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Take your pick–here’s three good reasons to engineer a “crash” that benefits the few at the expense of the many.

There is an almost touching faith that markets are rigged when they loft higher, but unrigged when they crash. Who’s to say this crash isn’t rigged? A few things about this “crash” (11% decline from all time highs now qualifies as a “crash”) don’t pass the sniff test.

Exhibit 1: VIX volatility Index soars to “the world is ending” levels when the S&P 500 drops a relatively modest 11%. The VIX above 50 is historically associated with declines of 20% or more–double the current drop.

When the VIX spiked above 50 in 2008, the market ended up down 57%. Now that’s a crash.

Exhibit 2: The VIX soared and the market cratered at the end of options expiration week (OEX), maximizing pain for the majority of punters. Generally speaking, OEX weeks are up. The exceptions are out of the blue lightning bolts such as the collapse of a major investment bank.

Was a modest devaluation in China’s yuan really that unexpected, given the yuan’s peg to the U.S. dollar which has risen 20% in the past year? Sorry, that doesn’t pass the sniff test.

Exhibit 3: When the VIX spiked above 30 in October 2014, signaling panic, the Federal Reserve unleashed the Bullard Put, i.e. the Fed’s willingness to unleash stimulus in the form of QE 4. Markets reversed sharply and the VIX collapsed.

Now the VIX tops 50 and the Federal Reserve issues an absurd statement that it doesn’t respond to equity markets. Well then what was the Bullard Put in October, 2014? Mere coincidence? Sorry, that doesn’t pass the sniff test.

Why would “somebody” engineer a mini-crash and send volatility to “the world is ending” levels? There are a couple of possibilities.

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

Bubbles Don’t Correct, They BURST!

August 26, 2015

Bubbles Don’t Correct, They BURST!

I’m practically drowning in interviews. I had half a dozen yesterday and even more today. But it’s time to put the word out that the second greatest bull march in history is finally coming to an end. It’s done.

Wall Street thinks this is a correction – a 10% drop, maybe 20% at worst, followed by more gains. They think we’re just six years into a 10 if not 20 year bull market. This is just a healthy breather.

Of course they think that! It’s the same “bubble-head” logic you find at the top of any extreme market in history!

Every single time – without exception – we delude ourselves into believing there is no bubble. We think: “Life’s good, why should we argue with it?”

And every time, we’re shocked when it’s over. Only in retrospect do we realize, yes, that was clearly a bubble, and oh, how stupid we were for not seeing it.

Bubbles don’t correct. They burst. They always do. And if anyone is still doubting whether this is a bubble, they need to get with the program – now!

Like I said on Fox yesterday, I wasn’t always a bear. I was one of the most bullish forecasters since the late ‘80s because I discovered how you can predict the spending of consumers through demographics.

With one simple indicator I predicted the Japan crash in the ‘90s when everyone was saying they’d overcome the U.S.

I predicted the greatest boom in U.S. history thanks to the spending of the Baby Boomer generation. All from demographic research, driven by my top cycle, the Spending Wave.

And from that, we knew the Boomers would peak in 2007 followed by a slowing economy.

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

China Loses All Control: Arrests Journalist, Financial Executive Over Market Crash

August 26, 2015

China Loses All Control: Arrests Journalist, Financial Executive Over Market Crash

For two months, China has been on a quest to control both the stock market itself and the narrative around the stock market.

After an unwind in the CNY1 trillion back alley margin lending complex sparked a late June selloff, China cobbled together a plunge protection team run by China Securities Finance (an arm of CSRC) and began intervening in the market.

That effort has cost an estimated CNY900 billion so far.

On July 20, Caijing magazine suggested that CSF was setting up to scale back the market interventions which many believed had kept the SHCOMP from collapsing altogether. Here’s what happened next:

That suggestion caused futures to slide in China and in short order, the “rumor” was denied by CSRC. Now, the reporter who penned that story has been arrested for, as Bloomberg put it earlier today, “spreading fake stock and futures trading information.”

BREAKING: China’s well-respected Caijing magazine confirmed 1 of its reporters was arrested by police for a stock market story denied by Gov

— George Chen (@george_chen) August 26, 2015

This comes on the heels of a move by Beijing earlier this week to suppress discussion of Monday’s market rout, which, along with the selloffs it triggered in bourses across the globe, was dubbed “Black Monday.”

Of course this isn’t the first time – and it probably won’t be the last – that China has cracked down on the media for “subversive” coverage of financial markets. Early last month, Beijing reportedly banned the use of the phrases “equity disaster” and “rescue the market.” That said, throwing reporters in jail marks a new escalation in the war on financial reporters, or, as the managing editor of The South China Morning Post put it, “you already know it’s risky to be political journalists in China – Now financial reporter is risky job too.”

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

Global Markets to Fed: No Rate Hike, the Strong Dollar Is Killing Us

August 25, 2015

Global Markets to Fed: No Rate Hike, the Strong Dollar Is Killing Us

Global markets are puking at the prospect of higher yields in the U.S.

There are many reasons for global markets to melt down, but one that doesn’t get enough attention is the strong dollar. In effect, global markets are telling the Federal Reserve: don’t raise rates–the strong dollar is killing us.

Here’s the dynamic that’s killing emerging markets’ currencies and stocks, the China Story and U.S. corporate profits. In the glory years of a declining U.S. dollar (USD), a vast global carry trade emerged as speculators borrowed money in USD and invested it in high-yield emerging market assets such as stocks, bonds and real estate.

This carry trade was a two-fer: not only were yields much higher in emerging markets, the appreciation of local currencies against the USD provided a currency gain on top of the higher yield.

As the yuan strengthened against the USD, an enormous river of capital flowed into China to take advantage of the revaluation and higher yields in China. How much of this money was borrowed USD is unknown, but it’s estimated that Chinese corporations alone borrowed $1 trillion in USD to profit from higher yields in China.

The virtuous benefits of a weakening USD extended to U.S. corporations, which reap 40% to 50% of their total profits from sales overseas. As the USD weakened, U.S. corporations reaped the currency gains every time they reported overseas sales in USD.

Everybody won with the weakening dollar, except the U.S. consumer, who paid more for imported goods.

But a funny thing happened in late summer 2014–the USD started rising against other currencies–by a lot. Suddenly all those profitable carry trades reversed.

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

BLACK MONDAY: The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

August 25, 2015

BLACK MONDAY: The First Time EVER The Dow Has Dropped By More Than 500 Points On Two Consecutive Days

On Monday, the Dow Jones Industrial Average plummeted 588 points. It was the 8th worst single day stock market crash in U.S. history, and it was the first time that the Dow has ever fallen by more than 500 points on two consecutive days. But the amazing thing is that the Dow actually performed better than almost every other major global stock market on Monday. In the U.S., the S&P 500 and the Nasdaq both did worse than the Dow. In Europe, almost every major index performed significantly worse than the Dow. Over in Asia, Japanese stocks were down 895 points, and Chinese stocks experienced the biggest decline of all (a whopping 8.46 percent). On June 25th, I was not kidding around when I issued a “red alert” for the last six months of 2015. I had never issued a formal alert for any other period of time, and I specifically stated that “a major financial collapse is imminent“. But you know what? As the weeks and months roll along, things will eventually be even worse than what any of the experts (including myself) have been projecting. The global financial system is now unraveling, and you better pack a lunch because this is going to be one very long horror show.

Our world has not seen a day quite like Monday in a very, very long time. Let’s start our discussion where the carnage began…

Asian Markets

For weeks, the Chinese government has been taking unprecedented steps to try to stop Chinese stocks from crashing, but nothing has worked. As most Americans slept on Sunday night, the markets in China absolutely imploded…

As Europe and North America slept on Sunday night, Chinese markets went through the floor — the Shanghai Composite index of stocks fell by 8.49%, the biggest single-day collapse since 2007.

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

It’s easy to deny a bubble but impossible to deny its implosion.

August 25, 2015

It’s easy to deny a bubble but impossible to deny its implosion.

We’re having the kind of day when the New York Stock Exchange felt compelled toannounce very encouragingly before markets opened that it would halt trading for 15 minutes if the S&P 500 drops 7% to 1,833 before 3:25 p.m. Once trading restarts and the index plunges 13% before 3:25 p.m., trading would be suspended for a second time. If the index plunges 20% at any point today, NYSE would shut the market entirely for the rest of the day.

Monday’s meltdown commenced in Japan.

A follow-on to Friday’s debacle. The Nikkei started out in the hole and dove from there, ending the day down 4.6%. This is a market where the central bank has a mega-QE program in place with an explicit policy to buy equities to inflate them. Yet, despite the furious efforts by the Bank of Japan’s trading desk, the Nikkei dropped to 18,541, down 11.5% since June, the lowest since February.

It was in reaction to a whiff of panic in China, triggered by a total loss of faith in the government’s and the central bank’s machinery designed to prop up the markets.

The Shanghai Composite Index opened down nearly 4% and went to heck from there, closing at 3,210, down 8.5%. It annihilated the entire phenomenal bubble gains this year.

The thing is, the government vowed to support the stock market when it hit the “policy bottom” of 3,500 to 3,600 points. Now that it crashed through what was nothing but a line in the sand, hopes have shifted down to a new line in the sand of 3,000 points.

In all Chinese stock markets, only 12 stocks rose, and 2,200 stocks hit their 10%-down limit.

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

Panic!! All Major US Equity Indices Halted

August 24, 2015

Panic!! All Major US Equity Indices Halted

Nasdaq was the first to be halted at 0758ET.

The Dow is now down 850 points from Friday’s close and halted…

The S&P 500 Futures is halted for the first time in history.

The Exquisite Market Setup – Monetary Metals Supply-Demand

August 24, 2015

The Exquisite Market Setup – Monetary Metals Supply-Demand

Interesting Developments in Gold

There is an exquisite setup building once again. Tight fundamentals in the gold market apply upwards pressure on the price. For quite a while, we have been saying gold’s fundamental price was around a hundred bucks above the market price. Well, the market price moved up $46 this week. What happened to the fundamental price? You’ll have to read on to see (no cheating and reading ahead!) but suffice to say it’s quite a bit higher than the market.

Byzantine Empire. Constantine VII Porphyrogenitus, with Romanus I and Christopher. 913-959 AD. Gold Solidus, Constantinople mint. Struck 924-931 AD.

At the same time, the fundamental price of silver is below the market price. We included a graph last week, showing that gold is being sold at a discount and silver at a premium to their fundamental prices. The price of silver moved up this week, though it didn’t move like gold. It was up, then down, then up, then back down, ending a mere nine cents higher than last week. In fact, on Friday, the price of gold went up about 0.8% but the price of silver dropped 1.7%.

And this is the crux. According to popular belief, the prices of the metals are supposed to move together. Silver is supposed to go up when gold goes up, only more. This is due to money printing, inflation, economic fear, anticipation of further policy madness from the Fed, or whatever. It’s much clearer when you price everything in gold.

The fundamentals for silver just aren’t there right now. What happens when a trading thesis is believed by just about everyone?

These are the market upsets about which stories are told years later.

Could we see gold with a 13 handle and silver with a 14 handle? Read on…

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

The Global Economy Is Officially Melting Down

August 24, 2015

The Global Economy Is Officially Melting Down

As much as the financiers on Wall Street and the officials at the Fed would like the party to keep going, it looks it’s finally about to stop. Years of bailouts and monetary expansion have created one of the most inflated and artificial economic booms in history, and now it appears that this global economic bubble is deflating. Markets across the board are melting down as we speak, and the financial crash that supposedly “fringe” analysts have been predicting since 2008, is finally upon us. Take a look at what’s going down right now.

The Dow has fallen 1300 points from its peak. On Friday alone, it fell by 530 points, making it the 9th worst stock market crash in US history.
The Shanghai composite fell by more than 11% this week. All told, China’s stock market has lost a third of its value since its previous peak, and the only thing holding it up is their government’s intervention. It lost 4% of its value on Friday after it was revealed that their manufacturing activity had reached a 77 month low.
400 of the world’s richest people lost a total of $182 billion this week, amounting to 6.3% of their collective wealth. When the people who benefit the most from inflated markets are getting hurt, you know that the bubble is bursting.
The dollar’s rally may be finally nearing its end. Its value has fallen slightly, but consistently for the past 2 weeks.
Commodities have fallen to a 13 year low. The price of copper has reached a 6 year low while oil has suffered its longest decline since 1986.

That last one is very telling. You can always tell when the global economy is in bad shape based on the value of various commodities. It’s one of the strongest indicators for an economy, since it reveals how many real, tangible goods are being produced. Curiously, many of these commodities have been falling in value throughout the supposed recovery that we’ve been in since 2009.

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

Market Meltdown Means More Pain for Oil Producers

August 24, 2015

Market Meltdown Means More Pain for Oil Producers

Supply-side downward price pressure has been the story of global energy prices over the past year: newfound supply from the Shale Revolution, OPEC’s gambit of market-share grabbing inundation, and new supply coming online from Iraq and soon Iran. The result was a plunge in oil prices from $115 in mid-June 2014 to below $70 by mid-December, and then to the low $40s as of last week.

Now we are seeing signs of a new economic crisis, one that began in Asia and spread to Europe and North America. China’s stock market meltdown has gathered pace and the recent yuan devaluation stands as a grim omen of not only tepid Chinese growth, but a lack of currency stability in the region should the crisis deepen. The 8% drop in Chinese exports in July is leading to a few uncomfortable questions of oversupply and a lack of global demand – systemic issues that transcend the sphere of domestic economic policy in China – and a looming currency war will only serve to make things worse.

The precise bottom of this newest sell-off in global equity markets is open to speculation, but in terms of oil prices it represents demand-side downward pressure and, depending on how things pan out, the potential for a whole lot more of it. WTI crude was down over 3% in pre-market trading to flirt with the sub-$39 range.

This is a scenario that is various degrees of terrifying for oil-producing economies, many of which have weathered the past eight months with a combination of fiscal austerity, asset sales, debt issuance, and burning through foreign reserves – basically holding on for dear life and hoping for a price rebound which now looks to have been pushed further into the future.

China share plunge drives selling in Asian, European markets

August 24, 2015

China share plunge drives selling in Asian, European markets

Benchmark Shanghai Composite Index is down 38 per cent from its June 12 peak

World stock markets plunged on Monday after China’s main index sank 8.5 per cent — its biggest drop since the early days of the global financial crisis — amid deepening fears over the health of the world’s second-largest economy.

Oil prices, commodities and the currencies of many developing countries also tumbled on concerns that a sharp slowdown in China might hurt economic growth around the globe. Wall Street was expected to suffer heavy losses on the open.

The Shanghai index suffered its biggest percentage decline since February 2007, with many China-listed companies hitting their 10 per cent downside limits. The benchmark closed at 3,209.91 points, meaning it has lost all of its gains for 2015, though it is still more than 40 per cent above its level a year ago.

Shanghai is now down 38 per cent from its June 12 peak.

China’s dimming outlook is drawing calls for more economic stimulus from Beijing, though earlier government efforts to staunch the hemorrhage appear to have done little to stabilize markets.

Asia’s gloom spread to European markets, where Britain’s FTSE 100 fell 2.7 per cent, Germany’s DAX 2.6 per cent and the CAC 40 of France 2.5 per cent. Dow futures were down over 2 per cent while the S&P futures were 1.8 per cent lower.

Japan’s Nikkei fell 4.6 per cent to 18,540.68, its worst one-day drop since in over two and a half years.

“It is a key moment for China. The equity market in free fall, the banking system increasingly starved of liquidity, rising capital outflows, and a rapidly slowing economy,” Angus Nicholson, a market analyst for IG, said in a market note.

“Global markets look set to continue their rout into the European and U.S. sessions,” he said, noting that the scale of the losses may have been exaggerated by the thin trading volumes typical of late August.

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

Counterintuitive: (Some) volatility is good for you, stability not so much

August 23, 2015

Counterintuitive: (Some) volatility is good for you, stability not so much

With stock markets around the world plunging and commodity prices in free fall, it seems appropriate to return to a theme which I’ve taken up previously: That a certain amount of volatility is good for humans and the systems they build, and that attempts to stifle the natural and healthy volatility of a system can lead to greater and even catastrophic volatility in the end.

All of this runs counter to the propaganda with which we are regaled on a daily basis. For example, investors are told that the lower the volatility of their portfolios, the lower the risk. But, in 2008 that turned out not to be true. More recently, as volatility in the widely watched S&P 500 settled down to historic lows this year, investors believed that the magic of low volatility was here to stay. Central banks–through their periodic interventions when markets began to fall–had somehow engineered a no-lose situation for investors. It was going to be clear sailing ahead for…well, forever if you listen to Wall Street.

The history of volatility in markets and in life suggests that high volatility lies just around the bend after a prolonged period of low volatility. It is impossible to say what would trigger the kind of crash we saw in 2008. For now, the Chinese stock market crash and recent negative economic news in China and the United States have unnerved many investors. The Chinese stock market is now more than halfway to a 2008-style meltdown. Stocks in Europe and the United States have finally started to fall in earnest after holding up and even advancing in the face ofmajor declines in emerging markets such as Brazil, Indonesia, Malaysia, and Turkey. Money rushed from the emerging markets to major developed economies looking for–you guessed it–stability.

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

Gulf Markets Melting Down: Saudi Arabia Plunges 7%, Dubai Sold

August 23, 2015

Gulf Markets Melting Down: Saudi Arabia Plunges 7%, Dubai Sold

Following the end of a horrible week for petroleum importers (not to mention shale producers) despite WTI briefly dipping under $40 (wasn’t this supposed to be great news for the US economy?) we have the start of a just as ugly week for the Persian Gulf oil exporters, whose Sunday market open can be described as a continuation of last week’s broad risk carnage, and where Saudi Arabia, until recently the region’s best performing market, is now down 10% for the year and down 30% compared to 12 months ago.

Appropriately enough following our overnight article lamenting the death of the Petrodollar, the WSJ opens with a description of “stock markets in the petrodollar-dependent Persian Gulf tumbled Sunday to multi-month lows, spooked by sharply lower oil prices and a global equities selloff on growing concerns about China’s economy.”

Some examples:

Saudi Arabia, the Middle East’s biggest market, led the regionwide decline to finish the day nearly 7% lower. Dubai stocks dropped by a similar percentage, while regional peers Abu Dhabi and Doha’s markets both fell 5% each to extend recent losses.

Dubai stocks lost 7% to end at 3451.48, while its neighbor in the United Arab Emirates, Abu Dhabi’s market, dropped 5% to 4286.49. Qatar’s main stocks benchmark finished down 5.3% at 10,750. The Gulf stock markets are open for trading Sunday through Thursday.

Investors took a lead from Saudi Arabia, the region’s biggest economy. Its stocks closed 6.9% lower at 7463.32 after Fitch Ratings on Friday downgraded its outlook for the kingdom to negative from stable because of weaker oil prices.

The Saudi economy is heavily dependent on oil, which accounts for 90% of fiscal revenues, 80% of current account revenues and 40% of the gross domestic product, analysts at Fitch noted.

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

Making Sense Of The Sudden Market Plunge

August 22, 2015

Making Sense Of The Sudden Market Plunge

Are you prepared for further turmoil?

The global deflationary wave we have been tracking since last fall is picking up steam. This is the natural and unavoidable aftereffect of a global liquidity bubble brought to you courtesy of the world’s main central banks. What goes up must come down — and that’s especially true for the world’s many poorly-constructed financial bubbles, built out of nothing more than gauzy narratives and inflated with hopium.

What this means is that the traditional summer lull in financial markets has turned August into an unusually active and interesting month. August, it appears, is the new October.

Markets are quite possibly in crash mode right now, although events are unfolding so quickly – currency spikes, equity sell offs, emerging market routs and dislocations, and commodity declines – that it’s hard to tell for sure. However, that’s usually the case right before and during big market declines.

Before you read any further, you probably should be made aware that, at Peak Prosperity, our market outlook has been one of extreme caution for several years. We never bought into so-called “recovery” because much of it was purely statistical in nature, and had to rely on heavily distorted and tortured ‘statistics’ to be believed. Okay, lies is probably a more accurate term in many cases.

Further, most of the gains in financial assets engineered by the central banks were false and destined to burstbecause they were based on bubble psychology, not actual returns.

Which bubbles you ask? There are almost too many to track. But here are the main ones:

Corporate bond bubble
Corporate earnings bubble
Junk bond bubble
Sovereign debt bubble
Equity bubbles in various markets (US, China) and sectors (Tech, Biotech, Energy)
Real estate bubbles, especially in the commodity exporting countries
Central bank credibility bubble (perhaps the largest and most dangerous of them all)

What’s the one thing that binds all of these bubbles together? Central bank money printing.

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

Plunge Protection Teams of the World, Unite!

August 21, 2015

Plunge Protection Teams of the World, Unite!

The herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world’s Plunge Protection Teams.

Central bankers are watching Marx’s dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.

Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.

After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.

Since the majority of trading is now done by software programs (trading bots, algorithms, etc.), the first step is to create positive momentum so the bots will detect an “up day” and buy, buy, buy.

The easiest way to generate positive momo is to buy a truck load of S&P 500 futures in a time of low volume, where the impact will be the greatest. usually this is pre-market open.

If this fails, the next step is to send a central bank Talking Head out to discuss more quantitative easing. Announcing the central banks’ readiness to do more of what has goosed markets higher for six years will generally spark a buying frenzy, as those who have bet against central banks over the past six years have had their heads handed to them on a platter.

If this fails, grandiose but purposely vague claims of “doing whatever it takes” are issued. there is no need to actually have a plan, or to lay out a plan in public; the open-ended announcement is generally enough to reverse a trap-door decline.

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

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Monday’s meltdown commenced in Japan.

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