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We Just Witnessed The Biggest U.S. Bond Crash In Nearly 2 Years – What Does This Mean For The Stock Market?

October 4, 2018

We Just Witnessed The Biggest U.S. Bond Crash In Nearly 2 Years – What Does This Mean For The Stock Market?

U.S. bonds have not fallen like this since Donald Trump’s stunning election victory in November 2016.  Could this be a sign that big trouble is on the horizon for the stock market?  It seems like bonds have been in a bull market forever, but now suddenly bond yields are spiking to alarmingly high levels.  On Wednesday, the yield on 30 year U.S. bonds rose to the highest level since September 2014, the yield on 10 year U.S. bonds rose to the highest level since June 2011, and the yield on 5 year bonds rose to the highest level since October 2008.  And this wasn’t just a U.S. phenomenon.  We saw bond yields spike all over the developed world on Wednesday, and the mainstream media is attempting to put a happy face on things by blaming a “booming economy” for the bond crash.  But the truth is not so simple.  For U.S. bonds, Bill Gross says that it was a lack of foreign buyers that drove yields higher, and he says that this may only be just the beginning…

And, according to Gross, the carnage may not end here: “Lack of foreign buying at these levels likely leading to lower Treasury prices,” echoing what we said last week. And as foreign investors pull back from US paper, look for even higher yields, and an even higher dollar, which in turn risks re-inflaming the EM crisis that had mercifully quieted down in recent weeks.

I believe that Gross is right on target.

And Jeffrey Gundlach has previously warned that when yields get to this level that it would be a “game changer”…

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

Leaked Note By Chinese Think Tank Warns Of Potential “Financial Panic”

June 27, 2018

Leaked Note By Chinese Think Tank Warns Of Potential “Financial Panic”

It’s not just Trump who is concerned about the level of the S&P as a result of escalating trade war with China: it appears that China is growing worried as well, and for good reason – as we noted earlier, the Shanghai Composite already tumbled to a bear market from its highs 6 months ago, a drop which comes at a very precarious time for China whose economy is slowing amid an aggressive deleveraging campaign, corporate defaults are rising, and the all important credit impulse is waning.

Confirming as much, this morning Bloomberg reported of a leaked report from a Chinese government-backed think tank which warned of a potential “financial panic” in the world’s second-largest economy, “a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase.”

According to a study by the National Institution for Finance & Development that was seen by Bloomberg News, bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington. The think tank also warned that leveraged purchases of shares – i.e. stocks bought with margin loans – have reached levels last seen in 2015, when a market crash erased $5 trillion of value.

“We think China is currently very likely to see a financial panic,” NIFD said in the study, which appeared briefly on the Internet on Monday, before being removed. “Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.”

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

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

Italy Flag Map - Public DomainThe 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…

16 Facts About The Tremendous Financial Devastation That We Are Seeing All Over The World

June 30, 2015

16 Facts About The Tremendous Financial Devastation That We Are Seeing All Over The World

Fireball - Devastation - Public DomainAs we enter the second half of 2015, financial panic has gripped most of the globe.  Stock prices are crashing in China, in Europe and in the United States.  Greece is on the verge of a historic default, and now Puerto Rico and Ukraine are both threatening to default on their debts if they do not receive concessions from their creditors.  Not since the financial crisis of 2008 has so much financial chaos been unleashed all at once.  Could it be possible that the great financial crisis of 2015 has begun?  The following are 16 facts about the tremendous financial devastation that is happening all over the world right now…

1. On Monday, the Dow fell by 350 points.  That was the biggest one day decline that we have seen in two years.

2. In Europe, stocks got absolutely smashed.  Germany’s DAX index dropped 3.6 percent, and France’s CAC 40 was down 3.7 percent.

3. After Greece, Italy is considered to be the most financially troubled nation in the eurozone, and on Monday Italian stocks were down more than 5 percent.

4. Greek stocks were down an astounding 18 percent on Monday.

5. As the week began, we witnessed the largest one day increase in European bond spreads that we have seen in seven years.

6. Chinese stocks have already met the official definition of being in a “bear market” – the Shanghai Composite is already down more than 20 percent from the high earlier this year.

7. Overall, this Chinese stock market crash is the worst that we have witnessed in 19 years.

8. On Monday, Standard & Poor’s slashed Greece’s credit rating once again and publicly stated that it believes that Greece now has a 50 percent chance of leaving the euro.

9. On Tuesday, Greece is scheduled to make a 1.6 billion euro loan repayment.  One Greek official has already stated that this is not going to happen.

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

 

Guess What Happened The Last Time Bond Yields Crashed Like This?…

April 21, 2015

Guess What Happened The Last Time Bond Yields Crashed Like This?…

If a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis.  This is called a “flight to safety” or a “flight to quality“.  In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down.  As you will see below, this is exactly what we witnessed during the financial crisis of 2008.  U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace.  Well, it is starting to happen again.  In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market.  So is this another sign that we are on the precipice of a significant financial panic?

Back in 2008, German bonds actually began to plunge well before U.S. bonds did.  Does that mean that European money is “smarter” than U.S. money?  That would certainly be a very interesting theory to explore.  As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

German Bond Yields 2007 And 2008

So what are German bonds doing today?

As you can see from this next chart, the yield on 10 year German bonds has been steadily falling since the beginning of last year.  At this point, the yield on 10 year German bonds is just barely above zero…

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

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