The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno - MICHAEL SNYDER THE ECONOMIC COLLAPSE BLOG

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The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno Posted: 20 Dec 2015 If the stock market crash of last Thursday and Friday had all happened on one day, it would have been the 7th largest single day decline in U.S. history.  On Friday, the Dow Jones Industrial Average was down 367 points after finishing down 253 points on Thursday.  The overall decline of 620 points between the two days would have been the 7th largest single day stock market crash ever experienced in the United States if it had happened within just one trading day.  If you will remember, this is precisely what I warned would happen if the Federal Reserve raised interest rates.  But when news of the rate hike first came out on Wednesday, stocks initially jumped.  This didn’t make any sense at all, and personally I was absolutely stunned that the markets had behaved so irrationally.  But then we saw that on Thursday and Friday the markets did exactly what we thought they would do.  The chief economist at Gluskin Sheff, David Rosenberg, is calling the brief rally on Wednesday “a head-fake of enormous proportions“, and analysts all over Wall Street are bracing for what could be another very challenging week ahead. When the Federal Reserve decided to lift interest rates, they made a colossal error.  You don’t raise interest rates when a global financial crisis has already started.  That is absolutely suicidal.  It is the kind of thing that you would do if you were trying to bring down the global financial system on purpose. Surely the “experts” at the Federal Reserve can see what is happening.  Junk bonds have already crashed, just like they did in 2008.  The price of oil has crashed, just like it did in 2008.  Commodity prices have crashed, just like they did in 2008.  And more than half of all major global stock market indexes are already down at least 10 percent for the year so far. You don’t raise interest rates in that kind of an environment. You would have to be utterly insane to do so. The Federal Reserve has thrown fuel onto a global financial inferno that is already raging, and things could spiral out of control very rapidly. As far as this upcoming week is concerned, we have now entered “liquidation season”.  Investors are going to be pulling their money out of poorly performing hedge funds before the end of the calendar year, and as CNBC has pointed out, more hedge funds have already failed in 2015 than at any point since the last financial crisis… Liquidation season occurs when clients of poorly performing hedge funds ask for their money back. It tends to occur at the end of a quarter or year. In response, hedge funds must sell stocks in the open market to raise the money that needs to be returned to investors. That means if a hedge fund performed poorly this year; it is probably flooded with liquidation requests right now. In fact, there have been more failed hedge funds this year than any time since 2008. The dominoes are starting to fall.  We have already seen funds run by Third Avenue Management, Stone Lion Capital Partners and Lucidus Capital Partners collapse.  Amazingly, there are some people out there that are still attempting to claim that “nothing is happening” even in the midst of all of this chaos. As they say, “denial” is not just a river in Egypt. And this crisis is going to get even worse as we head into 2016.  Egon von Greyerz, the founder of Matterhorn Asset Management, is convinced that we will soon see “one disaster after another”… Greyerz predicts, “I think we will have one disaster after another, first in the junk bond market, then inemerging markets and, after that, the subprime markets. Subprime car loans and student loans I see as another massive problem area. It is going to be one thing after another that will unravel. Since 2008, when the world almost went under, we have printed or increased credit by 50% or by $70 trillion, and the world economy is still struggling to survive. I think the real change in confidence will come down when markets come down. . . . I think things will come down very quickly.” And I think that he is right on target.  The global financial system is more interconnected today than ever before, and when one financial institution fails, it inevitably affects dozens of others.  And the failures that we have already seen are already spreading a wave of fear and panic that may be difficult to stop.  The following comes from Business Insider, and I think that it is a pretty good explanation of what we could see next… Funds such as Third Avenue and Lucidus close, liquidating their portfolios. Investors, spooked by the closures and the risk that they might not be able to get their money out of these funds, make a rush for the exits while they still can. That creates even more selling pressure. Funds sell the assets that are easiest to sell as they look to reduce risk, which pushes the selling pressure from the risky parts of the market to the higher-quality part of the market. Things evolve from there. If you have been waiting for the next financial crisis to arrive, you can stop, because it is already unfolding right in front of our eyes. The only question is how bad it is going to become. In the final analysis, I find myself agreeing quite a bit with Charles Hugh Smith, the author of “A Radically Beneficial World: Automation, Technology and Creating Jobs for All“.  He believes that the ridiculous monetary policies of the Federal Reserve have played a primary role in setting the stage for this new crisis, and that now this giant financial “Death Star” that they have created “is about to blow up”… By slashing rates to zero, the Fed ruthlessly eliminating safe returns for savers, pension funds, insurers and the millions of people with 401K retirement nesteggs. In effect, the Fed-Farce has pushed everyone into risk assets–and then played another Dark Side mind-trick by masking the true dangers of these risky assets. As oil-sector debt blows up, as junk bonds blow up, and emerging markets blow up, we are finally starting to see the real costs of going over to the Dark Side of endless credit expansion and throwing the gasoline of near-zero interest rates on the speculative fires of financialization. The Fed’s hubris has led it to the Dark Side, and now its Death Star of impaired debt, phantom collateral, speculative frenzy and bogus mind-tricks is about to blow up. Personally, instead of saying that it “is about to blow up”, I would have said that it is already blowing up. We have already seen trillions upon trillions of dollars of wealth wiped out around the world. Energy companies are failing, giant hedge funds are going under, and the 7th largest economy on the entire planet has already plunged into “an outright depression“. Everyone that warned of financial disaster in the second half of 2015 has been proven right, but this is just the beginning.  Now that the Federal Reserve has thrown gasoline onto the fire, our problems are only going to accelerate as we head into 2016. So for the upcoming year, let us hope for the best, but let us also prepare for the worst.

If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding? - MICHAEL SYNDER THE ECONOMIC COLLAPSE BLOG

If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?  MICHAEL SYNDER  THE ECONOMIC COLLAPSE BLOG Posted: 18 Nov 2015 04:06 PM PST If the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession?  The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession.  But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can.  In this article, I want to look at more signs that a dramatic shift is happening in our economy right now. First of all, let’s consider what is happening to hedge funds.  For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis.  The following is an excerpt from a Business Insider article entitled “Hedge funds keep on imploding” that was posted on Wednesday… BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer. “We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider. The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours. The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing. And those are just two examples.  Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street. Another troubling sign is the implosion of so many energy companies.  Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard.  Just check out these stock price declines… -Cabot Oil & Gas down 37.27 percent over the past 12 months -Southwestern Energy down 68.11 percent over the past 12 months -Chesapeake Energy down 73.98 percent over the past 12 months A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink.  If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall. We are also seeing tremendous turmoil in the retail industry.  The following comes from Investment Research Dynamics… The retail sales report for October was much worse than expected.  Not only that, but the Government’s original estimates for retail sales in August and September were revised lower.  A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments.  Businesses lower their estimated tax payments when their business activity slows down. The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom.  Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009.  Here is more from the article that I just quoted above… Retail sales this holiday season are setting up to be a disaster.  Already most retailers are advertising “pre-Black Friday” sales events.  Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving?  Now retailers are going to cannibalize each other with massive discounting beforeThanksgiving.  Anybody notice over the weekend that BMW is now offering $6500 price rebates?   The collapsing economy is affecting everyone, across all income demographics. Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings.  I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts.  Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”   I think that a chart would be helpful to give you an idea of how bad things have already gotten.  Jim Quinn shared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry.  As you can see, the numbers have never been this dreadful outside of a recession… But stocks went up 247 points on Wednesday so everything must be great, right? Wrong. The stock market has never been a good barometer for the overall economy, and this is especially true these days. In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well. One of the things that is keeping stocks afloat for the moment is stock buybacks.  In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks.  The following comes from Wolf Richter… IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013. Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it. Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years… Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. Big corporations like to do this for a couple of reasons.  Number one, it pushes the price of the stock higher, and current investors appreciate that.  Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings. But now corporate profits are falling and it is becoming tougher for big corporations to borrow money.  So look for stock buybacks to start to decline significantly. Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse. All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008. But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.