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

December 8, 2015

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

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

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

Price Of Oil - Public Domain

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

“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.

“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”

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

No Serious Financial Repercussions from the Paris Attacks? Don’t Be Too Sure

November 16, 2015

No Serious Financial Repercussions from the Paris Attacks? Don’t Be Too Sure

Global sentiment might switch decisively from “risk-on” to “risk-off” with far-reaching consequences.

Goldman Sachs has helpfully announced that any financial repercussions from the attacks in Paris will be short-lived, and the political repercussions will be medium-term: Increased uncertainty likely to weigh on activity and increase market volatility in the short run (via Zero Hedge).

The analogies invoked to support this rosy view are the attacks in Madrid in 2004 and in London in 2005–tragedies that weighed very briefly on the global orgy of financial gains between 2003 and 2007.

But isn’t it obvious that the world of November 2015 is not the world of 2004?The global economy is not in a cycle of robust expansion of debt, wages, consumption, profits and stock valuations as it was in 2004.

Now, debt is softening or being revealed as impaired, wages are stagnant for the bottom 90%, real sales are down once subprime-auto-loan enabled vehicle purchases are subtracted, profits and forward projections for sales are crumbling, along with stock valuations.

The global financial system is fragile and vulnerable. Any number of relatively modest changes could push the entire shaky contraption off the cliff:

1. any increase in private-sector interest rates, for any reason

2. any faltering of global sentiment

3. externalities (disruptions from weather, war, shortages, a.k.a. grey swans)

4. unexpected crises (a.k.a. black swans)

5. any toppling-domino-like failure of counterparties as defaults pile up

Does this weekly chart of the S&P 500 look remotely bullish? Stochastics have rolled over in a “sell” signal, and MACD couldn’t even claw its way above the neutral line. Now MACD is also poised to roll over into a sell.

Does this chart of stocks, wages and real final sales look remotely bullish?Notice that all three have turned down, echoing the recessions and stock market collapses of 2001 and 2008.

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

 

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

October 9, 2015

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

Question Sign Red - Public DomainThe warnings are getting louder.  Is anybody listening?  For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing.  For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“.  And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now.  The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The IMF is actually telling the truth in this instance.  We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.

But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.

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

Why the Bear of 2015 Is Different from the Bear of 2008

August 24, 2015

Why the Bear of 2015 Is Different from the Bear of 2008

Are there any conditions now that are actually better than those of 2008?

It’s tempting to see similarities in last week’s global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009.

1. Then: Markets and central banks feared inflation, as WTIC oil had hit $133 per barrel in the summer of 2008.But this Bear is beginning in circumstances quite different from 2007-08. Let’s list a few of the differences:

Now: As oil tests the $40/barrel level, markets and central banks fear deflation.

2. Then: China had a relatively modest $7 trillion in total debt, considerably less than 100% of GDP.

now: China’s debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product (GDP)

3. Then: Central banks had a full toolbox of unprecedented monetary surprises to unleash on the market: TARP, TARF, BARF (OK, that one is made up) rescue packages and credit guarantees, quantitative easing (QE), zero interest rate policy (ZIRP) and direct purchases of mortgages, to name just the top few.

Now: The central bank toolbox is empty: every tool has already been deployed on an unprecedented scale. Every potential new program is simply a retread of QE, yield curve bending, asset purchases, etc.–the same old bag of tricks.

4. Then: Central banks had a relatively clean slate to work with. Interventions in the market and economy were limited to suppressing interest rates in the post-dot-com meltdown era.

Now: Central banks have never stopped intervening since 2008. The market is in effect a reflection of 6+ years of unprecedented central bank interventions. Rather than a clean slate, central banks face a global marketplace that is dominated by incentives to speculate with leveraged/borrowed money established by 6 years of central bank policies.

 

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

 

Central Banks Ready To Panic — Again

July 26, 2015

Central Banks Ready To Panic — Again

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.The Fed’s Countdown
Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks.

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

 

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

June 23, 2015

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway…

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.

 

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

 

 

 

charles hugh smith-The Oil-Drenched Black Swan, Part 3: Multiple Risks, Multiple Unknowns

December 3, 2014

charles hugh smith-The Oil-Drenched Black Swan, Part 3: Multiple Risks, Multiple Unknowns.

It is these unforeseeable and uncontrollable consequences that are poised to wreak havoc on the global financial system.

Here’s the thing about risk: it bursts out of whatever is deemed “safe.” It wasn’t accidental that the Global Financial Meltdown originated in home mortgages; it was the perceived safety of the mortgage market that attracted all the speculative debt and leverage.

The authorities (those few who weren’t bribed to look the other way) were caught off-guard by this explosion of risk in a presumably “safe” market, but this was entirely predictable: this is the nature of systemic risk.

Since 2009, central state/bank authorities have backstopped the private banking sector and the sovereign debt market with everything they’ve got. The Federal Reserve alone threw something on the order of $23 trillion in guarantees, loans and backstops at the private banking sector, and the other central banks have thrown trillions of yuan, yen and euros to shore up the banking sector and sovereign debt.

They did this because they identified the banking sector and sovereign debt as the sources of systemic risk. Now that they’ve effectively shored up these two risk-laden sectors with the full weight of the central state and bank, they presume the systemic risk has been eradicated.

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

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