Anyone that tries to tell you that a global financial crisis is not happening is not being honest with you. Right now, there are 27 major global stock markets that have declined by double digit percentages from their peaks earlier this year. And this is truly a global phenomenon – we have seen stock market crashes in Asia, Europe, South America, Africa and the Middle East. But because U.S. stocks are only down less than a thousand points from the peak earlier this year, most Americans seem to think that everything is just fine.
The truth, of course, is that everything is not fine. We are witnessing a pattern similar to what we saw back in 2008. Back then, Chinese stocks and other major stock markets started crashing first, and then U.S. stocks followed later.
And it appears that we may have entered the next leg down for markets in the western world this week. The Dow was down another 252 points on Thursday, and all of the major stock indexes in the U.S. are now negative for the year except for the NASDAQ. Unless there is a major turnaround in the coming weeks, the six year winning streak for U.S. stocks is likely over.
But when you step back and look at what has been happening globally, a much more ominous picture emerges. I spent much of the afternoon looking at stock market charts for the largest economies all over the globe. What I discovered was financial carnage that was much worse than I anticipated.
It turns out that there are 27 major global stock markets that have fallen by more than 10 percent from peaks that were set earlier this year. If you want to verify this information for yourself, just go to Trading Economics. As you can see, many of these stock market declines have been quite impressive…
1. China: down more than 30 percent
2. Saudi Arabia: down 26 percent
3. Germany: down about 13 percent
4. United Kingdom: down close to 12 percent
5. Spain: down 15 percent
Just as in 2008, “saving the worst for last”, last time around it was the US, Germany, and Britain who fell last, but those who fell last also fell worst. This time around, the German DAX has already made the list of losers for 2015, so perhaps they’ll be able to dodge the worst of it this time… but not the US.
Because the $USD is the reserve currency, we benefit from having the most momentum, and the strongest “safety factor” financially. But when that momentum finally turns against us, it is an irresistable tsumnami.
By momentum, I mean that being the reserve currency gives a us a free leg up in terms of “good business” in the pipeline, which offsets “bumps” which would be much worse in any other market on Earth. Nearly all of the largest business deals on earth are denominated in $USD, regardless of the local currency(ies) because of financing and supply-chain considerations. When you have literally $Trillions in such essentially ‘guaranteed’ business at any given time… that is momentum.
By “safety factor” I mean that when any smaller economy looses momentum, or when any other market on Earth fails to offer the gains and leverage investors want, they can always “retire” their investment cash to the US markets, and “ride out the storm” protected by the momentum and resilience of the biggest, strongest markets on Earth. Now, the returns of the US market aren’t what the BRICS can produce, but the US is “safe” because; where an emerging market could quite potentially take a 25%, or 40%, or even a 50% or more loss in a short span of time, the US markets consider 5% to be a dramatic sell-off (and most such events have a return bounce which recovers that 5% loss within just a week or two).
Considering the momentum factor, and the safety factor, it only makes sense that the US markets, (both equities and bonds) would only benefit from weakness and/or retraction in other markets, and therefore position us to go last in any major economic event.
But also remember that the same momentum which protects us going into a major market event, is the anchor around our necks coming out of a major event. Because market-making deals like that are years in the making, any prolonged economic even can create a “generation gap” where new deals do not fill the pipeline at nearly the rate which they mature and pass out of the pipeline, thus depleting the source of our market momentum And without a sufficient pipeline of such monster-deals, we will have a very volatile market for an extended period of time, even as we are trying to recover from a recessionary event(s). This is why the “double dip recession” is such a dreaded thing -- it indicates that so much mometum has been lost that, essentially, our economy is below the level at which it can “lead” the world by means of the $USD reserve currency status.
The depths of such a “double dip” recession would be the most likely time for our status as the reserve currency to be stripped from us -- because that is when the $USD momentum is weakest in terms of large deals, and also in terms of other, smaller markets rebounding faster, thus nullifying the “safety factor” by giving investors other markets to move their money to.
But, the second depths of a double dip recession would also be the worst time for us to loose our reserve status, from a domestic standpoint. Such an event, occurring as it now would, amongst a population of the most indebted people in the world, would be far more devastating than any previous event in our nations history --
It took WW-II to bring the US out of ‘the Great Depression’; so what do you think it will take to bring the US out of a situation ten or a hundred times worse than that depression?
So, how are your preps looking?
WE HAVE BEEN WARNED