Home » Posts tagged 'oil prices' (Page 2)

Tag Archive


bank bailouts bank failures Bank of America Ben Bernanke bonds Bush tax cuts capitalism cashless society China coronacrisis deficit spending deregulation Donald Trump economic bubble economic collapse economic crisis economic denial economic news articles economic predictions economic recovery epocalypse euro crisis European Union George W. Bush great depression Greek crisis Hillary Clinton housing bubble housing market collapse hyperinflation immigrant labor Iran nuclear crisis national debt oil prices quantitative easing quantitative tightening Reaganomics recession v depression Russia socialist revolution stock market sustainable economics The Federal Reserve the great recession unemployment

More Pressure Builds Against Oil Prices

Saudi Arabia has moved beyond its original statement that it will only support a production freeze if “other major producing nations” sign on to the agreement. It has now clarified what I believed to be intended by its initial caveat all along, stating that it will only sign on to a production freeze if ALL nations sign on to such a freeze. So, “other” means “every.”

To which, Iran says, “Never!”

The Saudi Deputy Crown Prince went even further than that by stating if ANY nation does not sign on to a production freeze, “then we will not reject any opportunity that knocks on our door,” by which he means any opportunity to ramp up crude oil production and sell more oil.

And here is what that means for the OPEC meeting in Doha this month that has raised hopes that I believed to be absurd in the first place:

 

The actions and intentions of Saudi Arabia and Russia—the two largest oil-producing nations attending the Doha meeting on 17 April—have dashed all hopes of any fruitful outcome. The most important meeting of the last three decades, which has promised to forge new friendships and a new cartel, is turning out to be the biggest farce, even before the curtain is raised.

The recent announcements from Saudi Arabia outlining the plan to create a $2 trillion fund to reduce dependency on oil and reports of austerity plans indicate that the Kingdom is not taking the Doha meeting seriously. It also seems to be sending a message to the others that it will not buckle under any sort of pressure, and it is readying its Plan B.

The Doha meeting will turn out to be a total disaster and the sentiment will be further damaged if the participating members don’t release a common statement. Forget about the production freeze. Listen carefully, Bears can be heard sharpening their claws ahead of the meeting. (OilPrice.com)

 

 


[amazon_link id=”B004WG4NTW” target=”_blank” ]Fleeing Vesuvius:  The systems on which we rely for our financial transactions, food, fuel and livelihoods are so inter-dependent that they are better regarded as facets of a single global system. Maintaining and operating this global system requires a lot of energy and, because the fixed costs of operating it are high, it is only cost-effective if it is run at near full capacity. As a result, if its throughput falls because less energy is available, it does not contract in a gentle, controllable manner. Instead it is subject to catastrophic collapse.[/amazon_link]


 

Meanwhile, what do Russia’s actions (the other key player in this agreement to talk about an agreement) say about the likelihood of success? Russia’s production has worked its way up since talk about having a talk began to a new thirty-year high!

Oil production in Iraq has also picked up so much that there is standing room only in the Persian Gulf:

 

Oil tankers are caught in a traffic jam near the Iraqi port of Basra, causing delays in loading. According to Reuters, around 30 very large crude carriers (VLCCs) are sitting in the Persian Gulf, and the backlog could cost ship owners more than $75,000 per day. Some could be waiting for weeks to reach the port…. The culprit is high oil production in Iraq. The port at Basra is struggling to load up all the oil tankers fast enough, forcing some to sit and wait…. And the line of tankers appears to be growing. The gridlock is forcing up the cost of renting an oil tanker. That, combined with the shrinking capacity of available storage in China is pushing up tanker rates in Asia as well. (OilPrice.com)

 

While oil tankers are stacking up because of increased Iraqi production, they are also stacking up because, once loaded, they have nowhere to go! So, it’s a pile-up at sea.

As storage becomes less available on land and sea, the price of storage goes up (supply and demand again). As ships has become backlogged, the price of shipping has nearly doubled. Increases in the cost of moving and storing crude oil, put additional downward pressure on how much people are willing to pay for crude oil. So, while supply (production) is still rising in many parts of the world, demand for more crude is going to fall, as it gets pricy to have it just sitting around.

In spite of ramping up it’s production, Iraq is one of five OPEC nations on the brink of financial disaster, due in large part to the current low oil prices — the others being Venezuela, Nigeria, Libya, and Algeria. So, these smaller nations talk of hope for the Doha meeting, while the larger nations give no rational basis for hope.

One has to wonder how long it will be before some architect of human chaos decides the way to resolve this crisis for the oil and banking industries is with a Middle-East war that crushes supply lines and knocks out production. Let’s hope not, but history has its example wars that look like they had such motivation.

So far, there is a growing storm of reasons to stay with my prediction that the price of oil is going to go back down. As I published my article yesterday to that effect, the price of oil was going up rapidly; but I look at the fundamentals and see a lot more downside … and stay with that.

Oil, oil everywhere, and almost nowhere left to put it.

 

More reading on oil wars and oil price wars:

[amazon_image id=”B00CMDPTA4″ link=”true” target=”_blank” size=”medium” ]The Prize – An Epic Quest for Oil; Money & Power[/amazon_image][amazon_image id=”B004S95I4M” link=”true” target=”_blank” size=”medium” ]Blood and Oil – The Middle East in World War I[/amazon_image][amazon_image id=”B00HKKX2L2″ link=”true” target=”_blank” size=”medium” ]Oil: Black Gold[/amazon_image][amazon_image id=”B01A7OLKHK” link=”true” target=”_blank” size=”medium” ]Frack Us[/amazon_image][amazon_image id=”B0037VY1ZO” link=”true” target=”_blank” size=”medium” ]Crude Independence[/amazon_image][amazon_image id=”B00DY2T6BA” link=”true” target=”_blank” size=”medium” ]Split Estate[/amazon_image]

Perfect Storm for Oil Started on Schedule and Continues to Build

The perfect storm I predicted against the price of oil in the Ides of March has not fully developed, but all the forces I spoke of are continuing to build. The balmy days that prevailed for oil prices in early March have gone away, replaced by a downdraft that is once again suppressing prices more and more since their peak in mid-March. The storm’s breezes can now be felt in prices that have relinquished 40% of their earlier gains, and the clouds are becoming more apparent to all.

Prices had one of their worst days of the year on Friday of last week and drifted marginally lower again on Monday of this week, stabilizing some on Tuesday. Friday’s pounding came because Saudi Arabia announced it would not participate in the oil supply freeze that it negotiated with Russia since Iran is not going to join the freeze.

That is one of the major storm fronts that I said would come into prominence as part of the perfect storm against the price of oil. I pointed out a few times that market enthusiasm over talk of a deal (still not completed) between Saudi Arabia and Russia to merely freeze production was ludicrous because the Saudis always said the deal was contingent upon other producers joining and that “other producers” most certainly included Iran, and that Iran most certainly would not join the deal.

Don’t expect Saudi Arabia to flinch and start backing down now that Iran has made clear it will not join the deal by freezing its production. Deputy Crown Prince …

 

Bin Salman nevertheless said Saudi Arabia was ready to face a prolonged period of low oil prices that have dropped sharply since mid-2014 as a result of higher global production. “I don’t believe that the decline in oil prices poses a threat to us,” he said. (Arab Times Online)

 

Even if a production freeze is formalized, it’s a bad thing, not a good thing. That makes it all the more silly that talk of the deal pushed down prices for awhile. The deal, if it happens, promises to freeze production at January’s extremely high levels, which absolutely guarantees continued oversupply (unless there is a huge increase in demand, which so far has evaded the oil industry). A freeze is far from being a production cut, which is the only thing that can solve the oil industry’s problems on the supply side. Far too much as been made of the deal by a market full of unrealistic optimists for that reason.

 

Freezing production at January levels is “looking more and more pointless”, according to analysts…. What is becoming very clear is that Saudi Arabia is serious about moving away from the traditional play of adjusting prices by cutting or freezing supplies by itself. (The Week)

 

The dividing line between Saudi Arabia and Iran has hardened, and a deal would only freeze production at a level of continuous oversupply. All what I said a month ago. It’s a deal that is not likely to happen, and if it does, it is pointless anyway. I’ve just been waiting for this one part of the storm to organize into clear formation so that everyone can see it before writing more, and it now has. You can see those swirling storm clouds from that particular direction quite clearly now in the daily news, and you can see that they have started bringing down oil prices.

That was Friday’s big blow. Monday’s downdraft came in part because the National Iranian Oil Co. stated that it just authorized sales of crude to Dutch Royal Shell after the company settled a debt dispute with Iran. Iran repeated that it will continue to expand its oil production and sales until they reach the levels they were before Iran’s nuclear dispute with the West, hardening its stance against the Saudi-Russian deal.

 

Demand for oil products may be receding, not rising

 

Compounding matters, government data was released on Monday that showed the first small drop in gasoline demand in fourteen months. Until now, gasoline demand has remained a pillar that helped support the US oil industry through the supply glut. Drop in demand for products derived from oil is being noted in other parts of the world, too:

 

The oil price “can easily revisit the lows seen earlier this year,” French bank BNP Paribas said in a note to clients, as bearish demand data added to concern over a deal to freeze excess supply…. This comes ahead of a second quarter period that typically sees a dip in demand as refinery maintenance peaks. (The Week)

 

That’s right. The refinery shut-down period for maintenance that I said would be the second front that comes in to form the perfect storm has just begun. It’s a couple of weeks later than I expected, but wind from that direction is picking up velocity now. It will become an additional force against the price of oil so long as refineries stay in maintenance mode, which reduces their demand for crude.

 

The third front in the perfect storm — tanks starting to fill the brim

 

…This all coincides with figures showing buying of crude derivative products slipping in key Asian markets, “as onshore storage facilities in Singapore and Malaysia are filled to the rims”

 

The third front is just starting to happen. It will very slowly gain strength, but it certain to be the worst front of all over time. As tank farms around the world fill to capacity along with ships at sea, storage becomes more problematic. Oil has fewer and fewer places to go, and demand for crude will fall off a cliff.

As it stands right now, there is nothing that will prevent that from happening. A production freeze means we keep moving toward that end at the current rate of production. Lack of a freeze means production continues to expand so that the world has to make the necessary supply adjustments out sooner.

On Tuesday, Brent crude briefly touched down on a one-month low of $37.27 then floated back up slightly when Kuwait claimed that a production freeze is still possible without Iran.

Asked if anything is likely to come from the April 17th meeting of OPEC where the possible production freeze will be discussed, buy ambien from mexico Lord John Brown, executive chair of L1 Energy, told CNBC

 

I’d be very surprised at this time. Production is high. People are scrambling to maintain markets that they have and to gain markets from other people. So, it’s not a time for reconciliation yet.

 

I would be surprised, too, because Kuwait doesn’t have a lot to say about it and, in fact, is doing its part to make things worse, while Saudi Arabia has made its position clear, exactly where I said it would stand. In fact, Kuwait may just be trying to take pressure off its own announcement that it will be ramping up more production soon:

 

The Middle East sour crude complex is likely to come under bearish pressure on news of Kuwait and Saudi Arabia agreeing to restart production from the 300,000 b/d offshore Khafji oil field…. “Even the idea of a freeze [in oil production] may be tested by [the] announcement that Saudi Arabia and Kuwait are preparing to restart the 300,000 b/d Khafji oil field … Citi analyst Timothy Evans said in a note to clients. (Platts)

 

Iraq’s oil production also increased through the month of March.

The impact on the US oil industry, seen in broad terms, is that the US now has fewer oil rigs in production than at any time in the past sixty years following fifteen weeks of continual decline. Nevertheless, oversupply continues to rule the market. As many as sixty small and a couple of large oil companies have gone out of business or declared bankruptcy.

Numerous bonds and other forms of loans to the oil industry are in default but are being ignored by banks because the banks don’t wish to compound the problem for themselves by creating a situation where they have to write down the value of the securities on that debt and have to write of debts. So, everyone is trying to sit it out. The scale of the problem for banks is largely masked because the Dallas Fed has told banks to sit tight as much as possible.

It’s believed data later this week will show that crude stock in the US has continued to grow over the past week to a higher record high. That will be the eighth week of setting new records in total US oil storage. If that data turns out as expected, that will offset news of a drawdown in Oklahoma the week before, showing it that to be nothing more than a brief eddy in the winds.

We are relentlessly getting closer to a point of total market saturation, which happens when all tanks are full.

 

Conclusion: The perfect storm for oil is arriving onshore now

 

The winds and clouds that are bringing the perfect storm against oil prices from three fronts are all growing stronger. I can now easily find many conservative market analysts starting to agree with what I predicted a month ago:

 

Commodities including oil and copper are at risk of steep declines as recent advances aren’t fully grounded in improved fundamentals, according to Barclays Plc, which warned that prices may tumble as investors rush for the exits…. “Given that recent price appreciation does not seem to be very well founded in improving fundamentals, and that upward trends may prove difficult to sustain, the risk is growing that any setback will result in a rush for the exits that could again lead commodity prices to overshoot to the downside.” (NewsMax)

 

“Overshooting” is just another way of saying “the perfect storm.”

Barclays also notes that positioning in the oil market has reached “bullish extremes” because the bullish rise in crude oil prices is not based on sound fundamentals. That’s right. It’s based on wishful thinking that is based on vague hopes that, if properly worded, would say Saudi Arabia will continue its production full speed ahead if Iran does cooperate and will otherwise increase production beyond its current levels. (That’s all a production freeze offers.)

Barclays says the rush for the exits could bring a price drop of 25%.

Even Goldman Sachs agrees with me now:

 

Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring. (Zero Hedge)

 

In other words, this problem is NOT going away until lower prices finish the job of flushing away the weakest competitors as a way of reducing supply to match current demand. So, if the energy production deal does finally go through in mid-April, we will still have to fill our waterbeds with oil to find places to store the overproduction. It will just take longer to get to the point. (The greater truth is that Saudi Arabia and Russia cannot really ramp up oil production much more anyway. So, talk of a deal not to increase production is really the most meaningless babble on the planet right now.)

Whether a deal happens or not, more oil companies, more related service businesses, and some of their bankers will be flushed away. The only thing that could change that is either a big increase in demand (not seen as likely by anyone that I’ve come across) or a big reduction in supply (not being talked about by anyone anywhere).

Barring a war or huge natural catastrophe that forcibly cuts off large amounts of production, the only reductions in supply that will happen are the hard ones that come from businesses closing shop. Those who continue to hope for an easier answer in the form of prices that stabilize the market at its present production levels are nothing but rosy-eyed dreamers, living in economic denial.

 


[amazon_link id=”B004WG4NTW” target=”_blank” ]Fleeing Vesuvius:  The systems on which we rely for our financial transactions, food, fuel and livelihoods are so inter-dependent that they are better regarded as facets of a single global system. Maintaining and operating this global system requires a lot of energy and, because the fixed costs of operating it are high, it is only cost-effective if it is run at near full capacity. As a result, if its throughput falls because less energy is available, it does not contract in a gentle, controllable manner. Instead it is subject to catastrophic collapse.[/amazon_link]


 

The Perfect Storm in Oil Prices Will Hit in the Ides of March

While some business / economic publications, like NewsMax are saying that, “Oil is pulling away from the market’s biggest storm in seven years,” I say, “Don’t believe it.” Not for one second. The real storm begins near the middle of March. Read the remainder of this entry »

13 Black swans swirling above the US economy

The black swans are circling like vultures now. Dark economic events seem to be flying in out of nowhere for those who have vision to see them. Even dovish New York Fed President William Dudley, who cannot tell the difference between money and hot air, sees a lot of black in the skies now and says that he is less confident about the economy than he was when he and his Feddish partners voted to raise interest rates last December:

 

Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on U.S. monetary policy, suggested that the sharp global economic slowdown, stock-market sell-off and oil price slide since the beginning of the year may force the Fed to tighten monetary policy even more slowly…. With turbulence in global financial markets reflecting mixed economic signals, the risks appear to have increased. (NewsMax)

 

Yes, Dudley did wrong with perfect timing and voted to raise interest rates into a crashing economy. For some reason, he didn’t see the global slowdown coming, never mind that it had already begun last fall; but he sure sees it now. He could have read all about it right here for months before he took part in an ill-fated decision. Now he’s losing confidence. If he’s not confident in the recovery, and he was one of the architects, why should you be?

 

US stock market cheerleader, Jim Cramer, is counting black swans, too

 

Jim Cramer, CNBC’s hyperactive host of Mad Money, thinks the Fed is flying blind. He believes the Fed might not understand the life of the common man from within their first-class flights to Fed meetings and chauffeured limousines. Gee, yathink?

 

I almost wonder if they live in a vacuum. Who are they talking to? Don’t they at least have some buddies who are concerned about a recession? Don’t they know some people are pulling back from investing…? When you look beyond the market’s tight linkage to the price of oil, the idea that we could be headed into a recession has become a powerful theme, a whispered undercurrent in this environment that surfaces whenever oil takes a dive. (NewsMax)

 

You almost wonder? Of course, they live in a vacuum. And from their vacuums, they are creating a world of Hoovervilles. Of course, Cramer likes to roll dice in the Fed’s Wall Street casino. He knows that Fed free money was the only game in town, driving the stock market higher in past years. He loved a good rigged game of predictable market gains! The market soared every time the Fed threw money around the craps tables. It didn’t even matter what number you rolled. Almost every bet was a winner. It’s hard to make money now without Fed free money floating down like confetti over the marketplace everyday.

So, yes, recession is now a powerful theme that keeps popping its ugly black head out from unexpected places, such as out of the mouth of Jim Cramer. It whispers among the chatter of Citigroup’s flock of analysts. It keeps JP Morgan meetings all aflutter. You hear it everywhere now. Not a day goes by without people wondering if recession is lurking in the wings.

 

Here are a few of the dark whispers and black swans that are swirling above the US economy

 

  1. Gold is up 17% since the beginning of the year, while stocks are down about 5%. The flight of capital from the Wall Street casinos into gold provides a touchstone’s proof of how insecure major investors are feeling. (And that’s with a gold market that is, in my opinion, fully rigged by central banks not to get too excited. Central banks hate the laying of golden nest eggs. To keep people from filling their nests with gold, the central banks own the world’s greatest hoards of gold as ballast to dump whenever gold prices rise so that gold doesn’t compete too strongly against their proprietary product called “money.”)
  2. Citigroup says the chances of recession are high and only going up. The Citi’s gaggle said they suspect that global growth was actually about 2% annually if you correct China’s bogus numbers for its economy.
  3. JPMorgan strategists say they have scanned 115 years of US stock market history and have divined a sign that is 81% accurate in predicting recessions. That sign — two consecutive quarters of declines in corporate earnings — is fully in play now. The news gets worse: In ALL of the remaining 19% of the times, recession was only avoided by Federal Reserve stimulus or fiscal stimulus from the government, but the Fed just ended its stimulus, after exhausting its accelerant from years of pedal-to-the-metal acceleration; and the government has not been able to agree on a plan of fiscal stimulus for years! So, there goes our only hope of being one of the 19% of the times when the dark omen of double declines doesn’t deal us a bad hand!
  4. Another bad sign is when a survey of market analysts shows that the best investment strategy in recent months would have been to do the exact opposite of whatever your analyst told you to do. The stocks most beloved by analysts have fallen 11% in 2016, while the companies they ranked the worst are only down by 3.4% Come to think of it, that still means everything is down; but you’d still do best to put no stock in anything your analyst says.
  5. The G-20 failed to formalize any kind of global stimulus agreement, which investors were hoping for. (I wasn’t hoping for G-wizz salvation, but they were. I think all their stimulus accomplished was to defer the pain we are now about to face, making it so much worse for the upcoming months.) Several people warned that, if the G-20 meeting was an economic dud, the stock markets would tumble. I wasn’t one of them, and didn’t bother to repeat these warnings last week. The G-20 came up with nothing, and the markets went up. Still, we know there is no salvation about to emerge from that quarter either.
  6. Freddie Mac and Bank of America have returned to the hog trough in which they partner to offer 3% down mortgages. That has a nasty ring to it because it was about the final step in slackening loan terms before the mortgage crisis of 2008. Stupidly low down payments were the only way the government and friends were able to keep ratcheting up housing inflation by endlessly loosening credit terms so people could qualify for ever bigger loans. (We never learn because we are greedy like that.) The good news is that Bank of America skates away freely if any of these new loans default. (It’s good for them.) For the rest of us, it means that the company determining whether loans should be issued has nothing at risk and walks away free. I’m sure they will screen those loans well as they did last time. Once again, BofA is protected by the quasi-government entities. (Did I just say something about how stupid we are to never learn?) Meanwhile, banks are still sitting on defaulted mortgages from the first dip of the Great Recession.
  7. My recent warnings are already coming true! Subprime auto delinquencies are on the rise already. Repo rates are at historic highs! So, yes, the news last week and this was good again for auto manufacturers and dealers, who had a blockbuster month; but the bad news is they seem to be attaining that success the same way the housing industry did prior to 2008 and the same way it is doing now — by relaxing credit terms to the level where they assure higher levels of default. (And, again, we learned nothing because it is the same road car makers travelled into the last recession that became such a dead end of derelict Dodges and Daimlers.)
  8. Estimates are that as much as 40% of student loans are in technical default. That means the government has agreed to allow interest payments to float if the debtor passes a new income-based test Obama initiated. The government underwrites those loans with pass-through payments to the creditor while the student defers all payment or stops paying interest. I’m not against helping students avoid flocking into jail; but this is, nevertheless, 40% of a $1.3 trillion of debt obligation that taxpayers underwrite. I’ve been pointing this one out as a problem on the horizon for a few years. It’s now coming home to roost.
  9. Several states report their employee pension funds are underfunded by about 50%, and those figures are assuming rates of return on fund investments of 7-8%, which looks highly unlikely at present, meaning the problem is actually worse. “Underfunded” is a politically correct term for saying, “We made sure never to invest money into the fund so that we could buy the programs we wanted with our employees’ retirement so that our taxpayers would keep voting us into buy ambien online usa office. We enticed workers to give their life’s energy now in exchange for substantial retirement plans tomorrow. Now the miserable people feel entitled to what we promised them when we exacted cheap labor from them with the lure of deferred benefits.”
  10. China is sinking further. Factory output fell further in February. That means purchases of resources from other countries are also likely to keep falling, including oil. The drop month to month has been continuous for fifteen months. The service industry in China has also fallen to its lowest point … since 2009. The fall of service industries tends to follow the fall in manufacturing industries, so more decline in the service sector is expected. That’s with stimulus already happening, making it appear that stimulus may have little effect. With bank stimulus having no effect, that leaves China with the option of expanding its national debt to make government the buyer of last resort. They can build more empty skyscrapers — a certain road to nowhere.
  11. US productivity fell in the last quarter of 2015 at the fastest pace in two years. Perhaps that is the result of hiring cheaper, temporary labor with fewer benefits. You get what you pay for. Nevertheless, when productivity drops, you know wages are not likely to rise (not that they have ever risen much when productivity was improving).
  12. Golden Ocean Group, a massive global shipping company, says the overseas shipping industry has never seen things this bad. They expect that the dry-bulk shipping industry will soon be seeing a lot of bankruptcies just like the oil industry due to an oversupply of new vessels and a reduced demand for shipping of resources. According to Norwegian owner John Fredriksen, shipping hasn’t been this bad any time after the Vikings. One can now rent a 1,000-foot ship for a less than $1,000 a day. That’s the lowest price ever. A glut of supply at a time of falling demand is the recipe for widespread bankruptcy.
  13. The number of troubled companies is nearing its 2009 Peak. “A Moody’s Investors Service tally of the least-creditworthy companies rose by 10 to 274 this month, pushing it nearer to April 2009’s record 291. The list comprises companies rated at least six notches into junk territory with a negative outlook–which suggests a further downgrade could come soon.” (WSJ)

 

That is not intended as an exhaustive list or even as a list of the worst things flying around us. That is just a short list of headline items from the past week’s news. So, call it the most current flurry of dark rumors and black swan events. Not all of these are true “black swans” because, if people were paying attention they could see them coming (for example, if they were reading this blog ; ) A “black swan” event is meant to mean a deadly event that comes in out of nowhere; but many refuse to see these things coming. For those people, who are wearing the blinders of economic denial, many things fly in out of nowhere that were anticipated by the minority that has been paying attention.

If you think either the global economy or the stock markets of this world are riding a rally back to success with all of that bad economic news in just one week, you’ve been hitting the happy juice again.

 

I’m not always right, but when I’m wrong, I’m still right

 

I sometimes miss my mark when I make predictions, but when I do, I admit it. Last fall, I missed it very pointedly on one thing. I predicted two major black swan events would contribute to a crashing stock market. One of those events would be that Republicans would let the US default on its debt by November third. Obviously, that dark swan never landed and is a bird that never bit.

Fortunately, I didn’t bet my blog on that one as I did with the other date I predicted for an event that did become a major contributor to an immediate stock market crash. Boehner wrangled his rascally gang into a going-away present for himself, and then they anointed Paul Ryan as the Great White Swan.

But I made a bigger point in that “Black Swan” article (linked at the start of this one)  over falling commodity prices. And that cause of a market crash proved true. So, the US stock market crashed, even though one of the anticipated causes didn’t happen. That’s the more important sense in which I say, somewhat tongue in cheek, “Even when I’m wrong I’m right.” It was the fall of the stock market that I bet my blog on, not which anticipated event would come through as the cause.

The one cause that I talked about that did come through remains the biggest, blackest swan of all. It’s the swan that floated in, drenched in cheap crude oil in January. That raging swan, black due to the deluge of oil, stomped the market every step of its way down, and it is still mucking about on the beach, stirring up trouble.

[Added note: Market lunacy (sheer euphoria) over the oily swan is growing worse each week. I can’t write fast enough to keep up with it. Take this article that I’m revising into this post after having published the post:

 

From the “successful” talks between Saudi Arabian Oil Minister Ali al-Naimi and his Venezuelan counterpart early last month, to the Feb. 16 Saudi-Russia output freeze announcement, to Iran’s rejection of the plan as “ridiculous,” the CBOE Crude Oil Volatility Index averaged the highest level since 2009. Since the pact was announced, the measure of expectations of price swings has tumbled to the lowest in almost two months while oil has gained about 18 percent to trade near $35. Since the Saudis and Russia reached an agreement to freeze output, volatility in the market has eased and oil prices have stabilized with the focus shifting back to fundamentals. (NewsMax)

 

In other words, because 1) the Russians stated they absolutely will not decrease oil production and because 2) the Saudis stated they absolutely will not decrease oil production, but will both maintain oil oversupply at the current level, and because 3) Iran said the whole concept of freezing production was stupid, so they have committed to increasing their rate of oversupply, the market stabilized. Now that everyone has been told for certain that the glut in oil will grow for months to come (because no one is cutting production while Iran is increasing theirs), the price of oil is going up, and stocks are going up. That’s just so absolutely stupid it turns my neck into a pretzel. I don’t think I’ve ever seen a more ludicrous example of markets hearing only what they want to hear, even if they have to turn it inside out to stuff it into their ears.]

The point with the list above is is that no particular event has to happen to take the market down the next leg of its collapse. There are so many black-swan events and dark rumors waiting in the wings to take over that it is virtually certain some of these will grow to a size that becomes devastating, even after the crude swan is finished trashing everything around it. There is practically a parade of black swans lined up for action. Look at how many poked their heads up in just the past week — all just waiting their turn to have a go at the market.

Will it be bankruptcies in shipping, oil drilling, auto loans and student loans that pile up into a big enough heap to implode a couple of major banks; or will it be the Chinese flush turning into a whirlpool that sucks all industry down; or will the US economy manage to hold on until the next housing collapse when the next wave of adjustable-rate mortgage failures hits people who only put 3% down so that banks lose a bundle in foreclosures during a market of falling prices? Or will it simply be that recession is already here as a sinking tide that lowers all boats? Or will the next big drop arrive in next week’s list where a true black swan emerges that NO ONE saw coming, not even me?

My point has always been that with so much bad economic news building up in the world and such monstrous overhangs of national, corporate and personal debt — mostly worse than the last time around — the odds are strongly stacked on the side of major trouble. If you’re wise you’ll prepare for that in reasonable and prudent ways.

 

How to get ready for any black swans that come:

 

[amazon_enhanced asin=”081297381X” /][amazon_enhanced asin=”B00ALUMW96″ /][amazon_enhanced asin=”1612432735″ /][amazon_enhanced asin=”B0093N7T4K” /][amazon_enhanced asin=”B01C3HD8XI” /][amazon_enhanced asin=”B01B75D56M” /][amazon_enhanced asin=”1591846706″ /][amazon_enhanced asin=”B00WLLHKCW” /][amazon_enhanced asin=”1492373990″ /][amazon_enhanced asin=”0691168318″ /]

Sheen on the Oil Slick Getting Darker

Last week, I wrote that the day would come soon when oil prices would take another nasty dive because there is nowhere left to store oil, causing the spot price for immediately delivery to dive toward the zero bound. This week we see how close that day is as oil continues to be oversupplied by about a million barrels a day.

Reasoning simple: When all ships, tank cars, tank trucks and tank farms are finally full, immediate delivery of oil will be nothing but a liability. That kind of delivery is called “an oil spill” because all you can do is pump it onto the ground or into the sea … or start filling swimming pools, as one oil industry analyst said is the next step. Production will have to slow to whatever the rate of consumption is, as it will become a situation of one tank used before one tank is bought.

 

Oil practically spills over in Rotterdam

 

The Wall Street Journal reported on Monday that oil tankers are backing up at the world’s largest oil seaport. In fact, buyers and sellers of oil are increasingly sending tankers on longer voyages just to avoid a pile-up of tankers at several ports.

 

Up to 50 oil tankers are waiting to unload cargo in the port of Rotterdam, the highest number since 2009 and another sign that, amid a glut, crude is struggling to find a home. (WSJ)

 

There is that magic number that appears in almost all economic news this year — “since 2009” or “since 2008,” in other words “since the worst of the Great Recession” or “since the start of the Great recession.”

Storage in Rotterdam is nearing its limits. Ships are bobbling around out at sea waiting to find a port where they can unload their crude. The world’s largest oil storage company reports that its storage tank capacity in the Netherlands is now at 96% full.

 

“This is a clear sign of the oversupply filling up storage to the brim,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “People are preferring to store oil rather than cut production. These are bearish signs.” (Bloomberg)

 

The situation in Rotterdam is exactly mirrored in the United States’ largest oil hub, which is in Cushing, Oklahoma.

 

“In Cushing and probably Rotterdam storage is filling up very quickly,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich, Switzerland. “In China, given high oil imports, there are too many ships and the infrastructure seems not be able to handle that.”

 

The result of the glut is that future prices are higher for oil than prices for immediate delivery because fewer and fewer buyers have a place to put it right now or any need right now. The final leg of this journey before prices plunge is storage out at sea in tankers that drift for months and in tank cars and tank trailers parked on side spurs and in trucking yards.

With the intentional choice of longer routes, we’re already effectively edging in that direction. Some are saying it may be a good time to be a vessel owner because you can get paid just to sit and float. The last time that approach to managing supply happened was … you guessed it … in 2008 and 2009.

Once the tanks of this world are effectively 100% full, which shouldn’t be more than a month or two, a hole will bust through the floor in the price of oil, and we’ll see an oil-industry bath in black slime.

 


[amazon_link id=”0996489703″ target=”_blank” ]Shale Boom, Shale Bust: The Myth of Saudi America  In 2014, something went terribly wrong with this rosy scenario of “Saudi America.” An unexpected collapse in the price of oil is bankrupting the oil patch, destroying jobs and threatening plans for a renewable energy future.[/amazon_link]


 

War is good news for the price of oil, for oil producers and oil bankers

 

This bad news for the price of oil hit at the same time that good news for the price of oil hit this week, and the oil market and US stock market decided to focus on the good. The price of West Texas Intermediate rose to an intraday high of $34.76 per barrel, and US stocks shot up to match. The good news for the price of oil was that war took a significant oil pipeline out of production in Iraq. While that’s temporary, hopes might have risen that the increasing drum beats of war in the Middle East will mean a lot of supply lines wind up getting cut or wells wind up getting bombed.

Middle East war, of course, would be a total game changer in the oil price wars. I wouldn’t be surprised if some oil barons someplace are not just banking on it but actively laying out their war plans. (I don’t know of any such conspiracies, but it wouldn’t be the first time oil barons used war to boost the price of oil. Usually it is by increasing demand, but in this case it would boost prices by creating a drop in supply of crude.) What’s bad for one person’s crude sales, such as carpet-bombing their oil wells and sabotaging their pipes, is good for another’s whose wells are, say, in the Midwestern US. Not that anybody would do such a thing.

War is the wildcard here; but, barring destruction of oil wells or oil infrastructure by war, things are looking dark for the price of crude. (Good for the consumer of gas and heating oil, but bad for the Midwestern and Canadian oil producers as well as those up around Scotland and many other areas. In the US Midwestern oil and gas shale was almost the entire driving force in job creation coming out of the first dip the Great Recession. (The second dip — the Epocalypse — is just now forming. It’s the same recession because its all from the same cause and was just artificially lifted by unsustainable money-printing in the middle.)

 

Good news was bad news in the Saudi-Russia oil summit

 

As reported in my last article, the real news from the meeting between Russia and Saudi Arabia was that both nations agreed NOT to cut oil production, regardless of how bad the negative impact becomes on the price of oil. Saudi Arabia stated specifically that its intention is to maintain market share by making sure production keeps happening at its current rate out of Saudi Arabia until other players are forced out of business. That’s what they actually said.

Bear in mind, too, that the agreement between Russia and Saudi Arabia was not an agreement by the rest of OPEC. The energy minister of the United Arab Emirates said crude producers should freeze production, making it clear there is no OPEC-wide agreement to freeze, and Saudi Arabia and Russia said they would only freeze so long as others did the same.

 

One of the world’s large oil companies takes a hard dive

 

Mexico’s largest, state-owned company, Petroleos Mexicanos also known as Pemex, announced not only its 13th consecutive quarterly loss amounting to $9.3 billion, 44% bigger than the previous year, as revenue tumbled by 28% to $15.8 billion, but also a gargantuan $32 billion annual loss and at the same time announced it would slash capex spending to preserve cash and optionality for a future which suddenly looks very bleak. (ZeroHedge)

 

As a result of crashing oil prices, Pemex is cutting way back on its project development, and that’s a state-owned company, so government subsidized if need be. US companies are only subsidized through tax structures. Pemex is…

 

…facing short-term financial difficulties, prompting some to wonder just what skeleton will come out of the closet if the oil price remains as low as it has been… But the scariest news not only for Mexico’s largest company, but for the energy sector in general, was Pemex’ announcement that it was slashing its oil price forecast by 50% from $50 to $25/bbl…

 

So, the struggling oil behemoth, which had hugely overestimated prices is now slashing its forecast down to my territory, as I say $25, and for a short time perhaps a dive below $20 when we hit those days where production hasn’t slowed and nearly all tanks are full — barring any turn-around from a strategic oil war as those guys never let me know what they’re scheming.

 

And a wrap-up on the stock market and why I care at all about the fall in oil prices

 

While January was the worst in the history of the stock market by many measures, February closed as a mixed month. The Dow posted it’s first monthly gain since last November, but the S&P 500 and the Nasdaq posted their third straight monthly loss, and for once it wasn’t the first three-month decline since 2009. It was just the first since 2011.

Low oil prices are good for the consumer, and for that I am personally glad, even though prices of fuel are for some reason stuck high in the northwestern US, in spite of the huge number of refineries in this part of the world. (Must be some collusion going on to be this much higher for so many months than other parts to the nation that have fewer refineries.) Abnormally low prices, however, do mean failing junk bonds, possible bank troubles, declining energy stocks, problems for hedge funds and investment insurers, and job and housing losses in the areas that were creating the sense of recovery.

So, while I couldn’t care a fig about whether or not oil companies and banks are fat and happy for their own sake, there is no question the oil glut is contributing to the stock market’s troubles in the US and to the recession in Canada. It is, however, one of only many negative forces acting upon all economies of the world, which are collapsing due to their own deep and persistent structural flaws and the inability of politicians to see past their own faces or outside of their very limited ways of thinking.

It is merely a question of which forces are going to lean too hard against the crumbling structures of the old dinosaur economies. Right now it is the specific gravity of oil that is caving them in.

 

More reading on oil wars and oil price wars:

[amazon_image id=”B00CMDPTA4″ link=”true” target=”_blank” size=”medium” ]The Prize – An Epic Quest for Oil; Money & Power[/amazon_image][amazon_image id=”B004S95I4M” link=”true” target=”_blank” size=”medium” ]Blood and Oil – The Middle East in World War I[/amazon_image][amazon_image id=”B00HKKX2L2″ link=”true” target=”_blank” size=”medium” ]Oil: Black Gold[/amazon_image][amazon_image id=”B01A7OLKHK” link=”true” target=”_blank” size=”medium” ]Frack Us[/amazon_image][amazon_image id=”B0037VY1ZO” link=”true” target=”_blank” size=”medium” ]Crude Independence[/amazon_image][amazon_image id=”B00DY2T6BA” link=”true” target=”_blank” size=”medium” ]Split Estate[/amazon_image]

The US Oil Slick is Getting Wider: Oil Boom Going Bust

Only about a week ago, one reader scoffed at me because oil prices had stabilized (or so the market theory d’jour went). The big stock market crash I had predicted had run its course, he thought. The Saudis and Russia had entered a deal on oil, and Iran was coming on board; the stock market was back up as a result. Everything was normalizing again. Whew! He could write off the doom-and-gloomers.

It was a wet, oily dream — a dream I listened to with detached amusement as oil prices and stock prices rose to support his hopes. How silly, I thought, that these investors all hear exactly what they want to hear. What a bunch of lemmings.

Here is what they should have heard as I would have written the news last week:

 

The Saudis and Russians agreed this week not to reduce production of oil for months to come but to freeze in place the current high production rates that are crippling the US fracking industry. They also conditioned their freeze at these high production rates on all other suppliers keeping their production rates frozen. In so doing, the Saudis and Russians implied that, if others like the US continue to boost production, they will, too. The price war continues full force.

Iran this week said it might become a party to this deal after it gets its own production rates up to the market share it enjoyed before sanctions. For now it is concentrating on boosting production and sales back to that old level.

 

That was the upshot of all parties agreeing “to talk.” The real news was clear for anyone with ears to hear if people would just start to listen to things they don’t want to hear: No one is budging. Oil producers are going to keep pumping supplies up at the same high rate for as far as the eye can see, and Iran is going to continue to ramp up production until it gets back to where it was in its pre-sanction days.

There was no good news there at all — not a drop — but people lapped it up as if there was because that’s what they wanted to believe. It’s strange to see so many people crowded around pools of spilled oil surplus, lapping it all up like it tastes good.

The resulting rise last week in speculative oil pricing was beyond silly. The stabilization of the stock market based on seeing oil prices rise shows that investors are running on the thin fumes of mere wishes now. Their heads are filled with carbon monoxide so that they think through a sleepy fog. They bobble like balloons with every little wind of change that blows.

This week, however, we see reality sinking back in as their heads clear a little to see that everything continues exactly as it did before the Arabs and the Russians got together. That, of course, is exactly how I have been saying it is going to continue.

 

Let’s get down to it: We’re in an oil boom bust

 

Saudi how to buy zolpidem online Arabia’s oil minister says production cuts to boost oil prices won’t work, and that instead the market should be allowed to work even if that forces some operators out of business…. (NewsMax)

 

You see that? “Production cuts won’t work” means “they’re not going to happen!” So get over it, investors. You’re dreaming of blue skies that are far, far, far away. I don’t see blue. I see seemingly endless fountains of oil, clouding the desert skies for months to come until the spine of the fracking industry in the US lies broken and quivering on the sand with the vultures picking at its meat.

That’s the reality of the US oil industry right now … if you’re willing to step outside of economic denial and see things as they are.

 

The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” Naimi said. “It sounds harsh, and unfortunately it is, but it is the more efficient way to rebalance markets.”

 

He means fracking companies in the US, which have a high cost of production compared to the cheap Saudi costs of extraction, are going to have to buck up. They can either keep borrowing more cash until they and their banks die from bad loans or just liquidate now. Saudi Arabia’s oil minister admits that sounds tough, and it is tough. What he’s saying, in other words, is, “This is capitalism, so GET USED TO IT! The problem will only be solved when the weak perish! We’re not cutting production in order to help them survive. This problem of oversupply will be settled by the high-cost frackers liquidating. That is the efficient capitalist way.”

And he’s right, but we live in a world that doesn’t understand economics anymore. They think things should happen the way they want them to. The US stock market and the oil speculators last week forgot all about how ruthlessly capitalism works when it corrects speculative boom cycles. The Saudis quite simply are not about to keep trimming back their market share just to help us get richer at their expense. They can produce oil a lot more cheaply than the booming US fracking industry can, so they are going to keep on pumping and drive the US fracking industry largely out of business.

Anybody who believed anything else for one second just was not thinking. Those weren’t sparks of thought that brought the market up. They were just short circuits — brains fried from things that don’t compute after years and years of free Fed money.

 

Naimi disputed a common view in the industry: that Saudi Arabia has kept pumping oil to protect its market share and undercut shale producers. “We have not declared war on shale or on production from any given country or company,” he said.

 

He may be a little disingenuous there, but what he’s saying is, “We’re not targeting anyone because of who they are or whether they frack.” The Saudis are, however, protecting market share. They’re just not specifically targeting frackers or the US because they’d love to see Iran crippled, too. What they are targeting is their share of the market and saying, “We’re going to keep producing this amount of oil to fill this share, come hell or high oil supplies, and whoever that takes out … that’s their tough luck. It might be harsh, but that’s the way this is going down!”

And that’s how everyone should have understood the Russian and Saudi agreement in the first place. It’s how I immediately understood it. It’s what I said would happen even before they met. All they really said is that they are not going to expand to try for an even larger share … so long as no one else does.

 

Why OPEC is taking down the US oil boom

 

The OPEC rationale is simple. Back in the days when OPEC countries were the main players on the oil sands, they could all agree to cut back production in equal proportions in order to raise oil prices. Now that the US is producing as much oil as Saudi Arabia and is continually increasing its production, any cutback by OPEC is a low spot in the market that US oil just flows right into.

Every time OPEC would cut back in order to increase prices, the US would increase its market share by just continuing to ramp up more production. The US did not, in other words, ever participate in the cutbacks. It just sucked up the slack created whenever the Saudis pulled back on production.

The Saudis saw where that was going and essentially said, “That’s the end of that. We’re not cutting back at all anymore more — not this year, not next. We’re going back to the production we were at and will let normal market dynamics solve the oil supply glut. So, may the best nation win.” Thus, as the oil minister continued to say,

 

Cutting low-cost production to subsidize higher-cost supplies only delays an inevitable reckoning.

 

Give up your oil pipe dreams, America, that make you think the Saudis are ever going to trim back production. “The way production will be trimmed,” they are plainly saying, “is by others whose costs are higher going out of business! It’s an inevitable day of reckoning because those with much higher costs will over time certainly be the ones to die out.

The Saudi oil minister concluded that this is just another inevitable oil boom-and-bust cycle. The boom is over; the bust is here. So, don’t even ratchet up your glee a tiny bit just because the Saudis and Russians have agreed not to increase production further so long as no one else does. That only means, they’re not going to make things worse than already are, but they are not going to flex an inch to make anything better either. So get ready for a long, hard ride. This is a war of attrition, and the people with bigger mouths to feed will be the first to die. That is the US fracking companies, starting with the smaller, less diverse companies.

As this news was finally digested, we saw oil prices plummet again this week. Anyone who entered bids in the stock market based on the notion that oil prices had risen and would stabilize a little higher was a wishful thinker. Reality is a harsh task master.

As the real meaning of the Saudi-Russian agreement sank in, oil prices went right back down into the tar pit. I’ve said consistently that is where oil prices are staying for awhile. In fact, with Iran’s production coming on, they are bound to go even lower. And then, when all the tanks in the world are full, crude prices could really go bust because who wants to buy any oil for immediate delivery when they have nowhere to put it? The only boom left is kaboom!

So, give up on the idea that oil prices are going to improve. It’s a Keystone pipe dream that isn’t going to happen. When the market goes up on such news, it just shows how far from reality market thinking is and how desperate for hints of favorable economic news. Those who believe it, wind up looking silly … and poor.

 


[amazon_link id=”0996489703″ target=”_blank” ]Shale Boom, Shale Bust: The Myth of Saudi America  In 2014, something went terribly wrong with this rosy scenario of “Saudi America.” An unexpected collapse in the price of oil is bankrupting the oil patch, destroying jobs and threatening plans for a renewable energy future.[/amazon_link]


 

 

 

Dorothea Lange [Public domain], via Wikimedia Commons

Boom towns go bust. Bakersfield, California. Tents and shacks for 40 families. Note house built of discarded oil derrick lumber.

The oil bust is here to stay, so glub, glub.

 

“It’s just another boom-and-bust cycle.” As a result, here is where we stand today:

 

Biggest Wave Yet of US Oil Defaults Looms as Bust Intensifies

In less than a month, the U.S. oil bust could claim two of its biggest victims yet.

Energy XXI Ltd. and SandRidge Energy Inc., oil and gas drillers with a combined $7.6 billion of debt, didn’t pay interest on their bonds last week. They have until the middle of next month to either pay the interest, work out a deal with their creditors or face a default that could tip them into bankruptcy.

If the two companies fail in March, it would be the biggest cluster of oil and gas defaults in a month since energy prices plunged in early 2015.

“We’re just beginning to see how bad 2016 is going to be.”

 

Indeed, we are. 2015 was just the beginning as the weakest were quick to fall. Now we move outward to the next tier that is starting to crumble around the fringe of the oil pit.

 

The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September.

 

There were lots of other people willing to speculate on unprofitable businesses. Sound familiar. It was the dot-com boom, only in oil. Those days are over. No one wants to issue that high-yield debt now that they know the boom has gone bust and that the Saudis and Russians are in this for the long haul. The cost of junk credit for oil companies has skyrocketed, and its not about to come down, so the frequency and size of oil and gas company crashes will get greater all through the year. Accept that reality.

The banks that are owed money on the loans mentioned above include the Royal Bank of Scotland and the huge Swiss bank, UBS, the UK’s Barclays, the Royal Bank of Canada, and a large French multi-national bank. You see, the damage extends fully beyond the US, and that’s the way it will be with all of these greasy junk bonds.

There will be bank failures because of this. The only question that remains is which of these banks is weak enough and involved enough in the US shale patch to be the first to collapse because of the oil bust along with other problems?

It’s a time bomb.

The number of all US companies that are nearing default has reached a peak not matched since the worst peak of the Great Recession. (There that comparison is again. It’s inescapable now.) That means across all industries, but oil and gas companies are leading the pack.

We are just seeing the beginning of the second set of waves come onshore now. So, hold onto your body boards and get ready to plunge into the onshore oil slick because we’re going to take a pounding.

Fracking up is hard to do.

 

[amazon_image id=”B00CMDPTA4″ link=”true” target=”_blank” size=”medium” ]The Prize – An Epic Quest for Oil; Money & Power[/amazon_image][amazon_image id=”B004S95I4M” link=”true” target=”_blank” size=”medium” ]Blood and Oil – The Middle East in World War I[/amazon_image][amazon_image id=”B00HKKX2L2″ link=”true” target=”_blank” size=”medium” ]Oil: Black Gold[/amazon_image][amazon_image id=”B01A7OLKHK” link=”true” target=”_blank” size=”medium” ]Frack Us[/amazon_image][amazon_image id=”B0037VY1ZO” link=”true” target=”_blank” size=”medium” ]Crude Independence[/amazon_image][amazon_image id=”B00DY2T6BA” link=”true” target=”_blank” size=”medium” ]Split Estate[/amazon_image]

Hell Week for the Global Economy Gives Signs of Things to Come

The developing Epocalypse will become the super-volcano of economic history, and this week revealed cracks in the surface that give hints of the eruption to come.

It was a week of crumbling throughout global stock markets that has challenged records. Thursday, Hong Kong stocks suffered their worst start of a Chinese New Year since 1994 in a day of monkey business for the year of the monkey. Traders fled falling stocks and took cover in safe-haven investments, bringing the Hang Seng index down 742 points (3.9%).

Concern is that China’s banking problems could break out into financial upheaval eight times more devastating than the economic crisis the US experienced in the Great Recession. Some are estimating Chinese bank failures are likely and could result in a further 30% drop in the value of the yuan against the US dollar.

Japanese stocks went into free fall for an entire week, cratering more than 900 points in one day, then falling another 760 shortly thereafter. What a testimony to the disastrous and immediate failure of negative interest rates, which kicked Japan’s market into a full-blown panic.

Nevertheless, central banks in their groupthink manner still believe negative rates will seal the globe’s economic cracks and stop the volcano from exploding, though I am certain they will make things far worse because the very concept is evil, stripping money away from people for giving banks the privilege of holding and investing their money.

Major bank stocks continued to crash into the caldera with Deutsche Bank’s breakaway looming larger because negative interest rates in Germany are creating fissures in already weak banks. If Deutsche Bank fails entirely, it will take many other banks out with it in a domino effect. We’re right back to too-big to fail, but this time the risks and likelihood are global in development.

Civilization seems to have no concept of the peril it has created for itself, but this past week gives us a glimpse of the forces that are brewing beneath the surface. Many people may think I make these statements for effect, but I believe that, in the end, they will not appear as overstatements at all. They will simply look factually correct wind up on the other side of these events in a completely different world.

 

Investors run for cover in safe havens

 

On Thursday, treasuries in the US hit their lowest yield since the end of 2012 when the Treasury’s money presses were heating up their bearings. Investors are now fleeing to treasuries, more than willing to accept lower yields. Megacorp Pimco stocked up, increasing its Total Return Fund from 22% investment in US debt to 26%.

US bonds attracted investors with 1.65% yields. However, Germany and Japan did much better, financing their debts at 0.2% and 0.02% respectively due to their push into negative interest rates.

Gold surged around the world on Thursday with lines around the block, pushing prices up 4% higher in London, easily breaking well above that $1,200/oz level that gold hasn’t seen in years (about $1,240/oz midday). With bullion rising 19% for the year, gold is entering bull market territory. The lowering yield on US treasuries made gold a more attractive safe haven. Other precious metals also rose this week.

Where China restricts outflow of capital from the nation, people are particularly buying gold as their vehicle for fleeing the crashing Chinese stock market. Chinese demand for gold grew 25% in the final quarter of last year (y on y). India is another place where people are most likely to move to gold jewelry when the economy is falling. (They can save their money, please their girlfriends or wives and enjoy wearing their saved wealth. So, more bangles, bobbles and golden beads.) So, gold purchases grew in India this week, too, as the financial crush is felt around the world.

Said JP Morgan on Thursday, “It’s hard to imagine an uglier morning.” Bankers hate to see gold rise because its the biggest threat to their own proprietary product on which they have national monopolies — money! Thus, an outstanding morning for gold was a hangover for JP.

Bank stocks took some of the worst hits this week due to pressures created by negative interest rates imposed on banks as a cost they have a hard time passing along. The cracking up of banks stocks made for Thursday morning’s humming heads, but there was no coffee and no aspirin for the banksters. (Banks stocks have fallen more than twice as fast as the S&P 500 this year, with Bank of America taking another 6.5% hit on Thursday.)

One can only imagine another central bank dump of gold is coming through a proxy somewhere soon to take the fire out from under the gold smelters. Why else do central banks own so much of the thing they claim is a poor investment, except to mitigate the threat of their product’s main competitor?

A bad day for banksters is a good day for me, though, regardless of its impact on the economy. Makes me want to sing my tribute to Bank of America.

 


[amazon_link id=”B00DMCJOY6″ target=”_blank” ]Read The Death of Money. The next financial collapse will resemble nothing in history. . . . Deciding upon the best course to follow will require comprehending a minefield of risks, while poised at a crossroads, pondering the death of the dollar.[/amazon_link]


 

 

Central banking crisis becomes evident

 

Markets did not seem much calmed by Chairwoman Yellen’s comments to congress this week that the Fed will remain accommodative if necessary in the face of global headwinds to the US economy but won’t be leaping to drop interest. As I said at the beginning of the present upheaval, there is no chance the Federal Reserve will act quickly to lower interest rates, having waited two years to try to find a window of opportunity to raise them and having finally found one barely wide enough to get their fingers through.

Yellen also said she saw no legal reason the Fed could not follow other central banks in imposing negative interest rates on the reserve accounts of national banks as a way to pressure banks to loan money, but she did say the Fed needed to further study the legality of a negative interest rate policy (NIRP) before taking such action. Trepidatious markets found her comments less soothing than what they were yearning for, as Yellen continues to ween them off Fed milk.

So far, nations with central banks that have imposed negative interest rates, have received little bang for the buck or pop for the pound or yelp for the euro or whatever. That makes such policy look ineffectual and extremely desperate right out of the gate. In part because of such interest rates, bank stocks in Europe fell 6% Thursday, making them the worst performing sector of the Stoxx. Losses, year-to-date have been 28% — the lowest they’ve been in years.

Sweden’s central bank, Riksbank, chose to step deeper into NIRP this week.

 

US Stocks in bondage

 

US bank stocks also took heavy hits again, falling by 3% on Thursday. Twitter slumped to an all-time low as it struggles to figure out what is supposed to be without alienating its twits. Twitter has crashed by 35% in the month and a half gone by this year. (Frankly, I’ve never seen the appeal, as I think the website’s sound bytes look hideous, being as full of tweety codes as they are.)

US media-company stocks also experienced their worst week since the flash crash of August. Subscribers are simply moving away to other alternatives, just as with Twitter and with retail stores.

The Dow ended down 10% for the year on Thursday and the S&P down 10.5%. The Dow recovered Thursday’s drop on Friday, but overall US stock investors have averaged a loss of $57 billion dollars each day of this year. That adds up to a $1.78 trillion loss in six weeks, equal to the entire GDP of Canada!

 

It seems more like contagion. What started off as, really, a healthy correction has turned into an oversold situation with some elements of panic.

 

That was Kristina Hooper, U.S. investment strategist at Allianz Global Investors, talking to CNBC.

I wouldn’t put that last spin on it of being oversold. I think the market has a lot of selling yet to go before it gets back in touch with reality. Earnings appear to be falling as quickly as stock prices, so the price-earnings ratio may not be improving as much as Hooper thinks, even as prices tumble into the caldron of the Epocalypse.

Dennis Gartman, I see, agrees:

 

I don’t think there’s too much selling at all…. Sovereign wealth funds are clearly in the process of liquidating…. This is very serious, and I think there’s going to be even more selling going on. I’m afraid it’s going to get even worse. I hate to say that. There’s not a good tenor to be found anywhereThe central banks I think at this point are as confused as is anyone else. I’m not sure anyone is going to look to central banks to be of great help right now.  (CNBC)

 

For one thing, sovereign wealth funds have no choice in selling off their US stocks because they are struggling to keep their own economies going — Japan, China and Saudi Arabia especially. Gartman said that the kinds of moves he’s seeing in Japan right now are something he hasn’t seen since the tsunami. Others agree that the central banks finally look confused and helpless:

 

“The central banks have been taking extraordinary policy actions in the last several years…and now we’re seeing that it hasn’t been as effective as everyone had been assuming,” said Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Massachusetts. (Yahoo!)

 

Well, not “everyone” has been assuming that their efforts every were effective — at least not in accomplishing anything more than a mirage of salvation. A remnant of the global population has been sharp enough to see all along that any apparent accomplishments of the central banks extraordinary magic were just that — nothing but smoke-and-mirrors tricks with nothing more than entertainment value or, at best, artificial life support that would disappear as quickly as the stimulus measures were ended.

And, so, here we are.

McMillan continued,

 

When you add in the fact that the European banking system is under serious threat right now, you could actually see a path to the kind of systemic crisis that we had in 2008.

 

And, so, here we are. We ended the nightmare of the last seven years right back where we started prior to all the artificial life support. Given that banks and tech stocks are leading the crash, this looks like it could be the dot-com crash of 2001 and the financial crisis of 2008 rolled into one massive event. And that’s just the United States. This time what is happening in the US is already well underway in the rest of the world. Last time, it was just the US with the rest of the world falling into the United State’s crater in the years following the initial collapse.

 

“Oilmegeddon” looms

 

Oil prices continued to fall on Thursday as US inventories hit new records. I raised a question in an earlier article about what happens to oil prices when all the storage tanks in the world spill over their rims — all tank farms, all ship tankers, all train tank cars, all truck tanks? What happens when the oversupply boils over because we are out of tanks?

Who will pay anything for immediate delivery of oil then when there is nowhere left to put it? You cannot stockpile it like you can with ore. Without a tank for containment, oil is just a huge liability. When that day comes — and it is not far off — the price of oil that will tank. I think it could even go below $20 for a short period. The most explosive event of the oil crash may be just ahead.

As we near this point of overflow, oil traded near a twelve-year low. At $26.13 for a barrel of West Texas Intermediate at one point this week, prices plunged to where they hadn’t been lower than that since May, 2003! That’s even lower than oil ever traded during the worst part of the Great Recession. The total volume traded was 88% higher than the hundred-day average. It’s understandable that there would be many buyers at Thursday’s price, but that also means there were plenty of people willing to sell at that price!

Then, Friday, oil prices blew up in their largest single-day gain (11.5%) since it started to rise out of the slump of the Great Recession in 2009. From a thirteen-year low in price to an eight-year record rise, this kind of volatility is nothing but explosive gas. The leap came because OPEC said (again) it was ready to talk.

The declaration of willingness to talk may have happened because Iran publicly announced its oil prices this week, setting a price in euros for heavy crude that is discounted to $1.25 per barrel less than the Saudi Arabian price for the same grade. That showed clearly Iran intends, as I said it would, to compete fiercely for market share and to do its best to knock the petrodollar off its pedestal.

That it set its price lower than it needed to do to be competitive indicates intent to hurt Saudi Arabia. Iran is essentially pegging its prices to Saudi Arabia’s price, less a discount. To underscore the point, Iran said others should make way for its re-entry into the oil market, indicating it intends to produce as much supply as it can.

Maybe that tough move and tough talk pressed the Saudis to start talking about real change. We’ll see. I wouldn’t count on it just yet. Saudi Arabia’s willingness to reduce oil production almost certainly depends on the willingness of other major competitors to do the same. Iran’s intent, however, is to jump back into the market with both feet, and that means pumping as much oil through its pipes as it possibly can in order grab back the customers that it lost while it was out of the game.

Anyone who thought Iran would enter the market and be nice or not try to inflict additional pain on Saudi Arabia didn’t understand how Iran operates (nor how business operates). That’s why I wrote recently that it was absolutely ludicrous when oil prices bounced recently and so many people seemed to talk as if oil prices were starting to recover, even as Iran was (at that time) about to enter the market. There was not a breath of realistic hope in the world that oil prices would get better when the country that was once the second-largest oil supplier in the world leaped back into the market, and there was not a chance they would be delicate about their re-entry. I’m inclined to think today’s ejection of high prices is a similar emotional spurt, and when markets run on amplified feelings, that desperation, not good sense. It’s usually followed by all-out panic.

Maybe six months to a year from now (leaning toward the year) prices will stabilize and start to rise — MAYBE — but by then the carnage will be widespread as the flaming oil spill of Kuwait were after the Persian Gulf War. The bankruptcy of oil companies has been rapidly accelerating. CNN reported that half a dozen oil companies filed for bankruptcy last week alone. As I pointed out last week, however, it’s not just the gyppo oil companies that are hurting. Several of the major players like BP reported losses for the last quarter. Standard & Poor’s said that half of all high-yield bonds in the oil industry are at risk of collapsing into the inferno of this heated price war.

US oil companies are now drowning in debt:

 

At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese. That represents a 379% spike from the previous year when oil prices were substantially higher. With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone. “It looks pretty bad. We fully anticipate it’s only going to get worse,” said Buddy Clark, a partner at Haynes and Boone and 33-year veteran in the energy finance space. (CNN)

 

Think of what this means for banks. Think of what it means for jobs, given that most of the United State’s supposedly amazing job recovery under Obama happened because of the huge success of the new fracking industry, which had absolutely nothing to do with Obama. If Obama had any impact on that industry at all, it was to restrict it. Whether right or wrong from an environmental standpoint, he certainly did nothing that caused those jobs to happen, and now they are all going to seep away into the sand.

I’m for seeing the world as it is, not as one wishes it were. I’m all for trying to make the world what one wishes it were, but you have to first see it for exactly what it is, or you’ll get hurt. Those investors who get excited at the slightest hint of a lift in prices are dreaming.

When the price war is finally over and the number of competitors is reduced and the fracking oil fields are soaked with blood (or, at least, red ink), you can expect all prices that are oil related to burst to the skies because the industry will attempt to make up for deep losses in an environment where there is less competition.

 

The outcome will be much different this time than in 2008

 

An article in the UK’s Telegraph this week opined …

 

The world can’t afford another financial crash – it could destroy capitalism as we know it. A new economic crisis would trigger a political backlash in Britain, Europe and the United States which could drag us all down into poverty. They bounce back after terrorist attacks, pick themselves up after earthquakes and cope with pandemics such as Zika. They can even handle years of economic uncertainty, stagnant wages and sky-high unemployment. But no developed nation today could possibly tolerate another wholesale banking crisis and proper, blood and guts recession…. A fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.

 

The resources of all nations and their central banks are just too depleted to handle such a massive rupture of the global economy as we saw in 2008. Yet, this one is appearing that it could be far greater because it is developing all over the world simultaneously. The capacity of nations and their banks is fully taken up by huge monstrous national debts and balance sheets that have swelled beyond anything anyone would have imagined a decade ago.

At the same time, the people of all nations are fatigued from years of hearing about recession. In nations like Greece this is true at a level that is already explosive. If a recession like the Great Recession happens now, it will deplete all hopes because of all the talk of recovery that proved false after the last recession. They will have scaled the mountain — or tried to — only to find themselves shaken to the bottom again. Who would have faith in the central bankers to save the economy this time when all their plans to save it from the last recessionary period blew up in their faces?

Anger, albeit late in coming, is showing itself in US elections this round in the form of a movement in both parties away from the establishment. Who believes, however, that newly elected officials could find a solution once the central banks are proven to have failed? In moving away from the establishment, Democrats are moving further left and Republicans further right. There is little likelihood of agreement on a solution, especially one profound enough to right the entire world.

The prime example is found in Greece where citizens rebelled against the establishment only to find themselves in worse pain than before their rebellious election that voted the establishment out. Greece has just moved officially back into recession. (Absolutely predictable based on what Europe did.) Now, the blowout of stocks and banks in Greece is happening all over again. (Absolutely predictable.)

It was only last summer that I said Europe had not solved any of their Grexit problems. They only made sure that the problems would resurface just in time to complicate the next crisis. I said that Greece would erupt again just in time for the next downturn, and on Friday long-smoldering Greece erupted again, as thousands gathered in the streets, set fire to dumpsters, and broke windows, while farmers beat police with shepherd crooks. And Europe’s imposed austerity hasn’t even been fully implemented yet!

The next Greek crisis is here. Greece is also boiling over with migrants from Syria wanting into Europe. Europe is mad at Greece for not being the impregnable gate between East and West and stopping the migration; but Europe has left Greece nearly penniless, so how is it supposed to stop millions of migrants? Europeans appear to be strangling themselves with their own sphincters.

The chaos in Greece is, I think, about to blow up as the pressure from migrants jamming through the gates and the pressure on the other side from European leaders to have little Greece solve the problem for everyone when it has no money are becoming a squeeze so tight that I expect Greek eyeballs to pop from their sockets like bullets.

Greeks were foolish not to accept their pain much earlier by defaulting on every debt and getting out of the euro. In order to work through their pain and see real gain, there would have to be no more debt spending after that — just living with what they have, regardless of whether or not they like it. Accept reality, and live within your means. (A lesson the entire world clearly needs to learn.)

Britain is now debating leaving the European Union, making Brexit as big of a deal as Grexit. With the growing flood of immigrants through Europe, working its way to Britain, the British exit is gaining support. More economic disintegration within the Eurozone will certainly strengthen the case for a little more separation from the European Union. By remaining, at least (in the European Union but outside of the Eurozone), Britain has faired far better than most of Europe to where an exit may look like the low-risk option to Brits … and then to others. So, Europe is its own volcano, ready to break apart on all sides.

Under such fracturing, does globalization break up everywhere with each nation straying off to solve its own problems in its own way with stiffer boundaries to protect itself from problems created by others, or do all nations circle the wagons and attempt to solidify global strength? Will the world give up on globalization, which isn’t even working in Europe, or double down?

The old plays just won’t work this time around. Nations are falling into recession together, even while bank interest is already subzero and even while inflation is already stuck near zero after unprecedented money creation. This time around, the entire world has exhausted everything the central bankers of every nation seem capable of thinking, and politicians everywhere have emerged with no clear answers.

Because people tend to reach for a bigger answer when the last answers all fall short, and because they also tend to avoid confronting deeper problems to avoid bitter medicine, I believe the world will try to band tighter together in a global solution that, under great time pressure, ignores the realities of their deeper political divides.

The same problem from the same kind of massive debt creation is cracking the earth open around everyone — every nation, everywhere. National leaders will be inclined to agree that the problem is their central planners don’t have enough control over people and that the world didn’t work together on a unified solution so that one nation’s rise in currency became another nation’s fall.

Desperation will make enemies sleep together to fight the common enemy of global economic collapse. But that doesn’t mean they suddenly will love each other or that old hatreds will be set aside or that bankers and brokers will start to regard more highly the interests of others. A much different world than we’ve ever known — bonded like an alloy of clay and iron — will emerge from the broken landscape.

But first, a worldwide eruption, which I call the Epocalypse, will shatter the landscape — is already shattering the landscape — and will create the desperate need for rushed unity. The bankers and brokers of this brave new world are not going to give up power or wealth, so their flawed, self-centered, wealth-aggregating thought processes will pervade the new design. But the people of the world are not going to trust their leaders after the present failure, so anarchy will also grow and with it the need for heavy-handed power to suppress it.

You might not like the prediction (I know I don’t), but it doesn’t matter if you like it (any more than it matters if I like it). I’m not looking to see what I want to see; I’m looking to see what is, and reality doesn’t care what I like. It doesn’t ask me what it should be. Those with eyes wide open will see the fissures that are opening up everywhere, and that will give them the outline of things to come. So, you can see what is coming, coming very soon to a planet near you.

 

  • By that I mean you can plainly see that debts bigger than the gross product of each nation are too big to ever to be repaid, especially when economies did not supercharge to rise to the burden as they were supposed to have.
  • You can see that the nations that were struggling with bankruptcy after the last recession are struggling even more with it now.
  • You can see that banks that were too big to fail are much bigger than last time and are starting to show great signs of stress again.
  • You can see that growing bankruptcies in the oil industry will increase in number as there most likely a lot more time for more bankruptcies to develop.
  • You can see that zero interest didn’t solve the world’s economic problems, and the new negative interest is worsening the pressure on banks, while still not solving problems.
  • You can see that the only way banks can rid themselves of that pressure is to pass it on to you and that this will require going cashless in order to be assured of your cooperation.
  • You can see that quantitative easing didn’t solve the last crisis, so how will it solve a greater crisis when recession happens everywhere at once.
  • You can see the Middle East is in greater conflict not less and that things are more heated between Russia and the West, not less.
  • You can see that stock markets all over the world are crashing at the same time and that the US was the last of nations this time to start down that hole.

 

I can go on and on. There’s a lot that you can see that will show you the shape of things to come. You have only to be willing to see what you do not want to see.

We are building up all of these pressures under a mountain of debt we piled, and we keep trying to push the aggregate debt of the world forward. There is simply no stimulus that will push the debts of nations forward any further. If interest rises, there is no nation that can maintain the payments on its debt. Thus, the push to negative interest.

The only real answer is to write off all of the debts of everyone, every business, and every nation equally — cancel the whole enormous mess we’ve created by what we have taken on but also by the foolish credit we have offered — and start again with an economic system that is not founded on debt.

That, however, is not likely to be tried.

The banksters of this world do not let go of debt owed to them, nor the control of money. Neither do any of the rest of the top 10%. Greece is the microcosm in which we can see the problem of the whole world. Europe kept as much of the debt upon the smaller people as possible because the financiers of this world will not accept that they long ago issued credit where they never should have — even enticed such credit. People took on such debt as they never should have. The result is that people remain in bondage to their bankers.

Even the bankers lose in the end, however, because they are refusing to see the obvious, which is that no people will succeed in paying off as much debt as the bankers continue to leave in play. So, we are more likely to go the route of coerced globalization, sometimes forced against the countervailing forces of anarchy.

I’m not saying we should go that route. I think it will become an even greater evil, but it is unlikely the bankers will yield their grip or that politicians will force them to or that people will uprise with a clear enough vision, enough cohesion and in enough numbers to force that change upon the unwilling top 10%. The force is more likely to take the path of anarchy among smaller numbers, and that is its own kind of self-centered evil.

I see all of that in the fracture lines of this world, and it is those fissures that the Epocalypse will burst open. Humanity will be forced to face its flaws.

 

Books for further economic understanding:

[amazon_enhanced asin=”B00DMCJOY6″ /][amazon_enhanced asin=”B003XT60KO” /][amazon_enhanced asin=”0230365353″ /][amazon_enhanced asin=”0446584835″ /][amazon_enhanced asin=”B008TRU7PE” /]

Entering the Belly of the Epocalypse

Only a couple of weeks ago, I said we were entering the jaws of the Epocalypse. Now we are sliding rapidly down the great beast’s throat toward its cavernous belly. The biggest economic collapse the world has ever seen is consuming everything — all commodities, all industries, all national economies, all monetary systems, and eventually all peace and stability. This is the mother of all recessions.

That’s a big statement to swallow, especially when many don’t see the beast because we’re already inside of it. You need to look down from 100,000 feet up in order to observe the scale of this monster that is rising up out of the sea and to see how rapidly it is enveloping the globe and how the world’s collapse into its throat is accelerating. The belly of this leviathan is a swirling black hole, composed of all the word’s debts, that is large enough to swallow every economy on earth.

Mexican retail billionaire Hugo Salinas Price has looked long into the stomach of this mammoth, and this is what he has seen:

 

[Global] debt [as a percentage of GDP] peaked in August of 2014. I’ve been watching this for 20 years, and I have never seen anything like it. It was always growing, and now something has changed. A big change of this sort is an enormous event. I think it portends a new trend, and that trend will be to get out of debt. Deleverage and pay down debt. That is, of course, a contraction. Contraction means depression. The world is going into a depression. It’s going to get very nasty. (USAWatchdog)

 

So, let’s step back and look at the big picture in order to see how immense this thing is: (One thing that you’ll notice is common in the statements of many sources below is comparisons to 2008, when we first entered the Great Recession. You hear that comparison every day now, which says many people feel that, after piling on trillions of dollars and trillions of euros and trillions of ___ in debt to save ourselves, we are right back where we started … but exhausted from the effort.)

 


[amazon_link id=”B014IAV9MK” target=”_blank” ]Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy[/amazon_link]


 

Toxic debt flush heard round the world

 

As Hugo Salinas Price warns, toxic debt may have hit a ceiling where it has stopped going up because individuals, industries, and now nations have reached real debt limits they cannot support. According to the New York Times, toxic loans around the world are weighing heavily on global growth:

 

Beneath the surface of the global financial system lurks a multitrillion-dollar problem that could sap the strength of large economies for years to come. The problem is the giant, stagnant pool of loans that companies and people around the world are struggling to pay back. Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising.

 

The Times lists China as leading the world for personal and industrial bad debt at $5 trillion, which in terms of its economy is half of China’s GDP. As a result of hitting this ceiling, Chinese banks reeled in lending in the last month of 2015.

And this is just bad debt. It does not include debts that are being properly paid or China’s national debts. These are the loans already failing. Likewise with the global debt problem The Times is writing about. Bad loans in Europe, for example, total about $1 trillion. Again, that’s just the loans that are already falling into the abyss.

Many national debts are more than the entire annual GDP of the nation, including the enormous US national debt, which will reach $20,000,000,000,000 by the time the next president takes office. (You can’t even see wide enough to focus on that many zeroes at the same time. The “2” gets lost in your peripheral vision.) And many places like Greece and Brazil and Puerto Rico are defaulting on their debts.

The United State’s debt alone is only payable so long as interest rates stay near zero; but rates are now rising, and the number of financiers has greatly retreated. The only thing to save the US from its toppling debt problem in the short term may be that people all over the world run to the shelter of US bonds when everything else is caving into the black hole.

 


[amazon_link id=”B00WY4OWL8″ target=”_blank” ]Between Debt and the Devil: Money, Credit, and Fixing Global Finance. One of Financial Times Best Economics Books of 2015. “A devastating critique of the banking system. Most credit is not needed for economic growth — but it drives real estate booms and busts and leads to financial crisis and depression.”[/amazon_link]


 

Bulls become bears

 

The first sign that this global change is now consuming the US is in how many of the market’s permabulls are becoming neobears and which sizable institutions are making the switch quickly. Citi has been bullish over the years, but now they have stepped out of the back half of the bull suit and put on a toothy bear suit, expecting oil to drop to the mid-twenties and geopolitical change that “is maybe unprecedented for the last decades”:

 

The global economy seems trapped in a “death spiral” that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi … strategists have warned…. “The stakes are high, perhaps higher than they have ever been in the post-World War II era.” (Yahoo)

 

Here’s a 100,000-foot-high look at the US stock market that is now swirling down the throat of the beast: Last year, the number of stock dividend reductions surpassed 2008. In fact, 2015’s number of cuts — now that the year is barely past — was 35% higher than the number of cuts going into the Great Recession. That gives you some sense of the scale of corporate pain that is just starting to be felt. Companies cut dividends when they have less profit to share with their owners. Bloomberg referred to it as “equity investors … suffered death by 394 cuts.”

Another high-view snapshot of corporate collapse can be see everywhere in US retail: Walmart, Macy’s, J.C. Penny’s, K-Mart, The Gap and many smaller retailers have all announced a large number of store closures and layoffs to come.

US Corporate earnings across all industries are on track for their third quarter in a row of year-on-year declines. That is an ominous signal because back-to-back periods of decline for just two quarters are always followed by a decline of, at least, 20% (a bear market) in the S&P 500.

 

This weakness in overall corporate earnings growth could bode badly for the broader stock market, as it represents the actual impact of geopolitical concerns, the slowdown in China, the weakness in oil prices and productivity, said Karyn Cavanaugh, senior market strategiest at Voya Investment Management. “Earnings discount all the noise…. It’s the best unbiased view of what’s going on in the global economy.” (MarketWatch)

 

As earnings fall, the much watched price-earnings ratio gets more top-heavy, putting pressure on stocks to fall. Thus, on Friday:

 

The willingness of U.S. stock investors to abide price-earnings ratios stretching into three and four digits all but ended Friday as the Nasdaq Composite Index fell to its lowest since October 2014. The … tumble in American equities turned into a full-blown selloff in stocks with the highest valuation. The Nasdaq Internet Index sank 5.2 percent, as Facebook Inc. lost 5.8 percent. (NewsMax)

 

The most significant part of this picture is that tech stocks have finally started making the big drop with the few that have been holding the stock market’s average up being the ones now taking the biggest plunge. Facebook, Amazon, Apple, and Microsoft are all falling fast. LinkedIn is getting “destroyed.” The time at the top is over, which leaves the market with zero levitation. Therefore, it’s no surprise that we saw another major sell-off on Monday.

Said USA Today, Bye, Bye Intenet Bubble 2.0,” calling this “the worst start of a year for technology stocks since the Great Recession.

 

Collapse of the petrodollar opening sink holes everywhere

 

It’s no secret that Russia has outlawed trading oil in dollars among its satellite nations and that China and Russia trade in yuan now, not dollars, but Iran is the latest to stick it to the US, announcing that it will no longer trade oil in US dollars either but will sell its oil only for euros. So, we have the gargantyuan and the petroeuro, taking major bites out of the petrodollar now. China and Russia have also been divesting from US treasuries for some time and investing in gold, something I started point out here a few years ago.

All of this means that the US dollar is rapidly ceasing to be the trade currency of the world, and that prized status is the only thing that has made the US national debt manageable over the years, as the high demand for trade dollars guarantees low interest on the most colossal debt in the world because national treasuries and businesses sop up US bonds as a safe way to store trade dollars. The Federal Reserve has become the buyer of last resort for US debt; but it has maxed out.

The move away from the petrodollar is momentous. Losing its status as the reserve currency of the world will take a massive bite out of US superpower status, and that, of course, is exactly what Russia, China and Iran are counting on. With so many countries now trading oil exclusively in non-dollar currencies, one has to wonder how much longer overstretched Saudi Arabia can hold out as an oil supplier that trades oil only in dollars. Most likely they will feel a lot of economic pressure to start trading in other currencies, especially now that US support of Saudi Arabia appears to have weakened.

Iran’s announcement may be why the dollar dropped drastically in value last week. The high value of the dollar makes oil very expensive to other nations, who have to convert their low-valued currency to dollars to buy oil. This is surely another reason the price of oil has been falling, though almost no one talks about it … almost as if the economic geniuses of the world can’t figure this simple relationship out. As nations compete to lower the value of their currency with zero interest policies and quantitative easing, they are burying the petrodollar.

In nations with currencies priced very low compared to the dollar, oil is like an American export — too expensive for people in that nation to afford, causing demand to fall off and, thus, further increasing the problem of oversupply and lowering the price of oil. This creates another big reason for many nations to want to stop trading oil in dollars.

I’ve been reporting on this site for a few years now on this global campaign to kill the petrodollar, and that campaign is finally nearing maturity. For the US, it will mark a horrible transformation in the world, as it will hugely erode US superpower status because it will become much more difficult to finance a massive military machine.

 

The banks that are too-big-to-fail are falling FAST!

 

Deutsch Bank‘s derivative bonds (the kind that caused the Great Recession) are pealing away. The top-tier bonds of Germany’s largest bank have lost about 20% since the start of the year. Investors are fleeing as tumbling profits cause them to doubt the issuer’s ability to support the coupon payments on the bonds. InvestmentWatch reports that “Deutsche Bank is shaking to its foundations” and asks “is a new banking crisis around the corner?” DB stock has fallen off its high last July by 50%.

By how much is Deutsch Bank too big to fall? DB’s exposure to derivatives is over 55-trillion euros. That’s five times more than the GDP of the entire Eurozone or three times the amount of debt the United States has accumulated since it was founded. It’s CEO says publicly he’d rather be somewhere else. Looking up at a leaning tower like that, I imagine so.

As DB bleeds red ink from its throat, its cries to the European Central Bank are burbled in blood. DB has warned the central bank that zero-interest-rate policies and quantitative easing are now killing bank stocks, but that didn’t stop giddy ECB president, Murio Draghi, from announcing a lot more easing to come … as much as it takes. As much as it takes to what? Kill all of Europe’s banks now that stimulus is working in reverse with negative interest making new money in reserves expensive to hang on to?

Is the ECB waging war on it major banks, or is it just too dumb to realize that QE is far beyond the high point on the bell curve of diminishing returns to where it is now killing stock values while doing nothing to boost the economy? (Hence, the move to negative interest rates to go to the ultimate extreme of easing because you have to push the accelerator through the floor when returns are diminishing that fast). As ZeroHedge has said, we are now entering a “monetary twilight zone” where …

 

Europe’s largest bank is openly defying central bank policy and demanding an end to easy money. Alas, since tighter monetary policy assures just as much if not more pain, one can’t help but wonder just how the central banks get themselves out of this particular trap they set up for themselves.

 

Credit Suisse reported a loss of 6.4 billion Swiss francs for the fourth quarter of 2015, suffering from its exposure to leveraged loans and bad acquisitions.

 

DoubleLine Capital’s Jeffrey Gundlach said it’s “frightening” to see major financial stocks trading at prices below their financial crisis levels…. “Do you know that Credit Suisse, which is a powerhouse bank, their stock price is lower than it was in the depths of the financial crisis in 2009?” (NewMax)

 

Credit Suisse has announced it will cut 4,000 jobs after posting its first quarterly loss since 2008. The Stoxx Europe 600 Banks Index has also posted its longest string of weekly losses since 2008, having posted six straight weeks of decline. The European Central Bank’s calculus says banks in Europe should be benefiting from QE, but it’s clearly lost all of its mojo or is now  actually more detrimental than good like a megadose of potent medicine. Negative interest rates are particularly taking a toll because banks have to pay interest on their reserves, instead of making interest.

Banks have rapidly become so troubled that NewsMax ran the following headline “Bank Selloffs Replacing Oil Rout as Stock Market Pressure Point.”  In other words, bank stocks are not just falling; they are falling at a rate that is causing fear contagion to other stocks. It’s not easy these days to beat out oil as a cause of further sell-offs in the stock market.

How quickly we moved from a world of commodity collapse to what now appears to be morphing into a banking collapse like we saw in 2008. Financial stocks overall have lost $350 billion just since 2016 began. Volatility in bank shares has spiked to levels not seen since … well, once again, 2008.

Consider how big the derivatives market is — that new investment vehicle that turned into such a pernicious demon in 2007 and 2008 because they are so complicated almost no one understands what they are buying and because they mix a little toxic debt throughout, like reducing the cancer in one part of the body by spreading its cells evenly everywhere. Instead of learning from the first crash into the Great Recession, we have run full speed into expanding this market. Estimates of the value of derivatives in the market range half a quadrillion dollars to one-and-a-half quadrillion dollars (depending on what you count and whether you go by how much was invested into them or their face value). Either way, that’s a behemoth number of derivatives floating around the world, many of them carrying their own little attachment of metastasizing toxins! (That’s, at least, a thousand trillions! More than ten times the entire GDP of the world.)

Still think 2016 isn’t the Year of the Epocalypse? Well, if you do, the rest of the ride will convince you soon enough. If I were the Fed, I’d be really, really worried that my star-spangled recovery plan was starting to look more like Mothra in flames.

 

The oil spillover

 

But don’t think oil is loosing its shine as a market killer. Another bearish prediction by Citi, now that it has change suits, is to expect “Oilmegeddon.” (Hmm, sounds like something that would be found in an epocalypse to me.)

 

“It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks,” the analysts add. “Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon….We should all fear Oilmageddon,” Citi concludes. “Global recession, as we define it, would leave nowhere to hide in equities. Cash wins.” (NewsMax)

 

In the first months of the crush in oil prices, most analysts felt that the only companies that would be seriously hurt would be marginal fracking companies — the speculative little guys jumping into the oil shale. Now that fourth-quarter results are coming in from the world’s largest refineries, we find that isn’t true:

 

British Petroleum kicked off the European oil and gas reporting season with an ugly set of fourth-quarter results. The company reported a sharp drop in earnings for the fourth quarter. It’s own measure of underlying profit dropped 91%.… All of this is a recipe for two things — more cost cutting and more job cuts… What’s worrying for investors is that the first quarter, so far, doesn’t look much better. (MarketWatch)

 

That’s massive. BP has already announced the elimination of 7,000 jobs. Chevron and Shell also saw profit declines. Royal Dutch Shell has announced it will be making 10,000 job cuts.

If that’s how bad things got during the fourth quarter of 2015, imagine how bad they will get this quarter now that oil prices have gone down a lot more. Hence, the talk of “Oilmageddon.”

As if the industry wasn’t already burning up, President Obama is trying to impose a $10 carbon tax on each barrel of oil. At today’s oil prices, that is a 30% tax. At tomorrow’s prices, it may be a 50% tax! One has to wonder how far out of touch economically, a president can get in order to propose a hefty tax like that at a time like this.

Naturally, oil magnate T. Boone Pickens calls it “the dumbest idea ever.” While I have a general hatred for gigantic oil companies, especially since gasoline prices in my area have not dropped much, I have to agree that a $10/barrel carbon tax could cinch the noose around the neck of an already strangle industry.

Maybe that’s the plan. While the tax would hit the end user more, no tax helps an industry thrive.

 

The Epocalypse swallows everything whole

 

The reason the Epocalypse is going to be a far worse bloodbath than the first plunge into the Great Recession is that all of the central banks of the world have, by their own admission now, “exhausted their ammunition” to fight back against another recession. Back at the start of the Fed’s Goliath recovery plan, I posited that we would be falling back into the abyss right at the time when all central banks had exhausted their strength and when all nations had maxed their debt.

Here we are.

Many central banks are already doing negative interest; yet, their economies are still sinking. It appears that more negative interest could actually sink them faster by eroding their banks with internal ulcers. It will certainly require going cashless in order for those banks to start handing the negative interest down to their customers. They have to absorb the cost of negative interest if they cannot loan out their funds fast enough. That’s why some banks are now pleading with their government’s for a cashless solution … so they can prevent their customers from switching to the cash-under-the-mattress exit plan.

The world faces a tsunami of epochal defaults. William White, former economist for the International Bank of Settlements, says,

 

Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief…. It was always dangerous to rely on central banks to sort out a solvency problem … It is a recipe for disorder, and now we are hitting the limit… It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. (The Telegraph)

 

We have finally reached that time in our decades of astronomical debt-based economic expansion where it is time to pay the piper. We travelled blithely along many decades on currency cushions filled with hot air. In an article titled, “Debt, defaults, and devaluations: why this market crash is like nothing we’ve seen before,” The Telegraph says,

 

A pernicious cycle of collapsing commodities, corporate defaults, and currency wars loom over the global economy. Can anything stop it from unravelling…? Commodity prices have crashed by two thirds since their peaks in 2014…. China, the emerging world, and financial markets – are all brewing to create a perfect storm in a global economy that has barely come to terms with the Great Recession…. “We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before.”

 

Yes, this is the big one. The times we now face are the reason I started writing this blog four+ years ago. The Federal Reserve’s Goliath recovery plan was cloned all over the world for seven years, and for seven years all nations have done nothing to rethink their debt-based economic structures that are now cracking and groaning and falling into … the Epocalypse.

 

[amazon_link id=”B00WY4OWL8″ target=”_blank” ]Between Debt and the Devil Adair Turner, the former chairman of Britain’s Financial Services Authority and described by The Economist as a man for all policy crises, upends financial orthodoxy…. He argues that nothing regulators have done thus far has addressed the fundamental underlying cause of financial instability.[/amazon_link]

 

[amazon_enhanced asin=”B009M5TBMW” /][amazon_enhanced asin=”B004EEOJUK” /][amazon_enhanced asin=”B0176UHWH0″ /][amazon_enhanced asin=”B001DEEV6G” /]

[amazon_image id=”B00DMCJOY6″ link=”true” target=”_blank” size=”medium” ]The Death of Money: The Coming Collapse of the International Monetary System[/amazon_image][amazon_image id=”B00E1JO4YO” link=”true” target=”_blank” size=”medium” ]Code Red: How to Protect Your Savings From the Coming Crisis[/amazon_image][amazon_image id=”B00INIXT2M” link=”true” target=”_blank” size=”medium” ]The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis[/amazon_image][amazon_image id=”1501200461″ link=”true” target=”_blank” size=”medium” ]Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown (Third Edition)[/amazon_image]

Stock Market Stupidity Stoops to New Lows as Does Oil

Lot of people riding the stupid train right now. The stock market opened its third week of the year up 150 points on the Dow and, by midday, proceeded to trip all over its feet again. It is getting funny to watch investors continue to bang their bullheaded, brainless, upper-respiratory junction they call a head against the market’s ceiling.

These people must be dumber than eggplants. So, let me have a little fun with a lesson in stupidity here. First, we start with today’s news:

 

Gains for US stocks continued to disappear after Tuesday’s opening surge as a fresh drop in oil prices put fresh pressure on the main indexes…. (MarketWatch)

 

Even though stocks plummeted in the Middle East on Monday when Iran announced it was coming on-line now that sanctions were removed and that it was raising production capacity, stocks in the US went up on Tuesday. Investors didn’t have a chance to bid on Monday because the market was closed for MLK Day. By Tuesday, a tiny spark that said oil prices had nudged up lit fire to a new rally. So, that became reason #1 that the US stock market took off.

It is also proof #1 that storks dancing on a keyboard could produce more intelligent purchases than one finds happening in the US stock market. The big news about Iran was right in front of their faces, and Iran’s oil hasn’t hit the market yet. So, you have to truly be dumber than dirt to think that any uptick in oil prices meant a thing or that it would last more than a few hours. As a result, as oil trickled back down in price, the sludge-brained market rally caved in.

MarketWatch goes on to quote one analyst as saying,

 

The market appears to be moving from a phase of traders “selling on rumor or anticipation of bad news” toward one of “buyers coming in to … scoop up bargains on the actual news.”

 

Bargains? Oh my gosh, the stupid train apparently accelerates into the curves. There are no bargains in an all-out economic collapse until all the unwinding is done. Today’s bargain will overnight become tomorrow’s head shaker: “Can you believe he paid that much for THAT? Guy must be dumber ‘n a fence post.” I might as well tank up on gasoline as “a bargain” at $1.90 per gallon when I know a gas station down the road is at 99 cents per gallon.

Moreover, the market analyst above appears to think that today’s minuscule uptick in crude prices was the “actual news,” whereas the numerous stories that took the market down were just “rumors” of bad news. I think this guy needs solitary time in the Idiot Box. I shall award him my Golden Gobbler Award.

The “actual” and enduring news on oil goes something more like this:

 

  1. Saudi Arabia intends to crush as many US oil companies as it can and is clearly in this for as long as it can endure.
  2. More than forty US oil companies have already gone out of business. Many more are in line to go out quickly.
  3. US banks are already preparing for a lot more junk bond damage from from financing the oil companies the Saudis intend to kill.
  4. Iran intends to crush Saudi Arabia by driving the price of oil down as hard and far as it can in order to bankrupt the Saudis at their own game because it hates them.
  5. Iran has some of the cheapest production on earth so can afford to go lower than anyone.
  6. Iran doesn’t even have to produce the first round of oil. It can flood the markets with oil that is already sitting on ships at sea because it produced that oil while it was under sanctions that kept it from selling.
  7. China created the highest demand for oil, and will not be expanding its now-reduced demand for a long time.

 

And that handful of points is just the beginning of actual bad news for the oil industry. I’ll get into more of it in a minute. So, for the stock market to rise because of some minuscule point rise in the price of crude is akin to thinking Bill Gates gets ecstatic when he discovers a dime under the couch cushion.

 


[amazon_link id=”B004T4KKSA” target=”_blank” ]Daniel Yergin’s Pulitzer Prize–winning account of the epic quest for oil, money and power was deemed “the best history of oil ever written” by Business Week.[/amazon_link]


 

Now on to stupid stroke #2:

 

Tuesday’s anemic rebound in stocks after a brutal two-week start came as analysts said a report on the slowdown of Chinese economic growth … comforted investors who had feared worse.

 

I practically spewed my coffee onto my computer screen when I read that one. Oh my gosh, these people must actually be stoned if they believe statistics put out by the Chinese government and then sigh in relief when the Chinese government tells them what they were hoping to hear! I laughed until the dog came to check me out.

By Tony Webster from Portland, Oregon, United States (Think Less Stupid More) [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia CommonsTheir brains are addled in anesthesia.

Oh, stupidity would seriously hurt if it were not so funny. Who can bemoan the rich losing over a trillion dollars in the last half year when they are this dumb?

I won’t even quote what the Chinese government reported for its GDP. I’d rather hear Justin Bieber’s guesstimate of Chinese GDP than hear what the architects of the world’s most dysfunctional stock market have to say. These are the same failed flops who jailed investors who shorted the falling market, stole the market keys so no one can get inside and trade, and then “fixed” the market by socializing all corporations that were “bargains,” snapping them up with the people’s money and then saying, “Look, the market has been saved!” Saved like a horse that’s just been put down for having a broken leg.

Oh, my goodness, willful blindness is truly astounding to behold. It is a plucked peacock, proudly spreading its tail skin. Today’s market was a display of true desperation, looking for a reason to rise. It is a herd of lemmings running toward the lovely ocean view.

 

Is the real news really bad, or is it really, really bad?

 

I’m just going to lay out the “actual” oily news in bullet points. That way if any of these investors, who have space to rent in their heads, see this article, maybe they can figure things out easier:

 

  • The patriarch of the stock market, Art Cashin, said crude oil prices below $30 per barrel could open a trap door in the floor of the New York Stock Exchange. The price of crude has been below $30 for a few days now.
  • Forty-two US oil companies have already gone bankrupt just since the beginning of 2015.
  • More than 86,000 jobs were cut due to shutdowns of oil companies in the midwest by the time oil hit $47/barrel! By the end of 2015, that number had risen to 130,000 lost jobs.
  • Home foreclosures have already begun to spike in Texas, Oklahoma, and North Dakota.
  • Wells Fargo has $17 billion at risk in gas and oil financing, and has just budgeted $1.2 billion to cover the losses it anticipates this year alone.
  • JP Morgan has budgeted $124 million to cover this year’s anticipated losses in the oil patch but anticipates raising that to three-quarters of a billion if the price of oil stays under $30/barrel for a long time. Jamie Dimon, JP’s head, says he’d reserve for greater losses if accounting rules allowed it.
  • Citigroup has set aside $300 million to cover this year’s losses due to oil financing. If oil stays at $30 or less, they expect their losses to be double that much. If it drops to $25, they said they will double that set-aside again to $1.2 billion.
  • And those set-asides are just for the junk bonds. They do not account for the rise in home foreclosures due to growing unemployment in those areas or the failure of other businesses that support the oil industry that have bank loans (like restaurants in ghost towns).
  • All of these banks have a huge reason to understate their assumed possible losses as much as they legally can since their stocks are already sliding downhill.
  • Then there is the unreported exposure of foreign banks.
  • Standard & Poors estimates 50% of energy junk bonds are “distressed.”
  • Some people are already calling for a national bailout of the oil industry because this problem will take us back to dependence on OPEC. (Didn’t I tell you we’d going another round with cries for bailouts this year? I didn’t think we’d get there this soon, though.)
  • Iran will be adding 500,000 barrels of oil per day right away and promises to get this number boosted to 1.5 million barrels of additional oil a day by the end of the year.
  • In 2015, the Oklahoma Supreme Court made oil companies legally responsible for earthquake damages caused by injecting disposal wells with fracking waste water, and the USGS determined with certainty that this practice was causing a huge upsurge in Oklahoma earthquakes. Fracking is being slowed down by government regulation due to these concerns, and a new source of costs is hitting oil companies due to the liabilities at a time when they are already crippled.
  • Oil dropped in price rapidly as oil storage tanks and vessels filled up. It’s likely to fall even faster when all storage is completely full, and Saudis and Iranians continue to try to pump and sell as much oil as the can.
  • Several banks are projecting the price will drop to around $20 per barrel. Meanwhile British bank Standard Chartered doesn’t see any of those rumors as dark enough and is projecting $10 per barrel.

 

You have to be dumber than sea scum to see all of that and still get frothed up enough to bid up stock prices because oil went up five cents a barrel.

 

It’s almost enough to make the neocons take the US to war in the Middle East to see if they can cut off a few supply lines. That would be a first — the US government fighting to get the supply of oil lower and the price of oil up?

 

By Michiel from Amsterdam, The Netherlands (Be stupid @ Amsterdam) [Public domain or CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

 

[amazon_enhanced asin=”0143112260″ /][amazon_enhanced asin=”1439155186″ /][amazon_enhanced asin=”1591847095″ /][amazon_enhanced asin=”0807081418″ /][amazon_enhanced asin=”1626527067″ /]

The Epocalypse Spreads its Gaping Jaws and Smiles

If it weren’t so serious for the world, it would have been funny to watch on Thursday as the stock buy zolt ambien online market rose sharply upon news that oil prices were rising. Robotraders with silicone brains, I thought. Do people really believe today’s rise in the price of oil means anything? There must be a built-in desperation to the robotraders’ algorithms — that would cause them to so desperately bid the market up on such a meaningless hint of good news.

I don’t know if it is the bots — designed with their creators’ imperfections built in — or human buyers who are so desperate that they actually priced oi-company stocks up because of an increase in oil prices that everyone knew wouldn’t last a week.

We all know that Iran is going to immediately flood the markets with even more oil, driving the price back down. So, in anticipation of that day, oil prices and stocks went into convulsions the next day (Friday) and fell of a cliff. I half smiled at how quickly it went down as I drank my morning coffee and read the news on the west coast of the Dow already being down 300 points. The robo-rally didn’t even last a day!

 

From robotraders to old-time traders, the stock market crash is fully underway

 

The legendary Art Cashin, director of NYSE floor operations for Switzerland’s largest bank (UBS), has said that, if oil dropped below $30 a barrel, it would likely have a trap-door effect on the stock market. Well, oil just broke below that; so Friday’s plunge may have been that door opening … if Cashin is right, and Cashin has watched over the NYSE like he is the father of the exchange. After fifty-plus years on the exchange floor, Cashin has pretty much seen everything the market can go through. He knows a worried market, and he says this market is deeply concerned:

 

This market shows no robustness. The people who sell mutual fund would give their right arm to get an up year [in 2015] so the advertising would say “S&P up for x number of years in a row….” With all that power — and they were actually in plus territory with two days to go in the year — the markets abated. So, that tells me that there is some kind of a latent negative built into the marketplace that will not carry it much higher…. You have a fairly distorted market here that can cause a great many surprises…. History tells me that it shouldn’t be two down years in a row, but looking at the geopolitical risks that I see out there, and looking at the sputtering of the global economy … we should keep the caution flags flying and be very careful.  (Art Cashin on King World News)

 

China’s central bank acknowledged that it pumped $15 billion into its stock market on Friday to slow its continuous crash. Yet, the Chinese stock market still ended the day down another 3.5%. Nevertheless, every week, some blathering TV economist with a pimple for a brain tells his audience that China has taken the aggressive action needed in order to end its train wreck.

At one point in the day, Friday, the Dow had fallen more than 500 points (2.4%). It eventually ended the day down 391 points. The S&P 500 broke below its Aug. 24 low; several market analysts have said this would constitute a major sell signal if it happened. That would be its lowest level since October 2014, which was the last market plunge I predicted (until the present time).

Traditional safe-haven investments went up: the price of government bonds jumped, and gold rose 1.6%. Futures for the market, on the other hand, went even lower than the market’s closing, which hints at more trouble on Tuesday when the US stock market re-opens after a holiday.

The human traders described sentiment as the “worst in months.” One financial advisor said he received more phone calls from nervous clients than he has ever received. He, of course, tried to cheer his clients up by writing the day off as just a little bad news from China — good feelings being more important than wise caution. If his clients had two firing brain cells that should have been all they needed to hear in order to find another broker. Nothing against blind folks, but never stay in a taxi after you learn the driver is blind, even if he does turn around and smile reassuringly.

Just a little bad news from China?

  • Surprise, surprise, oil wasn’t up to stay. It dropped below $30/barrel — Art Cashin’s danger point — settling at its lowest price in thirteen years. Thus, Thursday’s rise on good oil news turned immediately into Friday’s falling tide upon bad oil news — a current that took most stocks down with it. (Gee, and it was just going up.)
  • Surprise, surprise, China crashed to its lowest point in a year even with $15 billion dollars of instabank propping. (Who could have seen that coming? Well, maybe readers of this blog.)
  • Surprise, surprise, retail sales in the US turned out to have declined in December after all. (Hold it! In December? The one month in which retailers make all their profit for the year, having spent eleven months covering all their expenses?)
  • Surprise, surprise, corporations started reporting lower profits, including particularly big banks and the top-ten stocks that kept the market alive in 2015.
  • European stocks (Stoxx Europe 600) dropped 2.8%.

So much bad news in a single day? If not Black Friday, it was certainly Ugly Friday. Who would have thought? (Maybe readers of this blog?)

“Just a little overreaction due to some temporary bad news from China,” said the blind cabbie, as he unwittingly extinguished his cigarette in his Crown Royal, instead of the ash tray, and then took another drink.

These market bulls have been breathing the rarified air at the top of their skyscrapers for too long, and their brains are turning blue. When are they going to stop believing that bad news from China is over and that China has solved its problems? When are they going to stop pretending that China’s demand will return anytime short of another five years? When are they going to stop pretending that the United States is immune to China and all the rest of the world? When will they stop kidding themselves that Saudi Arabia is going to blink before crushing some American oil companies out of existence?

Ah well, they’re called “bulls” because they’re bull-headed, certainly not because they’re smart. To wit, I present the following evidence:

 

“While we expected to have more volatility in 2016, I certainly did not expect the year to start with this big of a downdraft,” said Kate Warne, investment strategist at retail brokerage Edward Jones. (WSJ)

 

Obviously, she doesn’t believe the right blogs, or she’d be better informed. She would have known that every bit of this was going to happen, and that it isn’t going away anytime soon. People hear what they want to believe in and tune the rest out. Anyone who approaches them with reality is just a worry monger or is “predicting the unpredictable,” never mind that people like Kate are always predicting the future themselves, forecasting an eternal bull market for their clients to buy into. Ah well, you can’t save stupid. Not when it is bullheadedly stupid.

 

“When stocks start dropping, investor fears increase, which leads to more drops in the short term.”

 

Ah, see. Bad as the market has become and rapidly as it is gaining speed on its way down, it is only falling into a “short-term” gully, not a canyon. Poor Krazy Kate. Even poorer customers of Kate, for that is what they will become — poor.

Here’s another dim candle, trying desperately to hold its light in the wind:

 

We’re hitting a meaningful inflection point in the market. When you see this type of activity — big 2 percent moves up, 2 percent moves down — you see this type of volatility at market inflection points,” he said. “If that’s the case, you have to ask yourself if this is a point where you sell everything, or is this a point where you buy. With how much this market has fallen…a level-headed person is going to conclude the latter.” (CNBC)

 

Obviously this man hasn’t recovered from his recent brain injury when he bounced his head off the market’s ceiling several times last fall. He actually thinks the level-headed person would leap with both feet in a crashing market during the onset of global economic collapse. In other words, a level-headed person, when he or she hears the sucking sound of the whirlpool start to really roar, will go for a swim.

Such lack of imagination for the trouble that lies ahead. He’s right in knowing major volatility where the market spasms up 2% and then down 2% indicates an infection point. What he cannot imagine is that the inflection is to turn down at an even faster pace.

Listen as the following dingleberry says Friday’s vortex was just a “sentiment driven reaction” because the “fundamentals still remain extremely strong in the United States.” (as if mountains of debt, crashing oil prices, failing oil bonds, a highly overpriced currency related to others, a manufacturing industry that is solidly in recession for several months now and a decline in transportation business — just to tick off a couple of items — is “fundamentally extremely strong.”)

 

https://video.cnbc.com/gallery/?video=3000481255

 

You can’t even make up this kind of sad entertainment. What can you do but pull up a lawn chair and watch the running of the bulls? You’re not going to talk them out of it. They are headstrong and determined to run off a cliff.

 

The machines took over the world

 

In days of old, a Wall Street blowout like Friday’s would have featured harried traders shouting out sell orders on exchange floors, trying to limit their losses as the market crumbled.

The new market age is decidedly different: Rather than that seething cacophony, aggressive corrections like the current ones are directed by a faceless metronome of computer-generated orders, triggering irresistible momentum and trillions in losses….

It’s no secret that humans are having increasingly less influence on the markets generally. But traders feel the machines are having an outsized influence during the most recent slide, which has sent the major U.S. averages into correction territory. (CNBC)

 

Wow! Who saw that coming?

 

Can anyone be certain that some algorithm that is making auto-stock decisions for investors while they sleep won’t misfire now that the market is running in reverse where there are no more Fed puts? Most of the toddlers who created today’s robotrading applications never knew the real world where money wasn’t free. Will all their clients wake up some morning to find a soft-coded circuit breaker failed to trip, and the computers of the world got into a bidding war and priced all stocks down to zero? You think I’m kidding? (Oh, gee, that would be me in my “2016 Economic Predictions” a week ago.)

 

Imagine that! The robots are taking over?

Yeah, well who created the robots and decided to let them do all the trading on autopilot? Someone must be selling stupidity in bulk now, and investors are stocking up. They’re going to blame the machines they made for troubles in the market they put them in charge of, even when they were dumb enough to know such problems might exist yet sat there and watched the machines whir and click away and exaggerate the market’s gyrations.

 

Why this crash was predictable as programmed

 

I first predicted an autumn stock market crash and global economic collapse in the spring of 2015. It’s important to remember that, at that time, the stock market was going up and up; jobs were going up and up; and all the respected “experts” were saying 2015 was going to be the year when the Federal Reserve’s recovery finally gained traction and took off. It was champagne time on Wall Street. Goldman Sachs and all the big boys reveled in how the economy was picking up velocity and about how the year would end nicely positive. (You know, that year they ALL now call a “horrible year for stocks.”)

By summer, the stock market reached historic new highs, but I stayed steadfastly with predicting it would start its fall in the final quarter of the year. “Nope,” I said, against all their odds, “We’ll be entering a global economic collapse in the fall, and the US stock market will begin its trip over the cliff.” Crash. Boom. Bash. Here we are.

Since those distant summer days when the US stock market peaked, the market has erased $2.3 trillion! Think of how much money that is. That’s enough to give $7,000 to every person in the United States, and half of that evaporated in the last two weeks! USA Today calls that a market crash. And …

 

The Standard & Poor’s 500-stock index … is now down … nearly 12 percent below its benchmark high reached last year…. “Technically we are in a bear market,” said Laurence D. Fink, the chief executive of BlackRock, the world’s largest money management company…. The Russell 2,000, a measure of small-cap stocks, is actually down 23 percent from its peak…. The debate now is whether the steep drops in the markets are an indication that the United States economy is falling into a trough that the country’s economic policy makers have not anticipated. (The New York Times)

 

So, the number of impartial judges that say I won my bet and that my blog is safe steadily increases by the day. And we haven’t seen anything yet. Wait until there is more than emotional contagion between the Chinese stock market and the US. Wait until the first major US corporation goes down because it was heavily invested in China or Brazil or some other part of the world that is crashing far faster than the US.

It is inevitable that will happen! Wait until corporations that are suffering from crashing global ties are hit with the newly rising interest rates and the now-universal falling of stock prices. (Throughout world markets and broadly across all shares, it’s been the worst start of a year since the Great Depression. So, I think we can say this is a significant crash!)

Look at the inevitability in another common-sense way: since the stock market was going down for the entire last half of 2015 while zero interest was fully available, how much faster will it go down with zero interest stripped away? While zero interest was no longer capable of inflating the market, it was, at least, slowing the fall. (It was still heating the air in the balloon enough to keep it from deflating quickly.) If zero-interest still had any effect at all, then the market is going to be worse than it was at the end of 2015 now that zero-interest is gone; and if zero interest had no effect left, then there is nothing in the Fed’s satchel that can save the market from this fall.

Over the past eight years, I’m four-for-four on my predictions of when the economy would turn down and the stock market would dive. I’m not going to keep blowing that horn, as it has got to be getting obnoxious; but I want to make sure it is absolutely clear that this demise has been predictable throughout the entire recovery period. I want to make sure of that because I want no one to be able to escape blame by claiming “No one could have seen this coming.”

Yes, someone could. Someone did. (And I, of course, am not the only someone.)

This market’s major inflection points have all been predictable and have happened when predicted. But to see it, you have to be willing to cast aside blind and baseless optimism and look reality in the eyes. It is important to underscore that because, unless the majority of people take out their rose-colored contacts, there is no hope of recovery … ever. Follow the Fed and you’re dead.

It was, for example, predictable that the Federal Reserve would raise rates at the worst possible timing in December because 1) The Fed has a pattern of raising rates with the worst timing; 2) the economic gauges it chooses to go by are trailing indicators, not leading indicators, so it never sees these things coming; 3) it believes in its unsustainable stimulus program and in its recovery; and 4) it desperately needed to prove, after all of its scary talk throughout 2015 of raising rates imminently, that it actually could and would do so; or it would lose a lot of credibility; 5) Fed officials were dying for victory day when they could proudly announce as an established fact, “Our program was a success. The recovery is real and it is stable. Break out the champagne.”

It was equally predictable that the stock market would crash as soon as the Fed did raise rates for the simple reason that the stock market is nothing but a hugely inflated asset balloon created by the Fed’s stimulus. So, end stimulus, end hot air, balloon falls. Just logical conclusions. No fancy math or charts. (Nothing against those things, but you could see this just by looking at the big picture.)

Even if the Fed didn’t raise rates, it was clear that the law of diminishing returns was now the prevalent force because the market was rounding more and more downward, even with zero-interest fully engaged. Zero interest stopped lifting the market in the summer; after which, it was barely able to slow the market’s rate of descent.

It was less predictable that the stock market would crash by going up, but that prediction was based on the years of fear that had been building over what would happen when the Fed raised interest and knowledge that there would be a brief lag between the Fed’s decision and an actual change in interest rates. There would also likely be a lag between the time when bad news started being seen as bad news again and the first real bad news to hit. During that momentary lag, the bulls would all look around and exude, “See, we said nothing would happen!” They’d go wild with joy and stage their last hurrah because the miserable bears were all wrong.

Party’s over.

And what is the underlying reason that all of this was so predictable? Simple: the laws of economics (Econ. 101, the limit of my formal education in economics). We were living in a law-defying Federal Fantasy in which we tried to create wealth by forever expanding debt. The Law of Diminishing Returns said we would have to keep increasing the rate of debt expansion just to maintain the same growth rate. Eventually that non-sustainable stimulus-driven economy dies of its own debt weight (where returns on stimulus become zero), or the stimulus is terminated because the amount required to get the same effect is more than we can muster. The longer we spent in a fantasy universe, the harder re-entry to Planet Earth was going to be; but here we are.

2016 is the year we get to see how stupid the Fed heads really are. We all get to see how Ben Burn-the-Banky saved us with the courage to lead and then bravely turned the wheel of the ship over to Janet Yellin as he fled to his lifeboat and shoved off to that glorious island in the storm from which he wrote his book about how brave and wise he was. What we are about to see is how the only wise thing he did — though far from brave — was abandoning ship.

To those who bullheadedly stay with saying, you cannot predict the future, I say, “Really? The back half of my ship was just blown off with a torpedo, and I know that none of the sealable bulkheads are working right now. I predict the ship is going to sink. If you want to stay in it, you’re welcome to. The cafeteria for your last meal is right over there.”

Some things are predictable by physical law (or economic law) once you know the overwhelming forces that are in play. There are many variables that might try to save my ship with the back blown completely off, but none that are strong enough to do the job. I can safely predict its going to sink and give a pretty good estimate of how long that will take.

 


[amazon_link id=”1591846706″ target=”_blank” ]Read James Rickards, The Death of Money. “The coming collapse of the dollar and the international monetary system is entirely foreseeable. . . . Only nations and individuals who make provision today will survive the maelstrom to come.”[/amazon_link]


 

Down, down, down

 

The biggest wealth destroyers during the time of our sinking have been the high-tech companies — Apple, Amazon, Google, Microsoft and Oracle along with Warren Buffet’s company, Berkshire Hathaway. Those are the stocks where the double-digit billions have been lost, and those are the very companies that were keeping the wounded market above water all through 2015. So, the floats, themselves, are sinking.

The biggest ships in the banking sea are slipping into the vortex — JP Morgan, Bank of America, Citigroup and Wells Fargo, all lead the retreat.

So, I say sarcastically to people like President Obama, who claim the US economy is strong, “Sure, there’s no recession in sight! Just don’t look down into this yawning abyss that already has you in its jaws”:

The worst start to a year in stock market history, just added another week’s plunge. Remember, as goes January, so goes the year, according to proverbial stock market wisdom. Half of January is behind us today, and the downward momentum seems to be building as futures-trading points down for the opening of the second half of the month.

Look at the news when we left off: How about those retail sales? How bad was the holiday season? I’ve already written that the Santa Claus Rally never happened because his evil alter ego, Santa Claws, took over. Friday, however, we got to look at actual December retail data:

Worse than dismal. Sales growth was the lowest it has been since 2009 in the belly of the Great Recession. Bear in mind that population grows every year, especially with so much immigration, so sales should grow even if no one is buying more stuff just because there are so many more people. This year, growth was down to 2.2%. That barely matches population growth, and doesn’t adjust for inflation. Factor in how much sales, measured in total dollars, were up just because of price inflation, and you realize this was close to 0% real growth. Then factor in that the details show that nearly all the growth that did happen was in car sales. Take out car sales, and retail sales actually shrank for the year if you adjust for inflated prices. That’s the first actual recession in sales since 2009.

To make it worse, it was the final months of the year that pulled the annual average down that far, and those are the months that are supposed to be the best! Wasn’t it less than two months ago that everyone in the media was saying consumer confidence was strong and sales in November were up? Oops. Something slipped.

 

Sales at U.S. retailers declined in December to wrap the weakest year since 2009, raising concern about the momentum in consumer spending heading into 2016. (Bloomberg)

 

If you step back a little, you see in the graph Bloomberg provides that retail sales growth actually hit its peak in 2001, and has been pretty much slacking off ever since with just a minor uptick in 2014. I don’t recall anyone mentioning that. It’s all been “recovery, recovery, recovery” and “growing consumer confidence.” But that’s the Law of Diminishing Returns in action. With stimulus full on, each year’s growth was less than the year’s before.

I told you the holiday shopping season looked like it was going to be a bust this year, and here’s how it came out now that the data is in:

 

“There isn’t anything encouraging in this report,” said Thomas Simons, a money-market economist at Jefferies Group LLC in New York. “It’s very disappointing. The labor market is in good shape, which suggests the outlook is probably better than this.”

 

Way to put some positive spin on it at the end there, Tom; but wait until you get next week’s unemployment stats and this month’s new jobs statistics. Of course, the Bureau of Lying Statistics may cook up numbers as much as they did last week with the new jobs report. In last week’s report, they claimed 292,000 jobs were added to the economy in December. It turned out, according to David Stockman, that only 11,000 of those were actual jobs. The rest were the BLS’s “seasonal adjustment.”

Hmm. Isn’t December the time of year when more people are hired as seasonal help? So, why would you have to adjust the actual number of newly employed upward? Wouldn’t you want to reduce the actual number by the assumed seasonal hires in order to report only lasting job gains? The seasonal jobs are just fluffy down that blows away in January. I’ll bet they will beef up the number for January on the basis that people were seasonally laid off, even after beefing up the number in December when people were seasonally laid on.

Ah, but you see, it was really more about the climate this year. You know how new jobs grind down when it’s snowy. So, you adjust the actual new jobs reported to say, “Here is what the number would have likely been if the snow hadn’t held back construction.”

Hmm. Wasn’t this December unseasonably warm? Last year, we were told jobs were weak due to severely cold weather. So, why did the BLS make the same upward seasonal adjustment this year? The BLS had to adjust real jobs up by 281,000 due to all that 70-degree weather? I guess they must have figured construction companies didn’t want to hire because the weather was too pleasant. They would have hired more than the actual 11,000, except that all the construction managers wanted to take some vacation time to enjoy the sun. So, better adjust the real number up to what it would have been if the weather were not so stinkin’ enjoyable for the most populated part of the US. (You have to wonder what the perfect job weather actually is where no adjustment is required.)

This year the balmy weather on the east coast was also blamed for the particularly bad shopping season: “Warmer than usual weather last month probably curtailed purchases.” Yeah, who likes to go shopping when the weather is perfect? O.K., the theory was that sunshine shoppers didn’t buy as many mittens and coats. However, whenever the weather has been freezing cold during this great recession, the theory has been that shoppers were not out buying mittens and coats because they didn’t want to brave the icy roads.

I don’t know about you, but I’m getting tired of years of seasonal adjustments that always seem to make the picture look brighter. You kind of get the feeling someone is screwin’ with the picture.

 

Back in the belly of the beast

 

Ah well, we may be finicky, but at least our credit is still good.

Right?

Well…. Standard & Poors just came out with their new corporate credit ratings:

 

Corporate issuer ratings globally are at their highest negative level since 2009.

Standard & Poor’s Ratings Services has the most number of ratings on negative outlooks relative to positive ones at Dec. 31, 2015, since June 2010.

The net outlook bias deteriorated to a negative 11% at Dec. 31, 2015, four percentage points down from six months previously. This constitutes the worst half-year change in the net outlook bias since the 2008-2009 global financial crisis. (Wolf Street)

 

The drop in corporate credit ratings now that corporations have taken out massive debt to fund all their share buybacks comes at the same time that corporate earnings are declining (for the third quarter in a row):

 

Profits are expected to have dropped by 7.2 percent in the fourth quarter on a share-weighted basis, according to data compiled by Bloomberg, while revenues are expected to have fallen by 3.1 percent. This would represent the worst earnings season since the third quarter of 2009. (Newmax)

 

There is that “worse since the Great Recession” thing again. Seems to be popping up in every perspective of the US economy. Kind of sounds like we are returning to the belly of the Great Recession.

There must be something that is making it so that “fundamentals still remain extremely strong in the United States.” Wish I knew what. As of this week (depending on which index you use), stocks have suffered two 10% corrections in a few months time. The only other times that has happened have been 1929, 2000 and 2008.

Oh, oh.

I’ve already reported that US manufacturing has been in a recession for some time, but look at how much worse that recession has gotten, as described in the Empire State Manufacturing Survey:

 

The contraction in factory activity in the New York manufacturing region, which began way back in August, unfortunately is picking up a lot of steam this month, at minus 19.37 for the January headline which is the lowest reading since April 2009. New orders, at minus 23.54, are contracting for an eighth straight month and at the sharpest pace since March 2009. Unfilled orders, at minus 11.00, are in an even deeper string of contraction. Employment, at minus 13.00, is down for a sixth straight month as is the workweek, at minus 6.00. And there’s a crumbling going on in the 6-month outlook which, at 9.51 is still in the positive column but shows the least optimism since way back in March 2009. (Econoday)

 

Worst “since 2009” is everywhere! Isn’t that where I have been saying throughout all of the years of this blog we’d wind up? “Take away all the artificial supports, and we’ll sink right back into the belly of the Great Recession.” Ta da, Here we are!

If you add in non-manufacturing industries, such as oil, gas, mining and utilities, the picture looks like industry has fallen off a cliff:

 

IndusrialProduction

 

President Obama sounded quite upbeat though:

 

Our concern is that things will only get worse (effects of commodity super-cycle, bankruptcies, debt defaults, hedge fund redemption/failures, global economic slowdown, equity weakness, global debt deleveraging, etc, etc) before they get better.” (Oh wait, that was Treasury strategist Marty Mitchell, Zero Hedge)

 

Guess the Treasury analysts aren’t as perky as the president. Ah well, that Marty is probably a permabear anyway.

Let’s see what the perspective looks like from further back … like overseas, as seen by the head of one of London’s largest banks:

 

Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.” (Contra Corner)

 

Oh, my gosh. You can’t get away from that 2009!

Yeah, but he’s a known permabear, too … and a banker! What’s he know? He probably punches little kids in the face, has pickle breath and a perpetual British-butler scowl. Are you going to believe a guy like that or the president of the United States?

So, here’s the president’s quote from last week:

 

“The United States of America, right now, has the strongest, most durable economy in the world!”

 

That’s great! Well, until you consider what a pile of junk the rest of the world is looking like right now. Then it’s like bragging we’re the best-smelling corpse in the morgue.

If things are as rosy smelling as President Obama described the state of this grand union to be, why is the nation’s biggest superstore, Walmart, that rich Titan of cheap retail, closing down 269 of its stores (154 of which are in the US) and laying off 16,000 employees? And, if retail is that bad, what’s all this talk about consumer confidence? Are you going to judge consumers by their words in a survey or by their actions? For me, it will be the latter.

Still think the stock market isn’t crashing and that were not entering a global economic collapse? Well, we’ve got another week of news ahead before this turns out to be the worst January in history. So, maybe the bad news will turn around.

 

What does the belly of the Great Recession look like?

 

Into the gaping jaws of the Epocalypse we go, and as we are sliding back down into the belly of the Great Recession, consider how massive Fed money printing and low interest barely arrested that fall last time around. How much deeper does the belly get when we return to it without that stimulus available anymore and with now four times the national debt weighing us down?

Consider, also, that the United States was pretty much down in the belly of the whale by itself back in 2009. The rest of the world entered it after we got the recession started on their behalf. So, what will it be like now that everyone is down in the same abyss, trying to crawl over the top of each other to get out?

I said back then that forestalling the needed corrections, including price deflation, and piling up debts to buy our way out of the hole that debt created would only make the pain so much worse when that unsustainable anesthesia finally ran out. Well, here we are, and this time with no China to help pull us through and a Federal Reserve that has pretty much exhausted its reserve capacity. Even a Fed official said the Fed is “out of ammunition.”

And that’s why I call this second dip of the Great Recession “the Epocalypse.”

 

[amazon_enhanced asin=”B00V2YQMOQ” /][amazon_enhanced asin=”1591845564″ /][amazon_enhanced asin=”B014VQGN68″ /][amazon_enhanced asin=”1492373990″ /][amazon_enhanced asin=”1494961954″ /]

Oklahoma Earthquakes Shake Up Scientists, Rattle Politicians

Oklahoma earthquakes have shoved California out of first-place as the most seismically active state in the union. In fact, Oklahoma has become more seismically active than all lower forty-eight states combined. It is now one of the most active regions in the world, and the danger, according to the USGS, is greater than you think.

Read the remainder of this entry »

2016 Economic Predictions: Year of the Epocalypse

An economic apocalypse upon us. My 2016 economic predictions provide the full explanation as to why 2016 will be the year of the Epocalypse — a word that encompasses the roots “economic, epoch, collapse” and “apocalypse.” I needed a word big enough to describe all that is about to befall the world in 2016. When you see the towering forces that are prevailing against failing global economic architecture and the pit of debt beneath that structure, as laid out here, I think you’ll recognize that the Epocalypse is here, and it is everywhere. The Great Collapse has already begun.

What follows are the megatrends that will increasingly gang up in the first part of 2016 to stomp the deeply flawed global economy down into its own hole of debt. The economic collapse that is already developing includes the US economy and the US stock market that is now collapsing from the external forces and internal vacuum that I’ve been writing about for a few years here.

 

Nations deep in the hole

 

Fire in the hole. Brazil is already burning and has been declared by Bank of America and others to be in a recession deeper than the Great Depression — its worst since 1901. Brazil is struggling to combat runaway inflation at the same time. That’s is an impossible combination to battle.

It ain’t Zimbabwe yet, but it’s looking like a place where Mugabe might want to run for president. Only a couple of years ago, Brazil was a nation of rising glory — the shining light of South America, one of the brightest of emerging markets. Now, as the US starts raising interest, its problems will grow worse as its debt, in a time of deep national crisis, is made impossible to manage.

Japan, Canada, Australia, Venezuela, Russia, Ukraine, Brazil and Greece are just some of the nations officially in recession during 2015. The planet as a whole is in recession, meaning aggregate growth in GDP of all nations, if measured in dollars, has been in reverse for more than two quarters. And the head of the International Monetary Fund predicts that global “growth” will be worse in 2016 than it was in 2015, and 2015 looked pathetic!

Christine Lagarde, leader of the IMF, said higher interest rates on national debts owed to institutions in the US will increase vulnerability worldwide. It’s long been said that, “As goes the US economy, so goes the world;” but it is equally true to say, “As goes the global economy, so goes the US.” In other words, the US economy is so big and influential that this single economy can move the world (and almost always does); but the global economy is even bigger and, so, can and will move the US. That’s why my 2016 economic predictions state this is the year the world moves the US. Rapidly failing, intertwined global economies are falling into their own holes of debt, and the US is certainly going to get swept down all of that. Recent interactions between China’s small stock market and the huge US stock market show the US is clearly not immune.

The Federal Reserve’s rate increase is also generally expected to strengthen the dollar (though that is not certain as the dollar’s strength depends on other factors, too). If so, dollar-denominated debt in other nations gets a double whammy of higher interest and higher premiums on currency conversion to make the payments. Lagarde doesn’t see things as looking better after 2016 either due to aging demographics as baby boomers move into retirement and slow down a little. (A good time to invest in artificial hips and knees.) So, there are many reasons global economic collapse is a trend that will prevail throughout 2016.

It’s already lining up poorly for the US. Both UBS and the Atlanta Fed have placed US GDP growth for 2016 at a likely 0.5%. Dutch Bank cut their predictions of US growth to 0.5% as well. The big boys are rapidly cutting back their expectations. While I think they are wrong because the truth will be much worse, 0.5% is still a cloudy forecast for those particular institutions that are typically very conservative in their downgrades.

These institutions have typically overestimated national growth. They started with 2016 expectations that were over 2%, which they cut back to 1.5%, which they, then, cut back to 1%  and now 0.5%, all in less time than a year. Their track record says they always overestimate. I form my 2016 economic predictions based on the many trends that will be affecting future data. Thus, you might say the Federal Reserve Bank of Atlanta is a trailing economic indicator.

I believe that, as data for the last quarter of 2015 comes in, these institutions will be revising their projections for 2016 down even further, just as they did throughout 2015. That said, their figures are already borderline recession numbers.

I think the US may already be in recession, given that recessions are never declared until six months after they begin (being officially defined by two successive quarters of contraction in GDP). The biggest of my 2016 economic predictions, however, is that the US experiences something far worse than what we normally think of as a “recession.” Hence, coining the word “epocalypse” to refer to the crash that is just getting started — an economic demolition that will cause the whole world to rebuild its economic structures. This is truly epoch in the sense that it is an extinction-level event economically that will open the world to transition to a new global economy over time. The world you live in is about to change.

 

Another basis for my 2016 economic predictions is the China Syndrome

 

We are seeing it now. Even if China does not meltdown, it is certain beyond anyone’s reasonable doubt that China will slow more in 2016. Even China predicts its economy will slow more, and 2015 was already China’s slowest year in fifteen years. We already know what that slowing caused; so, it doesn’t take any brain wizardry to extrapolate what further slowing in China adds to the global problems just laid out above. Since major companies started going out of business or defaulting in 2015, more that are badly weakened from 2015 will fail to make it through 2016, and nations that have lost in selling resources will lose even more. So, the second of my 2016 economic predictions is that their situations will all get harder, not better.

China’s stock market has a lot more crashing to do, as well. Consider that China has frozen its stock market in suspension for half a year now. Meanwhile, its companies are doing worse, and its economy has slowed a little more. That means the ground has moved out from under the suspended market. The economic landscape is now pretty far below where the market remains suspended. So, Beijing is stuck. If it releases the market to be free again, it will certainly crash just to make contact with reality below.

As I finish up these predictions, the Chinese stock-market crash appears to have abated; but look deeper. Articles are already appearing that say stock prices were supported after a Chinese change in strategy via huge purchases of stock by the Chinese government. The flip side to that kind of rescue is that it simply means the free market is being re-absorbed into the Chinese colossus. Private industry is, again, being socialized.

 


[amazon_link id=”B00ZAKBDBA” target=”_blank” ]The world’s second largest economy is on the edge of a great transformation… or an epic disaster. It has enormous implications for the global economy either way.  This book will help you consider China’s future from a variety of perspectives. Most important, you’ll learn what China’s changes means for your portfolio.[/amazon_link]


 

The oil pit

 

Tom Kloza, founder and head of Oil Price Information Service, predicted oil prices in 2015 more accurately than anyone, and his predictions for oil prices in 2016 are even more dour. So, the next major trend that my 2016 economic predictions encompasses, as a force that is changing global economics is the continued, long-term crash of oil. (Not just based on Khoza, but on many others, as well as my own sense of what has to happen in oil.)

Kloza, to stay with the guy who did the best in 2015, predicts West Texas Intermediate will drop all the way to $32 per barrel, and it looks like he’s just about already right. Kloza predicted oil would drop to $35 in 2015, and it did. I said it would drop to $40 and not lower, which it did and held there for a couple of months (so that was a very close call), but eventually it went down further. I was overly optimistic. Kloza expects oil to go back to where it was in 2008.

To make matters worse, Kloza expects a decoupling of oil and gasoline prices with gas starting to rise due to storage expenses. That means both the oil industry (and all of its backers and suppliers) and consumers lose. So, that’s worse than last year. He doesn’t expect oil to stay down all year, however; but it will certainly deepen the wreckage in the first half of 2016.

My own sense of it is this: With oil storage facilities full to the brim around the world and a promised glut from the Saudis to continue all of next year and Iran possibly coming back online, oil is almost certain to go down more. US companies are already being crushed at the present level. Saudi Arabia has strengthened its ability to hold its position by drastically altering its national budget and implementing new taxes to replace lost oil revenues. That says for certain they plan to be in this fight for the long haul.

Moreover, Iranian oil is the cheapest oil to extract in the world; so, if they get back into the market, they can try to hurt the Saudis more with even lower prices and still make a profit. Iran and Saudi Arabia, two of the world’s largest oil producers are now practically at war with each other (see that trend below). The US government is determined to see its deal with Iran go through, so we can be fairly certain Iran will re-enter the oil market early this year.

Saudi Arabia has used oil to keep its populace at peace by not taxing them. Iran will use that leverage against Saudi Arabia by dumping as much cheap oil on the market as it can pump in order to press the Saudis to raise taxes more as they lose more money, thus destabilizing the Saudi government. The Obama administration has already shown itself to be completely non-supporting of the Saudis as an old US ally and to prefer to form a new alliance with Iran. So, there is nothing to stand in Iran’s way, and Iran is dying to pump and sell oil anyway.

To show you how rapidly the oil market is deteriorating, prices were close to $35/barrel for West Texas Intermediate crude oil when I started working on my 2016 economic predictions, and they almost touched Khoza’s $32 as I finished this up … and Iran hasn’t even entered the market yet. All of the trends in oil are worse for the global economy in 2016 than they were in 2015, and they have already been hugely devastating.

 

US Industrial Recession also part of my 2016 economic predictions

 

Two major manufacturing surveys over the past week have come in well below economists’ expectations — solidly in a manufacturing recession — with new orders also falling below expectations, offering no hope for an improvement in the near future. US manufacturing fell at its fastest pace in six years, and US factory orders have never fallen like they did in 2015 without the US going into recession. November’s reports brought the 13th month of year-on-year decline! And that, according to Zero Hedge, was with a 47% surge in defense spending — the largest defense increase since 9/11.

The Baltic Dry Index, which tracks the cost of shipping dry goods overseas has reached an all-time low, partly because too many new ships were ordered in recent years but also because so little product is shipping as industry is sinking.

When manufacturing falls and starts to layoff people, as it did at the end of 2015, then services to those people start to fall. A recession in the service sector, in other words, lags a recession in the manufacturing sector because it is largely a response to falling incomes and rising unemployment to where people cannot afford the services.

Manufacturing in China and the UK has contracted significantly, as in US big-equipment manufacturers. The eurozone, however, saw manufacturing grow, probably due to the falling value of the euro causing a rise in demand for exports from that zone.

 

Stocks in bondage

 

The top-ten stocks that gave a positive average to a falling US stock market are now also declining with some of them now taking bigger hits than most other stocks. That means the last pillars of the stock market’s support are crumbling. The two biggest — the Big Ace’s, Apple and Amazon — have been pounded hard in the last couple of weeks. Sixty points for Amazon is a pretty hefty plunge. Apple, having become the most valued stock ever, is plummeting even faster.

Apple has been in decline for roughly half a year as iPhone sales are flagging, and investors seem unwilling to be impressed by other Apple technology like the new Watch or more distant technology like whatever the heck Apple is doing with cars. Google, too, has been entering the car game by taking the driver out of the game. Given how much we text while driving, apparently we have a great desire to drive our telephones because it is now phone companies who are the innovators in the automobile industry. Apple’s iPhone production is anticipated to be cut by as much as 30%; but maybe that will be made up by the new iCar. (Don’t ask.)

In the meantime, the top ten are descending. When you only have ten secure stocks to move to and then two of those go into retreat, index averages are bound to fall … and fall they have, triggered by China’s all-out, stock-market crash.

Dow theory says that when transportation stocks drop while non-transportation stocks stay up, then the non-transportation stocks will drop, too. That’s because transportation is one of the first areas to notice a coming recession while other areas of the market lag. What we see right now is particularly foreboding, then. Transportation stocks have been leading the decline for a few months, even though they are the one sector that should benefit most from the drop in the price of oil. Even as this industry’s main expense is plunging, the industry is having a hard time managing its drop in revenue. The plunge in the price of oil would normally have caused transportation stocks to rise, but they are losing more from not shipping as much oil or gas or coal; so they’re going down. The lack of movement of raw materials is sucking everything down with it.

The US market was also artificially inflated by cheap buybacks of company stock, which have been funded by cheap credit made widely available by the Fed’s zero-interest strategy. That stimulus scheme is now unwinding as credit costs start to rise. So, a market that remains flat, in spite of huge buybacks, now will be finding less of that support. It has to settle. One of the primary decisions makers in Fed policy, Richard Fisher, has just said he warned the Fed that the market would go wobbly when policy was reversed because, in his own words, the Fed “front-ran” the US stock market and created a huge asset bubble. He expects a 20% drop, but I think he is way conservative because he doesn’t want to think about his nightmares.

UBS, Switzerland’s largest bank and one of the largest banks in the world, now says that it expects the S&P 500 to fall by 30% this year. UBS says we are definitely in the final stages of a bull market and adds,

 

Last year’s rise in volatility was in our view just the beginning for a dramatic rise in cross-asset volatility over the next few years. (ZeroHedge)

 

The Dow Jones Transportation sector has already become a bear market, and it is widely accepted in Dow theory that transportation stocks are leading indicators of the stock market’s direction as they respond more quickly to how the economy is doing overall than other stocks.

The Russel 2000 index of smaller companies has already fallen 14% since its average is not buoyed by the top ten.

US corporate earnings right now are not strong, and stocks are not cheap. They have an inherent reason to drop, as it appears earnings will weaken more due to the crush of commodities and of foreign trade due to a strong dollar. The commodities crush is boarding up mines, capping oil wells, unloading transportation, lightening heavy-equipment manufactures, and will ultimately turn boom towns in the midwest into ghost towns.

So, one more major trend I see that will press the entire world and the US toward total economic collapse is the crash of the US stock market, which I have said is already beginning. I would not be surprised to see the Dow drop by as much as 60% in a year and half if there is no US government or Federal Reserve intervention (an unlikely “if”) in order to hit the level it would have reached if not pumped up by decades of Fed stimulus.

 

The big bond bust

 

Only the weakest fall first, as they did in the fall of 2015. The second tier of bond funds will start to fall in 2016. Companies that defaulted in 2015 did so when interest rates were the cheapest they have been in the history of the nation. So, how much more will others fall as interest rates now start rising? It’s just logical. Enough said because it is already happening, so it’s not a future scenario; it is a present scenario that will contribute to the failure of all sides of the US economy, which will add serious downward momentum to the epocalyptic collapse of the entire global economy, making this something the Fed cannot rescue.

 

Hedge hogs head for the hills

 

And not so much Beverley Hills. In crumbling markets, many take refuge in hedge funds. I don’t pretend to understand their mysterious incantations and inner machinations; but celebrated geniuses cast bets against other bets and then, I think, bet that you can’t figure out what they’re up to. The magic that is supposed to come out the other side is that, when something goes down, they go up.

Well, a lot of somethings seem to be going down, and the hedge funds are going down, too. The funds that were supposed to protect you from volatility are dying from volatility in a huge fund flush. The problem for the Hedge Hogs is that their old magic never accounted for new patterns that make no sense where governments like China buy stocks en mass, and where central banks buy their nation’s debt in really, really big chunks (like almost all of it) and where money is free or now, in some countries, you even have to pay someone to hold your money for you.

Thus, the hogs are having a tough time of things, and many of them have put out their “going out of business sale” signs. More hedge funds boarded up their windows in 2015 than in any year on record. But, then, they haven’t been around long anyway. So, who cares? What’s a billion here and a half a billion there spread across a landscape of economic wreckage, especially when it is mostly the rich who use these things? A lot of what these funds buy is distressed debt, so what did the rich expect?

Here’s what concerns me and why it enters my economic predictions for 2016: These funds were supposedly managed by the best and brightest … like those people who figured out how to create mortgaged-backed securities — complex organisms made of other microorganisms that most of the buyers didn’t understand at all — even the supposedly smart buyers like banks that make a lot of money.

So, you have to wonder how smart the smart guys are and whether anyone is paying attention to anything anymore. How much junk is in the system that very few know about because of financial invertebrates? What kind of funny algorithms run the auto-trader market now, making stock trade decisions across nations in nano-seconds that no human being ever sees — decision that were designed in advance by people who read and write in ones and zeros and speak arcane languages like C++ over a cup of Java and who are married at their fingertips to names like Ruby and Perl?

Can anyone be certain that some algorithm that is making auto-stock decisions for investors while they sleep won’t misfire now that the market is running in reverse where there are no more Fed puts? Most of the toddlers who created today’s robotrading applications never knew the real world where money wasn’t free. Will all their clients wake up some morning to find a soft-coded circuit breaker failed to trip, and the computers of the world got into a bidding war and priced all stocks down to zero?

You think I’m kidding? A lot of supposedly smart people thought the hedge-fund managers were geniuses, yet those geniuses are being wiped out by the very volatility they were supposed to protect you from! The irony of the virologist who died from a head cold. When will some econovirus, first contrived in the desserts of Afghanistan, hit the robotraders? Will the giants be taken down by a simple virus like complex invaders were taken down in War of the Worlds — bitten by something they can’t even see?

My point is that we’re right back where we were in 2007 where banks and other major institutions were buying things they didn’t begin to comprehend. Are the big decision makers trusting risk management to software engineers? No surprise to me. I’ve long thought the big CEOs are just good at shaking hands and smiling and drinking overpriced, designer water. Have things become too complex to even identify risk in some cases? Maybe the actual market deciders — the software engineers — are so far out of touch with the real economic world that they’ve forgotten what gravity feels like.

Well, gravity is here, Baby! So, hold on to your lead socks as we discover how robo-traders work when markets reverse.

 

Mideast mania

 

Iran’s Supreme Leader Ayatollah Ali Khamenei has threatened Saudi Arabia with “divine revenge” over its execution of Shi’ite cleric Nimir al-Nimir. Iran’s Revolutionary Guard made similar statements, promising “harsh revenge” and the “downfall” of the House of Saud.

Saudi Arabia and Iran — longtime arch foes — support opposite sides of the war in Syria where ISIS, al Qaeda, Russia, Iran, Assad’s government, the US, France, and Turkey are all clustered in active battle. (Ah, what a bouquet of thorns.) The execution of Nimir also complicates relations for Saudi Arabia with Iraq’s Shi’ite-led government, where Saudi Arabia just re-opened an embassy after 25 years of shutdown only to have protestors shouting for its immediate closure following the execution.

As far as I can see, Obama’s foreign policy of abandoning US allies in the Middle East has opened the doors to extraordinary conflict. The US is involved in more wars than we were under George Bush. Afghanistan continues to haunt us, as pulling out left the job undone. We’re now back to fighting in Iraq because the power vacuum created by Bush left a mess that can’t be cleaned up as other entities stepped in, and pulling out only made it worse. These were risks Obama was warned about from the beginning, should he pull out of Afghanistan and Iraq, not surprises.

We’re now newly involved in Syria, as if we hadn’t kicked enough hornet nests in that region. Meanwhile, conflict continues to brew between Ukraine and Russia. China is threatening to raise its guns at US planes and boats in the South China Sea. North Korea this week made its first claim to have an H-bomb with “United States” written on it. Iran has admitted to having more long-range missiles than Obama ever knew about, yet the Obama administration seems to be ditching all allies in the Middle East in order to cosy up to Iran. Right or wrong, the US is involved in all of those conflicts, and all of it looks expensive.

Obama’s foreign policy can be described as looking somewhat like throwing a bowl of meatballs and sticky rice at a wall. I don’t understand what the plan is, but that’s not what concerns me. What concerns me is that Obama doesn’t seem able to explain what the plan is either, and that makes me think he doesn’t know what the plan is. I will admit that he has certainly brought a great deal of change to the world.

And then we have the Palestinians and Israelis, increasingly in tension that centers on the Temple Mount where the Bible predicts the events of the great apocalypse will happen. Both sides are increasingly less willing to talk to each other. So, this could all go biblical in scale.

We haven’t been this close to the Middle East becoming a world war since the last World War.

 

Fed float fled

 

The precise timer for my 2015 economic predictions was the Fed’s change in its zero-interest policy. What many people missed with this event now gone by is that a tiny rise in interest was not the issue. Nevertheless, it is a bigger issue than thought. When the Fed only raised its interest target by one-quarter of a percent in December, and just two weeks later the high-yield spread (junk-bond spread) had grown by 2.5%. So, one concern is how much control the Fed has over interest rates as it starts trying to raise them. Do the math in terms of what this widening spread means to companies in the oil industry that are already struggling with their high-yield bonds. They will have to pay that much more if they need to refinance bonds they already cannot pay off.

The bigger issue to the end of the Fed’s free float is that it transported us back out of Wonderland where bad news was good news for nearly seven years. For years we’ve seen the market go up when economic news was bad. That Mad-Hatter reaction happened because bad economic news meant the Fed would prolong its stimulus, and stimulus was, by far, the biggest game in town. That dynamic ended on December 16. Now we’re back in economic reality where bad news is simply bad news. We’re rightside-up again, and our re-entry into reality happened at a time when there is more bad economic news than I can ever remember.

The instant move back to being rightside-up is why I predicted December 2016 would be a tiny trigger that would set off the explosives that bring our already crumbling structures down.

 

The housing hustle hangs over us

 

In the face of the Fed’s first looming rate hike, mortgage applications spiked — the rush of last-minute buyers wanting to make their move before interest started climbing. Now, two weeks after the Fed’s raise, mortgage applications have fallen off by a whopping 25%. A seasonal adjustment for bank closures over the holidays, etc., actually makes the figure come out a little worse at 27%. Most of the spike was in refi. Although applications for the purchase of homes has also fallen off 15%, they remained considerably higher than a year ago.

Housing is NOT actually one of the bases for my 2016 economic predictions. I see no reason for housing to lead our collapse into the Epocalypse. Housing, however, will be a following trend that deepens the hole the Epocalypse crashes us into. As jobs fade back and unemployment starts to grow, mortgages will start to fail and housing prices will fall again.

The large fall of home sales in November was mostly because of rising prices (as some areas of the market now reach the peak they had before the Great Recession began) and because of a short supply of homes for sale. This peaking out of the housing market is similar to what we saw in 2007 and 2008 and shows the market is highly prone to topple again, so I don’t expect it to lag long as we now move into the Epocalypse.

The fact is that the extraordinary home prices at the housing peak in 2007 could only be supported by loose credit. They have only been supported now by loose credit and low interest now, so prices have to start moving down as interest starts moving up, or we have to loosen the terms of credit even more, as we did last time around. Either road leads home to the same collapse.

 


[amazon_link id=”0393338827″ target=”_blank” ]Read the book that became the movie The Big Short to learn how the last housing crisis COULD be seen coming, WHO saw it coming and why few others did.[/amazon_link]


 

Student loan crisis also part of my 2016 economic predictions

 

Outstanding student loans in the United States now top a trillion dollars. That’s not so outstanding. Nearly $1.2 trillion to come closer. How are people who are barely past the point of being kids going to pay that off? While student loans won’t be the cause of the Epocalypse, they will fail at a greater rate, intensifying government financial stress, thereby adding to the falling weight. The Ecocalypse is an economic collapse that happens throughout the world and in all sectors of the economy. It’s total. (But it is also so huge that it will likely take more than a year before its grandeur is truly appreciated.)

 

Auto-traders are auto-traitors

 

I’m speaking here of the financiers and the manufacturers, not the buyers. Auto sales are at a record high (up 15% in 2015), and some look to that as evidence that the US economy is strong. I would say, instead, it is the exception that proves the rule. It is one more part of the problem because that accounting is all baloney, and baloney is why most of the world’s economic experts don’t see any of this coming. They believe their own baloney.

You have to consider what factors have taken auto sales to these supposedly soaring heights. In part, it’s consumer confidence, which is is a positive tail wind for the economy; but terms of credit on automobiles have been extended out to all-time extremes, too, of seven years on a highly depreciable asset. Down payments have, as they were just before the Great Recession, been minimized, as has interest. Most of all, most of these sales are not sales at all. The industry now leases far more cars than it sells.

You have to wonder why so many economists are blind to how significant all of that is and to what it means. So blind, in fact, that they point to auto sales as an indicator of a strong economy when it is the same mess we saw in the Great Recession. Apparently economists are incapable of learning anything. So, the biggest scare here is how blind it proves the experts are who guide the economy.

Has anyone forgotten what supported auto sales in the year before the Great Recession? Zero interest, zero down, and zero payments for a year. At the time, I was asking, “What’s their end game? Where do they go from here now that they’ve spent the year giving away one-year leases because people can return all these cars at no loss?

What we see now is that the automotive industry has doubled down on desperation by adding to that original mess longer-term loans and particularly by moving toward leases and calling them the new auto sales. As recently as 2010 fewer than one in ten auto loans exceeded a six-year term. Now, that is the average loan length.

It’s dumbfounding to me that people are stupid enough to site auto sales as evidence of a healthy economy when they are built on such precarious terms and are mostly not even true sales. Just as in housing, we have switched from being a nation of auto owners to auto renters. As with housing, I expect a collapse of auto sales because it is built on a rickety foundation, but it will be trailing trend because it depends on a weakening of the consumer base as the economy slides back into recession. However, it will increase the speed and depth of the economic collapse as it joins the forces of the fall.

Auto sales may not join the parade of panic until late in the year or 2017; but expect automakers within a year of so to end up right back where they were during the worst of the Great Recession … with less hope of a bailout. Oh, my goodness, the sheer stupidity!

But enough of the cheery news. December sales fell to their lowest in six months, and December is supposed to be a really hot month when dealers close out all their inventory. Sales missed expectations by the most since November … of 2008! And while the year as a whole was up (as measured by counting bits of baloney strung on an abacus), the last half of the year fell more than any year since November … of 2008! Does anyone remember 2008 when automakers went bankrupt-or-bailout? They’re betraying the bailouts we gave them by setting up disaster all over again.

Sales right now are particularly declining in China where the ratio of inventory to demand hasn’t been higher since the Great Recession. Sales might have hit a top since total car debt in the US right now is 30% higher than it was at its last peak right before … 2008! It has risen from about 600 billion dollars in outstanding debt to over a trillion dollars. Does that really leave any headroom for market expansion? Are you seeing a pattern here?

All of this debt pressing down, even if it doesn’t go into default, certainly reduces our capability to do other things. It’s quite a load to carry.

 

Black swans

 

These are the events you cannot see coming, unlike the trends above that anyone can see if they take off their rose-colored glasses and look reality straight in its glowing red eyes. So, I’m not saying any of these will happen; whereas, I am saying all of the above are as close to certain as you can ever find in a world filled with chance.

Cyber attacks on the energy grid or on corporations like the one brought against Sony last year or into government computers could happen on a game-changing scale. One such attack on an energy grid just happened in Ukraine over the holidays where a virus was deployed to disconnect substations, causing a blackout; but it was minor. It’s only importance is in showing that the vulnerability is real.

Sandworm, the organization believed to be responsible, is targeting NATO, U.S. academic institutions, and government organizations in Ukraine, Poland and Western Europe. John Hultquist, head of iSIGHT Partner’s, the cyberespionage firm that discovered the virus, said,

 

It’s always been the scenario we’ve been worried about for years because it has ramifications across broad sectors…. Operators who have previously targeted American and European sensitive systems look to have actually carried out a successful attack that turned the lights out. (The Washington Post)

 

Of course, he has a service to sell, and fear of cyber attacks is a good marketing strategy for cyber espionage companies. On a positive note, Ukraine’s power grid rebounded in less than a day.

What about internal terrorism as a black swan event? Millions of immigrants are flooding across borders from nations that are steeped in war, and they are being accepted as fast as they choose to come. How is it even remotely possible to screen out terrorists when you don’t have a government you can work with that knows anything about these people? Just recently people with terrorist connections were caught coming across the Mexican border from Afghanistan and Pakistan. Are we foolish enough to believe we actually catch all of them or that terrorists are too stupid to exploit this path of easy entry?

Social unrest is becoming rampant. It’s not politically correct to even question that some of these nice people might be hell-bent on destroying Western civilization. That’s xenophobic. But let’s look at Germany. They have taken in over a million immigrants from Syria in less than one year. The culture clash is growing rapidly. Citizens have been raped by a few bad people that entered. I know that most of the people are not bad, but when the conveyor is running at full speed, it’s hard to pick off the bad apples. Is it worth risking another few skyscraper collapses in order to help the refugees?

The social unrest in Europe is becoming substantial enough to cause government turnovers as minority parties rise in power by tapping into the anger that Merkel and the other majority leaders are causing with their immigration policy. It is too much immigration, too fast to allow for realistic and peaceful integration. You simply cannot force people of differing cultures together that quickly without stirring a lot of anger.

Social anger is stirring in the US, too. We see it in Trump’s hugely successful anti-establishment campaign, which taps into growing resentment over immigration and resentment against Wall Street and crony politics; but we also see it in the way cities in various parts of the nation increasingly riot over racial issues. Civility is down, rioting is up … as is political tolerance toward anarchy. Cities appear afraid to clamp down on looting and rioting, lest they appear less tolerant of expression than is liberally acceptable or lest the police appear to be too violent in arresting anarchists, who won’t go down without a fight.

Then there is another form of social unrest. What about a return of the Grexit. For those old enough to remember Snagglepuss the Cat, will it be “Grexit, stage left, politically even?” I still think a breakout of rage is on the near horizon. Between all the social issues from mass-immigration being forced on the citizenry of Europe and all the economic hardship of austerity forced on Greeks by their creditors, I’m thinking peasant revolts and storming of the castles may be seen in Europe in 2016.

Social unrest adds greatly to a nation’s security costs when economic structures collapse. This non-productive expense becomes an accelerant to the flames of global economic collapse. One other reason I use the word “epocalypse” is that it carries connotations of anarchy often associated with “apocalypse.” Poverty fires anarchy up because people do not care that their actions are self-destructive toward the economy when they don’t feel they have a share in the economy’s benefits anyway. The attitude becomes “The economy doesn’t care about me; I don’t care about it. It exists solely to serve the rich. I’m clearly not a part of it; so economic damage be damned.”

 


[amazon_link id=”038553633X” target=”_blank” ]With remarkable accuracy, George Friedman has forecasted coming trends in global politics and culture. Flashpoints is an engrossing analysis of modern-day Europe, its remarkable past, and the simmering fault lines that have awakened and will be pivotal in the near future.[/amazon_link]


 

US debt problems

 

A longer-term question, which may not come to fully bear this year, so is not one of my 2016 economic predictions, is how long can the US refinance its debt? Reductions in oil use and the plunge in oil prices mean fewer petrol dollars are necessary, so fewer US bonds and other treasuries might be purchased in other countries as a way of converting currencies to dollars and holding the dollars.

On top of that, China and Russia have teamed toward turning the yuan into a global currency as part of plan to intentionally move away from buying US dollar-denominated bonds. Russia’s has just made it illegal for former Soviet partners to trade in oil using US dollars. They must trade in rubles, instead. Neither Russia nor China wish to support US hegemony in world politics, so they have strong political reasons to damage the US economically by reducing demand for US treasuries, making it more expensive for the US to finance its debt.

This is, I’m sure, partly why China has also moved toward developing its internal consumer market, rather than focusing on exports. That will make it less dependent on exports to the US. Of course, it only makes good sense for them to make that kind of shift anyway.

With the Federal Reserve now raising interest rates, the interest on US debt could also go up. I say, could because one mitigating factor for the US is that it is, as I’ve said in the past, the best looking horse at the glue factory; so money streaming out of all the nations of the earth could pour into US bonds. Likewise with money fleeing the US stock market. That caveat is the only reason I’m not sure what will happen this year in terms of the US being able to refinance its debt; but longer term, this is a towering problem that will have a serious day of reckoning. And it could be the biggest black swan of all for 2016.

The United States’ government is running annually on deficits that are measured in parts of a trillion!

 


[amazon_link id=”1586489127″ target=”_blank” ]Reagan’s own budget director describes how and why the Reagan plan failed to deliver the nation from the national debt Reagan campaigned against.[/amazon_link]


 

Fundamental flaws in the foundation

 

While all of these severe forces will batter the global economy — US economy now fully included — they are not the reason the US economy now enters the Epocalypse. They are the overwhelming trends pressuring the global economy and the US economy, but there are fundamental economic fault lines throughout the US economy that I am banking on as the basis for my predictions.

The stock markets of the entire world have positioned themselves for years now on the premise that central banks could prevail in getting us out of the Great Recession by printing copious amounts of money and piling debt on debt. I am certain beyond the slightest doubt — and have been since the very beginning of the Great Recession — that you cannot bail yourself out of a debt-caused recession by quadrupling down on debt! It’s insane. Nor can you repair bubbles by inflating them into balloons!

Since the beginning of the Federal fantasy, I’ve said that the only thing we have done is push the debt further forward until it will become an immovable mountain of debt. We have taken deflated assets and re-inflated them to levels where only ludicrous terms of credit can finance them.

My running analogy has been that of snowplows, pushing the snow straight ahead, instead of angling their blades to shove it off the side of the road. The general slowing of the entire global economy that you see right now is the sound of all the snowplows grinding to a stop as the mountain of snow finally becomes too big to push.

We have built all of our markets on debt because that is how central banks created money. Stocks, bonds, houses, automobiles, etc. are all really mountains of debt, not stored assets. And I believe this is the year the grand scheme comes down (though it may take longer than a year to fully unfold, given the sheer scale of the collapse).

Creating greater debt to solve something we knew was a debt problem in 2008 has been the wrong solution from the beginning. I’ve said all along that it would go forward for quite a long time because you can do a lot of partying when you are not paying for it; and governments have a lot of capacity. That’s why, over all the years of writing this blog, I have not predicted such a big collapse as being imminent (already happening, in fact, but unseen by most) as I am now. It is now the immovable mountain, built up so high above us, that it is going to avalanche down on us.

So, it is not just that the free money has been invested in stocks and bonds, but that the entire market is positioned on top of a delusion. Once the delusion of recovery begins to break up, the market has enormous repositioning to do in order to line itself up with reality. Now that we are leaving Wonderland where bad news is just bad news, the cracks in the bad structure will show up quickly.

Banks have continued to be freewheeling throughout this so-called recovery, playing the same games that created the Great Recession. Both the government and the Fed wanted to keep the old dinosaur economy alive because neither has the creativity to envision another way to grow an economy. The Federal Reserve is based on economic expansion through debt because its method of creating new money is through banks issuing loans that give out money that didn’t exist before the loan was made. Both the government and the Federal reserve believe expanding the money supply is what we need to do to goose the economy.

Currently banks appear to be backed with stronger reserves than they had before the Great Recession, so investors, the media, the public in general and the government and Fed all believe they are in stronger shape. BUT, as stocks crash and bonds go bust, those reserves will evaporate.

 


[amazon_link id=”0990359530″ target=”_blank” ]What do you get when well meaning people with a Titanic degree of certitude apply small-scale logic to inappropriately large scale planning? “Hormegeddon.” Financial disaster cannot be stopped by the people who planned it in the first place.[/amazon_link]


 

What will be the recovery plan?

 

The full degree to which the Epocalypse develops will depend on how soon and how strongly the government and the Fed intervene now that things are beginning to fall.

Bear in mind, though, that few economists or stock analysts are predicting a recession in 2016. Therefore, there is a very good chance of having one. Why, after all, would you listen to the people who predicted a rising market in 2007? (I’m sure glad I took my own advice back then.) By the same token, the Fed gives all appearances of believing in its recovery, so it will be slow to intervene. Congress clearly can’t work together long enough to come up with a solution and also believes in the Fed’s recovery. The Obama Administration will just look to the same experts it turned to who came out of the Bush Administration.

How much of the full depth of this collapse you see will depends on how soon intervention happens and what the intervention is; but my snapshot of government’s ability to see what is coming, its creativity and its ability to work together indicates that response will come too slow and too late. They certainly will respond before things get as bad as I’m saying they will if they fall to their full potential, but will they respond before the momentum is more than they can arrest?

Most of all, I don’t believe they will do any of the right things to arrest the fall. The lack even a hint toward ideas that follow any different course does not give much hope that government or central banks, when they propose a solution, will propose a good one. My prediction is that all of this leads to the presentation of a global solution for a global problem. What stop-gaps governments will take as they try to develop a global solution, I don’t know.

The economic expansion is in its seventh year, and that is about as long as they usually run. If anyone wants to believe this one can endure longer, they can go right ahead. I’m more than glad to let them make the big, easy money that they think is out there. I’ve already taken shelter because I don’t want to try to squeeze outside the door alongside the rushing masses. As a result, I sleep easy. My money isn’t making any money, but I sleep easy.

 

Read earlier articles about the building Epocalypse here.

 

Learn how to invest in rare gold and silver coins as a longterm way to protect your assets:

 

[amazon_enhanced asin=”0794819206″ /][amazon_enhanced asin=”1440235708″ /][amazon_enhanced asin=”0794842437″ /][amazon_enhanced asin=”0375723390″ /][amazon_enhanced asin=”0470222751″ /][amazon_enhanced asin=”0794842151″ /]

 

Audio interview with myself and Rory Hall of The Daily Coin: “We’re in a Global Economic Collapse.”