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: Precursors To A Global Financial Collapse - Japan's Nikkei Slides To 1-Month Low As Ukraine, China Woes Unnerve Investors!

March 14, 2014 - JAPAN - Japanese stocks skidded 2.7% to a one-month low on Friday morning as concerns over Ukraine and slowing growth in China rattled investors, underpinning the safe-haven yen and hurting exporters.

A city worker in Tokyo looks at the falling Nikkei stock index

The Nikkei share average fell 395.04 points to 14,420.94 in mid-morning trade after dropping to a low of 14,408.62 earlier, the weakest since February 17.

"Investors are unwinding their long positions in the Nikkei and short positions in the yen," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas. "Short-term sellers like commodity trading advisors are also big players today and they are also reacting to the falling copper price."

On Thursday, copper resumed its decline on the London Metal Exchange after a brief recovery on the previous day. It hit a 44-month low on Wednesday.

Nonferrous metal shares, which have been hit over the past few sessions, extended their declines. Dowa Holdings dropped 3.0% to a nine-month low of 807 yen, and Sumitomo Metal Mining shed 2.0% to a five-week low of 1,240 yen.

Traders said investors remained risk-averse amid the backdrop of troubles in Ukraine and soft data in China, adding that the benchmark Nikkei would likely target support at 14,000 if it breaches Friday's futures and options settlement price of 14,429.87.

Market participants, citing estimates by local brokerages, said that Nikkei futures and options contracts expiring in March likely settled at 14,429.87. The official settlement price will be announced by the Osaka Securities Exchange after the market closes.

Markets remained nervous on rising tensions in Ukraine after Russia launched military exercises near its border with Ukraine.

Index heavyweight stocks led the declines. SoftBank Corp fell 1.8% and was the most trade stock by turnover, while Fast Retailing Co declined 2.7% and was the second-most traded stock.

Exporters were also battered after the dollar/yen hit the lowest in over a week at 101.83 yen. A weak yen hurts Japanese exporters' competitiveness abroad as well as their dollar earnings when repatriated.

Toyota Motor Corp slid 2.3%, Nikon Corp tumbled 4.1% and Tokyo Electron Ltd shed 4.2%.

The Topix dropped 2.4% to 1,174.83, with all of its 33 subsectors in negative territory.

The JPX-Nikkei Index 400 , a gauge comprising firms with high return on equity and strong corporate governance, dropped 2.4% to 10,624.75. - Business Standard.

GLOBAL ECONOMIC MELTDOWN: The Stock Market In Japan Is COLLAPSING - Nikkei Falls By More Than 610 Points!

February 05, 2014 - JAPAN - Did you see what just happened in Japan?  The stock market of the 3rd largest economy on the planet is imploding. On Tuesday, the Nikkei fell by more than 610 points. If that sounds like a lot, that is because it is. The largest one day stock market decline in U.S. history is only 777 points. So far, the Dow is only down about 1000 points during this "correction", but the Nikkei is down more than 2,300 points. The Nikkei has dropped more than 14 percent since the peak of the market, and many analysts believe that this is only just the beginning.

Those who have been waiting for a full-blown stock market collapse may be about to get their wish.  Japan is absolutely drowning in debt, their central bank is printing money like crazy and the Japanese population is aging rapidly. As far as economic fundamentals go, there is very little good news as far as Japan is concerned. So will an Asian financial collapse precede the next great financial crisis in the United States?  That is what some have been predicting, and it starting to look increasingly likely.

What happened to the Nikkei early on Tuesday was absolutely breathtaking.  The following is how Bloomberg described the carnage...

At the end of January 2013, Japanese stocks trailed only Portugal for the biggest rally among developed markets. Now the Nikkei 225 Stock Average is leading declines, slumping 8.5 percent last month and today capping a 14 percent drop from its Dec. 30 peak.

Losses snowballed in Tokyo during a global retreat that has erased $2.9 trillion from equity values worldwide this year amid signs of slower growth in China and stimulus cuts by the U.S. Federal Reserve.

As Bloomberg noted, much of the blame for the financial problems that we are seeing all over the planet right now is being placed on the Federal Reserve.

The Fed created this bubble by pumping trillions of fresh dollars into the global financial system, and now they are bursting this bubble by starting to cut off the flow of easy money.

This is something that I warned would happen when the Fed decided to taper, and now RBS is warning of a "market bloodbath" unless the Federal Reserve immediately stops tapering.

Most Americans simply do not realize that our financial markets no longer resemble a free market system.  Instead, they are highly manipulated and distorted by the central banks, and the trillions of dollars of "hot money" that the Fed has poured into the global financial system has infected virtually every financial market on Earth...

On Wall Street they call it "hot money"—that seemingly endless flow of cash that goes to the most profitable country du jour—but in the real economy it's gone cold.

That hot money has come mostly in the form of a low-yielding U.S. dollar, which investors have borrowed en masse to fund investments in other higher-yielding currencies across the globe. The so-called carry trade has helped fuel an investment bonanza across the world that has boosted risk assets thanks primarily to the U.S. Federal Reserve's easy-money policy.

But with the Fed tiptoeing away from what initially was an $85 billion-a-month infusion of liquidity, investors are beginning to prepare themselves for a world of rising rates in which the endless cash flow to emerging market economies begins to ebb, then cease.

We never fixed any of the fundamental problems that caused the last financial crisis.  Instead, the Fed seemed to think that the solution to any problem was just to create more money.

It was an incredibly stupid approach, and now our fundamental problems are worse than ever as Marc Faber recently noted...

Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows.

So what comes next?

Well, unless the Fed or other central banks intervene, we are probably going to have even more carnage.

At least that is what Dennis Gartman, the editor and publisher of "The Gartman Letter", told CNBC on Tuesday...

I just think you're going to have a very severe, very substantive and really quite ugly correction that will probably make a lot of people wail and gnash their teeth before it's done.

Other analysts share his pessimism.  According to Doug Short, the vice president of research at Advisor Perspectives, the U.S. stock market "still looks 67% overvalued".

Most sobering of all is what Richard Russell is saying.  In his 60 years of writing about financial issues, he has never been "so filled with foreboding regarding what lies ahead"...

I’d be lying if I said that I wasn’t worried about the way things are going.  Frankly, I’m truly scared for myself, my family and the nation.  I have the sinking feeling that the stock market is on the edge of a crash.  If that happens, investor sentiment will turn quickly bearish.  And the bear market will start feeding on itself.  Ironically, the recent action occurred in the face of almost insane bullishness on the part of the crowd and on the part of investors.

Obviously smart heads and institutional money managers know that the US is semi dead in the water.  And all the talk about an improving economy is just wishes and hopes.  Bernanke’s dream of a flourishing new economy, improving without the need of the Fed’s help, is an idle dream.

I’ve been writing about the stock market for over 60 years and I can’t remember a time when I was so filled with foreboding regarding what lies ahead.  The primary trend of the market, like the tide of the ocean, is irresistible, and waits for no man.  What scares me the most in this current situation is that I see no clear island of safety.

You can read the rest of his very disturbing remarks right here.

U.S. stocks may not totally crash this week, this month or even this year, but without a doubt a day of reckoning is coming.  As a society, our total consumer, business and government debt is now equivalent to approximately 345 percent of GDP.

The only way that the game can continue is to keep pumping up the debt bubble even more.
Once the debt bubble stops expanding, it will start collapsing very rapidly.

Those that foolishly still have lots of money in the stock market better hope that the Federal Reserve decides to intervene in a major way very soon.

Because if they don't, there is a very good chance that we could indeed have a "market bloodbath" on our hands. - Activist Post.

THE GLOBAL ECONOMIC MELTDOWN: Global Panic Selloff - Markets Pummeled, U.S. Dollar Slumps As Rout Gathers Pace, Nikkei Plunges 6% As It Re-Enters Bear Market!

June 13, 2013 - EARTH - Global stock markets fell for a third straight day on Thursday and the U.S. dollar hit a 10-week low against the yen as investors unwound bets linked to central bank stimulus measures that have buoyed many asset markets.

Global Shares Fall For Third Straight Day As The Yen Reach 10-Week High.

A trader looks at his screen on the Unicredit Bank trading floor in downtown Milan June 13, 2013.
World shares fell and the dollar slumped on Thursday as a sell-off on global financial markets.
Credit: REUTERS/Alessandro Garofalo

But Wall Street rebounded after the open and oil prices also recovered, helped by stronger-than-expected U.S. data on retail sales and jobless claims.

Investors are trying to gauge when central banks around the world, particularly the Federal Reserve, which meets next Tuesday and Wednesday, will pull back on their accommodative monetary policies.

Concern about a pullback in central bank liquidity mounted after recent comments from Federal Reserve Chairman Ben Bernanke and a decision by the Bank of Japan to hold off on easing further. It has fueled a selloff in global equities, emerging markets, bonds and commodities, while driving the yen sharply higher.

"The easy money helped us on the way up. The concern is mounting it's going to end," said Andre Bakhos, director of market analytics at Lek Securities in New York.

"The action has been choppy and erratic," he said. "It's a case of investors looking to limit exposure ahead of next week's Fed meeting."

The MSCI All-Country World Index .MIWD00000PUS fell 0.4 percent to 360.41, while emerging equities .MSCIEF hit 11-month lows. Most emerging currencies remained under heavy pressure, with the Indian rupee falling to a record low.

The Dow Jones industrial average .DJI rose 33.79 points, or 0.23 percent, at 15,029.02. The Standard & Poor's 500 Index .SPX was up 4.99 points, or 0.31 percent, at 1,617.51. The Nasdaq Composite Index .IXIC was up 9.66 points, or 0.28 percent, at 3,410.09.

European shares .FTEU3 fell as much as 1.1 percent before recovering slightly, while Japan's Nikkei .N225 fell 6.4 percent - its second-biggest daily drop in more than two years. That rattled markets and left Asian shares at their lowest level of the year. <.

 A woman walks past a markets index board in Tokyo June 12, 2013.Credit: REUTERS/Toru Hanai

The dollar lost 1.8 percent against the yen as investors spooked by Japan's stock dive unwound bets the yen would weaken. It fell as low as 93.78 yen, its lowest since April 4, giving back almost all the gains made since the Bank of Japan's aggressive monetary easing was announced on that day.

The euro lost 0.4 percent to $1.3281.

"If you look at it historically, there has never been a period when the Fed has started to take back stimulus that has left the markets untouched," said Hans Peterson, global head of investment strategy at Swedish bank SEB.

"And this time it is a bigger exercise. We have moved markets from 2009 to 2013 on stimulus and now we are trying to take a step into a world which is more driven by natural growth. That transition will not be easy."

WATCH:   Asian Markets Decline - Nikkei Plunges More Than 6%.

Brent crude rose 19 cents to $103.68 a barrel, having traded as low as $102.75 on reports indicating weak demand, including a cut in the outlook for global economic growth by the World Bank.

U.S. crude fell 0.22 percent to $95.67 a barrel.

Investors headed for traditional safe-haven government debt. The benchmark 10-year U.S. Treasury note was up 9/32, the yield at 2.1956 percent. German government bonds had their biggest gains in a week.

The recent selling of euro zone periphery debt also resumed, and Italy's borrowing costs rose at an auction of three-year debt, although yields at a parallel 15-year sale were little changed. - Reuters.

Nikkei Plunges 6.4%; Re-Enters Bear Market.

Nikkei 225 accelerated its losses to plunge over 6 percent on Thursday in a vicious sell-off that took the index to levels not seen before the Bank of Japan launched its massive stimulus program on April 3. 

Uncertainty over central banks rolling back stimulus saw dollar/yen drop below the key 95-handle, rising nearly 2 percent to plumb a new 10-week low. The Nikkei is now down over 21 percent from last month's five-and-a-half-year high of 15,942, placing the benchmark firmly back in bear market territory for the second time in less than a week.

"In my personal opinion, this is deep consolidation phase. I would expect that that's going to continue for another 3-4 weeks but afterwards I do think earnings visibility in Japan is going to pull shares higher again," said Jesper Koll, managing director at JP Morgan Securities.

In response to the steep falls, Bank of Japan Governor Haruhiko Kuroda was quoted by the Nikkei business daily as saying that the Japanese economy is on a steady path to recovery and that financial markets will calm down over time.

WATCH: Nicholas Benes, Representative Director of The Board Director Training Institute of Japan says Japan needs real robust policies that are market-wide and high-impact in nature, especially on labor reforms and tax incentive measures.

Asia-Wide Losses
Elsewhere in Asia, markets experienced a bout of heavy selling with the Shanghai Composite down over 3 percent after being closed since last week, Seoul shares falling to a new eight-week low and Australia's S&P ASX 200 hitting a fresh five-and-a-half-month low.

Emerging markets also extended losses as capital flows continue to exit local equities. Thailand's SET index and Philippine's benchmark index slumped over 5 percent each, extending losses from earlier this week.

Central Bank Jitters

Nagging worries about the Federal Reserve tapering its bond-buying program and disappointment from the Bank of Japan's policy inaction at its Tuesday meeting have roiled global equity markets in recent sessions, leading the Dow Jones Industrial Average to drop for a third session in a row on Wednesday.

"We are seeing the first signs of a lack of confidence in the ability of central banks to control the interest rates, to stimulate inflation, and real GDP [gross domestic product] growth rates," said Viktor Shvets, head of strategy research, Asia, at Macquarie.

Nikkei in Bear Market
Japan's benchmark index closed at a fresh ten-week low with experts attributing the sell-off to short-term traders taking money off the table, warning that a move below 12,000 would force the market into dangerous territory.
"This is not the time to stick your hand in and catch the falling knife. It's best to stay on the sidelines and wait and see what the July elections say," said David Poh, Regional Head of Asset Allocation at Societe Generale Private Banking.


Exporters suffered with Hino Motors losing over 9 percent while fiber manufacturer Nitto Boseki fell 8.6 percent. A stronger yen diminishes the value of exporters' overseas earnings when repatriated.

Despite the steep losses, one investor told CNBC that he is positive on the market over the next 6-19 months and views the current sell-off as a buying opportunity. "On a 12-18 month basis, I would look to the market to be above 20,000," said Glen Wood, head of sales, Global, Mitsubishi UFJ Morgan Stanley Securities. That target is almost 60 percent higher from current levels.

WATCH: Viktor Shvets, Head of Strategy Research, Asia at Macquarie said the rout in global markets resembles a lack of confidence in the ability of central banks to generate a real economic recovery.

Sydney Slips 0.6%

Australia's benchmark index fell further into correction territory, with the index down 11 percent from last month's high of 5,249.

The Australian dollar fell below the $0.95 handle against the greenback after initially popping to $0.9520 after an upside surprise on the jobs front. Data released on Thursday showed the nation added 1,100 jobs in May, a hefty gain compared to market expectations of a drop of 10,000.

Resources weighed on the broader index with Gindalbie Metals and rare earth miner Lynas leading losses by over 7 percent each. Oil and gas producer Linc Energy tanked 6.5 percent after Brent crude slipped towards $103 on demand worries.

Greater China Resumes Trade

The Shanghai Composite fell below its 200-day simple moving average of 2,188 as investors had a chance to react to last week's dismal economic data. Markets have been closed since last week for the Dragon Boat holiday.

Banks led the losses after data showed that weaker new loans were extended in May. Shanghai Pudong Development Bank skidded 3.5 percent while Hua Xia Bank fell 2.6 percent.

Weakness in the mainland spelled heavy losses for Hong Kong's Hang Seng Index, which fell below 21,000 to its lowest level since October 2011.

Kospi Below 1,900
South Korea's benchmark index tracked the global equity rout, weighed down by a 2 percent drop in shares of Samsung Electronics, the largest component on the Kospi index.

Exporters were unable to gain from the yen's rise with automakers Hyundai Motor and Kia Motors down over 2 percent each.

Sentiment was little changed after the Bank of Korea left interest rates steady at 2.5 percent at its policy meeting, a move widely expected by market players. - CNBC.

GLOBAL ECONOMIC MELTDOWN: The Japanese Financial System Is Beginning To Spin Wildly Out Of Control - Are We Witnessing The Start Of A Colossal Meltdown By The Third Largest Economy On The Planet?!

May 29, 2013 - JAPAN - The financial system of the third largest economy on the planet is starting to come apart at the seams, and the ripple effects are going to be felt all over the globe.  Nobody knew exactly when the Japanese financial system was going to begin to implode, but pretty much everyone knew that a day of reckoning for Japan was coming eventually.  After all, the Japanese economy has been in a slump for over a decade, Japan has a debt to GDP ratio of well over 200 percent and they are spending about 50 percent of all tax revenue on debt service. 

In a desperate attempt to revitalize the economy and reduce the debt burden, the Bank of Japan decided a few months ago to start pumping massive amounts of money into the economy.  At first, it seemed to be working.  Economic activity perked up and the Japanese stock market went on a tremendous run.  Unfortunately, there is also a very significant downside to pumping your economy full of money.  Investors start demanding higher returns on their money and interest rates go up.  But the Japanese government cannot afford higher interest rates.  Without super low interest rates, Japanese government finances would totally collapse.  In addition, higher interest rates in the private sector would make it much more difficult for the Japanese economy to expand.  In essence, pretty much the last thing that Japan needs right now is significantly higher interest rates, but that is exactly what the policies of the Bank of Japan are going to produce.

There is a lot of fear in Japan right now.  On Thursday, the Nikkei plunged 7.3 percent.  That was the largest single day decline in more than two years.  Then on Monday the index fell by another 3.2 percent.
And according to Business Insider, things are not looking good for Tuesday at this point...

In post-close futures trading, the Nikkei has dropped by another couple hundred points, and has dropped below 14,000.

Are we witnessing the beginning of a colossal financial meltdown by the third largest economy on the planet?  The Bank of Japan is starting to lose control, and if Japan goes down hard the crisis could spread to Europe and North America very rapidly.  The following is from a recent article by Graham Summers...

As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%… despite the Bank of Japan funneling $19 billion into it to hold things together.

This is what it looks like when a Central Bank begins to lose control. And what’s happening in Japan today will be coming to the US in the not so distant future.

If you think the Fed is not terrified of this, think again. The Fed has pumped over $1 trillion into foreign banks, hoping to stop the mess from getting to the US. As Japan is showing us, the Fed will fail.

Investors, take note… the financial system is sending us major warnings…

If you are not already preparing for a potential market collapse, now is the time to be doing so.

And all of this money printing is absolutely crushing the Japanese yen.  Since the start of 2013, the yen has declined 16 percent against the U.S. dollar, even though the U.S. dollar is also being rapidly debased.   Just check out this chart of the yen vs. the U.S. dollar.  It is absolutely stunning...

The term "currency war" is something that you are going to hear a lot more over the next few years, and what you can see in the chart above is only the beginning.

What the Bank of Japan is doing right now is absolutely unprecedented.  It has announced that it plans to inject the equivalent of approximately $1.4 trillion into the Japanese economy in less than two years.
As Kyle Bass recently discussed, that dwarfs the quantitative easing that the Federal Reserve has been doing...

"What they're doing represents 70% of what the Fed is doing here with an economy 1/3 the size of ours"

The big problem for Japan will come when government bond yields really start to rise.  The yield on 10 year government bonds has been creeping up over the past few months, and if they hit the 1.0% mark that will set off some major red flags.

Because Japan has a debt to GDP ratio of more than 200 percent, the only way that it can avoid a total meltdown of government finances is to have super low interest rates.  The video posted below does a great job of elaborating on this point...

WATCH: OtterWood observations on Japan - May, 2013.

It really is very simple.  If interest rates rise substantially, Japan will be done.

Investor Kyle Bass is one of those that have been warning about this for a long time...

There's a fatalism, he says, in everyone he talks to in Japan. Their thinking is changing, and the way they talk to him about debt is changing. They already spend 50% of tax revenue on debt service.

"If rates go up, it's game over."

The financial problems in Cyprus and Greece are just tiny blips compared to what a major financial crisis in Japan would potentially be like.  The Japanese economy is larger than the economies of Germany and Italy combined.  If the house of cards in Japan comes tumbling down, trillions of dollars of investments all over the globe are going to be affected.

And what is happening right now in Japan should serve as a sober warning to the United States.  Like Japan, the money printing that the Federal Reserve has been doing has caused economic activity to perk up a bit and it has sent the stock market on an unprecedented run.

Unfortunately, no bubble that the Federal Reserve has ever created has been able to last forever.  At some point, we will pay a very great price for all of the debt that the U.S. government has been accumulating and all of the reckless money printing that the Fed has been engaged in.

So enjoy the calm before the storm while you still can.

It won't last for long. - TEC.