every bubble needs its burst

Krisis Finansil Cina: Perspektif Kebijakan Moneter, Corporate Finance (Analisa Laporan Keuangan), dan Investment Banking (Valuasi Nilai)
oleh : Sando Sasako
Jakarta, 28 Maret 2016

ISBN 978-602-73508-5-4

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Krisis Finansil Cina
 


Daftar Isi

Kata Pengantar iii
Kata Pengantar dalam buku ‘Corporate Financing’ v

Daftar Isi vii
Daftar Tabel x
Daftar Bagan xi

Pendahuluan 1
Masalah Pengukuran 1
Data, Informasi, Fakta 2
Data Mining 4
Pemilahan Data 5
Business Intelligence 7
Analisa Kuantitatif 8
Analisa Data 8
Self-Organising Map 9
Hambatan bagi Efektivitas Analisa Data 11
Confirmatory Data Analysis 11

Analisa Finansil 11
Standar Akuntansi Keuangan (PSAK, GAAP, IFRS) 12
Peran Perusahaan Audit dalam PSAK 12
Analisa Finansil sebagai Alat Ukur Kinerja Keuangan 12
Analisa Fundamental 13

Rasio-rasio Finansil 14
Pertumbuhan 14
Produktivitas 14
Kontribusi terhadap Stakeholder 14
Dividend Policy Ratios 14

Rasio-rasio Aktivitas Usaha 15
Perputaran aset (asset turnover) 15
Perputaran aset rata-rata (asset turnover) 15
Rasio perputaran aset tetap (fixed assets turnover) 15
Perputaran piutang (receivables turnover) 16
Rata-rata periode penagihan (average collection period) 16
Perputaran inventaris (inventory turnover) 16
Periode inventaris (inventory period) 16

Rasio-rasio Likuiditas 17
Rasio lancar (current ratio, CR) 17
Rasio modal kerja (working capital ratio) 18
Rasio cepat (quick ratio, QR) 18
Rasio kas (cash ratio) 18
Pendapatan lancar (current income) 19
Rasio pendapatan bunga (Time Interest Earned, Interest Coverage) 19
Rasio investasi terhadap kebijakan (investment to policy ratio) 19
Rasio utang lancar terhadap inventaris (current debts to inventory ratio) 19

Rasio-rasio Profitabilitas 19
Marjin laba kotor (gross profit margin) 20
Marjin laba bersih (net profit margin) 20
Return on Equity (ROE) 20
Return on Asset (ROA) dan Return on Capital Employed (ROCE) 20
Return on Capital (ROC) dan Return on Invested Capital (ROIC) 21
Return on Investment (ROI) 21
Beban bunga (Interest Coverage, Times Interest Earned) 22
Beban finansil (financial leverage) 22
Efisiensi beban finansil (efficiency of financial leverage) 22

Rasio-rasio Struktur Modal 23
Rasio utang terhadap modal (debt to equity ratio) 23
Rasio kapitalisasi (capitalisation ratio) 24
Tingkat pertumbuhan ekuitas (equity growth rate) 24
Beban finansil (financial leverage) 24
Rasio utang (debt ratio) 24
Rasio modal saham terhadap aset tetap bersih 24
Rasio utang lancar terhadap modal saham (Current Debts to Net Worth Ratio) 24
Rasio kewajiban total terhadap modal saham (Total Liabilities to Net Worth Ratio) 25
Rasio aset tetap terhadap modal saham (Fixed Assets to Net Worth Ratio) 25

Rasio-rasio Kecukupan Modal 25

Solvabilitas 25
Solvency ratio (SR) 26
Rasio utang terhadap aset (Debt to Asset Ratio, DAR) 26
Rasio utang terhadap modal (Debt to Equity Ratio, DER) 26
Kemampuan laba menutup biaya tetap (Fixed Charge Coverage). 26
Rasio pinjaman terhadap aset (Loan to Asset Ratio, LAR) 27
Rasio pinjaman terhadap simpanan (Loan to Deposit Ratio, LDR) 27

Risks vs Rewards 27
Risiko Mencari Keuntungan 28
Efek Domino Risiko 29
Rent-Seeking Behaviours 30

When the Deal Slips Away 32
Indikator Kesulitan Finansil 34
Indeks Kerentanan 36
Stress Test 38
Indeks Stabilitas Sistem Keuangan 40
Financial Stability Index 43
Indeks Kesehatan Finansil ala IMF 44
Laporan Stabilitas Finansil Global ala IMF 48
Operasi Moneter 48
Inflasi Terencana sebagai Prasyarat Kestabilan Finansil 50

Dinamika Pasar Finansil 52
Dinamika Aset Finansil 53
Kerapuhan Sistem Finansil 54

Krisis Finansil 55
Menelikung Krisis Finansil 56
Kasus LTCM 57
Krisis Subprime Mortgage 60
Kasus Lehman Brothers 63
Krisis Eurozone 64
Spiral Kekacauan Krisis Eurozone 65
Debt Exposures of PIGS 66
AS 68
Inggris 69
Jerman 69
Perancis 70
Jepang 71
Yunani 72
Irlandia 73
Italia 74
Portugis 74
Spanyol 75
Some PIGS are More PIGS 76
Krisis Finansil Cina 77
Kenapa Cina menjadi begitu penting? 78
Bermain dengan nilai tukar 81
Pasar CNH 82
Dominansi nilai tukar CNH terhadap CNY 87
Qualified Foreign Institutional Investor 90
Renminbi Qualified Foreign Institutional Investor 90
Qualified Domestic Institutional Investor 91
Qualified Domestic Individual Investor 91
Shanghai-Hong Kong Stock Connect 91
Pilot Free Trade Zones 91
Mainland-Hong Kong Mutual Recognition of Funds 92
Kenapa pasar finansil Cina bisa crash? 92
Ketika gelembung finansil Cina mulai pecah 93
Pelonggaran likuiditas sebagai solusi ancaman resesi 94
Aksi pemadam kebakaran ala pemerintah Cina 96
Permasalahan fundamental ekonomi Cina 99
Beban utang Cina 101
Kebijakan dan otoritas moneter Cina 102
Pasar obligasi Cina 103
Obligasi Panda 105
Obligasi dim sum 106
Daftar emisi obligasi dim sum 108
Aksi pemerintah Cina terhadap masalah tunggakan utang 110

Policy and Politicisation 113
Primary Dealer 113
Solusi Teoritis, Bisa dan Benarkah? 116
Kebijakan Too Big To Fail 117
Cashless Solution 118
Minyak sebagai Mata Uang dan Sumber Kemakmuran 120
Negative Interest Rates Policy 125

Kas 129

Pengadaan Aset 130
Asset Investment 130
Asset Financing 131
Capital Expenditures 132
Menghitung Biaya Modal 134
Biaya utang 134
Biaya saham preferensi 134
Biaya laba ditahan 134
Biaya ekuitas eksternal 135
WACC 135
Biaya modal marjinal 136
Break point 136

Off-Balance Sheet Financing 136
Perubahan Portofolio The Fed 136
OBS sebagai Produk Inovasi Menyembunyikan Risiko Finansil 137
MBS sebagai Produk Rekayasa Finansil Penyebab Krisis 2008 139
Bencana Prilaku Berisiko Berlebihan 141
Bertaruh pada Aset Fiktif 142
Akuntansi OBS 144
Fleksibilitas Pasal Karet 145
Penyesuaian Pasal Karet 146
Memanfaatkan Celah Hukum 147

Equity Financing 148

Debt Financing 149

Struktur Modal 152
Teori Struktur Modal 153
Teori Pensinyalan 154
Struktur Modal dalam Praktek dan Realitas 155
Menghitung Tingkat Optimal Struktur Modal 155
Besar Beban Operasi 156
Analisis EBIT/EPS terhadap Efek Beban Finansil 157
Besar Beban Finansil 157
Besar Beban Total 158
Efek Struktur Modal terhadap Harga Saham dan Biaya Modal 159
Likuiditas dan Arus Kas 159

Struktur Finansil 160
Ukuran Optimal Beban/Struktur Finansil 161

Valuasi Nilai 162
Corporate Financing vs Investment Banking 163
Pentingnya Valuasi Nilai 164
Valuasi Usaha 164
Komponen Pendapatan 166
Komponen Neraca 167
Komponen Arus Kas 167

Time Value of Money 168
Future Value 169
Future Value Interest Factor for i & n 169
Present Value 169
Present Value Interest Factor for i & n 169
Future Value untuk Anuitas Biasa 169
Future Value Interest Factor untuk Anuitas Biasa 170
Future Value untuk Anuitas Awal 170
Present Value untuk Anuitas Biasa 170
Present Value Interest Factor untuk Anuitas Biasa 170
Present Value untuk Anuitas Awal 170
Present Value untuk Perpetuities 171
Present Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Periode Semesteran atau lainnya 171
Amortisasi Pinjaman 172

Referensi 173
Web 173
e-book 177
Buku 180

Daftar Lampiran

Lampiran – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Variabel yang umum dipakai sebagai ukuran stabilitas finansil 183

Lampiran – Ukuran dan skenario dalam laporan stabilitas finansil global, Okt. 2015 185
Ukuran likuiditas 185
Ukuran utang korporasi di pasar emerging 187
Asumsi dalam skenario gangguan pada pasar aset global 189
Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Asumsi dalam skenario normalisasi yang berhasil 191
Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192

Lampiran – Ukuran Kerentanan Finansil 193
Indikator valuasi risk appetite / aset 193
Indikator ketidakseimbangan non-finansil 194
Indikator kerentanan finansil 195
Indikator Kebijakan Macroprudential 196

Lampiran – Daftar Indikator dalam ISSK Bank Indonesia 197

Lampiran – Profil Cina 199

Lampiran – Jumlah (instrumen) utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 201

Daftar Tabel

Table 1 – Aktivitas M&A di business intelligence dengan nilai >$100 juta, 2009-2014q1 7
Table 2 – Beberapa indikator kebijakan macroprudential 36
Table 3 – Indikator pengukuran stabilitas sistem keuangan 42
Table 4 – Indikator utama kesehatan finansil ala IMF 45
Table 5 – Indikator tambahan (encouraged) bagi kesehatan finansil ala IMF 45
Table 6 – Indikator parsial dan bobot dalam indeks stabilitas perbankan Republik Ceko 47
Table 7 – Indikator kesehatan finansil ala ECS (Macro-Prudential Indicators) 47
Table 8 – Tiga skenario stabilitas finansil 48
Table 9 – Operasi moneter menurut standing facility 49
Table 10 – Pentingnya likuiditas yang lentur (resilient) 50
Table 11 – Penambahan likuiditas menurut jenis instrumen OPT 50
Table 12 – Penyerapan likuiditas menurut jenis instrumen OPT 50
Table 13 – Nilai ekspor dan impor AS-Cina untuk 5 produk utama, 2014-2015 (US$ juta) 100
Table 14 – Nilai ekspor dan impor AS-Cina untuk produk teknologi tinggi, 2015 (US$ juta) 100
Table 15 – PDB Cina, 2010-2014 dalam milyaran ¥ dan US$ 101
Table 16 – Nilai obligasi pemerintah dan korporasi di Cina, 2002-2015 (US$ milyar) 101
Table 17 – Buletin harga obligasi di pasar uang Hong Kong, 11 Maret 2016 107
Table 18 – Daftar 22 primary dealer di Amerika Serikat, 2014 114
Table 19 – Beberapa veteran primary dealer pilihan Bank Sentral Amerika 114
Table 20 – Daftar 19 primary dealer di Indonesia, 2014-2015 115
Table 21 – Nilai derivatif 25 bank terbesar di AS, Nov. 2015 (US$ milyar) 119
Table 22 – Ringkasan Perlakuan Transaksi Sekuritisasi menurut UK GAAP 145
Table 23 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Table 24 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Table 25 – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 184
Table 26 – Ukuran likuiditas 186
Table 27 – Ukuran utang korporasi di pasar emerging 188
Table 28 – Asumsi dalam skenario gangguan pada pasar aset global 189
Table 29 – Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Table 30 – Asumsi dalam skenario normalisasi yang berhasil 191
Table 31 – Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192
Table 32 – Indikator valuasi risk appetite / aset 193
Table 33 – Indikator ketidakseimbangan non-finansil 194
Table 34 – Indikator kerentanan finansil 195
Table 35 – Indikator Kebijakan Macroprudential 196
Table 36 – Daftar indikator pembentuk ISSK 197
Table 37 – Profil Singkat Cina 199
Table 38 – Indikator Ekonomi Cina, 2011-2017 200
Table 39 – Utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 202

Daftar Bagan

Figure 1 – Diagram alur hierarki DIKW (Data-Information-Knowledge-Wisdom) 3
Figure 2 – Kontinuum pemahaman dalam konteks DIKW 3
Figure 3 – Proses data mining 4
Figure 4 – Hubungan antara Data, Informasi, dan Intelijen 6
Figure 5 – Analisa eksplorasi data 9
Figure 6 – Taksonomi ketidakpastian 27
Figure 7 – Igloo ketidakpastian 28
Figure 8 – PV perusahaan berutang 32
Figure 9 – Skema indeks kerentanan dan komponennya 37
Figure 10 – Siklus pengawasan macroprudential 38
Figure 11 – Prasyarat bagi antisipasi dan pencegahan ketidakstabilan sistem finansil 39
Figure 12 – Hubungan antara stabilitas sistem finansil dan stabilitas moneter 39
Figure 13 – Keterkaitan antar-variabel dalam BAMBI (Banking Model of Bank Indonesia) 41
Figure 14 – Beberapa indikator pembentuk Indeks Stabilitas Sistem Keuangan (ISSK) 42
Figure 15 – Peran Bank Indonesia dalam menciptakan stabilitas moneter 49
Figure 16 – Bentuk interaksi antara BI, pempus, dan pemda dalam mengendalikan inflasi 51
Figure 17 – Perkembangan aktivitas perbankan internasional 52
Figure 18 – Aset Riel dan Aset Fiktif Bank-bank di AS, 1995–2000 58
Figure 19 – Nilai Derivatif dan Modal 25 Bank AS Ternama (US$ milyar) 59
Figure 20 – CDOs direpresentasikan dalam bentuk building blocks, The Big Short, 2015 60
Figure 21 – Pasar rumah di AS, 1989-2006 61
Figure 22 – Pemetaan proses penularan krisis finansil 2008 62
Figure 23 – Pinjaman sektoral dari Bank of England, 1997-2012 63
Figure 24 – Utang-piutang PIGS 67
Figure 25 – Utang AS ke 4 negara adidaya dan PIGS 68
Figure 26 – Utang Inggris ke 4 negara adidaya dan PIGS 69
Figure 27 – Utang Jerman ke 4 negara adidaya dan PIGS 70
Figure 28 – Utang Perancis ke 4 negara adidaya dan PIGS 71
Figure 29 – Utang Jepang ke 4 negara adidaya dan PIGS 71
Figure 30 – Utang Yunani ke 4 negara adidaya dan PIGS 72
Figure 31 – Utang Irlandia ke 4 negara adidaya dan PIGS 73
Figure 32 – Utang Italia ke 4 negara adidaya dan PIGS 74
Figure 33 – Utang Portugis ke 4 negara adidaya dan PIGS 75
Figure 34 – Utang Spanyol ke 4 negara adidaya dan PIGS 76
Figure 35 – Cadangan Devisa Cina, Des. 1999 – Jan. 2016 78
Figure 36 – Tiga Kekuatan Ekonomi Dunia 79
Figure 37 – Nilai perdagangan Cina dengan negara lain (impor + ekspor) 80
Figure 38 – Nilai tukar bilateral yuan terhadap 3 mata uang dunia, USD, ¥, dan €. 81
Figure 39 – Cadangan devisa Cina dan nilai tukar CNY dan CNH 83
Figure 40 – Selisih CNY dengan CNH, Agustus 2010-Januari 2016 83
Figure 41 – Selisih tajam antara CNY dan CNH berdampak pada lonjakan bunga antar-bank di bulan Januari 2016 84
Figure 42 – Intervensi pasar CNH bisa menyesuaikan bunga CNH dengan CNY, 20151110-20160126 85
Figure 43 – Pasar deposit CNH, Maret 2009 – Des. 2015 86
Figure 44 – Distribusi CNH menurut bank sentral (offshore yuan’s swap line), Nov. 2015 88
Figure 45 – Penyelesaian perdagangan dalam CNH, 2009Q3-2015Q4 89
Figure 46 – Pasar deposit CNH menurut negara, 2014 89
Figure 47 – Beberapa alternatif indikator pertumbuhan ekonomi Cina mengacu pada penurunan yang lebih besar (greater slowdown), 2010–2015 95
Figure 48 – Indeks Saham Gabungan Shanghai (SCI), Mei 2015 sampai 5 Februari 2016 97
Figure 49 – Indeks Saham Gabungan Shanghai, 1 Januari 2015 – 8 Maret 2016 98
Figure 50 – Triple policy trilemma 99
Figure 51 – Pasar obligasi Cina, 2003-2014 104
Figure 52 – Aktivitas perdagangan pasar sekunder obligasi Cina, 2000-2014 104
Figure 53 – Pangsa pasar obligasi Cina menurut jenis obligasi, Des. 2014 104
Figure 54 – Daftar emisi obligasi Panda, 20151010-20160121 106
Figure 55 – Emisi obligasi CNY, 2008-2015 111
Figure 56 – Emisi obligasi CNH, 2008-2015 111
Figure 57 – Asset backed securities di Cina, 2005-2014 112
Figure 58 – Peristiwa bersejarah dan harga minyak mentah, 1861-2014 (US$/b) 121
Figure 59 – Harga minyak mentah Brent (US$), 20040102-20160106 123
Figure 60 – Kelebihan pasokan minyak mentah dunia, 2012q3-2015q3 123
Figure 61 – Distribusi ladang produksi minyak shale AS, April 2015 124
Figure 62 – Suku bunga deposito dan pembiayaan ulang ECB, 2008-Maret 2016 127
Figure 63 – Prediksi nilai tengah suku bunga Federal Funds, Des. 2015-2019 127
Figure 64 – Federal funds target rata (%), 1983-2015 128
Figure 65 – Federal funds rate, 1 Juli 1954-18 Feb. 2016 128
Figure 66 – Skema sumber pendanaan perusahaan 130
Figure 67 – Factors adding to reserves and off balance sheet securities lending program 137
Figure 68 – Multiplikasi Penciptaan Aset Fiktif 143
Figure 69 – Klasifikasi struktur aset, struktur finansil, dan struktur kapital 161


every bubble needs its burst
2016-01-09 10:10 AM

Thursday, 11 February 2016
Financial Crisis & Recessions
2016-02-11 07:55 AM
http://www.positivemoney.org/issues/recessions-crisis/
Financial Crisis & Recessions

The financial crisis happened because banks were able to create too much money, too quickly, and used it to push up house prices and speculate on financial markets.

1. Banks created too much money…
Every time a bank makes a loan, new money is created. In the run up to the financial crisis, banks created huge sums of new money by making loans. In just 7 years, they doubled the amount of money and debt in the economy.

M4-Base-Money-Graph.png

2. …and used this money to push up house prices and speculate on financial markets
Very little of the trillion pounds that banks created between 2000-2007 went to businesses outside of the financial sector:
Around 31% went to residential property, which pushed up house prices faster than wages.
A further 20% went into commercial real estate (office buildings and other business property)
Around 32% went to the financial sector, and the same financial markets that eventually imploded during the financial crisis.
But just 8% of all the money that banks created in this time went to businesses outside the financial sector.
A further 8% went into credit cards and personal loans.

Sectoral-Lending.png

3. Eventually the debts became unpayable
Lending large sums of money into the property market pushes up the price of houses along with the level of personal debt. Interest has to be paid on all the loans that banks make, and with the debt rising quicker than incomes, eventually some people become unable to keep up with repayments. At this point, they stop repaying their loans, and banks find themselves in danger of going bankrupt.

4. This caused a financial crisis
As the former chairman of the UK’s Financial Services Authority, Lord (Adair) Turner stated in February 2013:
adair.turner-1″The financial crisis of 2007 to 2008 occurred because we failed to constrain the
financial system’s creation of private credit and money.”
Lord Adair Turner, speaking as chair of the Financial Services Authority, 6th February, 2013

This process caused the financial crisis. Straight after the crisis, banks limited their new lending to businesses and households. The slowdown in lending caused prices in these markets to drop, and this means those that have borrowed too much to speculate on rising prices had to sell their assets in order to repay their loans. House prices dropped and the bubble burst. As a result, banks panicked and cut lending even further. A downward spiral thus begins and the economy tips into recession.

5. After the crisis, banks refuse to lend, and the economy shrinks
Banks lend when they’re confident that they will be repaid. So when the economy is doing badly, banks prefer to limit their lending. However, although they reduce the amount of new loans they make, the public still have to keep up repayments on the debts they already have.

The problem is that when money is used to repay loans, that money is ‘destroyed’ and disappears from the economy. As the Bank of England describes:
“Just as taking out a new loan creates money, the repayment of bank loans destroys money… Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.” (Money Creation in the Modern Economy, Bank of England p3-4)

So when people repay loans faster than banks are making new loans, it’s like draining the oil from the engine of a car: the economy slows down and prices decrease. As a result the economy risks slipping into a ‘debt-deflation’ spiral, where wages and prices fall but people’s debts do not change in value, leading to debts becoming relatively more expensive in ‘real’ terms. Even those businesses and people that weren’t involved in creating the bubble suffer, causing a recession.

pushed up house prices faster than wages http://positivemoney.org/issues/house-prices/
Lord Adair Turner, speaking as chair of the Financial Services Authority, 6th February, 2013 http://www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf
Money Creation in the Modern Economy http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf


Sky Wanderer • 2 years ago
the banks regard lending to the richest individuals and banks as the the safest from their perspective, therefore they limit lending to the richest, ie to those who least need it, and these richest entities used much of these funds for lending to governments, who however “handle” the government deficit by austerity measures and spending cuts, which then further hinders the created money to return into production. (Note: This is the case not only in the UK but all over the Western world.)
This factor further reinforces the global processes that triggered Global Capitalism in the first place and the subsequent global Crisis.
The following charts display some of these processes – based on presentation series by Dr. Richard D. Wolff (Harvard-Stanford-Yale trained distinguished economist / professor) – along with the process-flow of the potential recovery from Crisis:

Sky Wanderer 12:46 AM – 8 Mar 2014
@glopol_analysis

@ZaRdOz420WPN Thank you! Fighting against #austerity is #1 task towards Recovery. New Deal in US led to econ boom! >

Patrick Trombly • 8 months ago
The crisis was the result of credit creation but the culprits were the central banks. This was a short-rate phenomenon, not a long-rate phenomenon.
The rapid rise in prices began in the late 1990s even while rates were flat or slightly up. This is because nominal incomes were rising. This didn’t slow down in 2000-2001 because you’re getting prequalified at last year’s income versus debt service at present rates.
From 2001-2005, median household income in the US rose by less than 10% NOMINALLY. Yet the maximum house price point for the median household rose by 57%, which more than accounts for the commensurate 46% rise in the Case-Shiller index. Most of the rise in affordability took place from 2001-2003. What made the maximum price point rise was the Fed’s rate cuts after 9/11. The Fed cut its benchmark rate from 6.25% to 1% by 2003, with most of the cuts coming right after 9/11. At the suddenly sharply lower rates, a given income could support a lot more debt; that debt in the hands of buyers bid house prices up; that value combined with the continued low rates enabled existing homeowners to refinance with significant cash out, and the amount of mortgage debt o/s in the US more than doubled.
ARM rates plummeted, and as rates stayed low, the banks’ margin on short-priced loans compressed. During this time, the 30 year mortgage rate also fell, but only by 125 bps, not 525 bps. And the canary in the coalmine – ARM share of all mortgages more than tripled, from 10% to 35%, from 2001-2005.
In mid-2004 the Fed began to slowly raise rates back up – and prices stopped rising. The long rates kept falling but the prices stopped going up.
Some people point to “crazy” lending standards. These were largely put in place beginning in mid-2004 – after most of the price rise had taken place. Another factor – delinquency rates had plummeted to record lows, and stayed at record lows until late 2006. We can look back now and conclude that delinquency rates fell because the Fed was lowering the bar (not everyone took the max, and so payments temporarily declined even as debt was rising) and because most of the cash-out refis left cash available for debt service prior to its being spent. But at the time, banks and investors took the falling delinquency rates and rapidly rising collateral values as signals to adjust their lending standards. There had also never been a law against lending to people without perfect FICOs – the prohibitive factor had always been constraints on the supply of credit – – once you’ve made the loans to the “good borrowers,” there was so little money left over that the “bad borrowers” could borrow only at very high rates – which itself limited the amount of debt they could take on, as the high rates translated into much higher payments on the same debt. With the dramatic expansion of credit, there was plenty of money left over to make loans to “bad borrowers” and at attractive rates, which were more likely to cash-flow. If you want to consider the banks “riverboat gamblers,” go ahead, but they got their chips from the central bank, the odds looked a lot better than they ended up being, and they were following the same rules they’d always followed.

Another factor often mentioned is “exotic mortgages.” This is a red-herring. The “exotic” feature of an “exotic” mortgage was the rate, which was the Fed’s rate plus a margin – a margin that got smaller and smaller as the Fed kept inflating (the rate is maintained by buying or selling whatever amount of securities is required to bring the market rate to the target rate – in the early 2000s, this was a matter of buying). The 2/28 structure was implemented because prices were rising so fast that banks lending on a 2/28 basis, even at 90 or 95 or 97 percent loan-to-value, were better collateralized two years in than they had been lending on a 30/30 basis at 80% LTV ten years earlier. And there is minimal payment “shock” from a 2/28, all other things being equal – for the first two years of any 30-year mortgage, the payment is almost entirely interest anyway.

The payment shocks came in when ARMs re-set. When home prices started slipping back, more homes became worth less than the loan amount, a term known as “under-water.” High-LTV-at-origination likely contributed to this, but again, such structures were put in place in response to a rapid price appreciation that could not have happened but-for the sharp cut in the rates.

Simply put, on the demand side, there is the Fed’s direct effect and the Fed’s indirect effect, through the banks. And how much do you blame the banks for that? What exactly is it that you would have expected the banks to do? Not make loans that had been made possible by virtue of Fed policy? The whole point of Fed policy WAS to create, in lieu of rising incomes, a wealth-effect to boost spending, and to “promote full employment” – it turns out that the only “employment promotion” was in construction, mortgage banking and retail jobs that would disappear in 2008-9. It’s a terrible policy to be sure. But is it the banks’ job to thwart it? Keep in mind also the mechanics of how rate policy works – the Fed buys as many securities and in whatever amounts are required to make the rate happen, and the rate is set to make certain economic objectives happen. If the banks hadn’t made the loans, one can only assume that the Fed would have cut further, to 0%, as it has done since.

On the supply side, single-family-detached-home developers are financed on a project-finance basis – i.e., at floating, Prime-based rates – and often with carried interest. Their cost of capital fell dramatically after the 9/11 rate cuts, and they built more homes from 2001-2005 than they’d built from 1987-2000 – – more in 4 years than in the prior 14. They COULDN’T have embarked on a building spree in the prior 14 years because the short rates were too high, and their cost of capital is based on the short rates. The overbuilding contributed greatly to the crash. There are no red herrings, no changes to bank lending standards, nothing at all to muddy the water on the supply side – it was pure credit-expansion bubble as described by Mises and Hayek decades ago.

Greenspan blames a “glut” of “foreign (read, Chinese) savings” flowing into long securities. But we’ve clearly shown this to be a short-rate-driven bubble, and the long rates stayed low, and even fell, even as US home prices peaked and started to slide. Also, the Chinese like other investors were reading the same delinquency rates and collateral price appreciation as the banks and making the same misinterpretation, that these were independent factors exhibiting strength, rather than temporary blips driven by the initial injection of fiat credit. Keep in mind also where that money came from – US homeowners who took advantage of the refi-with-cash-out boom in the early 2000s spent a lot of that money on goods imported from China… Those same dollars were then reinvested in US mortgages. Greenspan’s smart enough to put this trail together. He just hopes that you aren’t.

If it was the Fed, you’d expect (and if it was Chinese savings flowing into long-tenor US securities, you wouldn’t expect) that US house price appreciation would have been more pronounced in states in which ARM market share was the highest – and that’s exactly what happened.

If it was the Fed, how did Europe experience a housing bubble? The ECB also cut rates, and their bubble was pronounced in countries whose mortgage markets were characterized by floating or short-rate mortgages and long amortization periods, like Ireland and Spain. In Spain, there was substantial overbuilding because builders are financed the same way that SFDH builders are in the US. Countries without short-term pricing on mortgages didn’t experience either a price bubble or a building boom. One could re-write the lending structures to thwart Fed policy but then, why have the Fed policy? Wouldn’t it be simpler to just not inflate, given that no good came of it?

If it was the short rates and not something else, you’d expect other bubbles in short-rate-driven assets where there were no changes to lending standards.

Well, here’s one:

Taxi medallions (financed on a 3/25 basis) were a contemporaneous short-rate-induced bubble. Medallion prices followed the same math and the same path as house prices starting after the post-9/11 rate cuts – the difference is that unlike houses, they don’t increase production of taxi medallions in response to a rise in prices or reduction in rates, and so the supply limits held the bubble together until the Fed cut rates back down again, enabling the bubble to continue.

Hopefully in going on for so long I’ve laid to rest a lot of myths.

MM • 2 years ago
http://wh.gov/lRCHz
Here’s some more information about this petition:
Globalism and technology have translated into record profits, offshore bank accounts, lower taxes, and cheaper labor for America’s companies. American workers are more productive than any other time in history. Yet, our wages have stagnated for decades. Simply put, the lower demand for labor has allowed employers to reap their deserving benefits. Though, as we move forward into change and establishing order, we must take steps to preserve capitalism for the future. To accomplish this, America must do as it has done before by making work fair and prosperous for all. Please support non-exempt status for all. This will help liberate the salaried employee from an overworked unhealthy lifestyle; so that, we can give these hours to those who are desperately seeking work.

Zero Profit • 2 years ago
Banks are an essential part of our economy. Banks main function in an economy is get deposit from THE PEOPLE and from this deposit makes loan. The difference in the deposit interest and the loan interest is their revenue. Revenue minus their operational expense is their profit.
What happen with our financial crisis is that banks aside from getting deposit from THE PEOPLE, they get them from the central bank that print the money. Central bank would infuse money into banks through 3 mechanisms, 1. buy government bonds 2. loan money to banks 3. buy mortgage assets or securities from banks. During the financial crisis, central bank in the United States would print $7.7T to buy mortgage and securities from banks ABOVE market price to recapitalize them. For example, if a mortgage is worth $200,000 in the bank’s book, the Federal Reserve would pay the bank $300,000 for that mortgage. The result of this activity helps banks recover and the Federal Reserve becomes owner of millions of houses. The people react to this unfairness by refusing to pay their mortgage. The ill effect from this is, small banks begin to collapse as a result of people stop paying their mortgage. That in turn causes massive layoffs, fewer loans made … creating a ripple effect in the economy resulting in massive unemployment.
To fix this problem, the central banking system must be replaced by a distributed banking system where the people decide how much new money to print and that each person in the country get a share of the new money. This will bring the power of the monetary system to the people where it rightfully belong.
There’s a way to calculate this base on GDP, inflation rate, and consumer price index.


Thursday, 11 February 2016
FM: 2015 Was The Worst Year For The Stock Market Since 2008
2016-02-11 09:28 AM
http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
2015 Was The Worst Year For The Stock Market Since 2008

It’s official – 2015 was a horrible year for stocks. On the last day of the year, the Dow Jones Industrial Average was down another 178 points, and overall it was the worst year for the Dow since 2008. But of course the Dow was far from alone. The S&P 500, the Russell 2000 and Dow Transports also all had their worst years since 2008. Isn’t it funny how these things seem to happen every seven years? But compared to other investments, stocks had a relatively “good” year. In 2015, junk bonds, oil and industrial commodities all crashed hard – just like they all did just prior to the great stock market crash of 2008. According to CNN, almost 70 percent of all investors lost money in 2015, and things are unfolding in textbook fashion for much more financial chaos in 2016.

Globally, over the past 12 months we have seen financial shaking unlike anything that we have experienced since the last great financial crisis. During the month of August markets all over the world started to go haywire, and at one point approximately 11 trillion dollars of financial wealth had been wiped out globally according to author Jonathan Cahn.

Since that time, U.S. stocks rebounded quite a bit, but they still ended red for the year. Other global markets were not nearly as fortunate. Some major indexes finished 2015 down 20 percent or more, and European stocks just had their second worst December ever.

I honestly don’t understand the “nothing is happening” crowd. The numbers clearly tell us that a global financial crisis began in 2015, and it threatens to accelerate greatly as we head into 2016.

Actually, there are a whole lot of people out there that would be truly thankful if “nothing” had happened over the past 12 months. For example, there are five very unfortunate corporate CEOs that collectively lost 20 billion dollars in 2015…

Five CEOs of companies in the Russell 1000 index, including Nicholas Woodman of camera maker GoPro (GPRO), Sheldon Adelson of casino operator Las Vegas Sands (LVS) and even the famed investor Warren Buffett of Berkshire Hathaway (BRKA), lost more money on their companies’ shares than any other CEOs this year, according to a USA TODAY analysis of data from S&P Capital IQ.

These five CEOs were handed a whopping collective $20 billion loss on their company stock in 2015. Each and every one of these CEOs lost $1 billion or more – based on the average number of shares they’ve owned this year.

The biggest loser of the group was Warren Buffett.

He lost an astounding 7.8 billion dollars in 2015.

Do you think that he believes that “nothing happened” this past year?

And if “nothing happened”, then why are hedge funds “dropping like flies” right now? The following comes from Zero Hedge…

Two days, ago we noted that hedge funds are now dropping like flies in a year in which generating alpha has become virtually impossible for the majority of the vastly overpaid 2 and 20 “smart money” out there (and where levered beta is no longer the “sure thing” it used to be when the Fed was pumping trillions into stocks) when we reported that Seneca Capital, the $500 million multi-strat hedge fund belonging to Doug Hirsh (of Sohn Investment Conference fame), is shutting down.

And just within the last 24 hours, another very prominent hedge fund has collapsed. SAB Capital, which once managed more than a billion dollars, is shutting down after huge losses this year. Here is more from Zero Hedge…

It turns out that despite our intention, the question was not rhetorical because just a few hours later Bloomberg answered when it reported that the latest hedge fund shutdown casualty was another iconic, long-term investor: Scott Bommer’s SAB Capital, which as of a year ago managed $1.1 billion, and which after 17 years of managing money and after dropping roughly 11% in the first eight month of 2015, has decided to return all outside client money, and converting the hedge fund into a family office (after all one has to preserve one’s offshore tax benefits).

Overall, 674 hedge funds shut down during the first nine months of this year, and the final number for 2015 will actually be far higher because the rate of closings has accelerated as we have approached the end of this calendar year. When the final numbers come in, I would not be surprised to hear that 1,000 hedge funds had closed up shop in 2015.

Meanwhile, underlying economic conditions continue to deteriorate.

Corporate profits are steadily falling, the bond distress ratio just hit the highest level that we have seen since September 2009, and corporate debt defaults have risen to the highest level that we have seen since the last recession.

And this week we got a couple of new numbers that indicate that the U.S. economy is slowing down much faster than anticipated.

The first big surprise was the Dallas Fed’s general business activity index…

The Dallas Fed’s general business activity index plunged to -20.1 in December from -4.9 in November. This was much worse than the -7.0 expected by economists.

Any reading below 0 signals contraction, and this index has been below 0 all year.

The next big surprise was the Chicago purchasing manager index…

The Chicago purchasing manager index unexpectedly plunged to 42.9 in December, its lowest reading since July 2009.

Any reading below 50 signals a contraction in business activity.

This was down from 48.7 in November and much worse than the 50.0 expected by economists.

When the final numbers for the fourth quarter are in a few months from now, I believe that they will show that the U.S. economy officially entered recession territory at this time.

And the truth is that deep recessions have already started for some of the other biggest economies on the planet. For example, I recently wrote about the deep troubles that Canada is now experiencing, and things have already gotten so bad in Brazil that Goldman Sachs is referring to that crisis as “an outright depression”.

Many people seem to assume that since I have a website called “The Economic Collapse Blog” that I must want everything to fall apart. But that is not true at all. I love my country, I enjoy my life, and I would be perfectly content to spend 2016 peacefully passing the time here in the mountains with my wonderful wife. The longer things can stay somewhat “normal”, the better it is for all of us.

Unfortunately, for decades we have been making incredibly foolish decisions as a society, and the consequences of those decisions are now catching up with us in a major way.

Jonathan Cahn likes to say that “a great shaking is coming”, and I very much agree with him.

In fact, I think that it is going to be here a lot sooner than most people think.

So buckle up, because I believe that 2016 is going to be quite a wild ride.


junk bonds http://theeconomiccollapseblog.com/archives/guess-what-happened-the-last-time-junk-bonds-started-crashing-like-this-hint-think-2008
oil http://theeconomiccollapseblog.com/archives/guess-what-happened-the-last-time-the-price-of-oil-plunged-below-38-dollars-a-barrel
industrial commodities http://theeconomiccollapseblog.com/archives/the-global-commodity-crash-tells-us-that-a-major-deflationary-financial-crisis-is-imminent
almost 70 percent http://money.cnn.com/2015/12/31/investing/stocks-market-2015/index.html?iid=hp-stack-dom
author Jonathan Cahn http://amzn.to/1OnEijt
ever http://www.zerohedge.com/news/2015-12-31/european-stocks-plunge-worst-december-2002
20 billion dollars http://www.usatoday.com/story/money/markets/2015/12/28/ceos-lost-money-stock-2015/77891088/
Zero Hedge http://www.zerohedge.com/news/2015-12-31/another-hedge-fund-shuts-down-sab-capital-returns-all-outside-money
from Zero Hedge http://www.zerohedge.com/news/2015-12-31/another-hedge-fund-shuts-down-sab-capital-returns-all-outside-money
674 hedge funds http://www.zerohedge.com/news/2015-12-31/another-hedge-fund-shuts-down-sab-capital-returns-all-outside-money
are steadily falling http://www.businessinsider.com/q4-2015-earnings-preview-2015-12
since September 2009 http://www.usatoday.com/story/money/markets/2015/12/28/debt-distress-level-recession/77882786/
since the last recession http://money.cnn.com/2015/12/02/investing/defaults-bankruptcies-2009-great-recession/index.html?iid=hp-stack-dom
was the Dallas Fed’s general business activity index http://www.businessinsider.com/dallas-fed-manufacturing-dec-2015-2015-12
was the Chicago purchasing manager index http://www.businessinsider.com/chicago-pmi-dec-2015-2015-12
that Canada is now experiencing http://themostimportantnews.com/archives/suicide-crime-unemployment-and-poverty-all-soar-as-the-economic-crisis-in-alberta-accelerates
an outright depression http://theeconomiccollapseblog.com/archives/global-crisis-goldman-sachs-says-that-brazil-has-plunged-into-an-outright-depression


Thursday, 11 February 2016
FM: Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives
2016-02-11 09:31 AM
http://theeconomiccollapseblog.com/archives/financial-armageddon-approaches-u-s-banks-have-247-trillion-dollars-of-exposure-to-derivatives
Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

Did you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars? Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts. That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment. Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements. The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down. But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it. And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated. And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple. Here is a good definition of “derivatives” that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

I like to refer to the derivatives marketplace as a form of “legalized gambling”. Those that are engaged in derivatives trading are simply betting that something either will or will not happen in the future. Derivatives played a critical role in the financial crisis of 2008, and I am fully convinced that they will take on a starring role in this new financial crisis.

And I am certainly not the only one that is concerned about the potentially destructive nature of these financial instruments. In a letter that he once wrote to shareholders of Berkshire Hathaway, Warren Buffett referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Since the last financial crisis, the big banks in this country have become even more reckless. And that is a huge problem, because our economy is even more dependent on them than we were the last time around. At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008. The five largest banks account for approximately 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So the problem of “too big to fail” is now bigger than ever.

If those banks go under, we are all in for a world of hurt.

Yesterday, I wrote about how the Federal Reserve has implemented new rules that would limit the ability of the Fed to loan money to these big banks during the next crisis. So if the survival of these big banks is threatened by a derivatives crisis, the money to bail them out would probably have to come from somewhere else.

In such a scenario, could we see European-style “bail-ins” in this country?

Ellen Brown, one of the most fierce critics of our current financial system and the author of Web of Debt, seems to think so…

Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank.

Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured.

The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds. OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties.

For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back.

As I mentioned yesterday, the FDIC guarantees the safety of deposits in member banks up to a certain amount. But as Brown has pointed out, the FDIC only has somewhere around 70 billion dollars sitting around to cover bank failures.

If hundreds of billions or even trillions of dollars are ultimately needed to bail out the banking system, where is that money going to come from?

It would be difficult to overstate the threat that derivatives pose to our “too big to fail” banks. The following numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is on a level that is difficult to put into words…

Citigroup

Total Assets: $1,808,356,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $53,042,993,000,000 (more than 53 trillion dollars)

JPMorgan Chase

Total Assets: $2,417,121,000,000 (about 2.4 trillion dollars)

Total Exposure To Derivatives: $51,352,846,000,000 (more than 51 trillion dollars)

Goldman Sachs

Total Assets: $880,607,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $51,148,095,000,000 (more than 51 trillion dollars)

Bank Of America

Total Assets: $2,154,342,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $45,243,755,000,000 (more than 45 trillion dollars)

Morgan Stanley

Total Assets: $834,113,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $31,054,323,000,000 (more than 31 trillion dollars)

Wells Fargo

Total Assets: $1,751,265,000,000 (more than 1.7 trillion dollars)

Total Exposure To Derivatives: $6,074,262,000,000 (more than 6 trillion dollars)

As the “real economy” crumbles, major hedge funds continue to drop like flies, and we head into a new recession, there seems to very little alarm among the general population about what is happening.

The mainstream media is assuring us that everything is under control, and they are running front page headlines such as this one during the holiday season: “Kylie Jenner shows off her red-hot, new tattoo”.

But underneath the surface, trouble is brewing.

A new financial crisis has already begun, and it is going to intensify as we head into 2016.

And as this new crisis unfolds, one word that you are going to want to listen for is “derivatives”, because they are going to play a major role in the “financial Armageddon” that is rapidly approaching.


more than 247 trillion dollars http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq414.pdf
552.9 trillion dollars http://www.bis.org/statistics/d5_1.pdf
from Investopedia http://www.investopedia.com/terms/d/derivative.asp
security http://www.investopedia.com/terms/s/security.asp
assets http://www.investopedia.com/terms/a/asset.asp
stocks http://www.investopedia.com/terms/s/stock.asp
bonds http://www.investopedia.com/terms/b/bond.asp
commodities http://www.investopedia.com/terms/c/commodity.asp
currencies http://www.investopedia.com/terms/c/currency.asp
interest rates http://www.investopedia.com/terms/i/interestrate.asp
market indexes http://www.investopedia.com/terms/m/marketindex.asp
to shareholders of Berkshire Hathaway http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf
approximately 40 percent larger http://theeconomiccollapseblog.com/archives/most-people-cannot-even-imagine-that-an-economic-collapse-is-coming
42 percent http://fortune.com/2013/09/13/by-every-measure-the-big-banks-are-bigger/
67 percent http://fortune.com/2013/09/13/by-every-measure-the-big-banks-are-bigger/
Yesterday http://theeconomiccollapseblog.com/archives/january-1-2016-the-new-bank-bail-in-system-goes-into-effect-in-europe
Web of Debt http://amzn.to/1SlpPGs
Title II is aimed at “ensuring that payout to claimants http://www.larouchepub.com/other/2013/4022dodd_frank_us_bailin.html
derivative claims have super-priority over all other claims http://www.thedeal.com/thedealeconomy/the-case-against-favored-treatment-of-derivatives.php
The over-the-counter (OTC) derivative market http://www.fimarkets.com/pagesen/OTC_derivatives_CCP.php
the OCC’s most recent quarterly report (see Table 2) http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq414.pdf
crumbles http://themostimportantnews.com/archives/the-rise-of-the-temp-economy-more-u-s-employers-than-ever-want-a-disposable-workforce
drop like flies http://www.zerohedge.com/news/2015-12-29/hedge-funds-dropping-flies-doug-hirschs-seneca-capital-closing-after-20-years
a new recession http://theeconomiccollapseblog.com/archives/58-facts-about-the-u-s-economy-from-2015-that-are-almost-too-crazy-to-believe
Kylie Jenner shows off her red-hot, new tattoo http://www.usatoday.com/story/life/entertainthis/2015/12/29/kylie-jenner-gets-a-new-sanity-tattoo-on-her-hip/78010844/


Thursday, 11 February 2016
FM: Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever
2016-02-11 09:14 AM
http://www.theeconomiccollapseblog.com/archives/category/financial-markets
http://theeconomiccollapseblog.com/archives/stock-market-crash-2016-this-is-the-worst-start-to-a-year-for-stocks-ever
Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever

We have never had a year start the way that 2016 has started. In the U.S., the Dow Jones Industrial Average and the S&P 500 have both posted their worst four-day starts to a year ever. Canadian stocks are now down 21 percent since September, and it has been an absolute bloodbath in Europe over the past four days. Of course the primary catalyst for all of this is what has been going on in China. There has been an emergency suspension of trading in China two times within the past four days, and nobody is quite certain what is going to happen next. Eventually this wave of panic selling will settle down, but that won’t mean that this crisis will be over. In fact, what is coming is going to be much worse than what we have already seen.

On Thursday I was doing a show with some friends, and we were amazed that stocks just seemed to keep falling and falling and falling. The Dow closed down 392 points, and the NASDAQ got absolutely slammed. At this point, the Dow and the NASDAQ are both officially in “correction territory”, and some of the talking heads on television are warning that this could be the beginning of a “bear market”. But of course some of the other “experts” are insisting that this is just a temporary bump in the road.

But what everyone can agree on is that we have never seen a start to a year like this one. The following comes from CNN…

The global market freakout of 2016 just got worse.

The latest scare came on Thursday as China’s stock market crashed 7% overnight and crude oil plummeted to the lowest level in more than 12 years.

The Dow dropped 392 points on Thursday. The S&P 500 fell 2.4%, while the Nasdaq tumbled 3%.

The wave of selling has knocked the Dow down 911 points, or more than 5% so far this year. That’s the worst four-day percentage loss to start a year on record, according to FactSet stats that go back to 1897.

When CNN starts sounding like The Economic Collapse Blog, you know that things are really bad. I particularly like their use of the phrase “global market freakout”. I might have to borrow that one.

Even some of the biggest and most trusted stocks are plummeting. For instance, Apple dropped to $96.45 on Thursday. It is now down a total of 28 percent since hitting a record high of more than 134 dollars a share back in April.

So that means that if someone put all of their retirement money into Apple stock last April (which may have seemed like a really good idea at that time), by now more than one-fourth of that money is gone.

For months, I have been warning that the exact same patterns that we witnessed just prior to the great stock market crash of 2008 were happening again. To me, the parallels between 2008 and 2015/2016 were just uncanny. And now other very prominent names are making similar comparisons. According to the Washington Post, George Soros says that the way this new crisis is unfolding “reminds me of the crisis we had in 2008?…

Influential investor George Soros said that China had a “major adjustment problem” on its hands. “I would say it amounts to a crisis,” he told an economic forum in Sri Lanka, according to Bloomberg News. “When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008.”

Don’t get me wrong – I am certainly not a supporter of George Soros. My point is that we are starting to hear a lot of really ominous talk from a lot of different directions. All over the world, people are starting to understand that the next great financial crisis is already here.

As I write this tonight, I just feel quite a bit of sadness. A lot of hard working people are going to lose a lot of money this year, and that includes people that I know personally. I wish that my voice had been clearer and louder. I wish that I could have done more to get people to understand what was coming. I wish that my warnings could have made more of a difference.

I just think about how I would feel if everything that I had worked for all my life was suddenly wiped out. And that is what is going to end up happening to some of these people. When you lose everything, it can be absolutely debilitating.

You only make money in the markets if you get out in time. And unfortunately, most of the general population will be like deer in the headlights and won’t know which way to move.

There will be up days for the markets in our near future. But don’t be fooled by them. It is important to remember that some of the greatest up days in U.S. stock market history were right in the middle of the stock market crash of 2008. So don’t let a rally fool you into thinking that the crisis is over.

The financial crisis that began in the second half of 2015 is now accelerating, and everything that we have witnessed over the past few days is just a natural extension of what has already been happening.

Personally, I am just really looking forward to this weekend when I will hopefully get caught up on some rest. Plus, my Washington Redskins will be hosting a playoff game on Sunday, and if they find a way to win that game that will put me in a particularly positive mood.

It is good to enjoy these simple pleasures while we still can. Unprecedented chaos is coming this year, and we are all going to need strength and courage for what is ahead.


21 percent http://www.zerohedge.com/news/2016-01-07/bloodbath
two times within the past four days http://theeconomiccollapseblog.com/archives/7-percent-crash-causes-emergency-shutdown-of-stock-markets-in-china-for-the-2nd-time-in-4-days
CNN http://money.cnn.com/2016/01/07/investing/stocks-markets-dow-china/index.html
the Washington Post https://www.washingtonpost.com/world/china-stocks-plunge-7-percent-triggering-another-market-closure/2016/01/07/d6a83bf5-10b2-4289-8aab-98e485a3fe6e_story.html

Thursday, 11 February 2016
FM: Stock Markets All Over The World Crash As We Begin 2016
2016-02-11 09:18 AM
http://theeconomiccollapseblog.com/archives/stock-markets-all-over-the-world-crash-as-we-begin-2016
Stock Markets All Over The World Crash As We Begin 2016

The first trading day of 2016 was full of chaos and panic. It started in Asia where the Nikkei was down 582 points, Hong Kong was down 587 points, and Chinese markets experienced an emergency shutdown after the CSI 300 tumbled 7 percent. When European markets opened, the nightmare continued. The DAX was down 459 points, and European stocks overall had their worst start to a year ever. In the U.S., it looked like we were on course for a truly historic day as well. The Dow Jones Industrial Average was down 467 points at one stage, but some very mysterious late day buying activity helped trim the loss to just 276 points at the close of the market. The sudden market turmoil caught many by surprise, but it shouldn’t have. The truth is that a whole host of leading indicators have been telling us that this is exactly what should be happening. The global financial crisis that began in 2015 is now accelerating, and my regular readers already know precisely what is coming next.

The financial turmoil of the last 24 hours is making headlines all over the globe. It began last night in China. Very bad manufacturing data and another troubling devaluation of the yuan sent Chinese stocks tumbling to a degree that we have not seen since last August. In fact, the carnage would have probably been far, far worse if not for a new “circuit breaker” that China recently implemented. Once the CSI 300 was down 7 percent, trading was completely shut down for the rest of the day. The following comes from USA Today…

Under a new market “circuit breaker” rule in China established last year, which is designed to slow down markets and halt panic in the event of moves of 5% or more, the CSI 300, a large-company stock index in mainland China was halted for 15 minutes in mid-afternoon trading after diving more than 5%. But when shares headed lower once again just minutes after the initial trading halt, and losses for the day swelled to more than 7%, the new circuit breaker rules kicked in, prompting a shutdown of mainland China’s stock market for the day, according to Bloomberg.

After the first 15 minute halt, panic set in as Chinese traders rushed to get out of their trades before the 7 percent circuit breaker kicked in. This resulted in an absolutely chaotic seven minutes as investors made a mad dash for the exits…

The sell orders piled up fast on Monday at Shenwan Hongyuan Group, China’s fifth-biggest brokerage by market value.

China’s CSI 300 Index had just tumbled 5 percent, triggering a 15-minute trading halt, and stock investors were scrambling to exit before getting locked in by a full-day suspension set to take effect at 7 percent. When the first halt was lifted, the market reaction was swift: it took just seven minutes for losses to reach the limit as volumes surged to their highs of the day.

“Investors rushed to the door during the level-one stage of the circuit breaker as they fretted the market would go down further,” said William Wong, the head of sales trading at Shenwan Hongyuan in Hong Kong.

The financial carnage continued once the European markets opened. Markets were red all across the continent, and things were particularly bad in Germany. The DAX was down 459 points, and it is rapidly approaching the psychologically-important 10,000 barrier. Overall, it was the worst start to a year that the European markets have ever experienced.

When U.S. markets opened, unexpectedly bad U.S. manufacturing data seemed to add fuel to the fire. Monday morning we learned that our manufacturing sector is contracting at a pace that we haven’t seen since the last recession…

America’s manufacturing sector shrank for the second straight month in December. The industry’s key index – ISM – hit 48.2% in December, the lowest mark since June 2009. Anything below 50% is a contraction and a month ago it hit 48.6%.

The index has fallen for six straight months.

“The trend is certainly heading in a direction that would ring alarm bells,” says Sam Bullard, senior economist at Wells Fargo.

This is yet another sign that tells us that the U.S. economy has already entered the next recession.

And what happens to the markets during a recession?

They go down.

In addition to the bad data that we got from the U.S. and China, there was another number that was also extremely troubling.

South Korean exports have traditionally been considered a key leading indicator for the entire global economy, and on Monday we learned that they were down a whopping 13.8 percent in December from a year earlier…

One of the more reliable indicators of the global economy continues to confirm fears of a worldwide slowdown.

South Korean exports – also referred to as the world’s economic canary in the coal mine – fell 13.8% in December from a year earlier.

This was a deterioration from the 4.8% decline in November, and it was much worse than the 11.7% decline expected by economists.

The “nothing is happening” crowd may not be willing to admit it yet, but the truth is that a major global economic slowdown is already happening.

And what happened to global markets today is perfectly consistent with the longer term patterns that have been emerging over the past six months or so.

In the weeks and months to come, things are going to get even worse. There will always be days when the markets are up, but don’t let those days fool you into thinking that the crisis is over. In the western world we are so accustomed to 48 hour news cycles, and many of us seem to be incapable of focusing on trends that develop over longer periods of time.

If I was going to put together a scenario for a global financial crisis for a textbook, what we have seen over the past six months or so would be perfect. Things are playing out exactly how they should be, and that means big trouble for the rest of 2016.

But that doesn’t mean that we have to live in fear. In fact, I just wrote an entire article entitled “2016: A Year For Living With No Fear”. It is when times are at their worst that our character is put to the test. Some will respond to what happens in 2016 with courage and strength, and others will respond with fear and panic.

As things start falling apart all around us this year, how will you respond?


ever http://www.zerohedge.com/news/2016-01-04/european-stocks-suffer-worst-start-year-ever
that this is exactly what should be happening http://theeconomiccollapseblog.com/archives/what-really-happened-in-2015-and-what-is-coming-in-2016
in 2015 http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
USA Today http://www.usatoday.com/story/money/markets/2016/01/04/dow-tumbles-300-points-pre-market-after-china-rout/78250234/
an absolutely chaotic seven minutes http://www.bloomberg.com/news/articles/2016-01-04/china-s-seven-minute-selling-frenzy-shows-circuit-breaker-risks
that we haven’t seen since the last recession http://money.cnn.com/2016/01/04/news/economy/us-manufacturing-shrinks-again/index.html?iid=hp-stack-dom
a whopping 13.8 percent http://www.businessinsider.com/south-korean-exports-december-2016-1
2016: A Year For Living With No Fear http://themostimportantnews.com/archives/2016-a-year-for-living-with-no-fear


Thursday, 11 February 2016
FM: The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno
2016-02-11 09:34 AM
http://theeconomiccollapseblog.com/archives/the-rate-hike-stock-market-crash-has-thrown-gasoline-onto-an-already-raging-global-financial-inferno
The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno

Inferno – Public DomainIf the stock market crash of last Thursday and Friday had all happened on one day, it would have been the 7th largest single day decline in U.S. history. On Friday, the Dow Jones Industrial Average was down 367 points after finishing down 253 points on Thursday. The overall decline of 620 points between the two days would have been the 7th largest single day stock market crash ever experienced in the United States if it had happened within just one trading day. If you will remember, this is precisely what I warned would happen if the Federal Reserve raised interest rates. But when news of the rate hike first came out on Wednesday, stocks initially jumped. This didn’t make any sense at all, and personally I was absolutely stunned that the markets had behaved so irrationally. But then we saw that on Thursday and Friday the markets did exactly what we thought they would do. The chief economist at Gluskin Sheff, David Rosenberg, is calling the brief rally on Wednesday “a head-fake of enormous proportions”, and analysts all over Wall Street are bracing for what could be another very challenging week ahead.

When the Federal Reserve decided to lift interest rates, they made a colossal error. You don’t raise interest rates when a global financial crisis has already started. That is absolutely suicidal. It is the kind of thing that you would do if you were trying to bring down the global financial system on purpose.

Surely the “experts” at the Federal Reserve can see what is happening. Junk bonds have already crashed, just like they did in 2008. The price of oil has crashed, just like it did in 2008. Commodity prices have crashed, just like they did in 2008. And more than half of all major global stock market indexes are already down at least 10 percent for the year so far.

You don’t raise interest rates in that kind of an environment.

You would have to be utterly insane to do so.

The Federal Reserve has thrown fuel onto a global financial inferno that is already raging, and things could spiral out of control very rapidly.

As far as this upcoming week is concerned, we have now entered “liquidation season”. Investors are going to be pulling their money out of poorly performing hedge funds before the end of the calendar year, and as CNBC has pointed out, more hedge funds have already failed in 2015 than at any point since the last financial crisis…

Liquidation season occurs when clients of poorly performing hedge funds ask for their money back. It tends to occur at the end of a quarter or year. In response, hedge funds must sell stocks in the open market to raise the money that needs to be returned to investors.

That means if a hedge fund performed poorly this year; it is probably flooded with liquidation requests right now. In fact, there have been more failed hedge funds this year than any time since 2008.

The dominoes are starting to fall. We have already seen funds run by Third Avenue Management, Stone Lion Capital Partners and Lucidus Capital Partners collapse. Amazingly, there are some people out there that are still attempting to claim that “nothing is happening” even in the midst of all of this chaos.

As they say, “denial” is not just a river in Egypt.

And this crisis is going to get even worse as we head into 2016. Egon von Greyerz, the founder of Matterhorn Asset Management, is convinced that we will soon see “one disaster after another”…

Greyerz predicts, “I think we will have one disaster after another, first in the junk bond market, then in emerging markets and, after that, the subprime markets. Subprime car loans and student loans I see as another massive problem area. It is going to be one thing after another that will unravel. Since 2008, when the world almost went under, we have printed or increased credit by 50% or by $70 trillion, and the world economy is still struggling to survive. I think the real change in confidence will come down when markets come down. . . . I think things will come down very quickly.”

And I think that he is right on target. The global financial system is more interconnected today than ever before, and when one financial institution fails, it inevitably affects dozens of others. And the failures that we have already seen are already spreading a wave of fear and panic that may be difficult to stop. The following comes from Business Insider, and I think that it is a pretty good explanation of what we could see next…

  • Funds such as Third Avenue and Lucidus close, liquidating their portfolios.
  • Investors, spooked by the closures and the risk that they might not be able to get their money out of these funds, make a rush for the exits while they still can.
  • That creates even more selling pressure.
  • Funds sell the assets that are easiest to sell as they look to reduce risk, which pushes the selling pressure from the risky parts of the market to the higher-quality part of the market.
  • Things evolve from there.

If you have been waiting for the next financial crisis to arrive, you can stop, because it is already unfolding right in front of our eyes.

The only question is how bad it is going to become.

In the final analysis, I find myself agreeing quite a bit with Charles Hugh Smith, the author of “A Radically Beneficial World: Automation, Technology and Creating Jobs for All”. He believes that the ridiculous monetary policies of the Federal Reserve have played a primary role in setting the stage for this new crisis, and that now this giant financial “Death Star” that they have created “is about to blow up”…

By slashing rates to zero, the Fed ruthlessly eliminating safe returns for savers, pension funds, insurers and the millions of people with 401K retirement nesteggs. In effect, the Fed-Farce has pushed everyone into risk assets-and then played another Dark Side mind-trick by masking the true dangers of these risky assets.

As oil-sector debt blows up, as junk bonds blow up, and emerging markets blow up, we are finally starting to see the real costs of going over to the Dark Side of endless credit expansion and throwing the gasoline of near-zero interest rates on the speculative fires of financialization.

The Fed’s hubris has led it to the Dark Side, and now its Death Star of impaired debt, phantom collateral, speculative frenzy and bogus mind-tricks is about to blow up.

Personally, instead of saying that it “is about to blow up”, I would have said that it is already blowing up.

We have already seen trillions upon trillions of dollars of wealth wiped out around the world.

Energy companies are failing, giant hedge funds are going under, and the 7th largest economy on the entire planet has already plunged into “an outright depression”.

Everyone that warned of financial disaster in the second half of 2015 has been proven right, but this is just the beginning. Now that the Federal Reserve has thrown gasoline onto the fire, our problems are only going to accelerate as we head into 2016.

So for the upcoming year, let us hope for the best, but let us also prepare for the worst.


what I warned would happen http://theeconomiccollapseblog.com/archives/december-14th-to-18th-a-week-of-reckoning-for-global-stocks-if-the-fed-hikes-interest-rates
a head-fake of enormous proportions http://www.usatoday.com/story/money/markets/2015/12/18/stocks-friday/77546286/
has already started http://theeconomiccollapseblog.com/archives/this-is-what-a-financial-crisis-looks-like
have already crashed http://theeconomiccollapseblog.com/archives/guess-what-happened-the-last-time-junk-bonds-started-crashing-like-this-hint-think-2008
has crashed http://theeconomiccollapseblog.com/archives/guess-what-happened-the-last-time-the-price-of-oil-plunged-below-38-dollars-a-barrel
have crashed http://theeconomiccollapseblog.com/archives/the-global-commodity-crash-tells-us-that-a-major-deflationary-financial-crisis-is-imminent
at least 10 percent http://theeconomiccollapseblog.com/archives/jp-morgan-and-citigroup-agree-that-the-u-s-economy-is-steamrolling-toward-a-recession
as CNBC has pointed out http://www.cnbc.com/2015/12/18/cramer-game-plan-market-bottom-could-be-trapdoor.html
“one disaster after another” http://usawatchdog.com/2016-will-be-one-disaster-after-another-egon-von-greyerz/
Business Insider http://www.businessinsider.com/high-yield-bonds-how-they-work-and-why-theyre-scary-2015-12
A Radically Beneficial World: Automation, Technology and Creating Jobs for All http://amzn.to/1ZjqtGp
“is about to blow up” http://www.oftwominds.com/blogdec15/star-wars12-15.html
an outright depression http://theeconomiccollapseblog.com/archives/global-crisis-goldman-sachs-says-that-brazil-has-plunged-into-an-outright-depression


Thursday, 11 February 2016
FM: This Is What A Financial Crisis Looks Like
2016-02-11 09:36 AM
http://theeconomiccollapseblog.com/archives/this-is-what-a-financial-crisis-looks-like
This Is What A Financial Crisis Looks Like

Just within the past few days, three major high yield funds have completely imploded, and panic is spreading rapidly on Wall Street. Funds run by Third Avenue Management and Stone Lion Capital Partners have suspended payments to investors, and a fund run by Lucidus Capital Partners has liquidated its entire portfolio. We are witnessing a race for the exits unlike anything that we have seen since the great financial crash of 2008, and many of those that choose to hesitate are going to end up getting totally wiped out. In case you are wondering, this is what a financial crisis looks like. In 2008, other global stock markets started to tumble, then junk bonds began to crash, and finally U.S. stocks followed. The exact same pattern is playing out again, and the carnage that we have seen so far is just the tip of the iceberg.

Since the end of 2009, a high yield bond ETF that I watch very closely known as JNK has been trading in a range between 36 and 42. I have been waiting all this time for it to dip below 35, because I knew that would be a sign that the next major financial crisis was imminent.

In September, it closed as low as 35.33 at one point, but that was not the signal that I was looking for. Finally, early last week JNK broke below 35 for the very first time since the last financial crisis, and since then it has just kept on falling. As I write this, JNK has plummeted all the way to 33.42, and Bloomberg is reporting that many bond managers “are predicting more carnage for high-yield investors”…

Top bond managers are predicting more carnage for high-yield investors amid a market rout that forced at least three credit funds in the past week to wind down.

Lucidus Capital Partners, a high-yield fund founded in 2009 by former employees of Bruce Kovner’s Caxton Associates, said Monday it has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month. Funds run by Third Avenue Management and Stone Lion Capital Partners have stopped returning cash to investors, after clients sought to pull too much money.

When it says that those firms “have stopped returning cash to investors”, what that means is that many of those investors will be lucky to get pennies on the dollar when it is all said and done.

Like I said, now that the crisis has started, the ones that are going to lose the most are those that hesitate.

And just check out some of the very big names that are “warning of more high-yield trouble ahead”…

Scott Minerd, global chief investment officer at Guggenheim Partners, predicts 10 percent to 15 percent of junk bond funds may face high withdrawals as more investors worry about getting their money back. He joins money managers Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross in warning of more high-yield trouble ahead.

In this type of environment, the Federal Reserve would have to be completely insane to raise interest rates.

Unfortunately, that appears to be exactly what is going to happen.

If the Fed raises rates, that is going to make corporate debt defaults even more likely and will almost certainly drive high-yield bonds down even further…

Higher rates could make corporate bond defaults more likely and investors are already bailing out of the sector, pulling $3.8 billion out of high-yield funds in the week ended December 9, the biggest move in 15 weeks. The effective yield on U.S. junk bonds is now 17 percent, the highest level in five years, according to Bank of America Merrill Lynch data.

A whole host of prominent names are warning that the Fed is about to make a tragic mistake. One of them is James Rickards…

“The Fed should have raised interest rates in 2010 and 2011 and if they did that they would actually be in a position to cut them today,” said James Rickards, a central bank critic and chief global strategist at West Shore Funds. “The Fed is on the brink of committing a historic blunder that may rank with the mistakes it made in 1927 and 1929. By raising into weakness, they will likely cause a recession.”

In 2015, we have already seen stocks crash all over the globe. Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and some of them were down by as much as 30 or 40 percent. At this point, conditions are absolutely perfect for a frightening collapse of U.S. markets, and the Federal Reserve is about to pour gasoline on to the fire.

Anyone that says that “nothing is happening” is either completely misinformed or is totally crazy.

I like how James Howard Kunstler summarized what we are currently facing…

Equities barfed nearly four percent just last week, credit is crumbling (nobody wants to lend), junk bonds are tanking (as defaults loom), currencies all around the world are crashing, hedge funds can’t give investors their money back, “liquidity” is AWOL (no buyers for janky securities), commodities are in freefall, oil is going so deep into the sub-basement of value that the industry may never recover, international trade is evaporating, the president is doing everything possible in Syria to start World War Three, and the monster called globalism is lying in its coffin with a stake pointed over its heart.

The financial markets held together far longer than many people thought that they would, but now they are finally coming apart at the seams.

Moving forward, the “winners” are going to be the people that pull their money out the fastest. This is especially true for high risk funds like the three that just imploded. If you hesitate, you could end up losing everything.

And as this rush for the exits accelerates, sellers are going to greatly outnumber buyers, and this is going to push prices down at a very rapid pace. We are going to hear a lot about a “lack of liquidity” in the days ahead, but the truth is that what we will really be looking at is a good old-fashioned panic.


began to crash http://theeconomiccollapseblog.com/archives/guess-what-happened-the-last-time-junk-bonds-started-crashing-like-this-hint-think-2008
Bloomberg is reporting http://www.bloomberg.com/news/articles/2015-12-14/investors-see-more-carnage-as-third-avenue-spurs-contagion-risk
“warning of more high-yield trouble ahead” http://www.bloomberg.com/news/articles/2015-12-14/investors-see-more-carnage-as-third-avenue-spurs-contagion-risk
appears to be exactly what is going to happen http://theeconomiccollapseblog.com/archives/december-14th-to-18th-a-week-of-reckoning-for-global-stocks-if-the-fed-hikes-interest-rates
even more likely http://www.politico.eu/article/end-of-transatlantic-affair-central-banks-fed-ecb-interest-rates-united-states-eu-draghi-yellen/
James Rickards http://www.politico.eu/article/end-of-transatlantic-affair-central-banks-fed-ecb-interest-rates-united-states-eu-draghi-yellen/
were down more than 10 percent year to date http://theeconomiccollapseblog.com/archives/the-global-commodity-crash-tells-us-that-a-major-deflationary-financial-crisis-is-imminent
James Howard Kunstler http://kunstler.com/clusterfuck-nation/fedpocalypse-now/

Thursday, 11 February 2016
FM: What Really Happened In 2015, And What Is Coming In 2016…
2016-02-11 09:20 AM
http://theeconomiccollapseblog.com/archives/what-really-happened-in-2015-and-what-is-coming-in-2016
What Really Happened In 2015, And What Is Coming In 2016…

A lot of people were expecting some really big things to happen in 2015, and most of them did not happen. But what did happen? It is my contention that a global financial crisis began during the second half of 2015, and it threatens to greatly accelerate as we enter 2016. During the last six months of the year that just ended, financial markets all over the planet crashed, trillions of dollars of global wealth was wiped out, and some of the largest economies in the world plunged into recession. Here in the United States, 2015 was the worst year for stocks since 2008, nearly 70 percent of all investors lost money last year, and it is being projected that the final numbers will show that close to 1,000 hedge funds permanently shut down within the last 12 months. This is what the early stages of a financial crisis look like, and the worst is yet to come.

If we were entering another 2008-style crisis, we would expect to see junk bonds crashing. When financial trouble starts, it usually doesn’t start with the biggest and strongest companies. Instead, it usually starts percolating on the periphery. And right now bonds of firms that are considered to be on the risky side of things are rapidly losing value.

In the chart below, you can see that a high yield bond ETF that I track very closely known as JNK started crashing in the middle of 2008. This crash began to unfold before the horrific crash of stocks in the fall. Investors that saw junk bonds crashing in advance and pulled their money out of stocks in time saved an enormous amount of money.

Now, for the very first time since the last financial crisis, we are seeing junk bonds crash again. In December, there was finally a sustained crash through the psychologically-important 35.00 level, and at this point JNK is sitting a bit below 34.00. This stunning decline is a giant red flag that tells us that stocks will soon follow in the exact same direction…

JNK-460×163.png
JNK

In 2015, Third Avenue Management shocked Wall Street when they froze withdrawals from a 788 million dollar mutual fund that was highly focused on junk bonds. Investors that couldn’t get their money out began to panic, and other mutual funds now find themselves under siege. If junk bonds continue to crash, this will just be the beginning of the carnage.

One of the big reasons why junk bonds are crashing is because of the crash in the price of oil. Over the past 18 months, the price of oil has plummeted from $108 a barrel to $37 a barrel.

There has only been one other time in all of history when we have ever seen an oil price crash of this magnitude. That was in 2008 – just before the greatest financial crisis since the Great Depression…

Oil-Federal-Reserve-460×306.png
Oil – Federal Reserve

Why can’t people see the parallels?

Crashes are happening all around us, and yet so many of the “experts” seem completely blind to what is going on.

Unlike 2008, the price of oil is not expected to rapidly rebound any time soon. The following comes from CNN…

Crude prices dropped a whopping 35% last year and are hovering around $37 a barrel. That’s a level not seen since the global financial crisis.

It won’t get better any time soon. Most oil experts believe prices will bounce back in late 2016, but they expect more pain first.

Goldman Sachs forecasts that oil will average about $38 a barrel in February, even lower than for most of 2015.

Meanwhile, the prices of industrial commodities have been crashing as well. For example, the chart below shows that the price of copper started crashing hard just before the great financial crisis of 2008, and the exact same thing is happening once again right before our very eyes…

Price-Of-Copper.png
Price Of Copper

Things are unfolding just as we would expect they would during the initial stages of a new global financial crisis.

And we have already seen a full blown stock market crash in many of the largest economies around the planet. For instance, just look at what has been happening in Brazil. The Brazilians have the 7th largest economy in the world, and Goldman Sachs says that they have plunged into an “outright depression”. In the chart below, you can see the sharp downturn that took place in August, and Brazilian stocks actually kept falling all the way through the end of 2015…

Brazil-Stock-Market-460×374.png
Brazil Stock Market

We see a similar thing when we look at our neighbor to the north. Canada has the 11th largest economy on the entire planet, and I recently wrote a lengthy article about the economic difficulties that the Canadians are now facing. 2015 was a very bad year for Canadian stocks as well, and they just kept falling steadily all the way through December…

Canada-Stock-Market-460×300.png
Canada Stock Market

Of course nobody can forget what happened to China. The Chinese have the second largest economy on the globe, and news about their economic slowdown in making headlines almost every single day now.

Last summer, Chinese stocks crashed about 40 percent, and they did manage to bounce back just a bit since then. But they are still down about 30 percent from the peak of the market…

China-Stock-Market-460×355.png
China Stock Market

And there is plenty more that we could talk about. European stocks just had their second worst December ever, and Japanese stocks are down about 500 points in early trading as I write this article.

Here in the United States, the Dow Jones Industrial Average, Dow Transports, the S&P 500 and the Russell 2000 all had their worst years since 2008. As I mentioned the other day, 674 hedge funds shut down during the first nine months of 2015, and it is being projected that the final total for the year will be up around 1000.

But we aren’t hearing much about this financial carnage on the news yet, are we?

Many people that I talk to still think that “nothing is happening”, but don’t you dare say that to Warren Buffett.

He lost 7.8 billion dollars in 2015.

How would you feel if you lost 7.8 billion dollars in a single year?

The truth, of course, is that signs of financial chaos are erupting all around us. Corporate profits are plunging, the bond distress ratio just hit the highest level that we have seen since the last financial crisis, and corporate debt defaults have risen to the highest level that we have seen in about seven years.

If you run a business, you may have noticed that fewer people are coming in and it seems like those that do come in have less money to spend. Economic activity is slowing down, and inventories are piling up. In fact, wholesale inventories have now risen to the highest level that we have seen since the last recession…

Inventory-To-Sales-Ratio-deral-Reserve-460×306.png
Inventory To Sales Ratio – Federal Reserve

Do you notice a theme?

So many things that have not happened in six or seven years are now happening again.

History may not repeat, but it sure does rhyme, and it astounds me that more people cannot see that 2015/2016 is looking eerily similar to a replay of 2008/2009.

Another number that I watch closely is the velocity of money. When an economy is running well, money tends to circulate efficiently through the system. But when an economy gets into trouble, people get scared and start holding on to their money. As you can see from the chart below, the velocity of money declined during every single recession since 1960. This is precisely what one would expect. And of course during the recession that started in 2008, the velocity of money plunged precipitously. But then a funny thing happened when that recession supposedly “ended”. The velocity of money just kept going down, and now it has fallen to an all-time record low…

Velocity-Of-Money-M2-460×306.png
Velocity Of Money M2

A big reason for this is the ongoing decline of the middle class. In 2015, we learned that middle class Americans now make up a minority of the population for the first time ever.

But if you go back to 1971, 61 percent of all Americans lived in middle class households.

Meanwhile, the share of the income pie that the middle class takes home has also continued to shrink.

In 1970, the middle class brought home approximately 62 percent of all income. Today, that number has fallen to just 43 percent.

As the middle class is systematically destroyed, the number of Americans living in poverty just continues to grow. And those that often suffer the most are the children. It may be hard for you to believe, but the number of homeless children in the U.S. has increased by 60 percent over the past six years.

60 percent!

How in the world can anyone dare to claim that “things are getting better”?

Anyone that says that should be ashamed of themselves.

We are in the midst of a long-term economic collapse that is now accelerating once again.

Anyone that tries to tell you that “things are getting better” and that 2016 is going to be a better year than 2015 is simply not being honest with you.

A new global financial crisis erupted during the last six months of 2015, and this new financial crisis is going to intensify throughout the early months of 2016. Financial institutions will begin falling like dominoes, and this will result in a great credit crunch around the world. Businesses will fail, unemployment will skyrocket and millions will suddenly be faced with economic despair.

By the time it is all said and done, this new financial crisis will be even worse than what we experienced back in 2008, and the suffering that we will see around the world will be off the charts.

So does that mean that I am down about this year?

Not at all. In fact, my wife and I are greatly looking forward to 2016. In the midst of all the chaos and darkness, there will be great opportunities to do good and to make a difference.

What a great shaking comes, people go looking for answers. And I think that this will be a year when millions of people start to understand that our politicians and the mainstream media are not telling them the truth.

Yes, great challenges are coming. But now is not a time to dig a hole and try to hide from the world. Instead, this will be a time for those that have prepared in advance to love others, help others and show them the truth.

What about you?

Are you ready to be a light during the dark times that are coming?

Please feel free to join the conversation by posting a comment below…


since 2008 http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
nearly 70 percent http://money.cnn.com/2015/12/31/investing/stocks-market-2015/index.html?iid=hp-stack-dom
from CNN http://money.cnn.com/2016/01/01/investing/oil-prices-2016/index.html?iid=hp-stack-dom
outright depression http://theeconomiccollapseblog.com/archives/global-crisis-goldman-sachs-says-that-brazil-has-plunged-into-an-outright-depression
a lengthy article http://themostimportantnews.com/archives/suicide-crime-unemployment-and-poverty-all-soar-as-the-economic-crisis-in-alberta-accelerates
ever http://www.zerohedge.com/news/2015-12-31/european-stocks-plunge-worst-december-2002
the other day http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
674 hedge funds http://www.zerohedge.com/news/2015-12-31/another-hedge-fund-shuts-down-sab-capital-returns-all-outside-money
7.8 billion dollars http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
are plunging http://www.businessinsider.com/q4-2015-earnings-preview-2015-12
since the last financial crisis http://www.usatoday.com/story/money/markets/2015/12/28/debt-distress-level-recession/77882786/
in about seven years http://money.cnn.com/2015/12/02/investing/defaults-bankruptcies-2009-great-recession/index.html?iid=hp-stack-dom
now make up a minority of the population http://www.latimes.com/nation/la-fi-middle-class-erosion-20151209-story.html
61 percent http://www.latimes.com/nation/la-fi-middle-class-erosion-20151209-story.html
62 percent http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/st_2015-12-09_middle-class-01/
43 percent http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/st_2015-12-09_middle-class-01/
by 60 percent http://www.homelesschildrenamerica.org/mediadocs/280.pdf


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