GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Citi Strategists Warn "WORLD ECONOMY SEEMS TRAPPED IN DEATH SPIRAL"; Nasdaq Shed 3% Amid Massive Tech Sell-Off; EU Stocks End Lower After Weak U.S. Jobs Number; Asia Ends Mixed, Nikkei Ends Off 5.9%; And Oil Falls In Volatile Trade!

February 5, 2016 - GLOBAL ECONOMY -  The global economy seems trapped in a "death spiral" that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

"The world appears to be trapped in a circular reference death spiral," Citi strategists led by Jonathan Stubbs said in a report on Thursday.

"Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)... and repeat. Ad infinitum, this would lead to Oilmageddon, a 'significant and synchronized' global recession and a proper modern-day equity bear market."

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

"The death spiral is in nobody's interest. Rational behavior, most likely, will prevail," he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East.

By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

Overall, advanced economies are mostly making a modest recovery, while many emerging market and developing economies are under strain from the rebalancing of the Chinese economy, lower commodity prices and capital outflows.

Stubbs added that policymakers would likely attempt to "regain credibility" in the coming weeks and months.

"This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era," he said.

Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world's biggest economy is slowing. Economists are concerned about an industrial or manufacturing recession in the country, following some warnings from companies in earnings seasons and recent weak manufacturing activity and durable goods orders data.

However, some analysts say markets are overegging the prospect of a global slump.

"Many markets are now pricing in a significant probability of recession and when we talk about recession, we're talking particularly about a U.S. recession. Do you think that is likely or not? To me, the odds are too high; the market is pricing too high a probability," Myles Bradshaw, the head of global aggregate fixed income at Amundi, told CNBC this week.

Nasdaq sheds 3% amid massive tech sell-off

U.S. equities closed sharply lower on Friday amid a massive drop in technology stocks and as mixed U.S. employment data raised concerns the Federal Reserve may raise rates this year.

"It started with the uncertainty of the Fed and with the weak tech earnings ... it seems to have spread to the broader market," said JJ Kinahan, chief strategist at TD Ameritrade. "I think people are taking any unnecessary risk off before the weekend."

The three major indexes opened slightly lower, with the Dow Jones industrial average briefly trying for gains, but closed 211 points lower. McDonald's and Home Depot weighed the most on the index.

The S&P 500 index closed 1.85 lower percent, as information technology fell more than 3.35 percent. The Nasdaq composite fell 3.25 percent, as Apple and the iShares

Nasdaq Biotechnology ETF (IBB) dropped 2.67 percent and 3.19 percent, respectively.

Also weighing on the index were Amazon and Facebook, which closed down 6.36 percent and 5.81 percent, respectively.

Source: FactSet

LinkedIn shares also tanked 43.63 percent after posting weak guidance on their quarterly results. "I think 60 percent [of the market sell-off] is that the Fed was going to raise rates," said Kim Forrest, senior equity analyst at Fort Pitt Capital. "The other 40 percent is LinkedIn. The quarter was good, but the guidance was not."

"Some of the big tech stocks have had weak earnings," said Randy Frederick, managing director of trading and derivatives at Charles Schwab. "One stock is not a bellwether for one sector, but when you get multiple stocks with negative earnings reports, then you start seeing [a sector] go lower."

Investors also digested data showing the U.S. economy added 151,000 jobs in January, according to the Bureau of Labor Statistics. Economists were expecting a gain of 190,000. The unemployment rate, however, fell to 4.9 percent from 5.0 percent, while wages rose 0.5 percent.

"There was something for the bulls and something for the bears. It depends on which part of the statistics you want to focus on," said Bruce McCain, chief investment strategist at Key Private Bank.

"This is a classic example of why the headline looks worse than the actual report," said Art Hogan, chief market strategist at Wunderlich Securities. "The key components of this report were positive."

He noted that average hourly earnings, average hours worked and labor force participation all rose last month.

"It's all about that wage number, and that the 151,000 number is still indicative of growth," said Peter Cardillo, chief market economist at First Standard Financial. "[Wages] could be a sticking point for the Fed."

The jobs report raised the odds of another Federal Reserve rate hike, said Arne Espe, senior portfolio manager at USAA Investments.

"We're back to pricing in a 50 percent chance for a rate hike in December," he said. " We were at less than 50 percent before the report."

The central bank hiked interest rates for the first time in nine years in December. Recent U.S. economic data has been mixed and, coupled with falling oil prices, have contributed to rising fears of a recession.

European stocks end lower after weak US jobs number

European markets finished lower on Friday after the latest U.S. jobs data showed a slowdown in employment in January.

The pan-European STOXX 600 ended around 0.9 percent lower, with all major bourses in negative territory as investors digested weaker-than-expected U.S. employment data.

Germany's DAX closed down around 1.1 percent, while the French CAC and London's FTSE finished down 0.9 percent and 0.7 percent respectively.

Nonfarm payrolls increased by a seasonally adjusted 151,000 in January, the U.S. Labor Department said, falling short of analysts' expectations. The figures are likely to influence the hiking path the Federal Reserve takes on interest rates.

"Signs of a slowdown in hiring, still-weak annual pay growth and disappointing survey data, all pitched alongside an adverse financial market environment so far this year, reduce the odds of the Fed hiking rates again in March," chief economist at Markit, Chris Williamson, said.
U.S. equities fell on Friday after the jobs data was out.

Anglo American ended sharply higher, closing up over 10 percent as metal prices saw a slight rebound. Fellow miner Lonmin also saw strong gains.

On the earnings front, ArcelorMittal announced it would launch a $3 billion capital increase after its fourth-quarter net loss widened from a year ago amid falling steel prices, sending shares down more than 5 percent.

Nikkei extends losses for fifth day, down 5.9% for the week

Kazuhiro Nogi | AFP | Getty Images

Asian markets came under pressure on Friday, closing mixed despite a positive finish on Wall Street overnight, as a newly weaker dollar brought fresh concerns.

"The U.S. dollar basket has lost 3.2 percent since the close on Friday and 2.3 percent in two days, with Wednesday being the worst single day in [the dollar index] DXY in seven years," Evan Lucas, market strategist at spreadbetter IG, said in a morning note.

The dollar index, where the dollar is weighted against a basket of currencies, was at 96.58.

Lucas added, "The 36 percent increase in the U.S. dollar in 12 months is clearly putting a strain on U.S. economic growth; U.S. competitiveness has been squeezed and the Fed is isolated as the only central bank to be 'normalizing' monetary policy."

In Japan, the Nikkei extended losses for the fifth day in a row, with the index closing down 225.40 points, or 1.32 percent, at 16,819.59 on the back of a stronger yen. The index has shed 5.85 percent since Monday. The dollar-yen pair fell to the 116-handle, at 116.82 in afternoon trade; earlier this week, the pair was trading above 120.

Lucas said, "[The Bank of Japan's] negative rates have done nothing to slow the appreciation of the Japanese yen since last week. [BOJ Governor Haruhiko] Kuroda and Co.'s attempts to drive export competitiveness and more investment diversification from Japan in the current environment is a tough ask."

Mark Matthews from Bank Julius Baer was more succinct: "Japanese stocks like it when the dollar rises, and don't like it when the dollar falls," he said in a morning note.

Japanese exporters closed mostly down, with Toyota, Nissan and Honda seeing losses between 1.88 and 3.29 percent. Toyota reported an operating profit of 722 billion yen ($6.18 billion) in the October-December period, down 5.3 percent on-year, after market close. The Japanese carmaker also reported a net profit of 1.89 trillion yen, up 9.2 percent, on year, for the first nine months of the fiscal year ending on December 31, 2015.

Down Under, Australia's ASX 200 closed down 4.15 points, or 0.08 percent, at 4,976.20, with the financial sector losing 0.70 percent. Energy and materials sectors finished in positive territory, buoyed by gains in commodities.

Across the Korean Strait, the Kospi retraced early losses to close flat at 1,917.79.

In China, indexes gave up their marginal gains on the final trading day ahead of the Lunar New Year, when markets will remain closed for a week starting February 8. The Shanghai composite closed down 17.07 points, or 0.61 percent, at 2,763.94, while the Shenzhen composite fell 20.36 points, or 1.15 percent, to 1,750.70. Hong Kong's Hang Seng index was up 0.62 percent.

- CNBC News.

GLOBAL ECONOMIC MELTDOWN: Historic Week - Dow Plunges 1,079 Points; The Worst Five-Day Start To A Year On Record!

January 8, 2016 - WALL STREET, UNITED STATES - The Dow lost 1,079 points this week, or over 6%, as fears about China and crashing oil prices dealt Wall Street a painful one-two blow. It was the Dow's worst five-day start to a year on record, according to Dow Jones.

Despite the relative calm in China and a strong U.S. jobs report, the Dow fell 168 points on Friday, while the S&P 500 and Nasdaq lost about 1% apiece. It capped off the Dow's biggest weekly percentage loss since 2011.

"People are very nervous. We have a lot of fear about what is going on in China," said Joe Saluzzi, co-head of trading at Themis Trading.

Investors were once again spooked by crude oil prices, which plunged to the lowest level since late 2003 on Thursday. Oil initially calmed down on Friday before retreating again. Crude finished the day at $33.16 a barrel, its weakest settle since February 2004.

When oil drops, so do energy stocks. They retreated again on Friday, with names like Valero (VLO) and Marathon Petroleum (MPC) falling more than 3% apiece.

The oil plunge was one of the main drivers behind this week's market selloff, which erased nearly $1.1 trillion from the S&P 500, according to S&P Dow Jones Indices.

Chinese stocks started the year with an epic 12% nosedive. The selling earlier in the week triggered "circuit breakers" that are designed to smooth volatility in the markets. Trading in China was halted twice this week -- on Thursday, the stock markets shut down after just a half hour of trading.

Sentiment was boosted after regulators scrapped the circuit breakers because many believe they were fueling sharp trading losses -- rather than taming them.

Investors cheered as China stopped allowing its currency to lose value. In fact, China's central bank raised its target rate for the yuan for the first time in over a week. The surprise decline in the yuan has raised fears of a currency war of competitive devaluations.

On Friday, China managed to pull back from the brink and the benchmark Shanghai Composite closed 2%.

On Wall Street, investors initially responded favorably to the latest evidence that the U.S. economy continues to chug along despite the global turmoil.

The government said the U.S. added 292,000 jobs in December, easily beating expectations. It capped off the second-strongest year of employment gains since 1999. Importantly, wages went up 2.5% last month, matching the best gain in six years.

But there are lots of signs of the rising fear on Wall Street. CNNMoney's Fear & Greed Index is now flashing "extreme fear," a dramatic reversal from "neutral" just a week ago.

Gold, which tends to rise during times of financial stress, was one of the only things that had a good week. The precious metal soared 4% to $1,103 an ounce. Billionaire George Soros was among the most prominent investors to say the current situation reminds them of the 2008 financial crisis.

Others think it's much more like last summer, when turmoil in China prompted a scare in U.S. stocks that proved fleeting.

"We don't have investment banks failing or a credit crisis going on. This will settle. It reminds me a lot of August right now," said Saluzzi. - CNN Money.

GLOBAL ECONOMIC MELTDOWN: It Has Begun - George Soros Says "IT'S 2008 ALL OVER AGAIN,... Markets At The BEGINNING OF CRISIS"; China's 29 MINUTES OF CHAOS, Stunned Brokers And A Race To Sell; TRILLIONS VANISH!

January 7, 2016 - GLOBAL ECONOMY - Billionaire financier George Soros is warning of an impending financial markets crisis as investors around the world were roiled by turmoil in China trade for the second time this week.

Speaking at an economic forum in Sri Lanka's capital Colombo, he told an audience that China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, according to media. He added that a return to rising interest rates was proving difficult for the developing world.

The current environment reminded him of the "crisis we had in 2008," The Sunday Times in Sri Lanka reported on Thursday morning. "China has a major adjustment problem," he added, according to Bloomberg. "I would say it amounts to a crisis."

China's CSI 300 tumbled more than 7 percent in early trade Thursday, again triggering the market's circuit breaker. As well as roiling sentiment across Asia, it also battered European risk assets with the German DAX down 3.5 percent at 11 a.m. London time.

U.S. stock index futures also indicated a sharply lower open as investors focused on China's swooning currency and economic slowdown.

China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has thrown the vast difficulties officials are now facing into sharp relief. A raft of data has disappointed in recent months as the country's leaders refocus the economy on consumption from manufacturing.

Analysts also point to concerns over Chinese market regulators, who they believe do not appear to have a good grasp of the market, even with the introduction of the circuit breakers. In an attempt to stabilize markets, China's securities regulator has issued new rules to restrict the number of shares major shareholders in listed companies can sell every three months to 1 percent.

Marc Ostwald, a strategist at ADM Investor Services, believes that Soros' comments — alongside a gloomy report Wednesday from the World Bank — only serve to cast a "long shadow" over global markets.

"It should be noted that the current turmoil distinguishes itself from 2008, when reckless lending, willful blindness to a mountain of credit sector risks and feckless and irresponsible regulation and supervision of markets were the causes of the crash, given that central bank policies have been encouraged and been wholly responsible for the current protracted bout of gross capital misallocation," he said in a morning note. - CNBC.

U.S. Stocks Pare Losses, Bonds Fall as Crude Rallies Above $34

The selloff in global shares that started after China cut the yuan’s reference rate by the most since August showed signs of easing as crude erased losses and China’s securities regulator suspended a rule that’s exacerbated financial-market turmoil.

The Dow Jones Industrial Average recouped 200 points of a rout that neared 2 percent as crude oil almost erased a loss of as much as 5.5 percent. China’s weakening currency and tumultuous financial markets had fueled a flight from risky assets after shares there plunged 7 percent for a second time this week. Treasuries erased gains, while the yen reached a four-month high and gold surged on haven demand.

“Markets in China historically have had no correlation to their economy or our economy. This is a very emotional reaction and it’s becoming a somewhat absurd reaction,” said Howard Ward, who oversees $42.7 billion as the chief investment officer of growth equities at Mario Gabelli’s Gamco Investors Inc. “We’re going to err on the side of not being too concerned and not getting caught up in the mini-panic.”

Fresh concern that China’s slowdown will hamper global growth has wiped $2.5 trillion off the value of global equities this year, as the nation’s tolerance for a weaker currency is viewed as evidence policy makers are struggling to revive an economy that’s the world’s biggest user of resources. U.S. crude’s tumble toward $30 a barrel heightened fears of disinflation and fueled concern that junk-rated energy producers won’t be able to stay solvent.

Fears eased in U.S. morning trading as China’s leadership signaled it may reconsider or change the system for managing equity selloffs at the same time that crude in New York climbed back above $34 a barrel.

“Chinese equity markets are highly volatile right now and anything they do to potentially stabilize that market improves the outlook for U.S. equities,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “They don’t have a whole lot of experience controlling and monitoring markets and they’ve been going about it ham-handedly making the situation far worse than it needs to be.”

Stocks

The Standard & Poor’s 500 Index slid 0.8 percent at 11:04 a.m in New York, trimming a drop of 1.8 percent. The Dow fell 0.7 percent, clawing back from a 317-point slide to start the day.

China’s devaluation revived the angst that sent financial markets into turmoil last summer, driving U.S. stocks to three-month lows Wednesday in a selloff led by commodity producers. Comments by billionaire George Soros exacerbated market jitters after he told an economic forum in Sri Lanka today that global markets are facing a crisis and investors need to be very cautious.

The Stoxx Europe 600 Index slid 2 percent. The rout this year in Europe surpassed 5 percent, as Germany’s DAX fell below 10,000 for the first time since October. Companies with the most sales in China bore the brunt of the decline. Anglo American Plc tumbled and ArcelorMittal sank, dragging a gauge of miners to its lowest level since 2009. A measure of energy producers also fell to a near six-year low.

The MSCI Asia Pacific Index retreated 2.1 percent. Benchmark stock indexes in Australia, Japan, Singapore and Thailand all lost more than 2 percent.

China

The Hang Seng China Enterprises gauge of mainland shares listed in Hong Kong tumbled 4.2 percent, its lowest close since October 2011. The Shanghai Composite Index tumbled 7.3 percent before trading was suspended. New circuit breakers, which kicked in on Monday, have been criticized by analysts for exacerbating declines as investors scramble to exit positions before getting locked in by the halts.

After the halt, the securities regulator announced rules to limit selling by major shareholders when a ban expires this week. Later, the regulator suspended a new stock circuit-breaker, signaling that the country’s leadership may reconsider or change the system.

Currencies

The yen, which has been the best-performing major currency so far this year amid the demand for safe-haven assets, rose as much as 1 percent to its strongest level since August versus the dollar.

The pound fell to the weakest level since June 2010, touching $1.4555. The U.K. currency slid 1 percent to 74.46 pence per euro. It has fallen every day this week against the dollar. Disappointing manufacturing and services data added to the view that the Bank of England will have to keep its benchmark interest rate lower for longer.

Commodities

The Bloomberg Commodity Index rose 0.6 percent, rebounding from what would have been the lowest close since 1999 as crude erased losses.

West Texas Intermediate crude rose 0.1 percent to $34 a barrel. Crude supplies at Cushing, Oklahoma, the delivery point for U.S. crude, climbed to an all-time high, government data showed Wednesday.

Copper retreated 2.7 percent in London to the lowest since Nov. 24 and zinc slumped 4.1 percent. Cocoa for March delivery fell for a fifth day to an eight-month low on ICE Futures U.S. in New York. Gold rose as much as 0.8 percent to a two-month high of $1,102.85 an ounce.

Bonds

Yields on 10-year Treasury notes rose two basis points to 2.19 percent after touching the lowest since October. Japanese government bond futures advanced to a record high after 30-year notes were auctioned at a higher price than dealers forecast.

Germany’s 10-year break-even rate, a gauge of the market’s outlook for inflation, tumbled to the lowest level since February amid concerns that the rout in commodity markets would subdue price-growth.

Emerging Markets

Energy producers led losses in developing-nation stocks, driving the MSCI Emerging Markets Index down 2.7 percent. Benchmark gauges in South Africa, Thailand, the Philippines and Abu Dhabi slid more than 2.5 percent and those for Saudi Arabia, Dubai and Qatar tumbled at least 3 percent. Russian markets were closed for a holiday.

A gauge tracking 20 emerging-market currencies dropped for a fifth day, headed for its longest losing streak since October. The currency in South Africa, which counts China as its biggest trading partner, tumbled 1.2 percent. Russia’s ruble slid 1.1 percent in offshore trading while Mexico’s and Brazil’s real slid at least 0.6 percent. - Bloomberg.

China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell

Even by the rough-and-tumble standards of China’s stock market, it was a chaotic 29 minutes.

With share prices going into free fall almost as soon as local exchanges opened, market gurus at Huaxi Securities Co. were at a loss to explain why. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt.

By 9:59 a.m. local time it was all over -- except that it wasn’t. Next came a torrent of calls from angry clients upset by the carnage in a week that’s seen two abbreviated trading sessions and a 12 percent tumble in the benchmark CSI 300 Index. And it’s only January 7th.

"We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit breaker," said Wei Wei, an analyst at Huaxi Securities in Shanghai. "We are also feeling at a loss and confused today as we didn’t quite figure out what was going on in the market."

There’s certainly an Alice-in-Wonderland quality to this week’s selloff, which has radiated across global equity markets and rattled investor confidence in the world’s second-largest economy. It’s not as if China’s growth story is over. True, the yuan is weakening and the economy is decelerating to its slowest annual pace since 1990, but that’s been known for some time. The currency is actually holding up well versus just about everything but the dollar, and analysts are predicting a 6.5 percent economic expansion this year.

Market Intervention

What does seem to worry investors is how deftly, or ineptly, Chinese authorities will manage a stock market that’s gone from boom to bust and back again more times in the past 12 months than most major peers do over the course of a decade. After policy makers took extreme steps to prop up shares last summer, analysts are struggling to gauge how Beijing will react to a renewed bout of volatility that threatens to weigh on business and consumer confidence.

Officials moved to act on Thursday by suspending the new circuit-breaker system, bowing to intense criticism. The rules, launched at the start of this year, were designed to kick in when there’s a 5 percent swing in the CSI 300. That halts trading for 15 minutes, with exchanges shutting for the rest of the day if the index moves by 7 percent, as it did on Monday and Thursday.

In a market with some of the world’s highest volatility, circuit breakers throw up a new wild card that the nation’s 99 million individual investors are still getting used to.

"It is clearly adding some unintended consequences, such as people trying to sell before the break, which is actually accelerating the decline," said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai. "Investors need time to adapt to the new rules. This type of development in a retail-driven market is bound to be challenging."

The decision to suspend the circuit breaker came hours after CSRC officials held an emergency meeting to discuss conditions on the nation’s tumbling stock market, according to a person familiar with the discussions who asked not to be named because he wasn’t authorized to speak publicly. Officials unveiled plans to curb share sales by major stockholders just a day before an existing ban was due to expire.

Abrupt Halt

Some investors had no choice but to sell on Thursday. Take Chen Gang, who helps oversee the equivalent of $46 million as the chief investment officer at Shanghai Heqi Tongyi Asset Management Co. Chen dumped his firm’s equity holdings and said he won’t get back into the market until regulators improve the circuit breaker system. Many private funds and hedge funds in China have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value.

“This is insane,” Chen said in an interview on Thursday. “We were forced to liquidate all our holdings this morning.”

Then again, Kelvin Tay, the regional chief investment officer at UBS Group AG’s wealth management business in Singapore, sees a buying opportunity. "This week has been a disaster" but "it’s fun in a perverse way," he said. "Investors need to separate the sound from the noise. This is an opportunity to pick up stocks that are undervalued."

Some other managers couldn’t sell fast enough. Jiao Ji, whose hedge funds averaged a 61 percent return during the $5 trillion summer rout after he sold out before the crash, said the trading halts came so quickly that he didn’t have time to unload his holdings this time.

“It was quite abrupt on Monday, and it’s even more abrupt today,” said Jiao, the chairman of Sunrise Investment, based in northeastern China’s Jilin province. “There’s not even a chance for a rebound.” - Bloomberg.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Dow Jones Sinks 250 Points, Worst Start To A Trading Year Since 2008; Oil Dives To 7-Year-Low; And China Stocks Halted Again!

January 6, 2016 - GLOBAL ECONOMY - Wall Street experienced another mini panic attack on Wednesday after North Korea claimed to successfully test a hydrogen bomb. The markets were already being spooked by the financial and economic turbulence out of China and the latest plunge in oil prices below $34 a barrel.

The Dow dropped 252 points, closing below 17,000 for the first time since mid-October. The S&P 500 fell 1.3% and the Nasdaq lost 1.1%.

It marks the Dow's worst start to a trading year through three days since 2008. The index also fell 276 points on Monday due to worries about China.

"Quite suddenly there seems to be a very long list of topics that represent game-changing risks to the market. North Korea is just one more factor," said Peter Kenny, an independent market strategist and founder of Kenny's Commentary.

The latest selloff began overnight after North Korea claimed it carried out its first hydrogen bomb test. U.S. officials told CNN it could take days to determine if North Korea's claims are legitimate. If true, the test would represent a major advancement by the North Korean regime and the latest geopolitical threat on top of the tensions between Saudi Arabia and Iran.

Stocks in Asia retreated and the South Korean won slumped over 1% against the U.S. dollar. Gold, which tends to rise during times of fear, jumped 1.4% to $1,093 an ounce.

"While the long-term investment implications are likely to be limited (as Pyongyang's previous nuclear tests have proven), the short-term impact will likely keep markets extra jittery," Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman, wrote in a client note.

Oil prices also took another hit on Wednesday. Crude plunged nearly 6% to $33.97 a barrel -- the lowest settle since 2008. The latest losses were triggered by concerns about demand from China, the strong U.S. dollar and the diminishing chances OPEC cuts production.

Worries about China also continue to ripple through the U.S. stock market. A new report released on Wednesday that showed the country's services sector grew at the weakest pace in 17 months in December.

China also continues to experience financial turbulence. Its stock market jumped 2% on Wednesday, rebounding from Monday's crash thanks to more efforts by the government to stabilize markets.

However, China's currency lost more ground and is now down about 1% against the U.S. dollar this year. The yuan's fall will likely cause more money to leave China and "creates havoc" for other manufacturing countries in the region, said Peter Boockvar, chief market analyst at The Lindsey Group. - CNN Money.

China Halts Stock Trading After 7% Rout Triggers Circuit Breaker

Chinese stocks in Hong Kong fell to the lowest level in four years as mainland shares plunged, forcing an early halt to trading for the second day this week after the central bank cut its yuan reference rate by the most since August.

Hong Kong’s Hang Seng China Enterprises Index tumbled 4.2 percent to the lowest level since Oct. 6, 2011. Trading of shares and index futures in the mainland was halted by automatic circuit breakers from about 9:59 a.m. after the CSI 300 Index slid more than 7 percent. The People’s Bank of China cut its reference rate on Thursday for an eighth straight day, fueling concern that tepid economic growth is prompting authorities to guide the currency lower.

“The yuan’s depreciation has exceeded investors’ expectations,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “Investors are getting spooked by the declines, which will spur capital outflows.”

The yuan weakened 0.6 percent to 6.5938 per dollar at 4:20 p.m. in Shanghai. The currency rallied from early declines in offshore trading, strengthening 0.4 percent in Hong Kong amid speculation the central bank propped up the exchange rate after setting a weaker fixing that sent the currency tumbling.

Huatai Securities Co. tumbled 10 percent and Citic Securities Co. declined 7.1 percent as financial stocks slumped. China Petroleum & Chemical Co. led losses in energy companies as oil futures slid to the lowest level in 12 years.

Widening Discount

Mainland-listed companies are now 39 percent more expensive than their Hong Kong-traded peers.

“The gap will probably widen, with a higher discount for H shares, because you have to take into account the currency depreciation," said Paul Chan, Hong Kong-based chief investment officer for Asia excluding Japan at Invesco Ltd., which oversees $791 billion globally. “Earnings-per-share in Hong Kong dollar terms are lower, and I pay Hong Kong dollars for those shares.”

Analysts forecast earnings of companies in the H-share index, dominated by the nation’s biggest finance and energy companies, will fall 0.8 percent in the next 12 months.

The China Securities Regulatory Commission issued a rule during Thursday’s market halt, capping the size of stakes that major investors are allowed to sell at 1 percent of a company’s shares. The restriction, which will stay in place for three months, replaces an existing six-month ban on any secondary-market stock sales that’s due to expire Friday, the regulator said in a statement.

The CSRC also called an unscheduled meeting to assess circuit breakers and market conditions without coming to a decision on policy action, according to a person with direct knowledge of the matter. The regulator didn’t immediately respond to requests for comment. - Bloomberg.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Dow Jones Loses Nearly 300 POINTS On China Fears; S&P 500, Nasdaq Mark Worst Start To A Year Since 2001; China Halts Trading For The FIRST TIME EVER!

Courtesy Everett Collection

January 4, 2016 - GLOBAL ECONOMY - Talk about a scary start to 2016.

Fears of a crash landing in China's economy sent stocks diving around the world on Monday, the first trading day of the year. The global selloff was caused by a new report that showed China's manufacturing sector contracted at the end of 2015. Stocks in China fell so dramatically that trading was halted for the first time ever.

The Dow declined as many as 467 points and briefly fell below the 17,000 level for the first time since October. However, it bounced off the lows and ended the day down 276 points. It was still the Dow's worst opening day of the year since 2008.

The S&P 500 lost 1.5% and the Nasdaq dropped 2.1%.

"It seems like fear woke up early in 2016 and hope is basically sleeping in," said David Kelly, chief global strategist at JPMorgan Funds.

The retreat comes after the index fell 2% in 2014, its worst year since the 2008 financial crisis.

Monday's wave of selling began in Asia. Trading in China was stopped prematurely after circuit breakers were triggered during their first day they were implemented. Circuit breakers act as a kind of emergency brake to halt trading during times of extreme volatility.

The benchmark Shanghai Composite plummeted nearly 7%. The Shenzhen Composite, often compared to America's Nasdaq index because it's home to many tech companies, nosedived more than 8%.

The selloff was fueled by a new manufacturing survey by Caixin that fell to 48.2 in December following two months of stabilization. It marks the 10th month in a row of sub-50 readings, which indicate deceleration.

Even though the manufacturing report was disappointing, it's just the latest sign of a slowdown in China. Analysts said selling in Chinese markets was also driven by other factors, including the scheduled lifting of bans on IPOs and sales by larger investors.

"With headwinds both domestic and external, investors feared a hard landing may be inevitable and rushed to the exits," Emma Dinsmore, CEO of R-Squared Macro Management, wrote in a client note.

JPMorgan's Kelly thinks Monday's crash in China was caused by fears about the introduction of the circuit breakers. He compared the trading halts to a bank saying only the first 10,000 customers will be served.

"Everybody wants their money before it shuts," Kelly said.

The latest evidence of trouble in the American manufacturing sector didn't help Wall Street either. The ISM manufacturing index fell to 48.2 in December, the lowest reading since June 2009 when the Great Recession ended. Manufacturing continues to be hurt by the strong U.S. dollar, which makes American goods more expensive for overseas buyers. 

Global markets are also growing nervous over the dramatic increase in tensions between Saudi Arabia and Iran, the big oil-producing power players in the Middle East.

Saudi Arabia cut diplomatic ties with Iran after its embassy in Tehran was attacked. The violence follows Saudi Arabia's execution of a prominent Shiite cleric.

The Middle East tensions are already causing turbulence in the oil markets. Crude oil prices initially spiked more than 3% and returned above $38 a barrel but then retreated. Oil closed down almost 1% to $36.76 a barrel.

CNNMoney's Fear & Greed Index, which looks at seven measures of investor sentiment, dipped into "fear" territory on Monday.

Even Netflix (NFLX, Tech30), the star performer of 2015, took a tumble on Monday. Shares of Netflix plunged as much as 8% after the streaming site was downgraded by analysts at Robert W. Baird due to concerns about U.S. subscriber growth. Netflix closed down nearly 4%. Similarly, Amazon (AMZN, Tech30), another big winner last year, fell sharply on a separate analyst downgrade.

Not everything fell on Monday though. Gold jumped 1.4% to $1,075 an ounce thanks to the market scare and geopolitical concerns.

The rough start to 2016 could be a bad omen for Wall Street, which has an old saying: "As January goes, so goes the year."

U.S. stocks have finished the year in the same direction as January 72% of the time, according to Howard Silverblatt of S&P Dow Jones Indexes. - CNN Money.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Federal Reserve Ends Quantitative Easing Bond-Buying Program, Sends Markets Reeling, Stocks End Modestly Lower!

Traders on the floor of the New York Stock Exchange await the Fed's decision Wednesday. Lucas Jackson | Reuters

October 29, 2014 - WALL STREET, UNITED STATES - Stocks weakened and bonds sold off Wednesday after the Fed surprised Wall Street with a slightly more hawkish tone that suggested it may be more aggressive with rate hikes than markets had expected.

Without surprise, the Fed ended its quantitative easing bond-buying program. But it also tweaked the language in its statement to show that it saw improvement in the economy, and it did not mention signs that it saw economic contagion.

Specifically, it said there has been "substantial improvement" in the jobs outlook and the underlying strength in the broader economy. It also said inflation has been held down by lower energy prices and other factors.
"Maybe we brought forward the (first rate) hike a month or two from where it was yesterday," said David Ader, chief Treasury strategist at CRT Capital. Wall Street has been pricing in a fourth quarter rate hike, despite Fed forecasts of a midyear hike.

Stocks initially fell sharply, then reversed much of the losses before tumbling sharply again. By the market close, stocks were just slightly lower with the Dow off 31 at 16,974, at and the S&P 500 down 2 at 1982.

The Treasury yield curve flattened, as short-end yields rose relatively faster than those at the long end. The 2-year note yield moved from 0.44 percent to 0.49, and the 10-year was as high as 2.36 percent before returning to 2.32 percent. The flattening curve signals expectations of rising rates.

While the Fed language change surprised markets, it also kept in the line that it would keep rates low for a "considerable time."

"It's a little more hawkish than people thought," said John Canally, economist and market strategist at LPL Financial. "No mention of the global growth scare. No mention of tighter financial conditions."

Canally said the changes were significant for a Fed statement that was not accompanied by a press briefing, so that Fed Chair Janet Yellen could explain the changes.

"I thought it was clearly a more hawkish tilt on the part of the Fed," said Zane Brown, fixed income strategist at Lord Abbett. "The Fed did feel better about the economy and inflation going back up to 2 percent."

Brown said the big changes were in the phrase where the Fed described the labor market. It said "underutilization of labor resources is gradually diminishing."

As a result, the market's rate hike expectations moved just slightly, with fed funds futures rising slightly for December 2015.

"The dollar will strengthen and rates are likely to rise because the Fed now thinks they are on the schedule they identified at their September meeting. They still think they can do what they suggested and start raising rates in mid-2015 and get to 1.38 by year-end," said Brown.

The 1.38 is the median expectation of Fed officials for the end of 2015, and the market, meanwhile, is pricing the fed fund futures for December 2015 well below that—at 0.52, said Brown. That was above the 0.45 rate priced in before the Fed statement, he said.

Federal Reserve Chairman Janet L. Yellen. (AFP Photo/Darren McCollester)

 "I think the stock market will be fine but I also find the Fed's comments to be more hawkish. I think the Fed is realizing that they've basically called the labor market wrong," said David Kelly, chief global strategist at JPMorgan Funds.

"Even at a moderate rate of growth, this labor market is tightening up fast. I think the key to whether we get a rate increase as early as March is—what do wages do from here?" Kelly said.

"Our research suggests that when unemployment falls below 6 percent and then declines from there, that's when you get wage gains. If we see wages pick up I think we'll see the Federal Reserve move further, toward the hawkish side. I don't think the bond market is priced for what the Fed is going to do next year."

Canally said he expects the first rate hike is about a year away. He said the list of indicators the Fed watches still shows plenty of problems with the labor market, including slow wage growth and the problems with long-term unemployment. - CNBC.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States!

May 13, 2014 - GLOBAL ECONOMY - Does the economy move in predictable waves, cycles or patterns?  There are many economists that believe that it does, and if their projections are correct, the rest of this decade is going to be pure hell for the United States. 

Many mainstream economists want nothing to do with economic cycle theorists, but it should be noted that economic cycle theories have enabled some analysts to correctly predict the timing of recessions, stock market peaks and stock market crashes over the past couple of decades. 

Of course none of the theories discussed below is perfect, but it is very interesting to note that all of them seem to indicate that the U.S. economy is about to enter a major downturn.  So will the period of 2015 to 2020 turn out to be pure hell for the United States?  We will just have to wait and see.

One of the most prominent economic cycle theories is known as "the Kondratieff wave".  It was developed by a Russian economist named Nikolai Kondratiev, and as Wikipedia has noted, his economic theories got him into so much trouble with the Russian government that he was eventually executed because of them...

The Soviet economist Nikolai Kondratiev (also written Kondratieff) was the first to bring these observations to international attention in his book The Major Economic Cycles (1925) alongside other works written in the same decade. Two Dutch economists, Jacob van Gelderen and Samuel de Wolff, had previously argued for the existence of 50 to 60 year cycles in 1913. However, the work of de Wolff and van Gelderen has only recently been translated from Dutch to reach a wider audience.

Kondratiev's ideas were not supported by the Soviet government. Subsequently he was sent to the gulag and was executed in 1938.

In 1939, Joseph Schumpeter suggested naming the cycles "Kondratieff waves" in his honor.

In recent years, there has been a resurgence of interest in the Kondratieff wave.  The following is an excerpt from an article by Christopher Quigley that discussed how this theory works...

Kondratiev's analysis described how international capitalism had gone through many such "great depressions" and as such were a normal part of the international mercantile credit system. The long term business cycles that he identified through meticulous research are now called "Kondratieff" cycles or "K" waves.

The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:

• Spring phase: a new factor of production, good economic times, rising inflation
• Summer: hubristic 'peak' war followed by societal doubts and double digit inflation
• Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble
• Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression. A 'trough' war breaks psychology of doom.

Increasingly economic academia has come to realize the brilliant insight of Nikolai Kondratiev and accordingly there have been many reports, articles, theses and books written on the subject of this "cyclical" phenomenon. An influential essay, written by Professor W. Thompson of Indiana University, has indicated that K waves have influenced world technological development since the 900's. His thesis states that "modern" economic development commenced in 930AD in the Sung province of China and he propounds that since this date there have been 18 K waves lasting on average 60 years.

So what does the Kondratieff wave theory suggest is coming next for us?

Well, according to work done by Professor W. Thompson of Indiana University, we are heading into an economic depression that should last until about the year 2020...

Based on Professor Thompson's analysis long K cycles have nearly a thousand years of supporting evidence. If we accept the fact that most winters in K cycles last 20 years (as outlined in the chart above) this would indicate that we are about halfway through the Kondratieff winter that commenced in the year 2000. Thus in all probability we will be moving from a "recession" to a "depression" phase in the cycle about the year 2013 and it should last until approximately 2017-2020.

But of course the Kondratieff wave is far from the only economic cycle theory that indicates that we are heading for an economic depression.

The economic cycle theories of author Harry Dent also predict that we are on the verge of massive economic problems.  He mainly focuses on demographics, and the fact that our population is rapidly getting older is a major issue for him.  The following is an excerpt from a Business Insider article that summarizes the major points that Dent makes in his new book...

• Young people cause inflation because they "cost everything and produce nothing." But young people eventually "begin to pay off when they enter the workforce and become productive new workers (supply) and higher-spending consumers (demand)."
• Unfortunately, the U.S. reached its demographic "peak spending" from 2003-2007 and is headed for the "demographic cliff." Germany, England, Switzerland are all headed there too. Then China will be the first emerging market to fall off the cliff, albeit in a few decades. The world is getting older.
• The U.S. stock market will crash. "Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest."
• "The everyday consumer never came out of the last recession." The rich are the ones feeling great and spending money, as asset prices (not wages) are aided by monetary stimulus.
• The U.S. and Europe are headed in the same direction as Japan, a country still in a "coma economy precisely because it never let its debt bubble deleverage," Dent argues. "The only way we will not follow in Japan's footsteps is if the Federal Reserve stops printing new money."
• "The reality is stark, when dyers start to outweigh buyers, the market changes." It all comes down to an aging population, Dent writes. "Fewer spenders, borrowers, and investors will be around to participate in the next boom."
• The U.S. has a crazy amount of debt and "economists and politicians have acted like we can just wave a magic wand of endless monetary injections and bailouts and get over what they see as a short-term crisis." But the problem, Dent says, is long-term and structural — demographics.
• Businesses can "dominate the years to come" by focusing on cash and cash flow, being "lean and mean," deferring major capital expenditures, selling nonstrategic real estate, and firing weak employees now.
• The big four challenges in the years ahead will be 1) private and public debt 2) health care and retirement entitlements 3) authoritarian governance around the globe and 4) environmental pollution that threatens the global economy.

According to Dent, "You need to prepare for that crisis, which will occur between 2014 and 2023, with the worst likely starting in 2014 and continuing off and on into late 2019."

So just like the Kondratieff wave, Dent's work indicates that we are going to experience a major economic crisis by the end of this decade.

Another economic cycle theory that people are paying more attention to these days is the relationship between sun spot cycles and the stock market.  It turns out that market peaks often line up very closely with peaks in sun spot activity.  This is a theory that was first popularized by an English economist named William Stanley Jevons.

Sun spot activity appears to have peaked in early 2014 and is projected to decline for the rest of the decade.  If historical trends hold up, that is a very troubling sign for the stock market.

And of course there are many, many other economic cycle theories that seem to indicate that trouble is ahead for the United States as well.  The following is a summary of some of them from an article by GE Christenson and Taki Tsaklanos...

Charles Nenner Research (source)
Stocks should peak in mid-2013 and fall until about 2020. Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years. He bases his conclusions entirely on cycle research. He expects the Dow to fall to around 5,000 by 2018 – 2020.

Kress Cycles (Clif Droke) (source)
The major 120 year cycle plus all minor cycles trend down into late 2014. The stock market should decline hard into late 2014.

Elliott Wave (Robert Prechter) (source)
He believes that the stock market has peaked and has entered a generational bear-market. He anticipates a crash low in the market around 2016 – 2017.

Market Energy Waves (source)
He sees a 36 year cycle in stock markets that is peaking in mid-2013 and will cycle down for 2013 – 2016. “… the controlling energy wave is scheduled to flip back to negative on July 19 of this year.” Equity markets should drop 25 – 50%.

Armstrong Economics (source)
His economic confidence model projects a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015. The decline into January 2020 should be severe. He expects a world-wide crash and contraction in economies from 2015 – 2020.

Cycles per Charles Hugh Smith (source)
He discusses four long-term cycles that bottom in the 2010 – 2020 period. They are: Credit expansion/contraction cycle, Price inflation/wage cycle, Generational cycle, and Peak oil extraction cycle.

So does history repeat itself?

Well, it should be disconcerting to a lot of people that 2014 is turning out to be eerily similar to 2007.  But we never learned the lessons that we should have learned from the last major economic crisis, and most Americans are way too apathetic to notice that we are making many of the very same mistakes all over again.

And in recent months there have been a whole host of indications that the next major economic downturn is just around the corner.  For example, just this week we learned that manufacturing job openings have declined for four months in a row.  For many more indicators like this, please see my previous article entitled "17 Facts To Show To Anyone That Believes That The U.S. Economy Is Just Fine".

Let's hope that all of the economic cycle theories discussed above are wrong this time, but we would be quite foolish to ignore their warnings.

Everything indicates that a great economic storm is rapidly approaching, and we should use this time of relative calm to get prepared while we still can. - TEC. 

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - U.S. Stocks Collapse, Nasdaq Plunges 3%, Worst Day Since 2011; Marc Faber Predicts That The 2014 Crash Will Be Worse Than 1987; Top Economists Warn Germany That EMU Crisis As Dangerous As Ever; And The IMF Warns Europe's Banking System Poses Threat To Global Financial Stability!

April 10, 2014 - GLOBAL ECONOMY - U.S. stocks were slammed on Thursday, with high-flying technology and biotech shares leading the declines that had the Nasdaq Composite posting its worst session in more than two years.

"The market is coming to its senses in some of the high-flying tech names; it looked like there were some pretty hefty amounts being paid for the prospect of eventual earnings. Any of us in the market more than 15 years feels the hot breath on the backs of our necks when we see such high prices being paid for tech stocks," said Jerry Webman, chief economist at Oppenheimer Funds.

"One of the interesting ironies is when you see a shift towards stocks with pretty low prices and away from momentum that tends to happen when the underlying economy is still growing," Webman added.

The Nasdaq Composite declined as much as 141 points, and ended down 129.79 points, or 3.1 percent, at 4,054.11, its hardest hit since November of 2011.

Momentum stocks including Tesla Motors, Facebook, Google, Priceline Group and Amazon.com declined, along with biotechnology companies, with Pacific Biosciences of California, Zogenix and ChemoCentryx among those hit.

"Clearly investors are nervous about high-flying momentum stocks. There is a rethink on whether better earnings and economic data will support a resumption of the momentum that was driving biotechnology and higher-flying technology stocks earlier in the year," said Kate Warne, investment strategist at Edward Jones.

"We're back to a valuation focus; investors are gravitating towards something tangible, like earnings and revenue," said Jack Ablin, chief investment officer at BMO Private Bank.

"We're entering earnings season and they are not going to have much to show. Investors want to see earnings and cash flow," said Ablin of new technology and biotech firms that have seen their shares run-up on bets for future performance.

EBay fell after reaching an accord with activist investor Carl Icahn to halt his proxy battle by saying it would appoint, at Icahn's urging, an independent director to its board. Family Dollar Stores slid after saying it would cut jobs and close hundreds of stores as the discount retailer struggles to reverse declining sales.

Rite Aid gained after the drugstore chain projected full-year revenue that beat expectations; Bed Bath & Beyond declined after forecasting quarterly profit beneath estimates. Shares of Ally Financial fell as the former financing arm of General Motors made its market debut.

After a 283-point plunge, the Dow Jones Industrial Average shed 266.96 points, or 1.6 percent, to 16,170.22, with American Express leading losses that extended to all but two of its 30 components.

The S&P 500 declined 39.10 points, or 2.1 percent, to 1,833.08, with health care and technology pacing losses that extended to all 10 of its major industry sectors.

The CBOE Volatility Index, a gauge of investor uncertainty, jumped 15 percent to 15.89.

For every stock rising, roughly four declined on the New York Stock Exchange, where 802 million shares traded. Composite volume cleared 3.7 billion.

Equities began the day little changed, with upbeat economic data on the U.S. labor market offsetting disappointing export data from China. - CNBC.

Marc Faber Predicts That The 2014 Crash Will Be Worse Than 1987

Marc Faber says the stock market is setting up for a decline more painful than the sudden crash of 1987.

"I think it's very likely that we're seeing, in the next 12 months, an '87-type of crash," Faber said with a devious chuckle on Thursday's episode of "Futures Now." "And I suspect it will be even worse."

Faber, the editor and publisher of the Gloom, Boom & Doom Report, has recently called for growth stocks to decline. And he says the pain in the Internet and biotech sectors is just getting started.

"I think there are some groups of stocks that are highly vulnerable because they're in cuckoo land in terms of valuations," Faber said. "They have no earnings. They're valued at price-to-sales. And this is not a good metric in the long run."


WATCH: Marc Faber - Coming crash will be worse than 1987.

To be sure, there are prominent investors that disagree with Faber, among them legendary stockpicker Bill Miller, who said this week that conditions for a bad market simply don't exist.

But it's not just momentum stocks that Faber is wary of. He says that investors are coming to a stark realization.

"I believe that the market is slowly waking up to the fact that the Federal Reserve is a clueless organization," Faber said. "They have no idea what they're doing. And so the confidence level of investors is diminishing, in my view."

As investors adjust to this fact, and valuations shrink, he predicts a massive decline in the market.

"This year, for sure—maybe from a higher diving board—the S&P will drop 20 percent," Faber said, adding: "I think, rather, 30 percent. Who knows. But all I'm saying is that it's not a very good time, right now, to buy stocks."

Previously, in August 2013, Faber predicted that a 1987-style crash was coming. The S&P 500 is about 9 percent higher since he made that call. - CNBC.

Top Economists Warn Germany That EMU Crisis As Dangerous As Ever

Professor Michael Burda, from Berlin's Humbolt University, said the eurozone's
core problem is Germany's current account surplus  Photo: AP

Council on Foreign Relations compares Germany's hardline stance with US policy towards Britain at the end of the Second World War. 

The eurozone debt crisis is deepening and threatens to re-erupt on a larger scale when the liquidity cycle turns, a leading panel of economists warned in a clash of views with German officials in Berlin.

"Debts above 130pc of GDP for Italy and 170pc for Greece are a recipe for disaster once we go into the next downturn," said Professor Charles Wyplosz, from Geneva University.

"Today's politicians believe the crisis is over and don't want to hear any more about it, but they have not tackled the core issues of fiscal union and public debt," he said, speaking at Euromoney's annual Germany conference.

Ludger Schuknecht, director-general of the German finance ministry, insisted that the debt-stricken states of the eurozone are well on the way to recovery, ending their EU-IMF rescue programmes successfully one by one. There is no need for any major shift in policy. "The strategy has been right. We need to bring down debt and this is now consensus," he said.

Mr Schuknecht, the chief architect of the EMU anti-crisis regime, said Europe's banking union may need tweaking but nothing more. "There are some loose ends. These will be tied in a timely manner," he said.

This optimism is sharply at odds with the view of almost every foreign-based economist attending the event. Charles Dallara, former head of the International Instititute for Finance and chief negotiator for global banks in Greece's debt-restructuring, said little has be done to put the eurozone on a viable footing, even if sovereign bond yields in southern Europe have fallen to record lows.

"We should not be distracted by what is happening in financial markets, and look at the underlying economies in Italy and Spain. The pace of recovery is so slow and painful that is going to be challenging for democracies," he said.

"There has been too much belt-tightening and not enough structural reform. Credit is continuing to shrink in the heart of the eurozone. What is needed is a collective effort across the entirety of the eurozone to boost confidence, with a new package of fiscal measures and an end to austerity. Imagine how powerful that would be," he said.

Benn Steil, from the Council on Foreign Relations, said Germany's refusal to allow the eurozone rescue fund (ESM) to recapitalise banks directly means there will be no back-stop in place to prevent problems spinning out of control if European banks fail stress tests later this year, as expected.

This ignores the key lesson of the US stress tests, where government capital lay in reserve to ensure the stability of the system. "There is the potential for a fresh crisis if they announce the stress tests without the ESM being able to recapitalise banks," he said.

While Mr Steil did not cite specific countries, there are concerns that some Irish, Portuguese, Spanish and Italian lenders may fail tests as they grapple with a backlog of non-performing loans.

"Germany and the creditor states are going to have to decide whether they will accept fiscal transfers or whether it is best to wind down the project and let the eurozone unravel," he said.

Mr Steil compared Germany's hardline stance with US policy towards Britain at the end of the Second World War, when a prostrate UK emerged with the world's biggest debts - though US policy later changed. "We are hearing the same language as in the 1940s. The crisis was all the fault of lax policies in the debtor countries. It was precisely the way the US spoke when it was a creditor," he said.

Mr Steil warned that the achievement of primary budget surpluses in Italy and Greece may prove a Pyrrhic Victory since history shows that heavily-indebted countries are most likely to default once they have crossed this line and can meet day-to-day costs from tax revenue. "This is a good time for Greece to default," he said.

Professor Michael Burda, from Berlin's Humbolt University, said the eurozone's core problem is Germany's current account surplus - more than 6pc of GDP - and flat wages for a decade. "Germany has to become less competitive or the eurozone is not going to survive. You can't just save forever. It's mercantilism and we don't do that kind of thing anymore. All Germany has to do is to make its people happier by raising their wages," he said. - Telegraph.

IMF Warns Europe's Banking System Poses Threat To Global Financial Stability

The eurozone's creaking banking system poses a threat to global financial stability, the IMF has warned.
IMF says end of low US interest rates and sharp slowdown in China could also derail recovery
Photograph: Oliver Berg/EPA

The eurozone's creaking banking system poses a serious threat to global financial stability, according to the International Monetary Fund, which warned European leaders to accelerate plans to support weak banks and create a banking union.

In a report that forecasts a "Goldilocks" outcome of stable growth, IMF financial counsellor José Viñals said the end of low interest rates in the US, coupled with a failure by the Obama administration to monitor risky lending, a sharp slowdown in China and disruption to emerging markets could all upset expectations of a smooth recovery.

"Can the US make a smooth exit from unconventional policies? I call this the 'Goldilocks exit' – not too hot, not too cold, just right.

"This is our base line, most likely outcome. After a turbulent start, the normalisation of monetary policy has begun. But a bumpy exit is possible."

He said the eurozone's incomplete repair of bank and corporate balance sheets continued to place a drag on the recovery, while the widening gap between Germany and the poorest of the 18 member states was restricting the flow of funds around the currency zone and hampering the growth of smaller businesses. "Thus, further efforts must be made to strengthen bank balance sheets, through the European comprehensive bank assessment and follow-up, and to tackle the corporate debt overhang," he said.

The IMF, which published the global financial stability report on Wednesday, acts as lender of last resort to bankrupt countries and is one of many economic organisations to worry about the effects on global growth of the US attempting to behave as if the recovery is complete when many countries are still struggling to cope with the aftershocks.

Since last May's signal from the US Federal Reserve that interest rates would soon begin to rise, policymakers have been wary of the knock-on effects of a return to more normal rates in the US. The hint by former Fed boss Ben Bernanke caused a flight of investor capital from Turkey, Brazil and South Africa back to the US in the expectation of better returns.

Willem Buiter, chief economist at US bank Citi, told an audience at the IMF's spring conference that the US central bank was irresponsible to predict higher interest rates without putting in place insurance plans for countries that will be hit by the increased costs.

Buiter said greater co-operation was needed to insulate weaker countries from the ripple effects of policy changes in the US.

A refusal by the European Central Bank and its boss Mario Draghi to make borrowing cheaper for local banks was also a concern, he said.

"We talk about the US exiting loose monetary policy and low interest rates, but the eurozone has not yet even entered. Europe is too confident that everything will be OK when its banks are still in need of massive support," he said.

"The markets are strong, but investors are still sniffing the glue provided by Draghi and his declaration to do whatever it takes to rescue the euro."

Buiter said the banking union needed a €1tn fund to underwrite European banks and not the €55bn proposed by Brussels.

Alistair Darling, the Labour MP and former chancellor of the exchequer, said the banking union was desperately under-capitalised.

"In my experience €55bn only rescues one bank," he said.

"We kid ourselves into believing that it is all over and a banking crisis could never happen again. This is very dangerous. "

Viñals also explained that a repeat of the sub-prime loans disaster that sparked the financial crisis was also possible, though less in the housing market and more in the sale of corporate bonds. He said the value of low quality bonds, issued by companies with a high risk of going bust, was more than double the level over the last three years as the amount recorded before the crash.

While commending US regulators for being "on top of this", he said a panic could increase the costs of financing company debts and trigger a flurry of defaults and a second crisis.

Charles Evans, president of the Federal Reserve Bank of Chicago, argued that the US economy was still fragile and in need of huge support from the central bank.

Signalling that many members of the Fed board support chair Janet Yellen's doveish stance, he said: "US unemployment is higher now than it was at its peak in the last recession. US workers are not in as strong a position to withstand shocks and face many obstacles to higher productivity and wages from technological and structural changes."

Viñals said emerging markets from Turkey to Indonesia could struggle in the face of rising interest rates, weakening corporate earnings, and depreciating exchange rates.

"Indeed, in this scenario, emerging market corporates owing almost 35% of outstanding debt could find it hard to service their obligations.

While the situation varies widely across countries, those economies under recent pressure also share some vulnerabilities in their corporate sectors," he said.

To solve issues that reveal the inter-connectedness of national economies, he said: "We need greater global policy cooperation as we are all in this together. This extends to monetary policy, financial regulation and supervision, and ensuring orderly market conditions." - Guardian.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - U.S. Stocks End Near Lows; Nasdaq Wipes Out 2.5 PERCENT; DOW Dives 150!

April 04, 2014 - GLOBAL ECONOMY - Stocks closed out the week with a big thud Friday, with the Nasdaq narrowly avoiding its worst one-day loss this year as momentum names got crushed for a second day. The Dow and S&P 500 finished far from their record highs hit earlier in the session.

"This is a spillover effect from the Nasdaq's momentum names into the broader market," said Art Hogan, chief market strategist at Wunderlich Securities. "We've seen momentum names weak over the week and that seems to have picked up steam today – 1,875 on the S&P 500 is going to be a critical level. If we close below that, people are going to see it as a resistance level."

 For the second day, momentum stocks such as Tesla, Netflix, Amazon.com and Priceline fell heavily. Newly split Google Class A and Class C shares were both down more than 4 percent.

"The jobs report was more or less in line with expectations but the market had been up for four-consecutive days," note Elliot Spar, market strategist at Stifel Nicolaus. "Those that were long the big cap NDX names used the rally as a selling opportunity...It got very ugly after yesterday's lows were pierced. Selling begets selling so money managers can protect their performance."

The Dow Jones Industrial Average dropped 159.84 points, or 0.96 percent, to close at 16,412.71, after hitting a fresh high near the open. Still, the index managed to squeeze out its first 3-week win streak since November.

The S&P 500 fell 23.68 points, or 1.25 percent, to end at 1,865.09. The Nasdaq slumped 110.01 points, or 2.60 percent, to finish at 4,127.73. The Nasdaq tumbled as much as 2.8 percent and is down more than 5 percent from its 14-year high of 4,371 reached on Mar. 6, turning negative for the year. Both indexes logged their worst one-day session in two months.

The Global X Social Media Index ETF, Dow Jones Internet Index Fund and iShares Nasdaq Biotech ETF were all down more than 3 ercent each.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped near 14.

Most key S&P sectors finished in the red, dragged by techs, which had its worst day in nearly a year.

The U.S. created 192,000 new jobs in March after a gain of 197,000 in February, according to the Labor Department. The unemployment rate was unchanged at 6.7 percent. Economists polled by Reuters had expected employment to increase 200,000 last month and the unemployment rate to dip to 6.6 percent.

"I think this is enough of a goldilocks number for the market – it doesn't change Fed tapering, but still signals the economy is expanding gradually," said Anthony Valeri, investment strategist for LPL Financial.

The central bank previously said it would look to overhaul policy once the unemployment rate declined to 6.5 percent, but has since signaled that policy is no longer focused on unemployment.

Online food delivery services company GrubHub soared nearly 40 percent in its market debut. The company priced its IPO on Thursday at $26 a share, valuing the company at about $2.04 billion. The price was slightly above an already raised expected range of $23-$25 per share.

Anadarko Petroleum climbed after the oil and gas company said it would pay more than $5 billion to clean up areas across the United States polluted by nuclear fuel, wood creosote and rocket fuel waste, resolving a long-running lawsuit. At least 11 brokerages boosted their price targets on the company.

CarMax slumped after the auto retailer posted earnings and revenue that were below expectations. However, the company increased its share buyback program by one billion dollars, and said it also corrected an accounting issue during the fourth quarter related to extended warranties and related issues.

First-quarter earnings season kicks off next week. S&P 500 earnings are expected to grow just 1.2 percent versus last year, according to analysts surveyed by Thomson Reuters. Revenue is expected to increase just 2.7 percent. Alcoa, JPMorgan Chase, and Wells Fargo are all slated to post results next week.

"The bar is pretty low but if we get the typical, 3-percent beat rate, then we'll see earnings growth of 5 percent, which the market will be fine with," said Valeri. "And if you see some revenue growth, then investors will be happy."

Companies have been pointing fingers at the unusually cold and long winter weather in lowering expectations. There have been almost six negative pre-announcements for every positive one, according to Thomson Reuters. - CNBC.