The Price Of Oil Is Crashing Again, And That Is Very, Very Bad News For The U.S. Economy - Michael Snyder THE ECONOMIC COLLAPSE BLOG

The Price Of Oil Is Crashing Again, And That Is Very, Very Bad News For The U.S. Economy

Posted: 01 Aug 2016   Michael Snyder  THE ECONOMIC COLLAPSE BLOG

This wasn’t supposed to happen.  The price of oil was supposed to start going back up, and this would have brought much needed relief to economically-depressed areas of North America that are heavily dependent on the energy industry.  Instead, the price of oil is crashing again, and that is really bad news for a U.S. economy that is already mired in the worst “recovery” since 1949. 

On Monday, U.S. oil was down almost four percent, and for a brief time it actually fell below 40 dollars a barrel.  Overall, the price of oil has fallen a staggering 21 percent since June 8th.  In less than two months, the “oil rally” that so many were pinning their hopes on has been totally wiped out, and if the price of oil continues to stay this low it is going to have very seriously implications for our economy moving forward.

One of the big reasons why the price of oil has been declining is because the OPEC nations continue to pump oil at very high levels.  The following comes from CNBC…

Production in July by the Organization of the Petroleum Exporting Countries likely rose to its highest in recent history, a Reuters survey found on Friday, as Iraq pumped more and Nigeria squeezed out additional crude exports despite militant attacks on oil installations.
Top OPEC exporter Saudi Arabia also kept output close to a record high, the survey found, as it met seasonally higher domestic demand and focused on maintaining market share instead of trimming supply to boost prices.

These countries don’t know if or when the price of oil will eventually rebound, but what they do know is that they desperately need cash in order to keep their sputtering economies going.  Many of these nations are already experiencing significant economic downturns, and substantially reducing oil revenues at this time would definitely not help things.

Here in North America, oil production costs tend to be higher, and so when the price of oil crashes we tend to see companies shut down rigs.  But when rigs get shut down, that means that good paying jobs are lost.

During the first four months of 2016, approximately 35,000 jobs were lost at Texas energy companies.  Globally, more than 290,000 energy jobs have been lost since the price of oil started falling back in 2014.

And even though there was hope that energy companies would add jobs as the price of oil started rebounding during the second quarter, it turned out that the job losses just kept on coming…

Energy companies continued to cut thousands of jobs during the second quarter, even though many chief executives are now voicing optimism that the oil market crash is ending and a rebound in drilling is afoot.
Although the heads of Halliburton Co. , Schlumberger Ltd. and other major firms forecast higher crude prices and a return to U.S. shale fields when discussing earnings this week, those companies and others disclosed another 15,000 industry layoffs.

Personally, I have quite a few members of my own extended family that live in areas that are heavily dependent on the energy industry, and three of them have lost their jobs so far this year.

And these are precisely the sort of good paying middle class jobs that we cannot afford to lose.  In order to having a thriving middle class, you need lots of middle class jobs. 

Unfortunately, those kinds of jobs are going away, and the middle class in the United States is systematically dying.

If the price of oil keeps going lower, that will mean even more jobs losses for the energy industry, and that will be very bad news for the U.S. economy.

In addition, many of these energy companies are getting into very serious debt problems.  Delinquency rates on corporate debt are already the highest that they have been since the last recession as firms struggle to pay their bills.  Of course some of them have already gone belly up, and this has pushed default rates on corporate debt to the highest level since the last financial crisis.

At a price of 40 dollars a barrel, most oil companies in the United States are not profitable in the long-term.  The longer the price of oil stays down in this neighborhood, the more energy companies we will see go bankrupt.  At this point it is just a waiting game.

Also, it is important to keep in mind that Wall Street is very heavily exposed to the energy industry.  Just as subprime mortgages brought down quite a few financial institutions back in 2008, so this time around it is inevitable that the oil crash will claim a fair number of victims as well.

As the global economy has slowed down, the demand for oil has decreased.  And at this point, even the U.S. economy appears to be seriously slowing down.  U.S. GDP only grew at about a one percent rate for the first half of 2016, and the rate of homeownership in this country just hit the lowest level ever recorded.

In the mainstream financial media, there is a lot of hopeful talk about a potential
turnaround for the energy industry, but most of that talk appears to be just wishful thinking.
To me, about the only thing that could push the price of oil back to where U.S. oil companies need it to be in the short-term would be a major war in the Middle East.  And of course that is definitely always a possibility considering who is running things in Washington.  But absent that, it is hard to see the price of oil getting back to 70 or 80 dollars a barrel any time soon.

So that means that we are likely to see more job losses, more debt delinquencies and debt defaults, and more financial institutions getting into trouble due to their reckless exposure to the energy industry.

The Oil Crash Of 2016 Has The Big Banks Running Scared - Michael Snyder THE ECONOMIC COLLAPSE BLOG

The Oil Crash Of 2016 Has The Big Banks Running Scared Posted: 18 Jan 2016 04:44 PM PST  Michael Snyder  THE ECONOMIC COLLAPSE BLOG Last time around it was subprime mortgages, but this time it is oil that is playing a starring role in a global financial crisis.  Since the start of 2015, 42 North American oil companies have filed for bankruptcy, 130,000 good paying energy jobs have been lost in the United States, and at this point 50 percent of all energy junk bonds are “distressed” according to Standard & Poor’s.   As you will see below, some of the big banks have a tremendous amount of loan exposure to the energy industry, and now they are bracing for big losses.  And the longer the price of oil stays this low, the worse the carnage is going to get. Today, the price of oil has been hovering around 29 dollars a barrel, and over the past 18 months the price of oil has fallen by more than 70 percent.  This is something that has many U.S. consumers very excited.  The average price of a gallon of gasoline nationally is just $1.89 at the moment, and on Monday it was selling for as low as 46 cents a gallon at one station in Michigan. But this oil crash is nothing to cheer about as far as the big banks are concerned.  During the boom years, those banks gave out billions upon billions of dollars in loans to fund exceedingly expensive drilling projects all over the world. Now those firms are dropping like flies, and the big banks could potentially be facing absolutely catastrophic losses.  The following examples come from CNN… For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the “continued deterioration within the energy sector.” JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months. Citigroup is another bank that also has a tremendous amount of exposure… Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that “oil prices are likely to remain low for a longer period of time.” If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there. For the moment, these big banks are telling the public that the damage can be contained. But didn’t they tell us the same thing about subprime mortgages in 2008? We are already seeing bank stocks start to slide precipitously.  People are beginning to realize that these banks are dangerously exposed to a lot of really bad deals. If the price of oil were to shoot back up above 50 dollars in very short order, the damage would probably be manageable.  Unfortunately, that does not appear likely to happen.  In fact, now that sanctions have been lifted on Iran, the Iranians are planning to flood the world with massive amounts of oil that they have been storing in tankers at sea… Iran has been carefully planning for its return from the economic penalty box by hoarding tons of oil in tankers at sea. Now that the U.S. and European Union have lifted some sanctions on Iran, the OPEC country can begin selling its massive stockpile of oil. The sale of this seaborne oil will allow Iran to get an immediate financial boost before it ramps up production. The onslaught of Iranian oil is coming at a terrible time for the global oil markets, which are already drowning in an epic supply glut. Just the other day, I explained that some of the biggest banks in the world are now projecting that the price of oil could soon fall much, much lower. Morgan Stanley says that it could go as low as 20 dollars a barrel, the Royal Bank of Scotland says that it could go as low as 16 dollars a barrel, and Standard Chartered says that it could go as low as 10 dollars a barrel. But the truth is that the price of oil does not need to go down one penny more to have a catastrophic impact on global financial markets.  If it just stays right here, we will see an endless parade of layoffs, energy company bankruptcies  and debt defaults.  Without any change, junk bonds will continue to crash and financial institutions will continue to go down like dominoes. We are already experiencing a major disaster.  Things are already so bad that some forms of low quality crude oil are literally selling for next to nothing.  The following comes from Bloomberg… Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude. Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire,said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014. While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch. A chart that I saw posted on Zero Hedge earlier today can help put all of this into perspective.  Whenever the price of oil falls really low relative to the price of gold, there is a major global crisis.  Right now an ounce of gold will purchase more oil than ever before, and many believe that this indicates that a new great crisis is upon us… The number of barrels of oil that a single ounce of gold can buy has never, ever been higher. All over the planet, big banks are absolutely teeming with bad loans.  And to be honest, the big banks in the U.S. are probably in better shape than some of the major banks in Europe and Asia.  But once the dominoes start to fall, very few financial institutions are going to escape unscathed. In the coming days I would expect to see more headlines like we just got out of Italy.  Apparently, Italian banks are nearing full meltdown mode, and short selling has been temporarily banned.  To me, it appears that we are just inches away from full-blown financial panic in Europe. However, just like with the last financial crisis, you never quite know where the next “explosion” is going to happen next. But one thing is for sure – the financial crisis that began during the second half of 2015 is raging out of control, and the pain that we have seen so far is just the beginning.

The Dow Falls Another 364 Points And We Are Now Down 2200 Points From The Peak Of The Market - Michael Snyder THE ECONOMIC COLLAPSE BLOG

The Dow Falls Another 364 Points And We Are Now Down 2200 Points From The Peak Of The Market Posted: 13 Jan 2016  Michael Snyder  THE ECONOMIC COLLAPSE BLOG It was another day of utter carnage on Wall Street.  The Dow was down another 364 points, the S&P 500 broke below 1900, and the Nasdaq had a much larger percentage loss than either of them.  The Russell 2000 has now fallen 22 percent from the peak, and it has officially entered bear market territory.  After 13 days, this remains the worst start to a year for stocks ever, and trillions of dollars of stock market wealth has already been wiped out globally.   Meanwhile, junk bonds continue their collapse.  JNK got hammered all the way down to 33.06 as bond investors race for the exits.  In case you were wondering, this is exactly what a financial crisis look like. Many of the “experts” had been proclaiming that “things are different this time” and that stocks could defy gravity forever. Now we seeing that was not true at all. So how far could stocks ultimately fall? I have been telling my readers that stocks still need to fall about another 30 percent just to get to a level that is considered to be “normal” be historical standards, but the truth is that they could eventually fall much farther than that. Just this week, Societe Generale economist Albert Edwards made headlines all over the world with his prediction that we could see the S&P 500 drop by a total of 75 percent… If I am right and we have just seen a cyclical bull market within a secular bear market, then the next recession will spell real trouble for investors ill-prepared for equity valuations to fall to new lows. To bottom on a Shiller PE of 7x would see the S&P falling to around 550. I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak. That obviously will be a catastrophe for the economy via the wealth effect and all the Fed’s QE hard work will turn dust. That is why I believe the Fed will fight the next bear market with every weapon available including deeply negative Fed Funds rates in addition to more QE. Indeed, negative policy rates will become ubiquitous. Most believe a 75% equity bear market to be impossible. But those same people said something similar prior to the 2008 Global Financial Crisis. They, including the Fed, failed to predict the vulnerability of the US economy that would fall into deep recession, well before Lehman’s went bust in September 2008. Other than stocks, there are three key areas that I want my readers to keep an eye on during the weeks ahead… 1. The Price Of Oil – The price of oil doesn’t have to go one penny lower to continue causing catastrophic damage in the financial world.  If we hover around 30 dollars a barrel, we will see more bankruptcies, more defaults, more layoffs and more carnage for energy stocks.  But of course it is quite conceivable that the price of oil could easily slide a lot farther.  Just check out some of the predictions that some of the biggest banks in the entire world are now making… Just this week Morgan Stanley warned that the super-strong U.S. dollar could drive crude oil to $20 a barrel. Not to be outdone, Royal Bank of Scotland said $16 is on the horizon, comparing the current market mood to the days before the implosion of Lehman Brothers in 2008. Standard Chartered doesn’t think those dire predictions are dark enough. The British bank said in a new research report that oil prices could collapse to as low as $10 a barrel — a level unseen since November 2001. 2. Junk Bonds – This is something that I have written about repeatedly.  Right now, we are witnessing an epic collapse of the junk bond market, just like we did just prior to the great stock market crash of 2008.  As I mentioned above, Wednesday was a particularly brutal day for junk bonds, and Jeffrey Gundlach seems convinced that the worst is still yet to come… He seemed to leave his most dire predictions for junk bonds, a part of the market he’s been bearish on for years. Gundlach believes hedge funds investing in risky debts face major liquidity risks if they are forced to exit positions amid investor redemptions. “We could be looking at a real ugly situation in the first quarter of 2016,” Gundlach said on a Tuesday call with investors, when referring to redemptions. Because many hedge funds operate with leverage, he raised an alarming prospect that those who don’t redeem could be left with losses far more severe than their marks indicate. As the Federal Reserve raises rates, redemptions combined with tightening credit conditions could create major pricing dislocations. 3. Emerging Markets – We have not seen money being pulled out of emerging markets at this kind of rate in decades.  We are seeing a repeat of the conditions that caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.  Only this time what we are witnessing is truly global in scope, and central bankers are beginning to panic.  The following comes from Wolf Richter… “Last year was a terrible year, probably worse than 2009,” the head of Mexico’s central bank told a conference of central bankers in Paris on Tuesday. It was the first year since 1988 that emerging markets saw net capital outflows, according to the Institute of International Finance, a Washington-based association of global banks and finance houses. In December more than $3.1 billion fled emerging market funds. If anything, the New Year has been worse. “I don’t have any data yet for the first week of 2016 but it’s probably going to be very, very, very bad,” Carstens said. If conditions do not improve, he warned, central banks in emerging markets may have little choice but to adopt a more “radical” approach to monetary policy, including intervening in domestic bonds and securities markets. In addition to everything that I just shared with you, we got several other very troubling pieces of news on Wednesday… -Canadian stocks continued their dramatic plunge and have now officially entered a bear market. -PC sales just hit an eight year low. -GoPro just announced that it is getting rid of 7 percent of its total workforce. The bad news is coming fast and furious now.  The snowball that started rolling downhill about halfway last year has set off an avalanche, and panic has gripped the financial marketplace. But my readers knew all of this was coming in advance.  What we are witnessing right now is simply the logical extension of trends that have been building for months.  The global financial crisis that started during the second half of 2015 is now bludgeoning Wall Street mercilessly, and investors are in panic mode. So what comes next? We have never seen a year start like this, so it is hard to say.  And if there is some sort of a major “trigger event” in our near future, we could see some single day crashes that make history. Either way, the hounds have now been released, and it is going to be exceedingly difficult to get them back into the barn.

20th Largest Bank In The World: '2016 Will Be A ‘Cataclysmic Year’ - Michael Snyder THE ECONOMIC COLLAPSE BLOG

20th Largest Bank In The World: 2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’ Posted: 12 Jan 2016   Michael Snyder  THE ECONOMIC COLLAPSE blog The Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”.  This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet.   Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market.  The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe.  And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters. It amazes me that the Royal Bank of Scotland is essentially saying the exact same thing that I have been saying for months.  Just like I have been telling my readers, RBS has observed that global markets “are flashing the same stress alerts as they did before the Lehman crisis in 2008″… RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel. The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008. So what should our response be to these warning signs? According to RBS, the logical thing to do is to “sell everything” excerpt for high quality bonds… “Sell everything except high quality bonds,” warned Andrew Roberts in a note this week. He said the bank’s red flags for 2016 — falling oil, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation — had all been seen in just the first week of trading. “We think investors should be afraid,” he said. And of course RBS is not the only big bank issuing these kinds of ominous warnings. The biggest bank in America, J.P. Morgan Chase, is “urging investors to sell stocks on any bounce”… J.P. Morgan Chase has turned its back on the stock market: For the first time in seven years, the investment bank is urging investors to sell stocks on any bounce. “Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report. Aside from technical indicators, expectations of anemic corporate earnings combined with the downward trajectory in U.S. manufacturing activity and a continued weakness in commodities are raising red flags. Major banks have not talked like this since the great financial crisis of 2008/2009.  Clearly something really big is going on.  Trillions of dollars of financial wealth were wiped out around the world during the last six months of 2015, and trillions more dollars have been wiped out during the first 12 days of 2016.  As I noted above, the collective market value of the S&P 500 is down by about a trillion dollars all by itself. One of the big things driving all of this panic is the stunning collapse in the price of oil.  U.S. oil was trading as low as $29.93 a barrel on Tuesday, and this was the first time that oil has traded under 30 dollars a barrel since December 2003. Needless to say, this collapse is absolutely killing energy companies.  The following comes from USA Today… There aren’t many people who feel bad for oil companies. But the implosion in oil prices is causing a profit decline that almost invokes pity. The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ. That’s a $124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008. If we are to avoid a major global deflationary crisis, we desperately need the price of oil to get back above 50 dollars a barrel.  Unfortunately, that does not appear to be likely to happen any time soon.  In fact, Dallas Fed President Robert Kaplan says that the price of oil is probably going to stay very low for years to come… You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018. The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….” The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.” In recent articles I have discussed so many of the other signs that indicate that there is big trouble ahead, but today I just want to quickly mention another one that has just popped up in the news. The amount of stuff being shipped across the U.S. by rail has been dropping dramatically.  The only times when we have seen similar large drops has been during previous recessions.  The following comes from Bloomberg… Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren’t looking good for the new year. “We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009.” BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter). The “next economic downturn” is already here, and it is starting to accelerate. Yes, the financial markets are starting to catch up with economic reality, but they still have a long, long way to go.  It is going to take another 30 percent drop or so just for them to get to levels that are considered to be “normal” or “average” by historical standards. And the markets are so fragile at this point that any sort of a major “trigger event” could cause a sudden market implosion unlike anything that we have ever seen before. So let us hope for the best, but let us also heed the advice of RBS and get prepared for a “cataclysmic” year.

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel? - Michael Snyder - THE ECONOMIC COLLAPSE BLOG

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

Posted: 07 Dec 2015  Michael Snyder - THE ECONOMIC COLLAPSE BLOG

On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years.  The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s.  As I write this article, the price of U.S. oil is sitting at $37.65.  For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy.  Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date.  The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.

The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday.  Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…



One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…

“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.
“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”

Analysts at Goldman Sachs are even more pessimistic than that.  According to Business Insider, they are saying that we could eventually see the price of oil go below 20 dollars a barrel…

At OPEC’s meeting on Friday, member countries decided to set its production level at 31.5 million barrels per day, and did not agree on what the new limit should be.
After OPEC’s meeting, commodity strategists at Goldman put out a note saying that oil prices could plunge another 50% in the coming months, as the oil market tries to rebalance the supply and demand situation.

That may sound really good to you, especially if you fill up your gas tank frequently.  But the truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole.  In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace.  Not only that, CNBC’s Jim Cramer is warning that many of these firms may actually start going under if the price of oil doesn’t start going back up soon…

“This is not ‘longer and lower;’ this is ‘longer and much lower.’ There’s companies that are not going to be able to fund with futures; there’re companies that are not going to be able to get credit,” Cramer said on “Squawk on the Street.”
Cramer made his remarks after the Organization of the Petroleum Exporting Countries decided not to lower production on Friday.
“This was a devastating blow for the U.S. oil industry,” Cramer said.

On Monday, we witnessed another benchmark that we have not seen since the last financial crisis.
I watch a high yield bond ETF known as JNK very closely.  On Monday, JNK broke below 35 for the first time since the financial crisis of 2008.  Just like 40 dollar oil, this is a key psychological barrier.

So why is this important?

As I discussed last week, junk bonds crashed before stocks did in 2008, and now it is happening again.  If form holds true, we should expect U.S. stocks to start tumbling significantly very shortly.

Meanwhile, another notable expert has come forward with a troubling forecast for the global economy in 2016.  Just like Citigroup, Raoul Pal believes that there is a very significant chance that we will see a recession next year…

Former global macro fund manager Raoul Pal says there’s now a 65% chance of a global recession.
In July, Pal predicted that the Institute of Supply Management’s (ISM) manufacturing index would break the key level of 50 late in 2015.
On December 1, the ISM broke the 50 level for the first time since the 2008 recession, reaching 48.6.
“I use the ISM as a guide to the global business cycle, not just the US cycle,” Pal told Business Insider.

What amazes me is that so many people out there cannot see what is happening even though the next great crisis has already started.  The evidence is all around us, and yet so many choose to be willingly blind.

Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and lots more debt.  And of course all of this manipulation just made our long-term problems even worse.  I really like how Peter Schiff put it recently…

What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it. 
And then the party is going to come to an end.

Indeed – the party is coming to an end, and a new financial crisis is playing out in textbook fashion right in front of our eyes.

Hopefully you are already prepared for what is coming next, because it is going to be extremely painful for the U.S. economy.

4 Harbingers Of Stock Market Doom That Foreshadowed The 2008 Crash Are Flashing Red Again - Michael Snyder THE ECONOMIC COLLAPSE blog

4 Harbingers Of Stock Market Doom That Foreshadowed The 2008 Crash Are Flashing Red Again

Posted: 11 Nov 2015 04:27 PM PST  Michael Snyder  THE ECONOMIC COLLAPSE blog

So many of the exact same patterns that we witnessed just before the stock market crash of 2008 are playing out once again right before our eyes.  Most of the time, a stock market crash doesn’t just come out of nowhere.  Normally there are specific leading indicators that we can look for that will tell us if major trouble is on the horizon. 

One of these leading indicators is the junk bond market.  Right now, a closely watched high yield bond ETF known as JNK is sitting at 35.77.  If it falls below 35, that will be a major red flag, and it will be the first time that it has done so since 2009.  As you can see from this chart, JNK started crashing in June and July of 2008 – well before equities started crashing later that year.  A crash in junk bonds almost always precedes a major crash in stocks, and so this is something that I am watching carefully.

And there is a reason why junk bonds are crashing.  In 2015 we have seen the most corporate bond downgrades since the last financial crisis, and corporate debt defaults are absolutely skyrocketing.  The following comes from a recent piece by Porter Stansberry…

So far this year, nearly 300 U.S. corporations have seen their bonds downgraded. That’s the most downgrades per year since the financial crisis of 2008-2009. The year isn’t over yet. Neither are the downgrades. More worrisome, the 12-month default rate on high-yield corporate debt has doubled this year. This suggests we are well into the next major debt-default cycle.

Another thing that I am watching closely is the price of oil.

A massive crash in the price of oil preceded the stock market crash of 2008, and over the past year we have seen another dramatic crash in the price of oil.

Many had been expecting the price of oil to bounce back, but instead we are seeing new downward momentum.  In fact, according to Business Insider the price of U.S. oil briefly dipped below $43 a barrel on Wednesday…

Crude oil was down nearly 3% in morning trade on Wednesday.
West Texas Intermediate crude oil futures in New York dropped to as low as $42.97 per barrel. Futures touched a $42-handle in the last week of October, but last traded near those levels for a considerable period in August.

Another thing that I am watching is the ongoing crash of other industrial commodities.  This is something that also preceded the stock market crash of 2008, and it is a clear sign that global economic activity is really slowing down.

Prices for industrial commodities such as aluminum, tin, iron ore and coal are all crashing.  But the commodity that has me most alarmed personally is copper.

Economists commonly refer to it as “Dr. Copper”, and there is a very good reason for that.  Looking back over history, the price of copper often makes a significant move in one direction or the other before the overall economy does.  And the price of copper almost always starts declining before stocks do.

As I write this, the price of copper has fallen to $2.21, and it is already lower than at any point since the last financial crisis.  To get a better perspective regarding what I am talking about, just check out this chart.  This is one signal that is absolutely screaming that a major financial crisis is imminent.

One more harbinger of financial doom on the horizon is the surging U.S. dollar.  The U.S. dollar surged just before the financial crisis of 2008, and now it is happening again.

Most Americans don’t understand this, but the truth is that a rising U.S. dollar puts an incredible amount of stress on emerging markets all around the globe.  Since the last financial crisis, many of these emerging markets have been on a massive debt binge, and much of that debt was denominated in U.S. dollars.  Now that the dollar has increased in value, emerging market borrowers are finding that it takes much more of their own local currencies to service and pay back those debts.  Defaults are rapidly rising, and emerging market economies all over the world (such as Brazil) have already plunged into recession.

If the Fed does follow through with an interest rate hike in December, that is going to make things even worse.  The U.S. dollar will surge even more, and emerging markets will be in even more trouble.

At the same time that the dollar is getting stronger, the euro is getting weaker.  An article that was posted by CNBC on Wednesday went so far as to state that “it is now looking like the euro reaching parity with the greenback is all but guaranteed”…

The prospect of the Fed hiking interest rates in December has pushed the dollar higher, and it is now looking like the euro reaching parity with the greenback is all but guaranteed.
Strategists, however, disagree on how quickly that will happen and how much more the dollar can appreciate in the near term. That depends, they say, on the Fed, and how fast it will raise interest rates in a world where other central banks are moving in the opposite direction toward easier policy.
Goldman Sachs analysts this week reiterated that they expect euro parity with the dollar by year-end though other strategists expect the decline in the common currency against the dollar to take longer.

Let’s see, who has been warning that this would happen for more than a year?  Here are just a few examples…

July 19th: “For a long time, I have been repeating my prediction that the euro would fall to parity with the U.S. dollar.”

June 28th: “As I have warned repeatedly, the euro is heading for parity with the U.S. dollar, and at some point it will drop below parity.”

May 25th: “As I have warned so many times before, the euro is headed for parity with the U.S. dollar, and then it is going to go below parity.”

In August 2014, just a little bit over a year ago, the EUR/USD was sitting above 1.30.  At that time very few people out there would have ever imagined we would be talking about parity just a little more than a year later.

This is just the beginning of a time of great financial volatility.  The things that we are going to witness in the months and years to come are going to be absolutely unprecedented.  A massive global debt super-cycle is coming to an end, and the pain that this is going to mean for the global economy is almost too great to put into words.