The Stock Market Crash Of 2016

Marc Faber Issues A Stunning Warning That A Gigantic 50 Percent Stock Market Crash Could Be Coming

August 9, 2016August 9, 2016 by Michael

Are we about to witness one of the largest stock market crashes in U.S. history? Swiss investor Marc Faber is the publisher of the “Gloom, Boom & Doom Report”, and he has been a regular guest on CNBC for years. And even though U.S. stocks have been setting new record high after new record high in recent weeks, he is warning that a massive stock market crash is in our very near future. According to Faber, we could “easily” see the S&P 500 plunge all the way down to 1,100. As I sit here writing this article, the S&P 500 is sitting at 2,181.74, so that would be a drop of cataclysmic proportions. The following is an excerpt from a CNBC article that discussed the remarks that Faber made on their network on Monday…

The notoriously bearish Marc Faber is doubling down on his dire market view.

The editor and publisher of the Gloom, Boom & Doom Report said Monday on CNBC’s “Trading Nation” that stocks are likely to endure a gut-wrenching drop that would rival the greatest crashes in stock market history.

“I think we can easily give back five years of capital gains, which would take the market down to around 1,100,” Faber said, referring to a level 50 percent below Monday’s closing on the S&P 500.

Of course Faber is far from alone in believing that the market is heading for hard times. Just recently, I wrote about how legendary investor Jeffrey Gundlach is warning that “stocks should be down massively” and that he believes this is the time to “sell everything“.

And on Tuesday, Donald Trump told Fox News that the stock market is “a big bubble”…

“If rates go up, you’re going to see something that’s not pretty,” the billionaire businessman told Fox News during a Tuesday morning phone interview. “It’s all a big bubble.”

Worries that the Fed has created a market bubble have shadowed the second-longest bull market in history as the central bank has kept its key rate near zero and expanded its balance sheet by $3.8 trillion in order to pump liquidity into the financial system.

Trump actually has a vested interest in seeing the stock market go down, because that would help his chances in November.

In a previous article on The Most Important News, I explained that the stock market has indicated who would win the presidential election 86 percent of the time since 1928. During the final three months before election day, if the stock market goes up the incumbent party almost always wins. But if the stock market goes down, the incumbent party almost always loses. The only times this correlation has not held up since 1928 were in 1956, 1968 and 1980.

For the moment, the stock market is defying the laws of economics, and that is a very good thing for Hillary Clinton. But if this bubble suddenly bursts and the market starts catching up with economic reality, that is going to turn out to be very favorable for Donald Trump.

And without a doubt, the fundamental economic numbers just continue to get worse. Earlier today, we learned that productivity in the U.S. has now been falling for three quarters in a row…

Productivity, a sore spot for the U.S. economy over the past few years, has now declined in three straight quarters, according to data released Tuesday.

Productivity in the second quarter unexpectedly fell 0.5%, well below expectations, the Labor Department said. Economists surveyed by MarketWatch had forecast a 0.3% gain in productivity in the quarter.

Productivity is down 0.4% from a year earlier, the first year-over-year decline since the second quarter of 2013.

On Tuesday we also learned that real estate sales in Las Vegas were down about 10 percent in July compared to the same period a year ago, and things are not looking so good in San Francisco either. Just check out what has been going on at Twitter…

Twitter is shaking up San Francisco. It’s the city’s 10th largest employer, and second largest tech employer, after Salesforce. But it hasn’t yet figured out, despite a decade of trying, how to make money. Last October, it announced that it would lay off 8% of its workforce. A couple of weeks ago, it reported a second-quarter net loss of $107 million along with disappointing user metrics and lousy projections. Its shares have lost 74% since their miracle-IPO-hype peak at the end of December 2014.

And now Twitter is dumping nearly one third of its total office space on the San Francisco sublease market.

Las Vegas and San Francisco are both prone to huge “booms” and “busts”. So the fact that it appears that both cities are starting to move into the “bust” end of the cycle is a very ominous sign.

Conditions are changing, and now is the time to position yourself for the exceedingly challenging times that are coming. As I end this article today, I want to share with you something written by Jim Quinn. He recently went out to visit his son Kevin in Colorado for a couple of weeks, and the following is how he ended his article about that trip…

After spending a week in this stunning paradise, it’s tougher than you know to go back to my two and half hour daily round trip commute into the slums of West Philly. John Muir’s words were right 100 years ago and they are right today. I am losing precious days and my days are spent trying to make money. I’ve got responsibilities. I’ve got bills to pay. I’ve got kids to get through college. We’ve got aging parents to help. I work because I have to.

I’m not learning anything in this trivial world of distractions and iGadgets. I don’t fit into this materialistic society. I don’t do small talk. I have no patience for fools. I prefer solitude. If I can survive this despicable rat race for seven more years, I’ll be joining Kevin in Colorado and living the life I’d like to live. The sun is setting and time is slipping away. Those mountains are calling me home.

I can definitely identify with what Jim is going through, because I once experienced similar emotions.

To Jim and everyone else that hopes that someday in the future they will be able to live the lives that they would like to be living right now, I would say this…

Don’t put it off.

Seize the day and find a way to make your dreams a reality.

Things are rapidly changing in this country, and if you keep putting off the life you want to be living for too long it may end up slipping away for good.

11 Signs That The U.S. Economy Is Rapidly Deteriorating Even As The Stock Market Soars

May 10, 2016May 10, 2016 by Michael

We have seen this story before, and it never ends well. From mid-March until early May 2008, a vigorous stock market rally convinced many investors that the market turmoil of late 2007 and early 2008 was over and that happy days were ahead for the U.S. economy. But of course we all know what happened. It turned out that the market downturns of late 2007 and early 2008 were just “foreshocks” of a much greater crash in late 2008. The market surge in the spring of 2008 was just a mirage, and it masked rapidly declining economic fundamentals. Well, the exact same thing is happening right now. The Dow rose another 222 points on Tuesday, but meanwhile virtually every number that we are getting is just screaming that the overall U.S. economy is steadily falling apart. So don’t be fooled by a rising stock market. Just like in the spring of 2008, all of the signs are pointing to an avalanche of bad economic news in the months ahead. The following are 11 signs that the U.S. economy is rapidly deteriorating…

#1 Total business sales have been declining for nearly two years, and they are now about 15 percent lower than they were in late 2014.

#2 The inventory to sales ratio is now back to near where it was during the depths of the last recession. This means that there is lots and lots of unsold stuff just sitting around out there, and that is a sign of a very unhealthy economy.

#3 Corporate earnings have declined for four consecutive quarters. This never happens outside of a recession.

#4 Profits for companies listed on the S&P 500 were down 7.1 percent during the first quarter of 2016 when compared to the same time period a year ago.

#5 In April, commercial bankruptcies were up 32 percent on a year over year basis, and Chapter 11 filings were up 67 percent on a year over year basis. This is exactly the kind of spike that we witnessed during the initial stages of the last major financial crisis as well.

#6 U.S. rail traffic was 11 percent lower last month than it was during the same month in 2015. Right now there are 292 Union Pacific engines sitting idle in the middle of the Arizona desert because there is literally nothing for them to do.

#7 The U.S. economy has lost an astounding 191,000 mining jobs since September 2014. For areas of the country that are heavily dependent on mining, this has been absolutely devastating.

#8 According to Challenger, Gray & Christmas, U.S. firms announced 35 percent more job cuts during April than they did in March. This indicates that our employment problems are accelerating.

#9 So far this year, job cut announcements are running 24 percent above the exact same period in 2015.

#10 U.S. GDP grew at just a 0.5 percent annual rate during the first quarter of 2016. This was the third time in a row that the GDP number has declined compared to the previous quarter, and let us not forget that the formula for calculating GDP was changed last year specifically to make the first quarter of each year look better. Without that “adjustment”, it is quite possible that we would have had a negative number for the first quarter.

#11 Barack Obama is poised to become the first president in U.S. history to never have a single year during his time in office when the economy grew by more than 3 percent.

But you never hear Obama talk about that statistic, do you?

And the mainstream media loves to point the blame at just about anyone else. In fact, the Washington Post just came out with an article that is claiming that the big problem with the economy is the fact that U.S. consumers are saving too much money…

The surge in saving is the real drag on the economy. It has many causes. “People got a cruel lesson about [the dangers] of debt,” says economist Matthew Shapiro of the University of Michigan. Households also save more to replace the losses suffered on homes and stocks. But much saving is precautionary: Having once assumed that a financial crisis of the 2008-2009 variety could never happen, people now save to protect themselves against the unknown. Research by economist Mark Zandi of Moody’s Analytics finds higher saving at all income levels.

So even though half the country is flat broke, I guess we are all supposed to do our patriotic duty by going out and running up huge balances on our credit cards.

What a joke.

Of course the U.S. economy is actually doing significantly better at the moment than almost everywhere else on the planet. Many areas of South America have already plunged into an economic depression, major banks all over Europe are in the process of completely melting down, Japanese GDP has gone negative again despite all of their emergency measures, and Chinese stocks are down more than 40 percent since the peak of the market.

This is a global economic slowdown, and just like in 2008 it is only a matter of time before the financial markets catch up with reality. I really like how Andrew Lapthorne put it recently…

On the more bearish slant is Andrew Lapthorne, head of quantitative strategy at Societe Generale. To him this profit downturn is a sign that stocks are far too overvalued and the economy is weaker than you think.

“MSCI World EPS is now declining at the fastest pace since 2009, losing 4% in the last couple of months alone (this despite stronger oil prices),” wrote Lapthorne in a note. For the S&P 500 specifically, the year on year drop in profit drop was the most since third quarter of 2009.

“Global earnings are now 14% off the peak set in August 2014 and back to where they stood five years ago. Equity prices on the other hand are 25% higher. Gravity beckons!”

I couldn’t have said it better myself.

Look, this is not a game.

So far in 2016, three members of my own extended family have lost their jobs. Businesses are going under at a pace that we haven’t seen since 2008, and this means that more mass layoffs are on the way.

We can certainly be happy that U.S. stocks are doing okay for the moment. May it stay that way for as long as possible. But anyone that believes that this state of affairs can last indefinitely is just being delusional.

Gravity beckons, and the crash that is to come is going to be a great sight to behold.

2015 Was The Worst Year For The Stock Market Since 2008

December 31, 2015December 31, 2015 by Michael

It’s official – 2015 was a horrible year for stocks. On the last day of the year, the Dow Jones Industrial Average was down another 178 points, and overall it was the worst year for the Dow since 2008. But of course the Dow was far from alone. The S&P 500, the Russell 2000 and Dow Transports also all had their worst years since 2008. Isn’t it funny how these things seem to happen every seven years? But compared to other investments, stocks had a relatively “good” year. In 2015, junk bonds, oil and industrial commodities all crashed hard – just like they all did just prior to the great stock market crash of 2008. According to CNN, almost 70 percent of all investors lost money in 2015, and things are unfolding in textbook fashion for much more financial chaos in 2016.

Globally, over the past 12 months we have seen financial shaking unlike anything that we have experienced since the last great financial crisis. During the month of August markets all over the world started to go haywire, and at one point approximately 11 trillion dollars of financial wealth had been wiped out globally according to author Jonathan Cahn.

Since that time, U.S. stocks rebounded quite a bit, but they still ended red for the year. Other global markets were not nearly as fortunate. Some major indexes finished 2015 down 20 percent or more, and European stocks just had their second worst December ever.

I honestly don’t understand the “nothing is happening” crowd. The numbers clearly tell us that a global financial crisis began in 2015, and it threatens to accelerate greatly as we head into 2016.

Actually, there are a whole lot of people out there that would be truly thankful if “nothing” had happened over the past 12 months. For example, there are five very unfortunate corporate CEOs that collectively lost 20 billion dollars in 2015…

Five CEOs of companies in the Russell 1000 index, including Nicholas Woodman of camera maker GoPro (GPRO), Sheldon Adelson of casino operator Las Vegas Sands (LVS) and even the famed investor Warren Buffett of Berkshire Hathaway (BRKA), lost more money on their companies’ shares than any other CEOs this year, according to a USA TODAY analysis of data from S&P Capital IQ.

These five CEOs were handed a whopping collective $20 billion loss on their company stock in 2015. Each and every one of these CEOs lost $1 billion or more – based on the average number of shares they’ve owned this year.

The biggest loser of the group was Warren Buffett.

He lost an astounding 7.8 billion dollars in 2015.

Do you think that he believes that “nothing happened” this past year?

And if “nothing happened”, then why are hedge funds “dropping like flies” right now? The following comes from Zero Hedge…

Two days, ago we noted that hedge funds are now dropping like flies in a year in which generating alpha has become virtually impossible for the majority of the vastly overpaid 2 and 20 “smart money” out there (and where levered beta is no longer the “sure thing” it used to be when the Fed was pumping trillions into stocks) when we reported that Seneca Capital, the $500 million multi-strat hedge fund belonging to Doug Hirsh (of Sohn Investment Conference fame), is shutting down.

And just within the last 24 hours, another very prominent hedge fund has collapsed. SAB Capital, which once managed more than a billion dollars, is shutting down after huge losses this year. Here is more from Zero Hedge…

It turns out that despite our intention, the question was not rhetorical because just a few hours later Bloomberg answered when it reported that the latest hedge fund shutdown casualty was another iconic, long-term investor: Scott Bommer’s SAB Capital, which as of a year ago managed $1.1 billion, and which after 17 years of managing money and after dropping roughly 11% in the first eight month of 2015, has decided to return all outside client money, and converting the hedge fund into a family office (after all one has to preserve one’s offshore tax benefits).

Overall, 674 hedge funds shut down during the first nine months of this year, and the final number for 2015 will actually be far higher because the rate of closings has accelerated as we have approached the end of this calendar year. When the final numbers come in, I would not be surprised to hear that 1,000 hedge funds had closed up shop in 2015.

Meanwhile, underlying economic conditions continue to deteriorate.

Corporate profits are steadily falling, the bond distress ratio just hit the highest level that we have seen since September 2009, and corporate debt defaults have risen to the highest level that we have seen since the last recession.

And this week we got a couple of new numbers that indicate that the U.S. economy is slowing down much faster than anticipated.

The first big surprise was the Dallas Fed’s general business activity index…

The Dallas Fed’s general business activity index plunged to -20.1 in December from -4.9 in November. This was much worse than the -7.0 expected by economists.

Any reading below 0 signals contraction, and this index has been below 0 all year.

The next big surprise was the Chicago purchasing manager index…

The Chicago purchasing manager index unexpectedly plunged to 42.9 in December, its lowest reading since July 2009.

Any reading below 50 signals a contraction in business activity.

This was down from 48.7 in November and much worse than the 50.0 expected by economists.

When the final numbers for the fourth quarter are in a few months from now, I believe that they will show that the U.S. economy officially entered recession territory at this time.

And the truth is that deep recessions have already started for some of the other biggest economies on the planet. For example, I recently wrote about the deep troubles that Canada is now experiencing, and things have already gotten so bad in Brazil that Goldman Sachs is referring to that crisis as “an outright depression“.

Many people seem to assume that since I have a website called “The Economic Collapse Blog” that I must want everything to fall apart. But that is not true at all. I love my country, I enjoy my life, and I would be perfectly content to spend 2016 peacefully passing the time here in the mountains with my wonderful wife. The longer things can stay somewhat “normal”, the better it is for all of us.

Unfortunately, for decades we have been making incredibly foolish decisions as a society, and the consequences of those decisions are now catching up with us in a major way.

Jonathan Cahn likes to say that “a great shaking is coming”, and I very much agree with him.

In fact, I think that it is going to be here a lot sooner than most people think.

So buckle up, because I believe that 2016 is going to be quite a wild ride.