This year, the US stock market had the worst opening week ever. Ever. However, the Wall Street elites, the FED, and their financial “presstitutes” on CNBC will tell you not to panic, and that everything is awesome. But here are 10 reasons why the stock market is going to crash hard this year and there is a looming recession which might have already started in Q4 of 2015.
- Days of free money and low interest rates are over. The ONLY reason the stock market was roaring for the last 6 years is that the crooked FED was printing money – creating digital trillions – and artificially keeping the interest rate at 0%. The corporations borrowed trillions of dollars and bought back their own shares, thus boosting the market (this enabled the CEOs, the board members and the top 0.1% to make a killing). Virtually every dollar that was borrowed by the big corporations was used to buy back their own share. Now, all that is going to come to an end soon. QE #3 (“Quantitative Easing”) by the US FED was over by the end of 2014. Then Japan and Europe did their own QE in 2015 and a lot of that money poured into the US stocks. That freebie is now over as well. Finally, the FED has started raising the interest rates, so borrowing becomes more burdensome. End of stock buybacks = end of juiced up market.
- The whole world is grinding down. “Baltic Dry Index” is a measure of global shipping trade, and it’s now at the lowest level ever … even lower than it was after a 90% crash in 2009. As for the second largest economy in the world, China is tired after 25 years of manic growth. They have pretty much built all the roads and buildings they possibly need. In the last 5 years, China used more cement than what the U.S. used in the last 100 years! But that is over. Kaput. The Chinese real estate started to burst in 2015. To compensate for that, the government turned on a fantasy stock market bubble. After more than doubling in a year, it crashed prematurely last June, falling by 40% in a few weeks. The government tried to resurrect the market by doing all sort of crazy things – stopping many stocks from trading, preventing corporate management from selling shares, arresting people for shorting stocks, and spending more than $100 billion buying shares. Alas, all that was useless. Just in the first week of 2016, the stock market crashed by 14% in two days. The P/E ratio of the Shanghai Composite is still about 4 times the average. So, yeah, lookout for more spanking.
- CHINA. In spite of what people tell you, you cannot ignore China, the largest exporter and the 2nd largest importer in the world. Already, China’s slowdown is shocking Australia’s economy and has completely crushed Brazil’s economy and stock market. More than $1 trillion of Chinese shares are also traded in the U.S. stock market. If China catches a cold, the world is going to sneeze.
- The U.S. stock market has also stumbled a lot. More than half of the larger S&P 1500 stocks are already in the bear market – down more than 20%. NASDAQ is down 19% and the Dot Com Bubble has already burst. Russell 2000, an index of small stocks, is also down more than 20% from its highs. The only thing keeping the facade up are the “FANG” stocks – Facebook, Amazon, Netflix and Google. All are overvalued. Amazon has an insane P/E ratio of 875 as of today (was close to 1000 a few days ago). Netflix P/E is about 300. So, yeah, they can easily fall 90%. And forget about Unicorns and IPOs – that fantasy world pretty much came to an end in 2015. If you think this is being too negative, you didn’t live through the dot-com bubble.
- OIL and COMMODITIES: Oil has fallen from a high of $140 to about $30. While people think, “it’s great news,” it’s actually horrible. Why?
- The reason for the drop in commodity prices is because the world economy is coming to a screeching halt. So this drop in commodity prices is a reflection of the health of the global economy.
- Already, more than 250,000 jobs in oil industry have been lost. Numerous small oil companies and oil rigs have already shut down.
- This drop in oil price is killing the Fracking industry in the U.S. (which is good from an environmental point of view). Fracking was the only major source of growth of high-paying jobs in the U.S. in the last 6 years. But most Fracking are only profitable when oil is $80 or more. So, goodbye Fracking! Oil is not recovering anytime soon. The number of oil rigs has fallen 75% and is now where it was in 2009.
- These Fracking companies had also borrowed hundreds of billions of dollars in the last few years. All those bonds and debts are going to go sour, leading to enormous losses for banks and financial institutions (and will affect mutual funds and pension funds as well). Right now, more than $1 trillion of junk bonds are either “stressed” or “distressed.” Not good.
- The drop in oil price has also already sent Canada into a technical recession.
- Similarly other commodities such as natural gas, coal, iron ore, copper etc. have crashed in prices and this is killing many countries around the world – Brazil, Australia, South Africa, Russia, Middle Eastern countries etc.
- Finally, the debt burden of all U.S. corporations is now at record $29 trillion, thanks to the Federal Reserve Bank. The debt hangover of this insane orgy is about to begin.
- Junk Bonds are going to get whacked this year. A combination of cheap money and low interest rates meant that investors were chasing after high yields and corporations can easily borrow money. So, from Fracking to other industries, junk bonds had blossomed like it was the 1980s. Now, they may crash like it’s 1989.
- Housing bubble in the U.S.: Thanks to low-low mortgage rates, negligible down payments, money printing by the fraudulent FED, and the billions of dollars from rich Chinese, the housing markets in the U.S. were reenacting the 2007 bubble. The Chinese poured in about $30 billion of cash into US homes last year. All those factors are reversing – including the Chinese government that is cracking down on money transfer from China – and will continue to do so in 2016. And if the stock market crashes, expect the housing bubble to lose steam much more rapidly. The same scenario will repeat in the UK. And also in Australia, Canada and other countries such as Denmark, all of whom have created massive housing bubbles as if they never heard about what happened in 2008.
- Americans are broke. Most Americans have less than $1000 in savings. Consumer spending is about 70% of GDP. Thanks to cheap, FED-funded auto loans, people might have felt rich with a new car that is financed over 7 years, but the fact is broke people can’t push the engine of economy forward. People are tapped out and 2016 will reflect that.
- Domino Effect: Everything is inter-connected. Global economy slowing down – massive debts everywhere, from governments to corporations to individuals – commodity prices – higher interest rates – end of bubbles – jobs – stock market. All related. And they all affect one another. And this year, not one of them looks good. As of Feb 9, stock markets in the following countries are in a bear market: China, Japan, India, Brazil, Russia, Australia, Germany, France and the U.K., to mention a few.
- People never learn. Bubbles always feel good and people always do linear extrapolations – if today is awesome, tomorrow will be awesome too. So people get carried away and do stupid stuff. And the banksters and big corporations use this to keep tricking people every few years. The only problem with this coming crash is everything is bigger today than they were in 2008 – banks, corporations, and debts of all kinds – and there are fewer financial emergency tools left to manage the bloodbath.
And here is a final chart that portends the coming chaos …
Sorry to bring bad news, but better be prepared than be taken by surprise. My informal, non-professional advice: get out of the stock market, buy gold and/or silver, save as much money as possible and keep hard cash somewhere safe (in a severe downturn, banks can do a “bail-in” and take some of your money from your deposits. Really. But that’s another blog post).
Update: A new related post on Dot Com Bubble 2.0
— Author, Chris Kanthan