Stock Markets All Over The World Crash As We Begin 2016

The first trading day of 2016 was full of chaos and panic.  It started in Asia where the Nikkei was down 582 points, Hong Kong was down 587 points, and Chinese markets experienced an emergency shutdown after the CSI 300 tumbled 7 percent.  When European markets opened, the nightmare continued.  The DAX was down 459 points, and European stocks overall had their worst start to a year ever.  In the U.S., it looked like we were on course for a truly historic day as well.  The Dow Jones Industrial Average was down 467 points at one stage, but some very mysterious late day buying activity helped trim the loss to just 276 points at the close of the market.  The sudden market turmoil caught many by surprise, but it shouldn’t have.  The truth is that a whole host of leading indicators have been telling us that this is exactly what should be happening.  The global financial crisis that began in 2015 is now accelerating, and my regular readers already know precisely what is coming next.

The financial turmoil of the last 24 hours is making headlines all over the globe.  It began last night in China.  Very bad manufacturing data and another troubling devaluation of the yuan sent Chinese stocks tumbling to a degree that we have not seen since last August.  In fact, the carnage would have probably been far, far worse if not for a new “circuit breaker” that China recently implemented.  Once the CSI 300 was down 7 percent, trading was completely shut down for the rest of the day.  The following comes from USA Today…

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Unmanageable Money: Hedge Funds Keep Losing (And Closing) - Why It Matters

How do you make money in a world where history is meaningless? The answer, for a growing number of big fund managers, is that you don’t.

Hedge funds, generally the most aggressive species of money manager, do a lot of “black box” trading in which bets are placed on previously-identified patterns and relationships on the assumption that those patterns will repeat in the future.

But with governments randomly buying stocks and bonds and bailing out/subsidizing everything is sight, old relationships are distorted and strategies that worked in the past begin to fail, as do the money managers who rely on them. A few recent examples:

Why should regular people care about the travails of the leveraged speculating community? Because these guys are generally considered to be the finance world’s best and brightest, and if they can’t figure out what’s going on, no one can. And if no one can, then risky assets are no longer worth the attendant stress.

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2015 Was The Worst Year For The Stock Market Since 2008

It’s official – 2015 was a horrible year for stocks.  On the last day of the year, the Dow Jones Industrial Average was down another 178 points, and overall it was the worst year for the Dow since 2008.  But of course the Dow was far from alone.  The S&P 500, the Russell 2000 and Dow Transports also all had their worst years since 2008.  Isn’t it funny how these things seem to happen every seven years?  But compared to other investments, stocks had a relatively “good” year.  In 2015, junk bonds, oil and industrial commodities all crashed hard – just like they all did just prior to the great stock market crash of 2008.  According to CNN, almost 70 percent of all investors lost money in 2015, and things are unfolding in textbook fashion for much more financial chaos in 2016.

Globally, over the past 12 months we have seen financial shaking unlike anything that we have experienced since the last great financial crisis.  During the month of August markets all over the world started to go haywire, and at one point approximately 11 trillion dollars of financial wealth had been wiped out globally according to author Jonathan Cahn.

Since that time, U.S. stocks rebounded quite a bit, but they still ended red for the year.  Other global markets were not nearly as fortunate.  Some major indexes finished 2015 down 20 percent or more, and European stocks just had their second worst December ever.

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Crude Oil Prices Suffer Biggest 2-Year Bloodbath On Record

With yet another false-dawn of crude prices blowing in the wind of cash-flow generation desperation, we thought it an appropriate time for a bigger picture glance at the state of the carnage in crude...

Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

Did you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars?  Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts.  That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment.  Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements.  The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down.  But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it.  And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated.  And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple.  Here is a good definition of “derivatives” that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

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January 1, 2016: The New Bank Bail-In System Goes Into Effect In Europe

If you have a bank account anywhere in Europe, you need to read this article.  On January 1st, 2016, a new bail-in system will go into effect for all European banks.  This new system is based on the Cyprus bank bail-ins that we witnessed a few years ago.  If you will remember, money was grabbed from anyone that had more than 100,000 euros in their bank accounts in order to bail out the banks.  Now the exact same principles that were used in Cyprus are going to apply to all of Europe.  And with the entire global financial system teetering on the brink of chaos, that is not good news for those that have large amounts of money stashed in shaky European banks.

Below, I have shared part of an announcement about this new bail-in system that comes directly from the official website of the European Parliament.  I want you to notice that they explicitly say that “unsecured depositors would be affected last”.  What they really mean is that any time a bank in Europe fails, they are going to come after private bank accounts once the shareholders and bond holders have been wiped out.  So if you have more than 100,000 euros in a European bank right now, you are potentially on the hook when that bank goes under…

The directive establishes a bail-in system which will ensure that taxpayers will be last in the line to the pay the bills of a struggling bank. In a bail-in, creditors, according to a pre-defined hierarchy, forfeit some or all of their holdings to keep the bank alive. The bail-in system will apply from 1 January 2016.

The bail-in tool set out in the directive would require shareholders and bond holders to take the first big hits.Unsecured depositors (over €100,000) would be affected last, in many cases even after the bank-financed resolution fund and the national deposit guarantee fund in the country where it is located have stepped in to help stabilise the bank. Smaller depositors would in any case be explicitly excluded from any bail-in.

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Meanwhile, Over At The "New York" Stock Exchange... Many Lasers

The "device", as Extremetech explained in early 2014, was the AOptix IntelliMax laser (used in various US defense programs), and now generously provided by Anova to various very wealthy HFT clients - in exchange for a very generous installation and recurring monthly fee - who desired to eliminate the 0.18 millisecond microwave latency between the NYSE and Nasdaq, by going straight to laser.

High-frequency trading — the practice of making thousands of algorithmic stock trades per minute — is about to get a big boost in the USA. Anova, a company that specializes in deploying low-latency networks for stock trading, is completing an ultra-high-speed laser network between the New York Stock Exchange (NYSE) and the NASDAQ. The link will be just a few nanoseconds faster than the current microwave and fiber-optic links — but in the world of high-frequency trading (HFT), those nanoseconds could result in millions of dollars in profits for the trading companies. Such is the insanity of the stock markets; such is the unbelievable capacity of HFT to create money out of almost nothing.

If you want to get a signal quickly from point A to point B, you basically have three options: fiber-optic cables, a network of microwave dishes, or laser links. Electrical (copper wire) networks are feasible over short runs, but their reduced functionality and bandwidth over longer runs makes them less desirable than fiber. Microwave (and even higher-frequency millimeter wave) networks also aren’t very high-bandwidth, but because they’re purpose-built, they can take a very direct route, significantly undercutting the latency of an oft-congested and round-about fiber network. 

Laser networks have all the advantages of microwave/millimeter wave networks, but they have higher bandwidth, and some very clever adaptive optics means they’re not impacted by bad weather. (Microwaves really hate inclement weather.)

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Switzerland To Vote On Ending Fractional Reserve Banking

One year ago (and just two months before the shocking announcement the Swiss Franc's peg to the Euro would end, dramatically revaluing the currency, and leading to massive FX losses around the globe and for the Swiss National Bank) the Swiss held a referendum whether to demand that their central bank should convert 20% of its reserves into gold, up from 7% currently. After the early polls showed the Yes vote taking a surprising lead, the Diebold machines kicked in and the result was a sweeping victory for the No vote, without a single canton voting for sound money.

Ironically, this unexpected nonchallance about the Swiss central bank's balance sheet by one of Europe's more responsible nations took place just before the same bank announced CHF30 billions in losses on its long EUR positions following the revaluation of the CHF. It also took place when not just Germany, but the Netherlands and Austria announced they would repatriate a major portion of their gold in a move which, all spin aside, signals rising concerns about the existing monetary system.

We wonder if the Swiss have changed their mind about just how prudent it is to have their central bank operate as one of the world's largest - and worst - after its CHF 30 billion loss in Q1 FX traders, and hedge funds with $94 billion in stock holdings, since then.

We may soon have the answer, because in what is shaping up to be another historic referendum on the treatment of money, earlier today the Swiss Federal Government confirmed that it had received enough signatures and would hold a referendum as part of the so-called "Vollgeld", or Full Money Initiative, also known as the Campaign for Monetary Reform, which seeks to ban commercial banks from creating money, and which calls for the central bank to be given sole power to create the money in the financial system.

In other words, an initiative to ban fractional reserve banking, and revert to a 100% reserve.

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58 Facts About The U.S. Economy From 2015 That Are Almost Too Crazy To Believe

The world didn’t completely fall apart in 2015, but it is undeniable that an immense amount of damage was done to the U.S. economy.  This year the middle class continued to deteriorate, more Americans than ever found themselves living in poverty, and the debt bubble that we are living in expanded to absolutely ridiculous proportions.  Toward the end of the year, a new global financial crisis erupted, and it threatens to completely spiral out of control as we enter 2016.  Over the past six months, I have been repeatedly stressing to my readers that so many of the exact same patterns that immediately preceded the financial crisis of 2008 are happening once again, and trillions of dollars of stock market wealth has already been wiped out globally.  Some of the largest economies on the entire planet such as Brazil and Canada have already plunged into deep recessions, and just about every leading indicator that you can think of is screaming that the U.S. is heading into one.  So don’t be fooled by all the happy talk coming from Barack Obama and the mainstream media.  When you look at the cold, hard numbers, they tell a completely different story.  The following are 58 facts about the U.S. economy from 2015 that are almost too crazy to believe…

What we have seen so far is just the very small tip of a very large iceberg.  About six months ago, I stated that “our problems will only be just beginning as we enter 2016″, and I stand by that prediction.

We are in the midst of a long-term economic collapse that is beginning to accelerate once again.  Our economic infrastructure has been gutted, our middle class is being destroyed, Wall Street has been transformed into the biggest casino in the history of the planet, and our reckless politicians have piled up the biggest mountain of debt the world has ever seen.

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IPO Window Suddenly Closes, “Worst Year Since 2009,” Worst December Since 2008

Party over: “Pent-up supply” in a world with no demand.

“We all thought that we might finally get a year where we would be able to put four quarters together,” UBS global head of equity capital markets Sam Kendall told Reuters. “If you looked at the pipeline and how people were thinking about the world, it just felt good. And then the wheels came off.”

The two measly IPOs in the US in December brought the total for the year to 170, down 38% from 2014, according to Renaissance Capital. By that measure, it was the worst year since 2012.

In terms of dollars, only $28.7 billion in IPOs were booked in the US in 2015, down 48% from 2014, and by that measure, according to Thomson Reuters, “their worst year since 2009.”

Numerous IPOs were pulled or shelved this fall due to “turbulent markets,” as it’s called. They included some LBO queens, owned by private equity firms, such as supermarket Albertson and Texas-based luxury retailer Neiman Marcus that had gotten hit by oil bust contagion [read… Retail Sales in Texas Plunge].

A number of IPOs were pushed through by lowering their IPO prices, like the erstwhile hero of the year, payments systems provider First Data, another LBO queen that KKR acquired in 2007. Initially, the IPO price range was $18 to $20. But there wasn’t enough appetite. So the IPO price was lowered to $16. That was in mid-October. On Monday, it closed at $15.60.

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"I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails

In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China.

Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here's a look at the longer-term trend:

You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise. 

On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China's largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.”

This is an annoyance for Riyadh. China was the world's second-largest oil consumer in 2014 and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran. 

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The Rate Hike Stock Market Crash Has Thrown Gasoline Onto An Already Raging Global Financial Inferno

If the stock market crash of last Thursday and Friday had all happened on one day, it would have been the 7th largest single day decline in U.S. history.  On Friday, the Dow Jones Industrial Average was down 367 points after finishing down 253 points on Thursday.  The overall decline of 620 points between the two days would have been the 7th largest single day stock market crash ever experienced in the United States if it had happened within just one trading day.  If you will remember, this is precisely what I warned would happen if the Federal Reserve raised interest rates.  But when news of the rate hike first came out on Wednesday, stocks initially jumped.  This didn’t make any sense at all, and personally I was absolutely stunned that the markets had behaved so irrationally.  But then we saw that on Thursday and Friday the markets did exactly what we thought they would do.  The chief economist at Gluskin Sheff, David Rosenberg, is calling the brief rally on Wednesday “a head-fake of enormous proportions“, and analysts all over Wall Street are bracing for what could be another very challenging week ahead.

When the Federal Reserve decided to lift interest rates, they made a colossal error.  You don’t raise interest rates when a global financial crisis has already started.  That is absolutely suicidal.  It is the kind of thing that you would do if you were trying to bring down the global financial system on purpose.

Surely the “experts” at the Federal Reserve can see what is happening.  Junk bonds have already crashed, just like they did in 2008.  The price of oil has crashed, just like it did in 2008.  Commodity prices have crashed, just like they did in 2008.  And more than half of all major global stock market indexes are already down at least 10 percent for the year so far.

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The Fed’s New “Operation Twist”: Twisted Logic for Bank Profits at the Expense of the Real Economy

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets…recovery will fail unless we break the financial oligarchy that is blocking essential reform.

One could imagine a more honest case for rate increases: that sustained negative real yields promotes speculation (witness the proliferation of Silicon Valley unicorns), hurts retirees and savers, and puts the viability of long-term investors like life insurers and pension funds at risk. But given how weak this recovery is, and that deflationary pressures are strong, any rate increases should be accompanied by more fiscal spending. Yet the Fed has not said a peep on that front and instead hope the confidence fiary will come to the rescue.

The fact that the Fed is embarking on a policy that will perpetuate the financial system being outsized relative to the real economy, particularly when more and more academic studies confirm that that is negative for growth, confirms that the Fed needs fundamental governance changes to reduce bank influence and increase democratic accountability. A place to start might be having all the regional Fed presidents be nominated by the President and subject to Congressional approval.

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What The Market Chose To Ignore In Yesterday's Fed Announcement

Yesterday, in a carbon-copy response to what happened in December 2013 when the Fed announced the Tapering of QE, stocks first sold off then, as if to validate the Fed's decision as being accurate, saw a dramatic buying surge which pushed them to close just off the highs. With bonds and gold selling off while the dollar rebounded, the Fed could not have asked for - or engineered - a better reaction, while markets, as Bloomberg's Richard Breslow points out, 'chose to hear the parts of the statement and press conference that they wanted to."

That was the easy part. The hard part now is how to ween the market away from the old narrative, the one which has pushed the S&P to record highs over the past 7 years on bad economic news, and to renormalize the market's own "reaction function" to that of the Fed. The problem is that from day one there is a major discrepancy between the two: as previously observed, the Fed did not deliver the desired dovish hike, and kept its 2016 year-end fed funds rate unchanged at 1.4% suggesting 4 rate hikes in the coming year, and which as Breslow notes means "being less dovish than the meeting previews suggested is now a sign of bullishness on the economy." This sets the Fed on a collision course with the market because "with the market pricing fewer hikes than the Fed suggests, someone is going to end up being wrong. If we do get four hikes next year, markets (read equities) will need to deal with a hawkish surprise. If the Fed is forced to backtrack, there goes the full-speed ahead theme."

What this explicitly means is two things: bad economic news is no longer good for the market - after all the dominant paradigm now is one of strong dollar=strong economy=strong S&P (ignoring that the stronger the dollar, the worse the earnings recession sets up to be, the sharper the full economic recession), and that as Breslow concludes, the "Fed needs to focus on the real economy and get out of the QE mindset. I suspect that will be easier said than done."

Finally, what yesterday's hike also ignores is that as Jeffrey Gundlach explained recently, the economy is at a worse place than where it was the last time the Fed could have hiked, the industrial recession is now official, the earnings drop of the S&P500 is far more steep than it was 3 months ago, and China's renewed devaluation is signaling that it is all uphill from here from the emerging markets.

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Which Corporations Own The White House

The president and his top advisers have kept an open door for CEOs of Fortune 100 companies, keeping almost 1,000 appointmentswith them, a Reuters review of White House records shows. Of the hundreds of appointments listed, Obama himself was present at about half. As the corrupting hand of government intervention spreads, so CEOs and the White House have become allies in advocating for immigration reform, the Trans-Pacific Partnership trade deal and reauthorization for the Export-Import Bank. So who really owns The White House?

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