Home » Posts tagged 'financial crisis' (Page 12)

Tag Archives: financial crisis

The Dow closed above 18,000 on Monday for the first time since July. Isn’t that great news? I truly wish that it was. If the Dow actually reflected economic reality, I could stop writing about “economic collapse” and start blogging about cats or football. Unfortunately, the stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even USA Today is reporting on it…

Get ready to step over some landmines, investors. The number of companies defaulting on their debt is hitting levels not seen since the financial crisis, and it’s not just a problem for bondholders.

So far this year, 46 companies have defaulted on their debt, the highest level since 2009, according to S&P Ratings Services. Five companies defaulted this week, based on the latest data available from S&P Ratings Services. That includes New Jersey-based specialty chemical company Vertellus Specialties and Ohio-based iron ore producer Cliffs Natural. Of the world’s defaults this year, 37 are of companies based in the U.S.

Meanwhile, coal producer Peabody Energy (BTU) and surfwear seller Pacific Sunwear (PSUN) this week filed plans for bankruptcy protection. Shares of Peabody have dropped 97% over the past year to $2 a share and Pacific Sunwear stock is off 98% to 4 cents a share.

A lot of big companies in this country have fallen on hard times, and it looks like bankruptcy attorneys are going to be absolutely swamped with work for the foreseeable future.

So why are stock prices soaring right now? After all, it doesn’t seem to make any sense whatsoever.

…click on the above link to read the rest of the article…

Quantitative to Qualitative–Is Unelected Nationalisation Next?

April 11, 2016

QUANTITATIVE TO QUALITATIVE – IS UNELECTED NATIONALISATION NEXT?

Last year, in a paper entitled The Stock Market Crash Really Did Cause the Great Recession – Roger Farmer of UCLA argued that the collapse in the stock market was the cause of the Great Recession:-

In November of 2008 the Federal Reserve more than doubled the monetary base from eight hundred billion dollars in October to more than two trillion dollars in December: And over the course of 2009 the Fed purchased eight hundred billion dollars worth of mortgage backed securities. According to the animal spirits explanation of the recession (Farmer, 2010a, 2012a,b, 2013a), these Federal Reserve interventions in the asset markets were a significant factor in engineering the stock market recovery.

The animal spirits theory provides a causal chain that connects movements in the stock market with subsequent changes in the unemployment rate. If this theory is correct, the path of unemployment depicted in Figure 8 is an accurate forecast of what would have occurred in the absence of Federal Reserve intervention. These results support the claim, in the title of this paper, that the stock market crash of 2008 really did cause the Great Recession.

Central banks (CBs) around the globe appear to concur with his view. Their response to the Great Recession has been the provision of abundant liquidity – via quantitative easing – at ever lower rates of interest. They appear to believe that the recovery has been muted due to the inadequate quantity of accommodation and, as rates drift below zero, its targeting.

The Federal Reserve (Fed) was the first to recognise this problem, buying mortgages as well as Treasuries, perhaps guided by the US Treasury’s implementation of TARP in October 2008. The Fed was fortunate in being unencumbered by the political grid-lock which faced the European Central Bank (ECB). They acted, aggressively and rapidly, hoping to avoid the policy mistakes of the Bank of Japan (BoJ). The US has managed to put the great recession behind it. But at what cost? Only time will tell.

…click on the above link to read the rest of the article…

Let Me Tell You About the Very Rich

April 7, 2016

Let Me Tell You About the Very Rich

The Panama Papers highlight, with painstaking clarity, that austerity is not a shared sacrifice.

It’s not like we didn’t know what was going on. But the “Panama Papers,” the largest-ever document leak and one that implicates political leaders and business executives around the world, confirms it — cementing a widespread distrust of public and private institutions in the global economy.

It remains to be seen whether the scale of the revelations, whose full scope is only slowly starting to emerge, will be a catalyst for positive change or just more fodder for curmudgeonly conspiracy theorists. But one thing is clear: The debate over global economic policy is going to be deeply affected for a while to come.

The epic document dump, which includes 11.5 million files from the Panamanian law firm Mossack Fonseca, implicates a string of world leaders, their families, and close associates in an intricate web of shell companies constructed for the sole purpose of hiding money from tax authorities.

Following the Great Recession and world financial meltdown, policymakers have fallen broadly into two camps: those who see a significant role for official intervention through fiscal and monetary stimulus policies, and those who see government as the problem and push for structural changes to push it out of the way.

Both Europe and the United States imposed considerable austerity on government finances despite prevailing modern economic thinking suggesting governments should spend more, not less, in times of economic weakness.

This budget-cutting approach to exiting the economic crisis, predicated on the dubious notion that fiscal prudence will boost confidence and hence growth, was sold to the public as a shared sacrifice across society. But as the Panama Papers appear to show, the very wealthy play by an entirely different set of rules than the average person when it comes to paying taxes.

…click on the above link to read the rest of the article…

Western Mistakes, Remade in China

April 6, 2016

Western Mistakes, Remade in China

SHANGHAI – The Chinese economy faces an enormously challenging transition. To achieve its goal of joining the world’s high-income countries, the government has rightly urged a “decisive role for the market.” But, while market competition works well in many sectors, banking is different. Indeed, over the last seven years, China’s reliance on bank-based capital allocation has led to the same mistakes that caused the 2008 financial crisis in the advanced economies.

Rapid GDP growth requires high savings and investment, and high savings almost never result from free consumer choice. States can directly finance investment, but bank credit creation can achieve the same effect. As Friedrich Hayek put it in 1925, rapid capitalist growth depended on “the ‘forced savings’ effected by the extension of additional bank credit.”

The Contradictions of Chinese Capitalism

Introducing PS On Point.
Making sense of a world of conflict and conflicting ideas.

Japan and South Korea both used bank credit to finance high levels of investment in their periods of rapid growth. South Korea’s nationalized banks directly funded export-oriented companies. In Japan, private banks were “guided” toward the tradable sector.

But while governments dictated broad sectoral priorities, banks decided the firm-by-firm allocation and extended credit via loan contracts, which imposed financial discipline. If Japan and South Korea had instead used direct government finance, capital allocation would almost certainly have been worse.

But while Japan’s banking system helped drive stunning post-war growth, its credit-fueled real-estate boom in the 1980s and subsequent bust led to 25 years of slow growth and creeping deflation. The global financial crisis of 2008 and subsequent post-crisis malaise replicated the Japanese experience in many other countries.

As economies get richer, they become more real-estate intensive. That is partly because people devote a rising share of their income to competing for property in more attractive locations, and partly because in service-intensive economies, high-value-added activities and talent cluster in dominant cities.

…click on the above link to read the rest of the article…

Watch Japan – For All Is Not Well In The Land Of The Rising Sun

April 6, 2016

Watch Japan – For All Is Not Well In The Land Of The Rising Sun

One of the epicenters of the global financial crisis that started during the second half of last year is Japan, and it looks like the markets in the land of the rising sun are entering yet another period of great turmoil. The Nikkei was down another 390 points last night, and it is now down more than 1,300 points since a week ago. Why this is so important for U.S. investors is because the Nikkei is often an early warning indicator of where the rest of the global markets are heading. For example, the Nikkei started crashing early last December about a month before U.S. markets started crashing really hard in early January. So the fact that the Nikkei has been falling very rapidly in recent days should be a huge red flag for investors in this country.

I want you to study the chart below very carefully. It shows the performance of the Nikkei over the past 12 months. As you can see, it kind of resembles a giant leaning “W”. You can see the stock crash that started last August, you can see the second wave of the crash that began last December, and now a third leg of the crash is currently forming…

And of course the economic fundamentals in Japan continue to deteriorate as well. GDP growth has been negative for two out of the last three quarters, Japanese industrial production just experienced the largest one month decline that we have seen since the tsunami of 2011, and business sentiment has sunk to a three year low.

The third largest economy on the entire planet is in a comatose state at this point, and Japanese authorities have been throwing everything but the kitchen sink at it in an attempt to revive it.

…click on the above link to read the rest of the article…

The Path to the Final Crisis

April 1, 2016

The Path to the Final Crisis

Reader Questions on Negative Interest Rates

Our reader L from Mumbai has mailed us a number of questions about the negative interest rate regime and its possible consequences. Since these questions are probably of general interest, we have decided to reply to them in this post.

The NIRP club – negative central bank deposit rates – click to enlarge.

Before we get to the questions, a few general remarks: negative interest rates could not exist in an unhampered free market. They are an entirely artificial result of central bank intervention. The so-called natural interest rate is actually a non-monetary phenomenon – it simply reflects time preferences. Time preferences are an inviolable category of human action and are always positive.

Market interest rates consist of the natural interest rate plus two additional components: a price (or inflation) premium that reflects the expected decline in money’s purchasing power, and a risk premium or entrepreneurial profit premium that reflects the perceptions of lenders of a borrower’s creditworthiness and generates an entrepreneurial profit for those engaged in lending.

One often reads that interest is the “price” of money, but that is actually not quite correct. It is really a price ratio, the difference between the valuation of present against that of future goods. An apple one can obtain today will always be worth more than a similar apple one can obtain at some point in the future. If time preferences were to decline to zero, people would stop consuming altogether. All efforts would be directed toward providing for the future, but they would never see that future, because they would starve to death before it arrives.

…click on the above link to read the rest of the article…

Robert Kiyosaki And Harry Dent Warn That Financial Armageddon Is Imminent

March 31, 2016

Robert Kiyosaki And Harry Dent Warn That Financial Armageddon Is Imminent

Financial experts Robert Kiyosaki and Harry Dent are both warning that the next major economic crash is in our very near future. Dent is projecting that the Dow will fall to “5,500 to 6,000 by late 2017″, and Kiyosaki actually originally projected that a great crash was coming in 2016 all the way back in 2002. Of course we don’t exactly have to wait for things to get bad. The truth is that things are not really very good at the moment by any stretch of the imagination. Approximately one-third of all Americans don’t make enough money to even cover the basic necessities, 23 percent of adults in their prime working years are not employed, and corporate debt defaults have exploded to the highest level that we have seen since the last financial crisis. But if Kiyosaki and Dent are correct, economic conditions in this country will soon get much, much worse than this.

During a recent interview, Harry Dent really went out on a limb by staking his entire reputation on a prediction that we would experience “the biggest global bubble burst in history” within the next four years…

There will be… and I will stake my entire reputation on this… we are going to see the biggest global bubble burst in history in the next four years…

There’s only one way out of this bubble and that is for it to burst… all this stuff is going to reset back to where it should be without all this endless debt, endless printed money, stimulus and zero interest rate policy.

And of course he is far from alone. Without a doubt, we are currently in the terminal phases of the greatest financial bubble the world has ever known, and it is exceedingly difficult to see any way that it will not end very, very badly.

…click on the above link to read the rest of the article…

Why Investing In Silver Is Vastly Superior To Investing In Gold Right Now

March 21, 2016

Why Investing In Silver Is Vastly Superior To Investing In Gold Right Now

When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price. We witnessed this during the last financial crisis, and it is starting to happen again. Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews. In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up. Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint. In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now.

I should start out by disclosing that my wife and I have been able to put away a little bit of silver over the years. I wish that it could have been a lot more, but so often there are other priorities that need to be addressed. For example, I have always said that people need to take care of their emergency food storage first before even thinking about any kind of investments.

But if you have money left over after taking care of the basics, I am fully convinced that silver is a wonderful investment for the mid to long term. In this article, I am going to explain why this is the case. However, I have always warned that you have got to be ready for a rollercoaster ride if you get into precious metals. So if you can’t handle the ups and downs, you should probably avoid them altogether.

As I write this article, the price of gold is sitting at $1254.30 an ounce.

…click on the above link to read the rest of the article…

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

March 12, 2016

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

On March 11, the National Archives announced its first opening of Financial Crisis Inquiry Commission (FCIC) records, along with a detailed 1,400-page online finding aid (yes, just the index is 1,400 pages). The records which are available via DropBox, seek to identify the causes of the 2008 financial crisis.

Among the numerous materials are interviews with key players in Washington and on Wall Street, from Warren Buffett to Alan Greenspan. The documents also include minutes of commission meetings and internal deliberations concerning the causes of the financial crisis.

While we admit we have yet to read the several hundred thousand pages released yesterday, here is what has so far emerged as of the better punchlines within the data dump, and it comes courtesy of the man who many believe is responsible not only for the second global great depression (which needs trillions in central bank liquidity to be swept under the rug every day), but for the “bubble-bust-bigger bubble” cycle that was unleashed with Greenspan’s Great Moderation.

Here is Allan Greenspan meeting with Dixie Noonan et al on March 31, 2010:

This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone else; we regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better.

This comes from the person in charge of the most powerful central bank in the world; a world which now is reliant exclusively on central bankers for its day to day pretend existence.

Good luck to all.

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

March 8, 2016

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

The Italian banking system is a “leaning tower” that truly could completely collapse at literally any moment. And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before. I wrote about the troubles in Italy back in January, but since that time the crisis has escalated. At this point, Italian banking stocks have declined a whopping 28 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening. On Monday, shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 56 percent since the start of the year. Shares of Carige were down 8 percent, and they have now plunged a total of 58 percent since the start of the year. This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.

So what makes Italy so important?

Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece. But Greece is relatively small – they only have the 44th largest economy in the world.

The Italian economy is far larger. Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.

There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system. Unfortunately, that is precisely what is happening. Italian banks are absolutely drowning in non-performing loans, and as Jeffrey Moore has noted, this potentially represents “the greatest threat to the world’s already burdened financial system”…

…click on the above link to read the rest of the article…

Will Italian banks spark another financial crisis?

March 7, 2016

Will Italian banks spark another financial crisis?

In the 14th century, the Medici family of Florence began its rise to prominence, investing profits from a thriving textile trade to fund what would become the largest banking institution in Europe. The success of the legendary banking family helped to usher in the Italian Renaissance and thus change the world. Now, Italian banks seem poised to alter the world yet again.

Shares of Italy’s largest financial institutions have plummeted in the opening months of 2016 as piles of bad debt on their balance sheets become too high to ignore. Amid all of the risks facing EU members in 2016, the risk of contagion from Italy’s troubled banks poses the greatest threat to the world’s already burdened financial system.

At the core of the issue is the concerning level of Non-Performing Loans (NPL’s) on banks’ books, with estimates ranging from 17% to 21% of total lending. This amounts to approximately €200 billion of NPL’s, or 12% of Italy’s GDP. Moreover, in some cases, bad loans make up an alarming 30% of individual banks’ balance sheets.

The red flags initially attracted the attention of the European Central Bank (ECB), prompting an official inquiry that investors viewed as a flashing ‘sell signal.’ Shares of Italian banking companies lost more than 25% in the first several weeks of the year.

Though markets have pared losses in the last few weeks, March has brought renewed concern for the health of Italy’s financial sector. Adding more worries to fuel the fire, on Friday the ECB demanded that one such troubled Italian bank, Banca Carige SpA, provide new strategic plans and additional funding in order to bolster its balance sheet and meet supervisory requirements by the end of the month. The news sent bank shares on yet another swoon, prompting trading halts on several as the volatility triggered maximum loss ‘circuit breakers.’

…click on the above link to read the rest of the article…

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

March 2, 2016

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

We haven’t seen numbers like these since the last global recession. I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing. We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”. Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about. But that does not mean that the crisis is over. All bear markets have their ups and downs, and this one will not be any different. Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.

Just consider what is happening in China. Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis…

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

For years, the expansion of the Chinese economy has helped fuel global economic growth. But now things have shifted dramatically.

At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…

…click on the above link to read the rest of the article…

The Subprime Auto Loan Meltdown Is Here

February 25, 2016

The Subprime Auto Loan Meltdown Is Here

Uh oh – here we go again. Do you remember the subprime mortgage meltdown during the last financial crisis? Well, now a similar thing is happening with auto loans. The auto industry has been doing better than many other areas of the economy in recent years, but this “mini-boom” was fueled in large part by customers with subprime credit. According to Equifax, an astounding 23.5 percent of all new auto loans were made to subprime borrowers in 2015. At this point, there is a total of somewhere around $200 billion in subprime auto loans floating around out there, and many of these loans have been “repackaged” and sold to investors. I know – all of this sounds a little too close for comfort to what happened with subprime mortgages the last time around. We never seem to learn from our mistakes, and a lot of investors are going to end up paying the price.

Everything would be fine if the number of subprime borrowers not making their payments was extremely low. And that was true for a while, but now delinquency rates and default rates are rising to levels that we haven’t seen since the last recession. The following comes from Time Magazine…

People, especially those with shaky credit, are having a tougher time than usual making their car payments.

According to Bloomberg, almost 5% of subprime car loans that were bundled into securities and sold to investors are delinquent, and the default rate is even higher than that. (Depending on who’s counting, delinquency is up to three or four months behind in payments; default is what happens after that). At just over 12% in January, the default rate jumped one entire percentage point in just a month. Both delinquency and default rates are now the highest they’ve been since 2010, when the ripple effects of the recession still weighed heavily on many Americans’ finances.

…click on the above link to read the rest of the article…

It Starts: Subprime Auto Loans Implode (in Your Bond Fund)

February 24, 2016

It Starts: Subprime Auto Loans Implode (in Your Bond Fund)

“Fears of an impending liquidity crunch in that asset class.”

“What is happening in this space today reminds me of what happened in mortgage-backed securities in the run-up to the crisis,” U.S. Comptroller of the Currency Thomas Curry warned in October about the auto loan bubble.

And his warning is now becoming reality.

Subprime auto loans aren’t big enough to take down our megabanks, the way subprime mortgages had done. But they’re big enough to take down specialized auto lenders and cause a lot of tears among investors that bought the highly rated structured securities backed by subprime and deep-subprime auto loans that are now defaulting at a rate last seen during the days of the Financial Crisis.

And they’re big enough to knock the auto industry, one of the few booming sectors in the otherwise lackadaisical economy, off its record perch. An auto-loan implosion would start at subprime and work its way up, just like mortgages had done.

The business of “repackaging” these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS are structured with different tranches, so that the highest tranches – the last ones to absorb any losses – can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.

Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.

…click on the above link to read the rest of the article…

Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”

February 19, 2016

Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”

It is not just Caterpillar that continues to post horrendous numbers, and has now recorded 38 consecutive months of declining Y/Y sales, double the length of the contraction of the great financial crisis. Moments ago heavy farm equipment maker Deere likewise shocked its investors with a round of terrible numbers, when at first it reported a revenue and EPS beat, announced it had earned $0.80 EPS in Q4, above the $0.71 estimate, on $5.53BN in revenue, well above the $4.90BN expected, however it was the unprecedented drop in the forecast that was the punchline.

According to the company’s announcement, equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago.

Here is how CEO Samuel Allen tried to spin the cut in guidance which DE had previously seen at just -7%: “Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns,” Allen said.

Downturn? We thought the Fed was hiking because of the “strong recovery.”

Some more details: Deere cuts 2016 U.S. farm cash receipts forecast to $381.3b, had seen $394.4b (Nov. 25)

Cuts 2016 U.S. farm net cash income to $90.8b, had seen $106.9b (Nov. 25)
Sees yr U.S. farm commodity price:
- Corn 2015/16 $3.60/bushel vs prior $3.65
- Wheat 2015/16 $5.00/bushel, unchanged
- Soybeans 2015/16 $8.80/bushel vs prior $8.90
- Cotton 2015/16 60c/pound vs prior 59c
Cuts DE 2016 capex outlook to ~$775m from ~$800m

“This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources.”

Alas, a 10% drop in revenue does not validate the “durable business model” with more revenue sources.

…click on the above link to read the rest of the article…

Tag Archives: financial crisis

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts