Posted: 11 Feb 2016 Michael Snyder THE ECONOMIC COLLAPSE
Stock markets around the world continue to collapse as this new global financial crisis picks up more steam. In the U.S., the Dow lost 254 more points on Thursday, and it has now fallen for five days in a row. European stocks continued to get obliterated, and financial institutions are leading the way. But this week what is happening in Japan has been the most sobering.
After falling 918 points the other day, the Nikkei plunged another 760 points early on Friday. The Nikkei has now fallen for seven of the past eight days, and investors in Japan are in full panic mode. Overall, global stocks are well into bear market territory, and nearly 17 trillion dollars of global stock market wealth has already been wiped out. As panic rises, investors are seeking alternative investments. On Thursday, the price of gold hit $1,260 an ounce at one point before settling back a bit. But even with the fade at the end of the day, it was still the biggest daily gain in more than two years. Overall, gold is having its best quarterly performance in 30 years. Whenever a financial crisis happens, investors seek out safe havens such as gold that can help them weather the storm. In particular, demand for physical gold is going through the roof all over the planet. Just check out the following excerpt from a Telegraph article entitled “Investors ‘go bananas’ for gold bars as global stock markets tumble“… BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.Meanwhile, the price of oil continues to drop to stunning new depths. On Thursday U.S. oil dropped as low as $26.21, which was the lowest price in 13 years. Not even during the worst parts of the last financial crisis did oil ever go this low. And remember, the price of oil was sitting at about $108 a barrel back in June 2014. Since that time it has fallen about 75 percent. Needless to say, this crash is having some very serious consequences for the energy industry. Previously, I have reported that 42 North American energy companies have gone into bankruptcy since the beginning of last year. But I just found out that the true number is much worse than that. According to CNN, “67 U.S. oil and natural gas companies filed for bankruptcy in 2015″… Bankruptcy filings are flying in the American oil patch.A lot of people tend to think that my writing is full of “doom and gloom”, but the truth is that I often understate how bad things really are. I’ll often report one number and find out later that an updated number is even worse than the one that I originally reported. What we desperately need is for the price of oil to go back up. Unfortunately, the International Energy Agency says that isn’t likely to happen any time soon… The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.And of course all of this is incredibly bad news for financial institutions all over the world. During the boom times, the big banks showered energy companies with loans. Now those loans are going bad, and the big banks are feeling the pain. The following comes from CNN… It’s never a good sign when the country’s financial lifelines are under stress. Large U.S. banks JPMorgan Chase (JPM) and Wells Fargo (WFC) that helped bankroll the energy boom are already setting aside billions to cover potential loan losses in the oil industry. Investors are worried about imploding energy loans for European banks like Deutsche Bank (DB). High yield bonds in your investing portfolio wont be looking good either — Standard & Poor’s warned that half of all energy junk bonds are at risk of defaulting.Speaking of Deutsche Bank, their stock price continued to plummet on Thursday, as did the stock prices of most other European banks. Things were particularly bad for France’s Societe Generale. Their stock price plunged 12 percent on Thursday alone. This is what a global financial crisis looks like. It began during the second half of last year, and now it is making major headlines all over the planet. At this point, things are already so bad that the elite are starting to freak out about what this could potentially mean for them. I want you to carefully consider the following two paragraphs from an editorial that I came across in the Telegraph earlier today… We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.I think that the author of this editorial is correct. I do believe that another financial crisis on the scale of 2008 would trigger “a cataclysmic, uncontrollable backlash”. In fact, I believe that is what we are steamrolling toward right now. We can already see the anger of the American people toward the establishment being expressed in their support of Bernie Sanders and Donald Trump. But if the financial system completely collapses and it becomes exceedingly apparent that none of our problems from the last time around were ever fixed, the frustration is going to be off the charts. Many people believed that this day of reckoning would never come, but now it is here. The “coming nightmare” is now upon us, and this is just the start. The rest of 2016 promises to be even more chaotic, and ultimately this new crisis is going to turn out to be far worse than what we experienced back in 2008. |
Did you see what just happened in China? For the second time in four days, a massive stock market crash has caused an emergency shutdown of the markets in China. On both Monday and Thursday, trading was suspended for 15 minutes when the CSI 300 fell 5 percent, and on both days the total decline very rapidly escalated to 7 percent once trading was reopened.
Once a 7 percent drop happens, trading is automatically suspended for the rest of the day. I guess that is one way to keep the stock market from crashing—you just don't let anyone trade. Of course the panic in China is causing other markets to go haywire as well. As I write this, the Nikkei is down 324 points and Hong Kong is down 572 points.
The amazing thing is that trading was only open in China for about 15 total minutes. Here is how CNBC described what happened:
China's stocks were suspended from all trade on Thursday after the CSI300 tumbled more than 7 percent in early trade, triggering the market's circuit breaker for a second time this week.That drop-kicked stock markets across Asia, which were already wallowing after a weaker open amid concerns over China's economic slowdown and its depreciating currency as well as falling oil prices.On the mainland, the Shanghai Composite tumbled 7.32 percent by at the time of the halt, while the Shenzhen Composite plummeted 8.34 percent. The CSI300, the benchmark index against which China's new circuit breakers are set, plunged 7.21 percent. If that index rises or falls 5 percent, the market halts all trade for 15 minutes. If it moves 7 percent, trading will be suspended for the rest of the day. In total, Thursday, China shares only traded around 15 minutes.
How will European and U.S. markets respond to the chaos in Asia when they open?
That is a very good question. I think that everybody will be watching.
Already, the Dow Jones Industrial Average is down about 500 points for the year. The financial crisis that began in the second half of 2015 is now accelerating as we enter 2016, and nobody is quite sure what is going to happen next.
One key to watch is what happens with the S&P 500.
2000 is kind of like a giant line in the sand on the S&P 500. On Wednesday we saw the market hover around that psychologically-important number, and there is a whole lot of resistance right there. If we break solidly through 2000 and start plunging toward 1900, that is going to break things wide open.
The primary reason for the stock market crash in China on Thursday was another stunning devaluation of the yuan. This explanation from Zero Hedge is very helpful:
Following the collapse of offshore Yuan to five-year lows and decompression to record spreads to onshore Yuan, The PBOC has stepped in and dramatically devalued the Yuan fix by 0.5 percent to 6.5646. This is the biggest devaluation since the August collapse. Offshore Yuan has erased what modest bounce gains it achieved intraday and is heading significantly lower once again. Dow futures are down 100 points on the news.PBOC fixes Yuan at its weakest since March 2011 ... with the biggest devaluation since August.
A massive devaluation of the yuan was also one of the primary reasons for the market turmoil that we saw back in August. The Chinese are playing games with their currency, and this is causing havoc in the global marketplace.
Meanwhile, we have received some other very troubling news about the global economy over the past few days:
- The price of oil continues to collapse. As I write this, the price of U.S. oil is down to $33.26 a barrel. Those who follow my writing regularly already know that this is a really bad sign for the global economy.
- The Baltic Dry Index just hit another brand new all-time record low. Global trade is absolutely imploding, and this is having a devastating impact on China and other major exporting nations.
- U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession. This is precisely what we would expect to see during the early stages of a new crisis.
- U.S. manufacturing imports are also contracting at the fastest pace that we have seen since the last recession. It appears that "the almighty U.S. consumer" is not going to save the global economy after all.
In 2015, trillions of dollars of stock market wealth was wiped out globally. Now this new global financial crisis is picking up speed, and many of the "experts" seem absolutely stunned by what is happening.
But most of my readers are not surprised. That is because I have been breaking down the signs that have been warning us of this new crisis in excruciating detail for months. The financial carnage that we have witnessed around the globe this week is simply a logical progression of what has already been happening.
To be honest, though, even I have been stunned by what has happened in China this week. I can't say that I expected an emergency shutdown of the Chinese markets two times within the first four trading days of the year.
Panic and fear are beginning to grip the global marketplace, and once that starts to happen events become very difficult to predict.
Let us hope that things settle down soon, but I wouldn't count on it.
As I have said before, 2016 is the year when everything changes, and we are going to see things take place over the next 12 months that are going to shock the world.
Michael T. Snyder is the publisher of The Economic Collapse Blog and author of The Beginning of the End.
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