crude is still below 28 dollars a barrel.

As energy prices continue to plummet, this is putting a tremendous amount of pressure on junk bonds.  On Wednesday JNK actually dipped beneath 32.00 for a time before rebounding at the end of the day.  I expect to see junk bonds continue to crash during the days ahead as investors feverishly race for the exits.

And of course global economic fundamentals continue to deteriorate as well.  Global trade is absolutely imploding and shipping rates have fallen to unprecedented levels.  If you can believe it, Bloomberg is reporting that it is now actually cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari…

Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, according to Nick Hardwick, founder of supercarexperiences.com. The Baltic Exchange’s rates reflect the cost of hiring the vessel but not fuel costs. Ships burn about 35 metric tons a day, implying a cost of about $4,000 at present prices, data compiled by Bloomberg show.

I could hardly believe that when I first read it.

But this is the kind of thing that we would expect to see happen when the greatest financial bubble in world history bursts.

The 200 trillion dollar global debt pyramid is now collapsing all around us, and the former chief economist of the Bank for International Settlements is warning that we could soon be facing “an avalanche of bankruptcies”…

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).

Of course it is a little late in the game to be warning us about this now.

At this point there is very little that can be done to stop the collapse that is already happening.

White went on to tell the Telegraph that things are going to become “uncomfortable for a lot of people who think they own assets that are worth something”…

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.

For years, I have been warning that the global financial system is an incredibly shaky house of cards, and now we have finally reached the endgame.

But the mainstream media in the United States is telling everyone not to panic.  Instead of a time to sell, the mainstream media is urging people to jump in and take advantage of all of the “great deals” in the stock market right now.  I really like what Mike Adams of Natural News had to say about what we are seeing…

The pathetically stupid and dishonest financial media is desperately running stories right now to maintain false faith in the markets, even while their own people are behind the scenes selling like mad. As long as they can keep the public believing in the “faith” of never-ending cheap money, they can bail out their own positions to suckers and fools who think a tiny dip in a massively overvalued, fraudulent market is a “buying opportunity.”

Watch for desperate headlines from propaganda financial outlets (such as MarketWatch.com) like, “10 reasons you shouldn’t sell” or “The upside potential of the market is HUGE!” These are psychological operations to try to persuade people that the collapse they’re seeing in global markets isn’t actually happening.

The financial chaos that has erupted in recent weeks has really caught a lot of people by surprise, but my readers knew that it was coming well in advance.

For months, I have been warning about this exact kind of scenario.

The deflationary financial meltdown that started during the last six months of 2015 is now making headlines all over the planet, and what we have experienced so far is just the tip of the iceberg.

The bears have gotten out of their cages, and global investors are running for cover.  Nobody is exactly sure what is going to happen tomorrow, but without a doubt the entire world will be watching.

A Death Cross, Wild Market Swings And A Currency War – And We Haven’t Even Gotten To September Yet

Financial Despair - Public DomainThings continue to line up in textbook fashion for a major financial crisis by the end of 2015.  This week, Wall Street has been buzzing about the first “death cross” that we have seen for the Dow since 2011.  When the 50-day moving average moves below the 200-day moving average, that is a very important psychological moment for the market.  And just like during the run up to the stock market crash of 2008, we are starting to witness lots of wild swings up and down.  The Dow was up more than 200 points on Monday, the Dow was down more than 200 points on Tuesday, and it took a nearly 700 point roundtrip on Wednesday.  This is exactly the type of behavior that we would expect to see during the weeks or months leading up to a crash.  As any good sailor will tell you, when the waters start getting very choppy that is not a good sign.  Of course what China is doing is certainly not helping matters.  On Wednesday, the Chinese devalued the yuan for a second day in a row, and many believe that a new “currency war” has now begun.

So what does all of this mean?

Does this mean that the time of financial “shaking” has now arrived?

Let’s start with what is happening to the Dow.  When the 50-day moving average crosses over the 200-day moving average, it is a very powerful signal.  For example, as Business Insider has pointed out, if you would have got into stocks when the 50-day moving average moved above the 200-day moving average in December 2011, you would have experienced a gain of 43 percent by now…

The Dow Jones Industrial Average has been on an unrelenting upward trajectory since its October 2011 low.

The signal that convinced many traders that the market was now moving with a bullish bias was when the 50-day moving average of the index price rose above the 200-day moving average a couple of months later at the end of December.

Since then the market rallied 6,200 points to a high of 18,333 before pulling back to last night’s close of 17,404. That’s a gain of around 43% even though the market is 5% off its high.

But now a cross is happening in the other direction.  That is why it is called a “death cross”.  It is quite understandable why a lot of investors are freaking out about the fact that the 50-day moving average has moved below the 200-day moving average for the first time in four years.  Every major stock market in history has been preceded by a death cross.

Of course no indicator is perfect.  Sometimes these death crosses come just before market crashes, and other times nothing much seems to happen.  The following comes from MarketWatch…

The 50-day moving average (or “MA”) crossed below a rising 200-day MA on July 7, 2010, when the Dow closed at 10,018.28. The Dow’s closing low for 2010 was actually hit two sessions earlier, at 9,686.48.

But the Dow fell another 5.9% over six weeks after the Aug. 24, 2011 death cross, and tumbled as much as 50% over 14 months after the one appearing on Jan. 3, 2008.

And keep in mind that when the January 2008 death cross appeared, the Dow had lost just 7.8% from its Oct. 9, 2007 peak. That means the bull market was still firmly in place, as the rule of thumb is a bear market is defined by a decline of at least 20% from a significant peak. In addition, the 200-day moving average didn’t turn lower until two weeks after the death cross appeared.

But this is not the only indicator pointing to trouble ahead.  Even while we have many stocks hitting 52-week highs, we also have an extraordinary number hitting 52-week lows.  This is called a “split market”, and this is a very ominous sign.  In fact, according to Peter Boockvar 62 percent of all stocks on the New York Stock Exchange are already trading below their 200-day moving average…

Peter Boockvar, market strategist at Lindsey Group, said he believes the market is in a correction that began a few weeks ago, starting with commodities names getting hit. The small-cap Russell 2000 was also a leader of the declines. “The key is it’s infecting other areas of the market. You have every headwind and every reason to continue this correction,” he said.

“Going into today, 62 percent of the NYSE stocks were trading below the 200-day moving average,” said Boockvar. “More and more companies are dropping out of the bull market.”

At this point, we have already had more than 50 “split days” this year.  King World News has just released an article which has pointed out this has only happened four times before, and a major stock market crash has followed each occurrence…

The only other times in history we’ve seen more than 50 split days during the past year were March 1968, August 1972, October 2000 and July 2006.

After all four of those, stocks lost more than a third of their value at some point during the next two years.

Are you starting to see?

A stock market crash is coming.

Another thing that has investors concerned is the fact that we have seen a large divergence between high yield credit and stocks.  As Bloomberg has pointed out, when this happens a significant stock market decline follows more than 70 percent of the time…

While not without precedent, instances when anxiety in bonds didn’t seep into equities are rare. More than 70 percent of the time since 1996, as spreads widened as much as they have since April, the S&P 500 has fallen, with the average decline exceeding 10 percent, data compiled by Bloomberg show.

“This is something that sooner or later is going to impact the stock market,” said Russ Koesterich, global chief investment strategist at New York-based BlackRock Inc., which oversees $4.7 trillion. “Credit market conditions have not been benign and easy as where they were last summer.”

On top of everything else, it looks like a global currency war could be erupting.

According to USA Today, this desperate move by China to devalue the yuan may indicate that the Chinese economy is in far worse shape than most had thought…

One, China’s move suggests that its economy is in worst shape than believed. “It highlights the fragility of the global economy,” says Donald Luskin, chief investment officer at TrendMacro. Second, a weaker yuan means a stronger dollar, and a stronger dollar means U.S. products sold in China are more expensive, which means fewer sales of Apple iPhones, hotel rooms offered by Wynn Resorts and computer chips made by Micron Technology.

Lastly, there is a fear that other nations will respond to China by devaluing their own currencies to stay competitive.

“When people start talking about ‘currency wars,’ it’s never a good thing,” says Michael Farr, president of money-management firm Farr, Miller & Washington. “China’s move to devalue its currency could be the first shot across the bow towards a wider currency war.”

As I discussed yesterday, it seems like the phrase “currency war” has been thrown around a lot lately.

But what would that look like, and what would that mean for the global economy?

Well, former IMF economist Stephen Jen is suggesting that we could soon see major currencies all over the planet being devalued by up to 50 percent…

[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil’s real to Indonesia’s rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen.

Volatility measures were already signaling rising distress in emerging markets even before China’s shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months.

The surging U.S. dollar combined with crashing prices for commodity exports has already created a state of crisis in South America.  If emerging markets such as Brazil are forced to devalue their currencies to stay competitive with nations such as China, that is going to just exacerbate the problems.

For a long time, things in the financial world were pretty quiet.

But now events are beginning to accelerate.

A lot of people are extremely concerned about what is going to happen in September, and I think that there are very good reasons to be concerned.

Throughout our history, the majority of our stock market crashes have happened in the fall.  Just remember what happened in 1929, 1987 and 2008.

Now we are approaching that time of the year once again, and things are lining up perfectly for a major financial crisis.

So what do you personally think will happen?  Please feel free to join the discussion by posting a comment below…