Home » Posts tagged 'Financial Markets'
Tag Archives: Financial Markets
That didn’t take long. On Monday, the Dow was down another 326 points. Overall, the Dow has now fallen more than 1000 points from the peak of the market (16,588.25) back in late December. This is the first time that we have seen the Dow drop below its 200-day moving average in more than a year, and there are many that believe that this is just the beginning of a major stock market decline. Meanwhile, things are even worse in other parts of the world. For example, the Nikkei is now down about 1700 points from its 2013 high. This is causing havoc all over Asia, and the sharp movement that we have been seeing in the USD/JPY is creating a tremendous amount of anxiety among Forex traders. For those that are not interested in the technical details, what all of this means is that global financial markets are starting to become extremely unstable.
Unfortunately, there does not appear to be much hope on the horizon for investors. In fact, troubling news just continues to pour in from all over the planet. Just consider the following…
-Major currencies all over South America continue to collapse.
-Massive central bank intervention has done little to slow down the currency collapse in Turkey.
-Investors pulled more than 6 billion dollars out of emerging market equity funds last week alone.
-The CBOE Volatility Index (VIX) has risen above 20 for the first time in four months.
-Last month, new manufacturing orders in the United States declined at the fastest pace that we have seen since December 1980.
-Real disposable income in the United States has just experienced the largest year over year drop that we have seen since 1974.
-In January, vehicle sales for Ford were down 7.5 percent and vehicle sales for GM were down 12 percent. Both companies are blaming bad weather.
-A major newspaper in the UK is warning that “growing problems in the Chinese banking system could spill over into a wider financial crisis“.
-U.S. Treasury Secretary Jack Lew is warning that the federal government could hit the debt ceiling by the end of this month if Congress does not act.
-It is being reported that Dell Computer plans to lay off more than 15,000 workers.
-The IMF recently said that the the probability that the global economy will fall into a deflation trap “may now be as high as 20%“.
-The Baltic Dry Index is now down 50 percent from its December highs.
If our economic troubles continue to mount, could we be facing a global “financial avalanche” fairly quickly?
That is what some very prominent analysts believe.
Below, I have posted quotes from five men that are greatly respected in the financial world. What they have to say is quite chilling…
#1 Doug Casey: “Now is a very good time to start thinking financially because I’m afraid that this year, in 2014, we’re going to go back into the financial hurricane. We’ve been in the eye of the storm since 2009, but now we’re going to go back into the trailing edge of the storm, and it’s going to be much longer lasting and much worse and much different than what we had in 2008 and 2009.”
#2 Bill Fleckenstein: “The [price-to-earnings ratio] is 16, 17 times earnings,” Fleckenstein said on Tuesday’s episode of “Futures Now.” “Why would you pay 16 times for an S&P company? I don’t care about where rates are, because rates are artificially suppressed. Why isn’t that worth 11 or 12 times? Just by that analysis, you’d be down by a quarter or 30 percent. So there’s a huge amount of downside.”
#3 Egon von Greyerz of Matterhorn Asset Management: “Nothing goes (down) in a straight line, but the emerging market problems will accelerate and it will spread to the very overbought and the very overvalued stock markets and economies in the West.
So stock markets are now starting a secular bear trend which will last for many years, and we could see falls of massive proportions. At the end of this, the wealth that has been created in the last few decades will be destroyed.”
#4 Peter Schiff: “The crisis is imminent,” Schiff said. “I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”
“We’re broke, Schiff added. “We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”
#5 Gerald Celente: “This selloff in the emerging markets, with their currencies going down and their interest rates going up, it’s going to be disastrous and there are going to be riots everywhere…
…So as the decline in their economies accelerates, you are going to see the civil unrest intensify.”
Those that do not believe that we could ever see “civil unrest” on the streets of America should take note of what just happened in Seattle.
After the Seahawks won the Super Bowl, fans celebrated by “lighting fires, damaging historic buildings and ripping down street signs“.
If that is how average Americans will behave when something good happens, how will they act when the economy totally collapses and nobody can find work for an extended period of time?
We are rapidly approaching another great financial crisis. Unfortunately, we didn’t learn any of the lessons that we should have learned last time. It is being projected that the debt of the federal government will more than double during the Obama years, the “too big to fail banks” have collectively gotten 37 percent larger over the past five years, and the big banks have become more financially reckless than ever before.
When the next great financial crisis arrives (and without a doubt it is inevitable), millions more Americans will lose their jobs and millions more Americans will lose their homes.
Now is not the time to be buying lots of expensive new toys, going on expensive vacations or piling up lots of debt.
Now is the time to build up an emergency fund and to do whatever you can to get prepared for the great storm that is coming.
As you can see from the financial headlines, time is rapidly running out.
Two observations on the latest thoughts by Jim Reid (DB’s best strategist by orders of magnitude):
- He is far more concerned by what is going on in China than any of the other noise around the world. And rightfully so. As we first showed a few months ago, the money creation in China puts what all the other global central banks do to shame. Any slowdown in this credit creation and the wheels have no choice but to fall off, which also explains why even the tiniest default in this $9 trillion economy will be bailed out as it would risk an outright “flow” collapse.
- The Fed came, saw, and after realizing the mess it created with tapering – which can never be priced in now that the market is terminally addicted to the Fed’s liquidity injections – will soon do what we have said since the May 2013 “taper tantrum” would happen – untaper, and resume bailing out everyone.
Full note from Reid:
From all the stories that broke while I was away the most fascinating surely revolves around the Chinese Trust product that in the end wasn’t allowed to be at the mercy of market forces.For me it’s a microcosm of the fragility still present in global financial markets that a $9.0 trillion dollar economy – that will be the biggest in the world within the time frame of most of our careers – struggles to allow a $500 million investment product to default without there being market fears of it igniting panic in financial markets. This has now been a theme for the best part of 10-15 years in global financial markets particularly in the developed world but more recently the EM world since the GFC. We’ve created a global debt monster that’s now so big and so crucial to the workings of the financial system and economy that defaults have been increasingly minimised by uber aggressive policy responses. It’s arguably too late to change course now without huge consequences. This cycle perhaps started with very easy policy after the 97/98 EM crises thus kick starting the exponential rise in leverage across the globe. Since then we saw big corporates saved in the early 00s, financials towards the end of the decade and most recently Sovereigns bailed out. It’s been many, many years since free markets decided the fate of debt markets and bail-outs have generally had to get bigger and bigger.
This sounds negative but the reality is that for us it means that central banks have little option but to keep high levels of support for markets for as far as the eye can see and defaults will stay artificially low. As such we remain bullish for 2014. However it’s largely because we think the authorities are trapped for now rather than because the global financial system is healing rapidly. So as well as EM being very important for 2014, we continue to think the Fed taper pace is also very important. If the US economy was the only one in the world then maybe they could slowly taper without major consequences. However the world is fixated with US monetary policy and huge flows have traded off the back of QE and ZIRP so it does matter. We have suspicions that the Fed may have to be appreciative of the global beast they’ve helped create as the year progresses.
In other words: bullish… because the system will continue to collapse and need more bailouts. The Bizarro world Bernanke created truly is an exciting place.
Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China? If you are like most Americans, you have not been. Most Americans don’t seem to really care too much about what is happening in the rest of the world, but they should. In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks. We are not at a “global crisis” stage yet, but things are getting worse with each passing day. For a while, I have felt that 2014 would turn out to be a major “turning point” for the global economy, and so far that is exactly what it is turning out to be. The following are 20 early warning signs that we are rapidly approaching a global economic meltdown…
#1 The looting, violence and economic chaos that is happening in Argentina right now is a perfect example of what can happen when you print too much money…
For Dominga Kanaza, it wasn’t just the soaring inflation or the weeklong blackouts or even the looting that frayed her nerves.
It was all of them combined.
At one point last month, the 37-year-old shop owner refused to open the metal shutters protecting her corner grocery in downtown Buenos Aires more than a few inches — just enough to sell soda to passersby on a sweltering summer day.
#2 The value of the Argentine Peso is absolutely collapsing.
#3 Widespread shortages, looting and accelerating inflation are also causing huge problems in Venezuela…
Economic mismanagement in Venezuela has reached such a level that it risks inciting a violent popular reaction. Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of basic consumer goods. At the same time, the Maduro administration has foreclosed peaceful options for Venezuelans to bring about a change in its current policies.
President Maduro, who came to power in a highly-contested election last April, has reacted to the economic crisis with interventionist and increasingly authoritarian measures. His recent orders to slash prices of goods sold in private businesses resulted in episodes of looting, which suggests a latent potential for violence. He has put the armed forces on the street to enforce his economic decrees, exposing them to popular discontent.
#4 In a stunning decision, the Venezuelan government has just announced that it has devalued the Bolivar by more than 40 percent.
#5 Brazilian stocks declined sharply on Thursday. There is a tremendous amount of concern that the economic meltdown that is happening in Argentina is going to spill over into Brazil.
#6 Ukraine is rapidly coming apart at the seams…
A tense ceasefire was announced in Kiev on the fifth day of violence, with radical protesters and riot police holding their position. Opposition leaders are negotiating with the government, but doubts remain that they will be able to stop the rioters.
#7 It appears that a bank run has begun in China…
As China’s CNR reports, depositors in some of Yancheng City’s largest farmers’ co-operative mutual fund societies (“banks”) have been unable to withdraw “hundreds of millions” in deposits in the last few weeks. “Everyone wants to borrow and no one wants to save,” warned one ‘salesperson’, “and loan repayments are difficult to recover.” There is “no money” and the doors are locked.
#8 Art Cashin of UBS is warning that credit markets in China “may be broken“. For much more on this, please see my recent article entitled “The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?”
#9 News that China’s manufacturing sector is contracting shook up financial markets on Thursday…
Wall Street was rattled by a key reading on China’s manufacturing which dropped below the key 50 level in January, according to HSBC. A reading below 50 on the HSBC flash manufacturing PMI suggests economic contraction.
#10 Japanese stocks experienced their biggest drop in 7 months on Thursday.
#11 The value of the Turkish Lira is absolutely collapsing.
#12 The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.
#13 In Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.
#14 The unemployment rate in Spain is sitting at an all-time record high of 26.7 percent.
#15 This year, the Baltic Dry Index experienced the largest two week post-holiday decline that we have ever seen.
#16 Chipmaker Intel recently announced that it plans to eliminate5,000 jobs over the coming year.
#17 CNBC is reporting that U.S. retailers just experienced “the worst holiday season since 2008“.
#18 A recent CNBC article stated that U.S. consumers should expect a “tsunami” of store closings in the retail industry…
Get ready for the next era in retail—one that will be characterized by far fewer shops and smaller stores.
On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It’s the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy’s.
Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.
#19 The U.S. Congress is facing another deadline to raise the debt ceiling in February.
#20 The Dow fell by more than 170 points on Thursday. It is becoming increasingly likely that “the peak of the market” is now in the rear view mirror.
In light of everything above, is there anyone out there that still wants to claim that “everything is going to be okay” for the global economy?
Sadly, most Americans are not even aware of most of these things.
All over the country today, the number one news headline is about Justin Bieber. The mainstream media is absolutely obsessed with celebrity scandals, and so is a very large percentage of the U.S. population.
A great economic storm is rapidly approaching, and most people don’t even seem to notice the storm clouds that are gathering on the horizon.
In the end, perhaps we will get what we deserve as a nation.
Did you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“. In other words, it could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent ofapproximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
Over the past several years, the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have all been criticized for creating too much money. But the truth is that what has been happening in China surpasses all of their efforts combined. You can see an incredible chart which graphically illustrates this point right here. As the Telegraph pointed out a while back, the Chinese have essentially “replicated the entire U.S. commercial banking system” in just five years…
Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire U.S. commercial banking system in five years,” she said.
The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.
As with all other things in the financial world, what goes up must eventually come down.
And right now January 31st is shaping up to be a particularly important day for the Chinese financial system. The following is from a Reuters article…
The trust firm responsible for a troubled high-yield investment product sold through China’s largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million)product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.
If there is a major default on January 31st, the effects could ripple throughout the entire Chinese financial system very rapidly. A recent Forbes article explained why this is the case…
A WMP default, whether relating to Liansheng or Zhenfu, could devastate the Chinese banking system and the larger economy as well. In short, China’s growth since the end of 2008 has been dependent on ultra-loose credit first channeled through state banks, like ICBC and Construction Bank, and then through the WMPs, which permitted the state banks to avoid credit risk. Any disruption in the flow of cash from investors to dodgy borrowers through WMPs would rock China with sky-high interest rates or a precipitous plunge in credit, probably both. The result? The best outcome would be decades of misery, what we saw in Japan after its bubble burst in the early 1990s.
The big underlying problem is the fact that private debt and the money supply have both been growing far too rapidly in China. According to Forbes, M2 in China increased by 13.6 percent last year…
And at the same time China’s money supply and credit are still expanding. Last year, the closely watched M2 increased by only 13.6%, down from 2012’s 13.8% growth. Optimists say China is getting its credit addiction under control, but that’s not correct. In fact, credit expanded by at least 20% last year as money poured into new channels not measured by traditional statistics.
Overall, M2 in China is up by about 1000 percent since 1999. That is absolutely insane.
And of course China is not the only place in the world where financial trouble signs are erupting. Things in Europe just keep getting worse, and we have just learned that the largest bank in Germany just suffered ” a surprise fourth-quarter loss”…
Deutsche Bank shares tumbled on Monday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs that prompted the bank to warn of a challenging 2014.
Germany’s biggest bank said revenue at its important debt-trading division, fell 31 percent in the quarter, a much bigger drop than at U.S. rivals, which have also suffered from sluggish fixed-income trading.
If current trends continue, many other big banks will soon be experiencing a “bond headache” as well. At this point, Treasury Bond sentiment is about the lowest that it has been in about 20 years. Investors overwhelmingly believe that yields are heading higher.
If that does indeed turn out to be the case, interest rates throughout our economy are going to be rising, economic activity will start slowing down significantly and it could set up the “nightmare scenario” that I keep talking about.
But I am not the only one talking about it.
In fact, the World Economic Forum is warning about the exact same thing…
Fiscal crises triggered by ballooning debt levels in advanced economies pose the biggest threat to the global economy in 2014, a report by the World Economic Forum has warned.
Ahead of next week’s WEF annual meeting in Davos, Switzerland, the forum’s annual assessment of global dangers said high levels of debt in advanced economies, including Japan and America, could lead to an investor backlash.
This would create a “vicious cycle” of ballooning interest payments, rising debt piles and investor doubt that would force interest rates up further.
So will a default event in China on January 31st be the next “Lehman Brothers moment” or will it be something else?
In the end, it doesn’t really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years.
It is just a matter of time.