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We just witnessed the 5th largest single day stock market crash in U.S. history. On Thursday the Dow Jones Industrial Average plunged 724 points, and many believe that this is just the beginning of another huge wave down for stock prices. After this latest dramatic decline, the Dow is now down 3.1 percent so far in 2018, and overall it is down 9.99 percent from the all-time high in January. A 10 percent decline is officially considered to be “correction” territory, and that means that we are just about there.

So why are stock prices falling so much? Well, USA Today is blaming the potential for a trade war with China, the latest Facebook scandal and “the impact of rising interest rates on the economy”…

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

Of course the possibility of a trade war between the two largest economies on the planet is certainly the greatest concern that the markets are grappling with at the moment. According to Ian Winer, any sign of retaliation by China “will really spook people”…

“A global trade war, whether it’s real or perceived, is what’s weighing on the market,” said Ian Winer, head of equities at Wedbush Securities. “There’s this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people.”

Trump announced tariffs on about $50 billion worth of Chinese imports on Thursday afternoon. It’s not clear which products will be hit, but the action is aimed at curbing China’s troubling theft of US intellectual property.

And we can be quite sure that China will retaliate.

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

Freight Costs and Volumes Surge, Inflation Fears Heat Up

March 23, 2018

Freight Costs and Volumes Surge, Inflation Fears Heat Up

February was off the chart.

“We are seeing an unprecedented rise in logistics costs,” General Mills CEO Jeff Harmening told the Wall Street Journal after the company reported earnings. Shares dropped 9% on Wednesday and another 2% on Thursday. They’re down nearly 40% from their peak in July 2016.

The Maker of cereals, Yoplait, and other packaged food brands said that freight costs have surged to near 20-year highs in February. Other packaged food and snack makers, including Campbell, Hershey, Mondelez International (Oreos, Newtons, Premium and Ritz crackers), Sysco, Tyson Foods, Hormel Foods and others have all warned about rising transportation costs. And they said they’d try to pass these transportation cost increases on to their customers.

And this is what has been happening in the transportation sector in the US: Shipment volumes by all modes of transportation combined — truck, rail, air freight, and barge — surged 11.4% year-over-year in February according to the Cass Freight Index. The index, which is not seasonally adjusted, hit its highest level for any February since 2006:

February is in the slow part of the year, and yet it was nearly on par with June 2014, at the seasonal peak, and the peak month since the Financial Crisis!

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

The $233 Trillion Dollar Dark Cloud of Global Debt

March 11, 2018

The $233 Trillion Dollar Dark Cloud of Global Debt

Global debt has reached record heights without any signs of relief. While central bankers try to explain away the phenomenon of these out-of-control numbers, it’s not much of a mystery. Immediate consumption with the promise of repayment sometime in the future has consequences. Global debt is staggering to the point most of it will never be repaid. Certainly not in our generation. Perhaps by our grandchildren, but as global debt keeps mounting, the picture is doubtful.

The per capita global debt is $30,000. Who, exactly, will be making repayments?

Economists insist that the 2007 financial crisis could not have been predicted. Yet, all the signs of out-of-control credit where there. Today, economists are repeating the same mantra, despite the spiraling world debt. The question is not if the next bubble will strike. It’s a matter of when.

The math is fairly simple. The more a country increases its debt to simply stay afloat, the more like the increasing debt will cause a tightening of credit. The next step in the equation is a burst bubble and economic crisis. This is what happened in 1929, happened again in 2007, and it’s happening now. Past behavior is the best predictor of future behavior.

Out-of-control credit will undoubtedly slow down the US’s current economic growth. It probably won’t cause an outright crisis. Other countries may not be as fortunate.

Countries such as China, Belgium, South Korea, Australia, and Canada are experiencing an unprecedented credit bubble, with few systems in place to control it. The resulted inflation or simply write-offs of debts could result in a global financial disaster we have not seen before. The current economic upswing is unlikely to continue.

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

In this Era of Inflated Asset Prices, Can the Fed Raise Rates without Causing Financial Mayhem?

March 9, 2018

In this Era of Inflated Asset Prices, Can the Fed Raise Rates without Causing Financial Mayhem?

Wolf Richter on the Keiser Report.

The Fed is trying to accomplish a soft landing — hence the extraordinarily slow rate hikes — but our history with soft landings is very spotty, and there has never been more debt than now:

Investors in the corporate bond market, particularly in junk bonds, are still blowing off the Fed. But not much longer. Read… Corporate Bond Market Gets Ready for Big Reset

The Real Engine of the Business Cycle

March 5, 2018

The Real Engine of the Business Cycle

A valuable lesson from the Great Recession is that credit-supply expansions play a key role in subsequent recessions. When lenders make credit more available or more affordable, households respond by taking on debt, which drives up aggregate demand – that is, until the music stops.

CHICAGO – Every major financial crisis leaves a unique footprint. Just as banking crises throughout the nineteenth and twentieth centuries revealed the importance of financial-sector liquidity and lenders of last resort, the Great Depression underscored the necessity of counter-cyclical fiscal and monetary policies. And, more recently, the 2008 financial crisis and subsequent Great Recession revealed the key drivers of credit-driven business cycles.

Specifically, the Great Recession showed us that we can predict a slowdown in economic activity by looking at rising household debt. In the United States and across many other countries, changes in household debt-to-GDP ratios between 2002 and 2007 correlate strongly with increases in unemployment from 2007 to 2010. For example, before the crash, household debt had increased enormously in Arizona and Nevada, as well as in Ireland and Spain; and, after the crash, all four locales experienced particularly severe recessions.

In fact, rising household debt was predictive of economic slumps long before the Great Recession. In his 1994 presidential address to the European Economic Association, Mervyn King, then the chief economist at the Bank of England, showed that countries with the largest increases in household debt-to-income ratios from 1984 to 1988 suffered the largest shortfalls in real (inflation-adjusted) GDP growth from 1989 to 1992.

Likewise, in our own work with Emil Verner of Princeton University, we have shown that US states with larger household-debt increases from 1982 to 1989 experienced larger increases in unemployment and more severe declines in real GDP growth from 1989 to 1992.

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

The Dow Jones Industrial Average Falls Another 420 Points As Investors Panic About A Potential Trade War

March 2, 2018

The Dow Jones Industrial Average Falls Another 420 Points As Investors Panic About A Potential Trade War

Many had been hoping that the financial shaking on Wall Street that we witnessed in February would subside in March, but so far that is definitely not the case. On Thursday, the Dow fell another 420 points as investors fretted about the potential for a trade war. Over the past month, we have seen many days when stock prices have been way down and other days when stock prices have been way up. This is precisely the sort of wild volatility that we would expect to see if a major financial crisis was brewing, and the truth is that our financial system is far more vulnerable today than it was back in 2008.

Many Americans have assumed that the U.S. economy must be in great shape since the stock market has just kept going up for the past several years. But the reality of the matter is that stock prices are no longer connected to economic reality whatsoever. The U.S. economy has not grown by 3 percent or more in 12 years, but stock prices have been shooting into the stratosphere thanks to relentless central bank intervention.

But what goes up must eventually come down, and on Thursday we witnessed another stunning decline…

The Dow Jones industrial average closed 420.22 points lower at 24,608.98 after rising more than 150 points earlier in the day. The 30-stock index fell as much as 586 points.

The S&P 500 declined 1.4 percent to end at 2,677.67 — erasing its year-to-date gains — with industrials as the worst-performing sector. It also briefly broke below its 100-day moving average, a key technical level. The Nasdaq composite fell 1.3 percent to 7,180.56 and dipped below its 50-day moving average.

So why did this happen?

Well, the mainstream media is placing the blame for Thursday’s decline on Trump’s new tariffs…

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

Ron Paul: ‘The Fed Is At A Crossroads…Crisis Is Coming’

March 1, 2018

Ron Paul: ‘The Fed Is At A Crossroads…Crisis Is Coming’

The Fed has created a mountain of problems for everyone in the United States and every single solution that they come up with leads to even more problems. Ron Paul recently discussed what the Fed has done, how it tries to keep things going, and the inevitable economic crisis that is coming.

Ron Paul has been one of the few steadfast proponents of liberty, which is likely why he’s no longer associated with the government at all. In a recent video, Paul discussed the problems the Federal Reserve created and why their solutions will generate an economic crisis of epic proportions.

“They [The Fed] have a lot of power, but their main goal is to do central economic planning which always fails. It’s also a gimmick because they have meetings, they are supposed to have eight a year, and then there’s a big announcement…they come out and they make a statement and the chairman is interviewed, and then, later on, you get the minutes. It’s big fanfare. But I see it as mostly propaganda, just carrying a message. Getting it from the people who really run things, the deep state, and they get it out there. But it does have a lot of effect on the market. I actually believe that there are some people who know how fictitious the Fed really is and how inept it is, but still watch it because they know a lot of other people are going to pay attention…the deep state is not a part of the government, but they have a lot of influence.”

Paul went on to explain that often we are told it’s not right to criticize the Fed. But that will change.

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

Find The Sentence That Dooms Pension Funds (Don’t Worry, It’s Highlighted)

February 22, 2018

Find The Sentence That Dooms Pension Funds (Don’t Worry, It’s Highlighted)

The “pension crisis” is one of those things — like electric cars and nuclear fusion — that’s definitely coming but never seems to actually arrive. However, for pension funds the reason a crisis hasn’t yet happened is also the reason that it will happen, and soon:

The Risk Pension Funds Can’t Escape

(Wall Street Journal) – Public pension funds that lost hundreds of billions during the last financial crisis still face significant risk from one basic investment: stocks.That vulnerability came into focus earlier this month as markets descended into correction territory for the first time since February 2016. The California Public Employees’ Retirement System, the largest public pension fund in the U.S., lost $18.5 billion in value over a 10-day trading period ended Feb. 9, according to figures provided by the system.

The sudden drop represented 5% of total assets held by the pension fund, which had roughly half of its portfolio in equities as of late 2017. It gained back $8.1 billion through last Friday as markets recovered.

“It looks like 2018 is likely to be more turbulent than what we have experienced the last couple of years,” the fund’s chief investment officer, Ted Eliopoulos, told his board last Monday at a public meeting.

Retirement systems that manage money for firefighters, police officers, teachers and other public workers are increasingly reliant on stocks for returns as the bull market nears its ninth year. By the end of 2017, equities had surged to an average 53.6% of public pension portfolios from 50.3% one year earlier, according to figures released earlier this month by the Wilshire Trust Universe Comparison Service.

Those average holdings were the highest on a percentage basis since 2010, according to the Wilshire Trust Universe Comparison Service data, and near the 54.6% average these funds held at the end of 2007.

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

The world in 2018 – Part Three

February 20, 2018

The world in 2018 – Part Three

Mainstream economics seems to have learned little and changed nothing in the last decade, despite the fact that the financial crisis and its aftermath laid bare a number of important issues with its theories and models. Failure to address these issues is making the economics discipline increasingly incapable of informing us about the trajectory and situation of our world.

After a long period of relentless rise, global financial markets seem to have suddenly entered volatile territory. A brutal selloff in global stocks started in early February, which erased all of the prior gains of 2018 and wiped out trillions of dollars of ‘value’ in a matter of days. The selloff was most spectacular in the U.S., with Wall Street experiencing one of its worst weekly tumbles since the 2008 financial crisis – quickly followed, however, by a sharp rebound. Financial pundits the world over are now busy discussing whether this new episode of market volatility is already over or is likely to last, and if it might be announcing a ‘correction’ (a drop of 10% or more from a peak in market indexes), a ‘bear market’ (a drop of 20% or more), or even a full-blown crash. The truth is that no one knows for sure at this stage, and any prediction of how the next few weeks and months are going to play out in global financial markets can only be guesswork at best.

What is more interesting is to observe how quick economists and policy makers around the world have been to serve yet another round of what has become their standard discourse whenever financial markets get suddenly restless: no worries, folks, ‘the fundamentals of the economy are strong’…

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

The Pendulum – Part One

February 18, 2018

The Pendulum – Part One

Retreat to High Ground

Missing in the mix of hundreds of bug-out stories is a forth right and candid self appraisal of lessons learned containing practical experience along with deep humility and honest self examination. High Desert expressed a willingness to share his and his wife’s adventure with TwoIceFloes and we eagerly embraced the opportunity to post his story as a three part series.

It was the summer of 2011, and for all practical purposes it was smooth sailing. My wife and I often commented to each other how drama and stress free our lives had become. Unfortunately we were blissfully unaware of the squall line rapidly approaching from behind.

The epiphany struck us like a bolt out of the blue. But rather than providing clarity and calm, this profound revelation was a violent tempest. The following six years brought dramatic shifts to our belief systems, state of mind, living conditions and more – dramatically swinging the pendulum back and forth before finally compelling us to seek balance and peace of mind.

We were not significantly affected by the financial crash a couple years prior (2008-09) partly because we both had home-based businesses in niche markets which provided a lower middle-class income. But a more important factor was our lack of debt. Not one to “keep up with the neighbors”, we lived comfortably but always within our means.

We had previously paid off the mortgage, both of us owned older used vehicles and we never charged purchases we couldn’t afford to pay off at the end of each month. We had some meager investments, but fortunately years earlier we had moved into the right neighborhood. Meaning over the years, our neighborhood had evolved into one of the hottest residential markets in the Metro area.

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

Another Big British Bank Lands in Deep Trouble

February 14, 2018

Another Big British Bank Lands in Deep Trouble

Barclays faces a criminal trial in the UK. Last week it was RBS.

Now, it’s the UK’s second-largest bank Barclays’ turn to face the music. A week ago, it was the UK’s third-largest bank, state-owned Royal Bank of Scotland, that faced one of its biggest scandal yet after whistle-blowers accused the bank of systematically forging customer signatures. RBS also faces the prospect of a multi-billion dollar fine for the way it sold residential mortgage-backed securities during the lead up to the Financial Crisis.

On Monday, the UK’s Serious Fraud Office (SFO) announced that it was charging Barclays for a second time over a deeply suspicious £2.2 billion ($3 billion) loan it issued in 2008 to Qatar. To avoid a government bailout, Barclays took a £12 billion loan from Qatar Holdings, which is owned by the state of Qatar. Under that deal, Barclays loaned £2.3 billion back to Qatar Holdings, which allegedly was then used to buy shares in Barclays. If true, it would amount to “unlawful financial assistance,” the SFO says.

Barclays is the first British bank to face a criminal trial in the UK related to its conduct during the Financial Crisis. The fresh charge of “unlawful financial assistance” comes after charges were brought against Barclays’ holding company and four former executives last July.

Founded in 1690, Barclays is one of the world’s oldest banks. As the Financial Times notes, the original lender was established on a bedrock of honesty, integrity and plain dealing — a reflection of the sober values of the Quaker families that founded the bank. Today, things could not be more different. The bank now boasts one of the longest rap sheets of any bank in Europe, which — given the pedigree of the local competition, including Deutsche Bank, HSBC, RBS, UBS, BNP and Credit Suisse — is no mean feat.

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

-1,175 Points! We Just Witnessed The Largest One Day Stock Market Crash Ever

February 6, 2018

-1,175 Points! We Just Witnessed The Largest One Day Stock Market Crash Ever

The mainstream media seems so surprised that the stock market is crashing, but the truth is that it isn’t a surprise at all. In fact, this crash is way, way overdue. If the Dow Jones industrial average fell another 10,000 points, stock prices would still be overvalued. I have been warning and warning and warning that this would happen, because stock valuations always return to their long-term averages eventually. On Monday, the Dow was down a staggering 1,175 points, which was the largest single day decline that we have ever seen by a very wide margin. In fact, it shattered the old record by nearly 400 points.

Shortly after 3 PM, all hell broke loose on Wall Street. The Dow dropped by more than 800 points in just 10 minutes. At one point on Monday, the Dow was down nearly 1,600 points, but a brief rally cut those losses roughly in half. However, the rally did not last long and stock prices collapsed hard as the market closed. At this moment, the Dow is already down more than 2,200 points from the peak of the market, and we are not too far from officially entering “correction” territory.

Once stocks start falling, it can trigger a massive rush for the exits, and that is what happened on Monday. In particular, investors started to panic once the Dow broke through the 50-day moving average…

“As soon as we broke the 50-day moving average … we saw volatility spike,” said Jeff Kilburg, CEO of KKM Financial. “It’s just been downhill from there.”

Other waves of selling were triggered once the 25,000 and 24,000 barriers on the Dow were breached. In order to protect against losing too much money, many investors have stop losses set at psychologically-important levels. The following comes from MarketWatch…

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

-666 Points: We Just Witnessed The 6th Largest Single Day Stock Market Decline In U.S. History

February 5, 2018

-666 Points: We Just Witnessed The 6th Largest Single Day Stock Market Decline In U.S. History

On Friday, the Dow Jones Industrial Average fell 666 points (665.75 points to be precise), and many are pointing out that this was the 6th largest single day crash that we have ever seen. This decline happened on the 33rd day of the year, and it was the worst day for the stock market by far since President Trump entered the White House. I have been repeatedly warning that we are way overdue for a stock market crash, and many are concerned that we may be on the precipice of another great financial crisis. We shall see what happens on Monday, because that will set the tone for the rest of the week. If we see another huge decline early Monday morning, that could easily set off full-blown panic selling on Wall Street.

Rising interest rates appear to have been the trigger for the enormous market drop on Friday. The following comes from the New York Post…

“We all know that many bull markets have ended by the Federal Reserve as they raise the rates to the point of slowing the economy down perhaps too much,” Quincy Krosby, chief market strategist at Prudential Financial, told The Post.

“It’s come on quickly and it caught the market off guard,”Krosby said.

The Dow sell-off brought it below the 26,000 plateau — to 25,520.96 — the biggest points drop since Dec. 1, 2008.

It is quite rare for the market to drop this much in a single day. The largest single daily decline was a 777 point drop in 2008, and overall the Dow has fallen by more than 600 points less than 10 times throughout history…

The index posted a loss of nearly 666 points, its sixth-worst decline ever on a points basis.

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

The Fed Will Ignite The Next “Financial Crisis”

January 31, 2018

The Fed Will Ignite The Next “Financial Crisis”

There seems to be a very large consensus the markets have entered into a “permanently high plateau,” or an era in which price corrections in asset prices have been effectively eliminated through fiscal and monetary policy.

Partnering with this fairytale like mindset is an overwhelming sense of complacency. Throughout the entire monetary ecosystem, there is a rising consensus that “debt doesn’t matter” as long as interest rates remain low. Of course, the ultra-low interest rate policy administered by the Federal Reserve is responsible for the “yield chase” which has fostered a massive surge in debt in the U.S. since the “financial crisis.”

As Ray Dalio, CEO of Bridgewater, recently noted:

“We’re in a perfect situation, inflation is not a problem, growth is good, but we have to keep in mind the part of the cycle we’re in.”

Yes, current economic growth is good, but not great. Inflation and interest rates currently remain low which creates an environment in which using debt remains opportunistic. But rising debt levels has a negative economic consequence. As shown, prior to the deregulation of the financial industry under Ronald Reagan, which led to an explosion in consumer credit issuance, it required just $1.25 of total system-wide debt to create $1.00 of economic growth. Today, it requires $3.83 to create the same $1 of economic growth. This shouldn’t be surprising, given that “debt” detracts from economic growth as the required “debt service” diverts income from savings and productive investment leading to a “diminishing rate of return” for each new dollar of debt.

However, debt levered economic cycles are a function of the ability to draw forward future consumption. But there is a finite limit to the “positive” effect of a debt-driven economic cycle.

Eventually, the “bill” must be paid.

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

Chap. 11 Bankruptcies Spike 107% from Year Ago

January 9, 2018

Chap. 11 Bankruptcies Spike 107% from Year Ago

What caused the biggest jump since the Financial Crisis?

New Chapter 11 bankruptcies in the US more than doubled in December 2017 from a year ago to 699 filings. That jump of 362 filings from December 2016 was the largest year-over-year jump since the Financial Crisis.

This chart shows Chapter 11 filings back to 2011, based on data from the American Bankruptcy Institute. I marked the prior five Decembers with red dots. Note how they’re near the low point of the seasonal swings. That makes the spike in December 2017 even more spectacular:

A spike like this in Chapter 11 filings in a month of December is unheard of in normal times. Normally, bankruptcies jump during tax season, the first four or five months of the year, but not at the end of the year. But these are not normal times.

In December, Chapter 11 filings soared 61% from November. This is also highly unusual, as over the prior five years, presumably the “normal times,” the number of filings from November to December has fallen by an average 8.7%.

The chart below shows the year-over-year change in Chapter 11 filings. I marked the prior Decembers in yellow. I circled the oil bust and the brick-and-mortar meltdown. But December 2017 was special:

In a Chapter 11 bankruptcy, a company attempts to restructure its debts under the supervision of a judge, and in the process often transfers part or all of the ownership of the company from pre-bankruptcy shareholders to creditors. In many cases, shareholders lose everything, and some creditors too lose everything. But in the end, the hope is that the company can “emerge” from bankruptcy with less debt and keep going, with a reasonable chance the make it. So what is causing this brutal spike in December bankruptcies?

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

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