Equity market meltdowns
Global Recession ahead. What can stop it?
On 19 September, two days before U.S. equity markets hit new highs, we alerted Trends Journal subscribers to prepare for an Economic 9/11.
In October, the Nasdaq slumped 9 percent, its biggest drop since the Panic of ‘08. And the S&P 500 lost 7 percent, its worst month since September 2011.
And it’s getting worse. On 20 November the S&P 500 fell into correction territory down 10 percent from its 21 September record-closing high, and more than 40 percent of S&Ps fell into bear territory, down 20 percent.
Sometimes I am reminded that I missed the great stock market boom following the Panic of 08.
Why did I miss the market rally?
Tracking trends is the understanding of where we are, how we got here and where we’re going. In the history of the world, there was no such thing as negative and zero interest rate policy. There was no such thing as massive too-big-to-fail trillion dollar bailouts. There was no such thing as quantitative easing.
What I have been forecasting, is that the global financial Ponzi scheme that artificially boosted global equities will end, and the end is near.
MAINSTREAM MEDIA CATCHING UP TO TRENDS
Throughout the year, as mainstream media attributed equity markets swings to tariff and trade wars fears or any number of other false flag indicators, we had long noted, it was rising U.S. interest rates that would implode economies and markets worldwide.
With some $250 trillion in global debt, much of it dollar based, as the dollar grows stronger and global currencies get weaker, the cost burden of servicing that debt grows heavier. Subsequently, as forecast, economies worldwide are slowing, stagnating and/or falling into recession.
And now, with the first strikes of Economic 9/11 hitting markets, Wall Street is going negative on Wall Street:
- Billionaire investor Paul Tudor Jones: “From a 500,000 feet viewpoint, we’re probably in a global debt bubble… Global debt to GDP (Gross Domestic Product) is at an all-time high.”
- Bridgewater Associates hedge fund magnet, Ray Dalio: “The world by and large is leveraged long … these low rates have created an incentive to borrow money and buy stocks. That’s what caused the market to go up.”
- Goldman Sachs is forecasting the U.S. economy will slow to a crawl next year… particularly “in the second half of next year as the Federal Reserve continues to raise interest rates.”
- Moelis & Co. CEO Ken Moelis, is concerned about corporations that have loaded up on cheap debt during the era of zero-to-low interest rates and expects a wave of indebted companies to face serious challenges as interest rates rise.
- The International Monetary Fund warns that “Market excesses approaching a threatening level … look no further than the $1.3 trillion global market for so-called leverage loans,” that may well crash “companies that are heavily indebted.
IT’S INTEREST RATES, STUPID
Add up what is being said and predicted at the top of the financial world:
“Global debt bubble.”
“Low rates have created an incentive to borrow money and buy stocks.”
“Corporations have loaded up on cheap debt during the era of zero-to-low interest rates.”
“U.S. economy will slow to a crawl … in the second half of next year as the Federal Reserve continues to raise interest rates.”
“Market excesses approaching a threatening level… look no further than the $1.3 trillion global market for so-called leverage loans.”
No kidding! What a surprise! Just check the Trend Alerts, Trends in the News broadcasts and Trends Journal links on our website. “It’s interest rates, stupid.” It was cheap money that artificially propped up equities and economies around the world and now it’s more expensive money that’s bringing them down.
Finally, Wall Street and the mainstream business media are now flashing the bright warning signs we have tracked and forecast since February – the world cannot take higher interest rates and a stronger dollar. It took them until November to see the trend we identified 10 months ago: “Something behind market sell-off no one is talking about: Strong dollar.” –CNBC, 12 November 2018.
Moreover, the U.S. rise in interest rates are hitting at a time when global economic growth is stalling. Economies in Emerging Markets and developed nations, whose massive debt is largely dollar based, will not have the GDP-generated revenue to pay down their rising debt burdens.
In China, the world’s second largest economy, GDP growth has slowed to Panic of ‘08 levels and the Shanghai Composite Index is down some 30 percent and keeps falling. Overall, the MSCI Asian-Pacific Index has plunged into bear territory, down over $5 trillion this year.
And China’s credit growth slowed significantly in October, with corporate borrowing sinking to 150 billion yuan from 677 billion yuan just the previous month…. an alarming sign of sharply declining growth.
And the FTSE All World index is down over 7 percent, its worst performance since the peak of the 2012 eurozone crisis.
On the Emerging Market front, the MSCI Emerging Market stock index has tumbled 25 percent from its January peak.
The market weakness is represented as well by powerhouse exporter Germany, whose economy shrank in the third quarter for the first time since 2015. And despite what the mainstream business says, it had nothing to do with trade wars or tariffs. It had to do with shrinking economic growth: More consumers with less money to spend and heavier debt levels to payoff.
Japan also saw its economy shrink in the third quarter despite its central bank’s buying spree to prop up their equity markets and economy. In fact, the Bank of Japan’s total holdings hit $4.9 trillion, which is bigger than the country’s annual GDP.
While the United States’ relatively strong GDP and employment numbers suggest a healthy economy, the total debt incurred by Americans hit another record in the last quarter rising to $13.5 trillion. And with total household debt now $837 billion higher than its 2008 peak, when the last recession hit, America, like the rest of world, cannot take higher interest rates. TJ
What can delay an Economic 9/11 terror strike? At this juncture, the same measures that were taken that have artificially pumped up stock and real estate markets to soaring heights following the Panic of ’08: Cheap Money. More rounds of lowering interest rates and more trillions of Quantitative Easing.
Indeed, it was not basic economic fundamentals that put the world on the path of recovery following the Great Recession. It was the central banks injecting heavy doses of monetary methadone to boost failing economies and financial markets.
Yet this time, considering the $250 trillion massive debt load weighing down the global economy, another monetary drug fix will only push markets up temporarily before they OD.
Therefore, as the economic health of these money-drugged induced economies worsens, demand for gold, the ultimate safe-haven asset will increase. We maintain our forecast that gold prices’ bottom range is around $1,200 per ounce and prices will not spike until gold solidifies above $1,450 per ounce.