Stock Market

This Is The Biggest Cluster Of Hindenburg Omens Since The Last Stock Market Crash

August 13, 2013 by Michael

Are we heading for a major stock market decline? Warnings about a crash of the financial markets are quite common these days, and usually they don’t materialize. But this time may be different. A number of top analysts are pointing out the fact that the biggest cluster of “Hindenburg Omens” has appeared since the last stock market crash. And those that have studied this insist that the more “Hindenburg Omens” there are in a cluster, the stronger the signal is. Meanwhile, another very disturbing sign is the fact that the yield on 10 year U.S. Treasuries is starting to soar again. On Tuesday it shot up from 2.62% to 2.727%. As I have written about previously, the yield on 10 year U.S. Treasuries is the most important number in the U.S. economy right now. If that number continues to rise, it is going to be very, very bad news for the financial system.

But before I discuss rising interest rates any further, I want to talk about this unusual cluster of Hindenburg Omens that we have just witnessed. In a previous article, I shared a list of the criteria that are commonly used to determine whether a Hindenburg Omen has appeared or not…

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).

When the Hindenburg Omen makes an appearance, it is supposedly a signal that the U.S. stock market will likely experience a significant decline within the next 40 days.

But of course this has not always happened when a Hindenburg Omen has appeared. However, what we are seeing right now is a highly concentrated cluster of Hindenburg Omens. According to SentimenTrader’s Jason Goepfert, the last time such a cluster appeared was before the last stock market crash…

Sometimes a topic in the market takes hold and it’s hard to shake it off. One of those is the technical “market crash” signal called the Hindenburg Omen.

It has its boosters and its detractors, and we’re not going to get caught up in debating its merits. We’ve discussed it for 12 years, always with the same arguments.

On June 10th, we outlined the market’s historical performance after suffering at least 5 signals from the Hindenburg Omen within a two-week period. Stocks were consistently weak afterward, and proved to be so again, at least for a while.

With the latest market rally, the Omens are flaring up again.There have been 5 Omens triggered out of the past 8 trading sessions (your data may vary—we’re using the same sources we’ve always used for historical data). That’s actually the closest-grouped cluster since early November 2007.

It’s extremely rare to see as many Omens occurring together as we’ve seen over the past 50 days. The last time was prior to the bear market in 2007.

The time before that was prior to the bear market in 2000.

Will the pattern hold up this time?

We’ll see.

But without a doubt we have been witnessing some very unusual activity in the markets over the past couple of weeks. In fact, according to Tyler Durden of Zero Hedge, we have now seen a Hindenburg Omen occur five times in the last seven trading days…

For the 5th time in the last 7 days, equity market internals have triggered an anxiety-implying Hindenburg Omen. Based on our data, this is the most concentrated cluster of new highs, new lows, advancing/declining based confusion on record. The last few occurrences have not ended well (though obviously not disastrously) but as the creator of the ‘Omen’ notes, the more occurrences that cluster, the stronger the signal.

But the Hindenburg Omen is not the only sign that a stock market crash may be coming. Marc Faber, the publisher of the Gloom, Boom & Doom Report, says that the markets are repeating the exact same pattern that we saw just before the stock market crash of 1987…

“In 1987, we had a very powerful rally, but also earnings were no longer rising substantially, and the market became very overbought,” Faber said on Thursday’s “Futures Now.” “The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks.”

Faber says that’s exactly where we find ourselves this August.

Faber is projecting a stock market decline of “20 percent, maybe more” in the month ahead.

Meanwhile, as I mentioned at the top of the article, the yield on 10 year U.S. Treasuries shot up to 2.727% today. The Federal Reserve is starting to lose control of long-term interest rates, and the only way that Fed officials are going to be able to get control back is to substantially raise the level of quantitative easing that they are doing, but of course that would create a whole bunch of other problems.

For now, the Fed keeps dropping hints that “tapering” is coming. But if the Fed does “taper”, there might not be any support for bond prices from the private sector. BAML credit strategist Hans Mikkelsen recently detailed why this is the case…

Since the financial crisis, Treasuries have been supported by numerous types of investors, including mutual funds/ETFs, banks, [emerging market] central banks and the foreign official sector (in addition to the Fed of course). However, these four sources of Treasury demand are unlikely to support the market in the short term going forward.

First, with continued outflows from non-short term high grade bond funds, money managers are unlikely to provide support for Treasuries any time soon.

Second, with increasing loan demand reducing the need for banks to support profitability by buying Treasuries, as well as significant mark-to-market losses in [available-for-sale] portfolios that in the future will count against capital, banks are unlikely to add long-duration assets in a rising interest rate environment.

Third, in light of continued depreciation of [emerging market] currencies, it appears unlikely that [emerging market] countries are experiencing inflows that need to be reinvested in Treasuries.

Finally, custody holdings of Treasuries continue to decline, suggesting foreign official sales of Treasuries.

If the yield on 10 year U.S. Treasuries continues to rise sharply over the coming months, that could potentially cause the 441 trillion dollar interest rate derivatives bubble to implode. As John Embry recently told King World News, that would be “disastrous” for the global financial system…

Interest rates have already risen dramatically, so any tapering will simply throw gasoline on that fire and torch the banking system which is up to its eyeballs in interest rate derivatives. This would be disastrous for the entire financial system.

Someone recently suggested that there was already a $4 trillion hole in the European banking system. If we look at the Japanese situation, that is totally unstable as well. So the destruction of paper money will only accelerate, and this is what you are seeing reflected today in the prices of gold and silver.

We also have this shortage of physical gold, which is reflected by the fact that the gold lease rates have been negative for 25 consecutive days. We then had the revelation that the Bank of England had dumped a staggering 1,300 tons of physical gold into the market that they were supposed to be safely storing for other countries. The Bank of England wouldn’t even comment, they just pleaded the 5th.

Hopefully these Hindenburg Omens will pass and nothing will happen.

Hopefully the yield on 10 year U.S. Treasuries will not continue to rise.

But you know what they say – hope for the best but prepare for the worst.

I hope that you are getting prepared for the worst while you still can.

7 Charts That Prove That The Stock Market Has Become Completely Divorced From Reality

July 28, 2013 by Michael

The mainstream media would have us believe that the U.S. economy must be in great shape since the stock market has been setting new all-time record highs this month. But is that really true? Yes, surging stock prices have enabled sales of beach homes in the Hamptons to hit a brand new record high. However, the reality is that stock prices have not risen dramatically in recent years because corporations are doing so much better than before. In fact, the growth in stock prices has been far, far greater than the growth of corporate revenues. The only reason that stock prices have been climbing so much is because the Federal Reserve has been flooding the financial system with hundreds of billions of dollars that it has created out of thin air. The Fed has created an artificial stock market bubble that is completely and totally divorced from economic reality.

Meanwhile, everything is not so fine for the rest of the U.S. economy. Economic growth projections have been steadily declining over the past two years, and the growth rate of personal income in the United States has been on a huge downward trend since 2008. The U.S. economy actually lost 240,000 full-time jobs last month, and the middle class continues to shrink.

So welcome to the “new normal” where most Americans struggle at least part of the time. According to one recent survey, “four out of 5 U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives”. Things are tough out there, and they are steadily getting tougher.

Yes, the boys and girls up on Wall Street are doing great (for the moment), but most of the rest of the country is really struggling. We have never even come close to recovering from the last major economic crisis, and now another one is rapidly approaching.

The other day, Chartist Friend from Pittsburgh sent me an email and told me that he had some charts that he wanted to share with me and asked if I wanted to see them. I said sure, send them over right away. These charts show very clearly that the stock market has become completely divorced from reality.

In a normal market, stock prices would only rise dramatically if the overall economy was healthy and growing. Unfortunately, our economy is far from healthy and has been declining for a very long time. If the financial markets were not being pumped up by so much money printing and so much debt, there is no way that stock prices would be this high.

If we truly did have a free market financial system, stock prices should be a reflection of the overall economy. Instead, we have a very sick economy and financial markets that have been very highly manipulated.

For example, just check out the first chart that I have posted below. If the economy was actually getting better, the percentage of working age Americans with a job should be increasing. Sadly, that is not happening…

This next chart shows how the average duration of unemployment has absolutely skyrocketed in recent years. Yes, the duration of unemployment has improved slightly in recent months, but we are still very far from where we used to be. Meanwhile, the stock market has been soaring to new all-time record highs…

Traditionally, there has been a high degree of correlation between stock prices and real disposable personal income. From the chart below, you can see that this relationship held up quite well through the end of the last recession, and then it started breaking down. This is especially true at the very end of the chart. Real Disposable income has started to decline sharply but stock prices just continue to soar…

When an economy is healthy, money tends to circulate through that economy at a healthy pace. That is why the chart below is so alarming. The velocity of money is the lowest that it has been in modern times, and this indicates that economic activity should be slowing down. But the Federal Reserve has enabled the bankers to thrive by pumping massive amounts of money into the financial system…

When an economy goes into recession, freight shipments tend to go down. In the chart below, you can see that this happened during the past two recessions. Unfortunately, we have never even come close to returning to the level that we were at before the last recession, and yet the stock market has been able to soar to unprecedented heights…

When an economy is growing and people are able to get good jobs, they tend to go out and buy new homes. Yes, we have seen a bit of an increase in the number of new homes sold recently, but we are still a vast distance away from the level we were at before the last recession. And now mortgage rates are starting to rise steadily, and this is likely going to cause the number of new homes sold to start going back down. The chart below clearly shows us that the real estate market is far from healthy at this point…

For most middle class Americans, their homes are their primary financial assets. So the fact that home prices have declined so much is absolutely devastating for many families. But stocks are primarily held by the top 5 percent of all Americans, and as the chart below shows, they have benefited greatly from the antics of the Federal Reserve in recent years…

There is no way in the world that the stock market should be this high. The economic fundamentals simply do not justify it. As a society, we consume far more than we produce, our debt is growing at an exponential pace, our economic infrastructure is being absolutely gutted and our financial system is a giant Ponzi scheme that could collapse at any time.

And no market can stay divorced from reality forever. At some point this bubble is going to burst, and when financial bubbles burst they tend to do so very rapidly.

As Marc Faber recently said, “one day, this financial bubble will have to adjust on the downside.”

When it does “adjust”, we are likely going to see a financial panic even worse than we witnessed back in 2008. Credit will freeze up, economic activity will grind to a standstill and millions of Americans will lose their jobs.

Don’t assume that the bubble of false prosperity that we are enjoying right now will last forever.

It won’t.

Use the time that you have right now to prepare for what is ahead.

A great storm is rapidly approaching, and I don’t see any way that it is going to be averted.

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

July 25, 2013July 25, 2013 by Michael

If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008? That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again. Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009. It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around. So will we be able to handle a financial crash as bad as we experienced back in 2008? What if it is even worse this time? Considering the fact that we have been through this kind of thing before, you would think that our leaders would be feverishly trying to keep it from happening again and the American people would be rapidly preparing to weather the coming storm. Sadly, none of that is happening. It is almost as if they cannot even see the disaster that is staring them right in the face. But without a doubt, disaster is coming. The following are 18 similarities between the last financial crisis and today…

#1 According to the Bank of America Merrill Lynch equity strategy team, their big institutional clients are selling stock at a rate not seen “since 2008“.

#2 In 2008, stock prices had wildly diverged from where the economic fundamentals said that they should be. Now it has happened again.

#3 In early 2008, the average price of a gallon of gasoline rose substantially. It is starting to happen again. And remember, whenever the average price of a gallon of gasoline in the U.S. has risen above $3.80 during the past three years, a stock market decline has always followed.

#4 New home prices just experienced their largest two month drop since Lehman Brothers collapsed.

#5 During the last financial crisis, the mortgage delinquency rate rose dramatically. It is starting to happen again.

#6 Prior to the financial crisis of 2008, there was a spike in the number of adjustable rate mortgages. It is happening again.

#7 Just before the last financial crisis, unemployment claims started skyrocketing. Well, initial claims for unemployment benefits are rising again. Once we hit the 400,000 level, we will officially be in the danger zone.

#8 Continuing claims for unemployment benefits just spiked to the highest level since early 2009.

#9 The yield on 10 year Treasuries is now up to 2.60 percent. We also saw the yield on 10 year U.S. Treasuries rise significantly during the first half of 2008.

#10 According to Zero Hedge, “whenever the annual change in core capex, also known as Non-Defense Capital Goods excluding Aircraft shipments goes negative, the US has traditionally entered a recession”. Guess what? It is rapidly heading toward negative territory again.

#11 Average hourly compensation in the United States experienced its largest drop since 2009 during the first quarter of 2013.

#12 In the month of June, spending at restaurants fell by the most that we have seen since February 2008.

#13 Just before the last financial crisis, corporate earnings were very disappointing. Now it is happening again.

#14 Margin debt spiked just before the dot.com bubble burst, it spiked just before the financial crash of 2008, and now it is spiking again.

#15 During 2008, the price of gold fell substantially. Now it is happening again.

#16 Global business confidence is now the lowest that it has been since the last recession.

#17 Back in 2008, the U.S. national debt was rapidly rising to unsustainable levels. We are in much, much worse shape today.

#18 Prior to the last financial crisis, Federal Reserve Chairman Ben Bernanke assured the American people that home prices would not decline and that there would not be a recession. We all know what happened. Now he is once again promising that everything is going to be just fine.

Are the American people going to fall for it again?

It doesn’t take a genius to see how vulnerable the global economy is right now. Much of Europe is already experiencing an economic depression, debt levels in Asia are higher than ever before, and the U.S. economy has been steadily declining for most of the past decade. If you doubt that the U.S. economy has been declining, please see my previous article entitled “40 Stats That Prove The U.S. Economy Has Already Been Collapsing Over The Past Decade“.

And the truth is that most Americans already know that we are in deep trouble. Today, 61 percent of all Americans believe that the country is on the wrong track.

It isn’t that so many people are choosing to be pessimistic. It is just that an increasing number of Americans are waking up to the cold, hard reality that we are facing.

Decades of incredibly foolish decisions have brought us to this point. We allowed our economic infrastructure to be gutted, we consumed far more wealth than we produced, our politicians kept doing incredibly stupid things but we kept voting the same jokers back into office again and again, and over the past 40 years we have blown up the biggest debt bubble in all of human history.

We have been living so far above our means for so long that most of us actually think that our current economic situation is “normal”.

But no, there is nothing normal about what we are experiencing. We are entering the terminal phase of a colossal debt spiral, and when it flames out the economic devastation is going to be absolutely spectacular.

When the next major wave of the economic collapse comes and unemployment soars well up into the double digits, millions of businesses close and millions of American families lose their homes, I hope that those that are assuring all of us that there will not be an economic collapse will come back and apologize.

There are tens of millions of people out there right now that are not making any preparations at all because they have been promised that everything is going to be okay. When the next financial crash happens, most of them will be absolutely blindsided by it and many of them will totally give in to despair.

Don’t let that happen to you.

Everything Is Fine, But…

July 18, 2013 by Michael

Everything is going to be just great. Haven’t you heard? The stock market is at an all-time high, Federal Reserve Chairman Ben Bernanke says that inflation is incredibly low, and the official unemployment rate has been steadily declining since early in Barack Obama’s first term. Of course I am being facetious, but this is the kind of talk about the economy that you will hear if you tune in to the mainstream media. They would have us believe that those running things know exactly what they are doing and that very bright days are ahead for America. And it would be wonderful if that was actually true. Unfortunately, as I made exceedingly clear yesterday, the U.S. economy has already been in continual decline for the past decade. Any honest person that looks at those numbers has to admit that our economy is not even close to where it used to be. But could it be possible that we are making a comeback? Could it be possible that Obama and Bernanke really do know what they are doing and that their decisions have put us on the path to prosperity? Could it be possible that everything is going to be just fine?

Sadly, what we are experiencing right now is a “mini-hope bubble” that has been produced by an unprecedented debt binge by the federal government and by unprecedented money printing by the Federal Reserve. Once this “sugar high” wears off, it will be glaringly apparent that by “kicking the can down the road” Bernanke and Obama have made our long-term problems even worse.

Unfortunately, most Americans don’t understand these things.

Most Americans just let their televisions do their thinking for them, and right now their televisions are telling them that everything is going to be fine.

But is that really the case?

Everything is fine, but the city of Detroit has just filed for Chapter 9 bankruptcy. It will be the largest municipal bankruptcy in U.S. history…

Detroit filed for the largest municipal bankruptcy in U.S. history Thursday after steep population and tax base declines sent it tumbling toward insolvency.

The filing by a state-appointed emergency manager means that if the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Wait a minute, didn’t Barack Obama say that he “refused to let Detroit go bankrupt” less than a year ago?

Everything is fine, but continuing claims for unemployment benefits just spiked to the highest level since early 2009.

Everything is fine, but in the month of June spending at restaurants fell by the most that we have seen since February 2008.

Everything is fine, but Google’s earnings for the second quarter came in way below expectations.

Everything is fine, but Microsoft’s earnings for the second quarter came in way below expectations.

Everything is fine, but chip maker Intel has reported revenue declines for four quarters in a row.

Everything is fine, but the number of housing starts in June was the lowest that we have seen in almost a year.

Everything is fine, but the number of mortgage applications has dropped 45 percent since May.

Everything is fine, but the homeownership rate in America is now at its lowest level in nearly 18 years.

Everything is fine, but the United States is losing half a million jobs to China every single year.

Everything is fine, but the U.S. economy actually lost 240,000 full-time jobs last month.

Everything is fine, but the number of full-time workers in the United States is now nearly 6 million below the old record that was set back in 2007.

Everything is fine, but 40 percent of all U.S. workers make less than $20,000 a year at this point.

Everything is fine, but robots are starting to take over fast food jobs. If working class Americans someday won’t even be able to work at McDonald’s, what will they do to earn money in the years ahead as the jobs disappear?

Everything is fine, but the average price of a gallon of regular gasoline has now reached $3.66.

Everything is fine, but the number of Americans on food stamps has increased by almost 50 percent while Obama has been in the White House.

Everything is fine, but the U.S. government is going to borrow about 4 trillion dollars in fiscal 2013.

Everything is fine, but worldwide business confidence has fallen to the lowest level since the last recession.

Everything is fine, but the Chairman of the Joint Chiefs of Staff just told Congress that Obama is considering using the U.S. military to intervene in the conflict in Syria.

Unfortunately, the cold, hard reality of the matter is that everything is not fine.

As a nation, we consume far more wealth that we produce.

As a nation, we buy far more stuff from the rest of the world than they buy from us.

As a nation, our debt is growing at a much faster pace than our economy is.

As a nation, our share of global GDP has been dropping like a rock over the past decade.

Our economic infrastructure is being systematically gutted, Wall Street has been transformed into a gigantic casino and poverty in the United States continues to explode even in the midst of this so-called “economic recovery”.

How in the world can the mainstream media get away with telling the American people that everything is just fine?

The economic fundamentals are absolutely screaming that massive trouble is on the horizon. Hopefully people are getting ready, because a whole lot of pain is on the way for this country.

10 Reasons Why The Global Economy Is About To Experience Its Own Version Of “Sharknado”

July 12, 2013 by Michael

Have you ever seen a disaster movie that is so bad that it is actually good? Well, that is exactly what Syfy’s new television movie entitled “Sharknado” is. In the movie, wild weather patterns actually cause man-eating sharks to come flying out of the sky. It sounds absolutely ridiculous, and it is. You can view the trailer for the movie right here. Unfortunately, we are witnessing something just as ridiculous in the real world right now. In the United States, the mainstream media is breathlessly proclaiming that the U.S. economy is in great shape because job growth is “accelerating” (even though we actually lost 240,000 full-time jobs last month) and because the U.S. stock market set new all-time highs this week. The mainstream media seems to be absolutely oblivious to all of the financial storm clouds that are gathering on the horizon. The conditions for a “perfect storm” are rapidly developing, and by the time this is all over we may be wishing that flying sharks were all that we had to deal with. The following are 10 reasons why the global economy is about to experience its own version of “Sharknado”…

#1 The financial situation in Portugal continues to deteriorate thanks to an emerging political crisis. It all began last week when Portuguese finance minister Vitor Gaspar resigned…

“Mr. Gaspar’s resignation on July 1 has opened a Pandora’s box,” says Nicholas Spiro, managing director of Spiro Sovereign Strategy. “Portuguese politicians from the President down are treating the exit of Mr. Gaspar, the architect of the fiscal and structural reforms demanded by the troika, as a green light for a public debate about the bail-out programme. Yet the manner in which this debate is taking place, with the President undermining the prime minister and the opposition leader seeking to renegotiate the terms of the programme, is spooking markets.”

The general population is becoming increasingly restless as the nation plunges down the exact same path that Greece has gone. Nobody seems to have any solutions as the economic problems continue to escalate. According to Reuters, the president of Portugal has added fuel to the fire by calling for early elections next year…

Portugal’s president threw the bailed-out euro zone country into disarray on Thursday after rejecting a plan to heal a government rift, igniting what critics called a “time bomb” by calling for early elections next year.

Due to all of this instability in Portugal, the yield on Portuguese bonds shot up to 7.51% this week. That is a very bad sign.

#2 The economic depression in Greece continues to deepen, and it is being reported that Greece will not even come close to hitting the austerity targets that it was supposed to hit this year…

A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc.

Another 7 percent contraction for the Greek economy?

It has already been contracting steadily for years.

At this point, it would be hard to overstate how bad economic conditions inside Greece are. The following is from a recent article by Simon Black…

My friend Illias took a drag of his cigarette as he contemplated my question.

“Our government tells us that this will be a better year. No one really believes them. But all we can do is be optimistic. Too many people are committing suicide.”

His statement probably best sums up the situation in Greece right now. It’s as if the hopelessness has gone stale, and the only thing they have to replace it with is desperate, misguided, faux-optimism. And anger.

There are roughly 11 million people in this country. 3.4 million of them are employed, of which roughly one third work for the government.

1.34 million people are ‘officially’ unemployed. To put this in context, it would be as if there were 36 million officially unemployed in the US.

More startling, if you add the number of ‘inactive’ workers (i.e. those who gave up looking), the total number of unemployed is roughly 57% of the entire Greek work force.

#3 The economic crisis in the third largest country in the eurozone, Italy, has taken another turn for the worse. The unemployment rate in Italy is up to 12.2 percent, which is the highest in 35 years. An average of 134 retail outlets are shutting down in Italy every single day, and the debt of the country has been downgraded again to just above junk status…

Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.

Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.

#4 There are rumors that some of the biggest banks in the world are in very serious trouble. For example, Jim Willie (a financial writer who usually puts out really solid information) is insisting that Deutsche Bank is on the verge of collapse…

The best information coming to my desk indicates that three major Western banks are under constant threat of failure overnight, every night, forcing extraordinary measures to avoid failure. They are Deutsche Bank in Germany, Barclays in London, and Citibank in New York. Judging from the ongoing defense from prosecution and cooperation (flipped) with Interpol and distraction of resources, the most likely bank to die next is Deutsche Bank. They are caught with accounting fraud and outright financial fraud over collateral shell games, pertaining to USTreasury Bonds, other sovereign bonds in Southern Europe, and OTC derivatives linked to FOREX currency contracts. D-Bank is a dead man walking.

Time will tell if he is right. But without a doubt the global financial system is extremely vulnerable right now.

Most Americans assume that the problems that caused the financial crash of 2008 were fixed, but that is most definitely NOT the case. In fact, our financial system is far more shaky today than it was just before the last financial crisis. When one major bank goes down, we could start to see others fall like dominoes.

#5 Just before the financial crisis of 2008, the price of oil spiked dramatically. Well, it is starting to happen again. The price of oil hit $106 a barrel on Friday. If the price of oil continues to rise at this pace, it is going to mean big trouble for economies all over the planet.

And as I wrote about recently, every time the average price of a gallon of gasoline in the United States has risen above $3.80 during the past three years, a stock market decline has always followed.

The average price of a gallon of gasoline in the United States reached $3.55 on Friday. This is a number to keep a close eye on.

#6 Mortgage rates are absolutely skyrocketing right now…

The average U.S. rate on the 30-year fixed mortgage rose this week to 4.51%, a two-year high. Rates have been rising on expectations that the Federal Reserve will slow its bond purchases this year.

Mortgage buyer Freddie Mac said Thursday that the average on the 30-year loan jumped from 4.29% the previous week. Just two months ago, it was 3.35% — barely above the record low of 3.31%.

This threatens to throw the U.S. real estate market into a slowdown worse than anything we have seen since the last recession.

#7 This upcoming corporate earnings season is shaping up to be an extremely disappointing one. In fact, the percentage of companies issuing negative earnings guidance for this quarter is at a level that we have never seen before.

So is this a sign that economic activity is starting to slow down significantly?

#8 U.S. stocks are massively overextended right now. In fact, according to Graham Summers, this is the most overextended stocks have been in the past 20 years…

Today, the S&P 500 is sitting a full 30% above its 200-weekly moving average. We have NEVER been this overextended above this line at any point in the last 20 years.

#9 Rapidly rising interest rates are causing the bond market to begin to come apart at the seams. There is concern that the 30 year bull market for bonds is now over and investors are starting to pull their money out of the market at a staggering rate. In fact, 80 billion dollars was pulled out of bond funds during June alone.

#10 Rapidly rising interest rates could cause an implosion of the derivatives market at any moment. As I am so fond of reminding everyone, there are approximately 441 trillion dollars worth of interest rate derivatives out there.

If interest rates continue to soar, we could potentially see a financial disaster that is absolutely unprecedented, and the too big to fail banks would be the most vulnerable.

As USA Today recently reported, there are just five major banks that absolutely dominate derivatives trading in the United States…

Five of the biggest U.S. banks — JPMorgan, Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Morgan Stanley — account for more than 90% of derivatives contracts. Regulators estimate that nearly half of derivatives are traded outside the United States.

Could you imagine the financial devastation that we would see if several of those banks started to collapse at the same time?

When you hear the mainstream media begin to talk about a “derivatives crisis” involving major banks, that will be a sign that disaster is upon us.

Most Americans don’t realize that Wall Street has been transformed into the largest casino in the history of the world. Most Americans don’t realize that the major banks are literally walking a financial tightrope each and every day.

All it is going to take is one false step and we will be looking at a financial crisis even worse than what happened back in 2008.

So enjoy this little bubble of false prosperity while you can.

It is not going to last for too much longer.

Have Central Bankers Lost Control? Could The Bond Bubble Implode Even If There Is No Tapering?

July 4, 2013 by Michael

Are the central banks of the world starting to lose control of the financial markets? Could we be facing a situation where the bond bubble is going to inevitably implode no matter what the central bankers do? For the past several years, the central bankers of the planet have been able to get markets to do exactly what they want them to do. Stock markets have soared to record highs, bond yields have plunged to record lows and investors have literally hung on every word uttered by Federal Reserve Chairman Ben Bernanke and other prominent central bankers. In the United States, it has been remarkable what Bernanke has been able to accomplish. The U.S. government has been indulging in an unprecedented debt binge, the Fed has been wildly printing money, and the real rate of inflation has been hovering around 8 to 10 percent, and yet Bernanke has somehow convinced investors to lend gigantic piles of money to the U.S. government for next to nothing. But this irrational state of affairs is not going to last indefinitely. At some point, investors are going to wake up and start demanding higher returns. And we are already starting to see this happen in Japan. Wild money printing has actually caused bond yields to go up. What a concept! And that is what should happen – when central banks recklessly print money it should cause investors to demand a higher return. But if bond investors all over the globe start acting rationally, that is going to cause the largest bond bubble in the history of the planet to burst, and that will create utter devastation in the financial markets.

Central banks can manipulate the financial system in the short-term, but there is usually a tremendous price to pay for the distortions that are caused in the long-term.

In Bernanke’s case, all of this quantitative easing seemed to work well for a while. The first round gave the financial system a nice boost, and so the Fed decided to do another. The second round had less effect, but it still boosted stocks and caused bond yields to go down. The third round was supposed to be the biggest of all, but it had even less of an effect than the second round. If you doubt this, just check out the charts in this article.

Our financial system has become addicted to this financial “smack”. But like any addict, the amount needed to get the same “buzz” just keeps increasing. Unfortunately, the more money that the Fed prints, the more distorted our financial system becomes.

The only way that this is going to end is with a tremendous amount of pain. There is no free lunch, and there are already signs that investors are starting to wake up to this fact.

As investors wake up, they are going to realize that this bond bubble is irrational and entirely unsustainable. Once the race to the exits begins, it is not going to be pretty. In fact, the are indications that the race to the exits has already begun…

During the month of June, fixed income allocations fell to a four-year low, according to the American Association of Individual Investors, as major bond fund managers like Pimco experienced record withdrawals for the second quarter. That pullback sent places like emerging markets and high-yield bonds reeling—just as the Federal Reserve signaled plans to taper its easy-money policies within the coming years. Benchmark bond yields ticked up on that news, and in an unexpected twist, the stock market nosedived as well.

A lot of people out there have been floating the theory that the Fed will decide not to taper at all and that quantitative easing will continue at the same pace and therefore the markets will settle back down.

But what if they don’t settle back down?

Could the bond bubble implode even if there is no tapering?

That is what some are now suggesting. For example, Detlev Schlichter is pointing to what has been happening in Japan as an indication that the paradigm has changed…

My conclusion is this: if market weakness is the result of concerns over an end to policy accommodation, then I don’t think markets have that much to fear. However, the largest sell-offs occurred in Japan, and in Japan there is not only no risk of policy tightening, there policy-makers are just at the beginning of the largest, most loudly advertised money-printing operation in history. Japanese government bonds and Japanese stocks are hardly nose-diving because they fear an end to QE. Have those who deal in these assets finally realized that they are sitting on gigantic bubbles and are they trying to exit before everybody else does? Have central bankers there lost control over markets?

After all, money printing must lead to higher inflation at some point. The combination in Japan of a gigantic pile of accumulated debt, high running budget deficits, an old and aging population, near-zero interest rates and the prospect of rising inflation (indeed, that is the official goal of Abenomics!) are a toxic mix for the bond market. It is absurd to assume that you can destroy your currency and dispossess your bond investors and at the same time expect them to reward you with low market yields. Rising yields, however, will derail Abenomics and the whole economy, for that matter.

The financial situation in Japan is actually very similar to the financial situation in the United States. We both have “a gigantic pile of accumulated debt, high running budget deficits, an old and aging population, near-zero interest rates and the prospect of rising inflation”. In both cases, rational investors should demand higher returns when the central bank fires up the printing presses.

And if interest rates on U.S. Treasury bonds start to rise to rational levels, the U.S. government is going to have to pay more to borrow money, state and local governments are going to have to pay more to borrow money, junk bonds will crash, the market for home mortgages will shrivel up and economic activity in this country will slow down substantially.

Plus, as I am fond of reminding everyone, there is a 441 trillion dollar interest rate derivatives time bomb sitting out there that rapidly rising interest rates could set off.

So needless to say, the Federal Reserve is scared to death of what higher interest rates would mean.

But at this point, they may have lost control of the situation.

The Japanese Financial System Is Beginning To Spin Wildly Out Of Control

May 27, 2013 by Michael

The financial system of the third largest economy on the planet is starting to come apart at the seams, and the ripple effects are going to be felt all over the globe. Nobody knew exactly when the Japanese financial system was going to begin to implode, but pretty much everyone knew that a day of reckoning for Japan was coming eventually. After all, the Japanese economy has been in a slump for over a decade, Japan has a debt to GDP ratio of well over 200 percent and they are spending about 50 percent of all tax revenue on debt service. In a desperate attempt to revitalize the economy and reduce the debt burden, the Bank of Japan decided a few months ago to start pumping massive amounts of money into the economy. At first, it seemed to be working. Economic activity perked up and the Japanese stock market went on a tremendous run. Unfortunately, there is also a very significant downside to pumping your economy full of money. Investors start demanding higher returns on their money and interest rates go up. But the Japanese government cannot afford higher interest rates. Without super low interest rates, Japanese government finances would totally collapse. In addition, higher interest rates in the private sector would make it much more difficult for the Japanese economy to expand. In essence, pretty much the last thing that Japan needs right now is significantly higher interest rates, but that is exactly what the policies of the Bank of Japan are going to produce.

There is a lot of fear in Japan right now. On Thursday, the Nikkei plunged 7.3 percent. That was the largest single day decline in more than two years. Then on Monday the index fell by another 3.2 percent.

And according to Business Insider, things are not looking good for Tuesday at this point…

In post-close futures trading, the Nikkei has dropped by another couple hundred points, and has dropped below 14,000.

Are we witnessing the beginning of a colossal financial meltdown by the third largest economy on the planet? The Bank of Japan is starting to lose control, and if Japan goes down hard the crisis could spread to Europe and North America very rapidly. The following is from a recent article by Graham Summers…

As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%… despite the Bank of Japan funneling $19 billion into it to hold things together.

This is what it looks like when a Central Bank begins to lose control. And what’s happening in Japan today will be coming to the US in the not so distant future.

If you think the Fed is not terrified of this, think again. The Fed has pumped over $1 trillion into foreign banks, hoping to stop the mess from getting to the US. As Japan is showing us, the Fed will fail.

Investors, take note… the financial system is sending us major warnings…

If you are not already preparing for a potential market collapse, now is the time to be doing so.

And all of this money printing is absolutely crushing the Japanese yen. Since the start of 2013, the yen has declined 16 percent against the U.S. dollar, even though the U.S. dollar is also being rapidly debased. Just check out this chart of the yen vs. the U.S. dollar. It is absolutely stunning…

The term “currency war” is something that you are going to hear a lot more over the next few years, and what you can see in the chart above is only the beginning.

What the Bank of Japan is doing right now is absolutely unprecedented. It has announced that it plans to inject the equivalent of approximately $1.4 trillion into the Japanese economy in less than two years.

As Kyle Bass recently discussed, that dwarfs the quantitative easing that the Federal Reserve has been doing…

“What they’re doing represents 70% of what the Fed is doing here with an economy 1/3 the size of ours”

The big problem for Japan will come when government bond yields really start to rise. The yield on 10 year government bonds has been creeping up over the past few months, and if they hit the 1.0% mark that will set off some major red flags.

Because Japan has a debt to GDP ratio of more than 200 percent, the only way that it can avoid a total meltdown of government finances is to have super low interest rates. The video posted below does a great job of elaborating on this point…

It really is very simple. If interest rates rise substantially, Japan will be done.

Investor Kyle Bass is one of those that have been warning about this for a long time…

There’s a fatalism, he says, in everyone he talks to in Japan. Their thinking is changing, and the way they talk to him about debt is changing. They already spend 50% of tax revenue on debt service.

“If rates go up, it’s game over.”

The financial problems in Cyprus and Greece are just tiny blips compared to what a major financial crisis in Japan would potentially be like. The Japanese economy is larger than the economies of Germany and Italy combined. If the house of cards in Japan comes tumbling down, trillions of dollars of investments all over the globe are going to be affected.

And what is happening right now in Japan should serve as a sober warning to the United States. Like Japan, the money printing that the Federal Reserve has been doing has caused economic activity to perk up a bit and it has sent the stock market on an unprecedented run.

Unfortunately, no bubble that the Federal Reserve has ever created has been able to last forever. At some point, we will pay a very great price for all of the debt that the U.S. government has been accumulating and all of the reckless money printing that the Fed has been engaged in.

So enjoy the calm before the storm while you still can.

It won’t last for long.

11 Economic Crashes That Are Happening RIGHT NOW

April 12, 2013 by Michael

The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun. Bitcoins are crashing, gold and silver are plunging, the price of oil and the overall demand for energy continue to decline, markets all over Europe are collapsing and consumer confidence in the United States just had the biggest miss relative to expectations that has ever been recorded. In many ways, all of this is extremely reminiscent of 2008. Other than the Bitcoin collapse, almost everything else that is happening now also happened back then. So does that mean that a horrible stock market crash is coming as well? Without a doubt, one is coming at some point. The only question is whether it will be sooner or later. Meanwhile, there are a whole lot of other economic crashes that deserve out attention at the moment.

The following are 11 economic crashes that are happening RIGHT NOW…

#1 Bitcoins

As I write this, the price of Bitcoins has fallen more than 70 percent from where it was on Wednesday. This is one of the reasons why I have never recommended Bitcoins to anyone. Yes, alternative currencies are a good thing, but there are a lot of big problems with Bitcoins. Why would anyone want to invest in a currency that could lose 70 percent of its purchasing power in just two days? Why would anyone want to invest in a currency where a single person can arbitrarily decide to suspend trading in that currency at any time?

An article by Mike Adams of Natural News described some of the things that we have learned about Bitcoins this week…

#1) The bitcoin infrastructure cannot handle a selloff. Once the rush for the exits gains momentum, you will not be able to get out. Only those who sell early will be able to exit the market.

#2) The bitcoin infrastructure is subject to the whims of just one person running MTGox who can arbitrarily decide to shut it down whenever he thinks the market needs a “cooling period.” This is nearly equivalent to a financial dictatorship where one person calls the shots.

#3) Every piece of bad news will be “spun” by exchanges like MTGox into good-sounding news. As bitcoin was crashing yesterday by 60% in value in mere hours, MTGox announced it was a “victim of our own success!” So while bitcoin holders watched $1 billion in market valuation evaporate, MTGox called it a success. Gee, then what would you call it when bitcoin loses 99%? A “raging” success?

#2 Gold

The price of gold was down by about 4 percent on Friday. Gold has now fallen below $1500 an ounce for the first time since July 2011. Overall, the price of gold has fallen by about 10 percent since the beginning of the year, and it is about 22 percent below the record high set back in September 2011.

Yes, the price of gold is likely being pushed down by the banksters. And yes, gold is a fantastic investment for the long-term. But there will be times when the price of gold does fall dramatically just like we saw back in 2008.

#3 Silver

The price of silver fell by about 5 percent on Friday. If it falls much more it is going to be at a level that presents a historically good buying opportunity.

Just like gold, there will be times when the price of silver swings dramatically. But the truth is that silver is probably an even better long-term investment than gold is.

#4 Oil

The price of oil declined by about 3 percent on Friday. Many will consider this a positive thing, but just remember what happened back in 2008. Back then, the price of oil dropped like a rock. If the price of oil gets below $80, that could very well be a clear signal that a major economic crisis is about to happen.

#5 Consumer Confidence

As I mentioned above, consumer confidence in the U.S. just had its biggest miss relative to expectations that has ever been recorded. The following is from an article posted on Zero Hedge on Friday…

Well if this doesn’t send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history!

#6 Retirement Accounts

According to Wells Fargo, the number of Americans taking loans from their 401(k) accounts has risen by 28 percent over the past year…

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 – a 7% increase from $6,662.

Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.

“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement.

#7 Casino Spending

Casino spending is declining again. Many people (including myself) would consider this to be a good thing, but casino spending is also one of the most reliable indicators about the overall health of the economy. Remember, casino spending crashed during the last financial crisis as well. That is why it is so alarming that casino spending is now back to levels that we have not seen since the last recession.

#8 Employment In Greece

Over in Europe, things just continue to get worse. According to numbers that were just released, the unemployment rate in Greece has soared to 27.2 percent, which was up from 25.7 percent the previous month. That means that the unemployment rate in Greece rose by 1.5 percent in just a single month. That is not just a crash – that is an avalanche of unemployment.

#9 European Financial Stocks

European financial stocks have been hit particularly hard lately. And for good reason actually – most of the major banks in Europe are essentially insolvent at this point. This week, European financial stocks fell to seven month lows, and this is probably only just the beginning.

#10 Spanish Bankruptcies

According to Reuters, the number of Spanish companies going bankrupt has risen by 45 percent over the past year…

A record number of Spanish companies went bust in the first quarter of 2013 as companies remained under intense pressure from tight credit conditions and meager demand, a study showed on Monday.

The 2,564 firms filing for insolvency proceedings in first three months of the year was a 10 percent rise from the previous quarter and a 45 percent increase on the same period in 2012, the survey by credit rating agency Axesor said.

#11 Demand For Energy

Just like we saw back in 2008, the overall demand for energy in the United States is falling rapidly. There are some shocking charts that prove this that were recently posted on Zero Hedge that you can find right here.

Yes, it is good for people to use a bit less energy, but it is also a clear indication that economic activity is really starting to slow down.

But despite everything that you have just read, the Dow and the S&P 500 have been setting new record highs.

And if you listen to the mainstream media, you would think that this stock market bubble can continue indefinitely.

Fortunately, there are a few voices of reason out there. For example, just check out what Marc Faber recently told CNBC…

In the near-term, the U.S. stock market is overbought and adding that any more near-term gains portend big trouble for the market, “The Gloom, Boom & Doom Report” publisher Marc Faber told CNBC on Monday.

“If we continue to move up, the probability of a crash becomes higher,” Faber predicted in a “Squawk Box” interview, saying it could happen “sometime in the second half of this year.”

As I have written about previously, a bubble is always the biggest right before it bursts. I hope that we still have at least a little bit more time before it happens, but I wouldn’t count on it.

The economic fundamentals tell us that the stock market should be plunging, not rising. At some point the boys over on Wall Street will get the message and the market will catch up to reality very, very rapidly.

But for the moment, the American people are feeling really good. According to CNN, Americans are now more optimistic than they have been in six years…

As the stock market continues to show record highs, the number of Americans who say things are going well in the country has reached 50% for the first time in more than six years, according to a new national survey.

So what do you think will happen for the rest of the year?

Do you think that the good times will continue to roll, or do you believe that the bubble is about to burst?

Please feel free to share your opinion by posting a comment below…

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