2016 Market Meltdown: We Have Never Seen A Year Start Quite Like This

 

By Michael Snyder – posted originally at The Economic Collapse Blog

We are about three weeks into 2016, and we are witnessing things that we have never seen before.  There were two emergency market shutdowns in China within the first four trading days of this year, the Dow Jones Industrial Average has never lost this many points within the first three weeks, and just yesterday we learned that global stocks had officially entered bear market territory.  Overall, more than 15 trillion dollars of global stock market wealth has been wiped out since last June.  And of course the markets are simply playing catch up with global economic reality.  The Baltic Dry Index just hit another new all-time record low today, Wal-Mart has announced that they are shutting down 269 stores, and initial jobless claims in the U.S. just surged to their highest level in six months.  So if things are this bad already, what will the rest of 2016 bring?

The Dow was up just a little bit on Thursday thankfully, but even with that gain we are still in unprecedented territory.  According to CNBC, we have never seen a tougher start to the year for the Dow than we have in 2016…

The Dow Jones industrial average, which was created in 1896, has never begun a year with 12 worse trading days. Through Wednesday’s close, the Dow has fallen 9.5 percent. Even including the 1.3 percent gains as of noon Thursday, the Dow is still down nearly 8 percent in 2016.

But even with the carnage that we have seen so far, stocks are still wildly overpriced compared to historical averages.  In order for stocks to no longer be in a “bubble”, they will still need to decline by about another one-third.  The following comes from MarketWatch

Data from the U.S. Federal Reserve, meanwhile, say U.S. nonfinancial corporate stocks are now valued at about 90% of the replacement cost of company assets, a metric known as “Tobin’s Q.” But the historic average, going back a century, is in the region of 60% of replacement costs. By this measure, stocks could fall by another third, taking the Dow all the way down toward 10,000. (On Wednesday it closed at 15,767.) Similar calculations could be reached by comparing share prices to average per-share earnings, a measure known as the cyclically adjusted price-to-earnings ratio, commonly known as CAPE, after Yale finance professor Robert Shiller, who made it famous.

Of course the mainstream media doesn’t seem to understand any of this.  They seem to be under the impression that the bubble should have lasted forever, and this latest meltdown has taken them totally by surprise.

Ultimately, what is happening should not be a surprise to any of us.  The financial markets always catch up with economic reality eventually, and right now evidence continues to mount that economic activity is significantly slowing down.  Here is some analysis from Brandon Smith

Trucking freight in the U.S. is in steep decline, with freight companies pointing to a “glut in inventories” and a fall in demand as the culprit.

Morgan Stanley’s freight transportation update indicates a collapse in freight demand worse than that seen during 2009.

The Baltic Dry Index, a measure of global freight rates and thus a measure of global demand for shipping of raw materials, has collapsed to even more dismal historic lows. Hucksters in the mainstream continue to push the lie that the fall in the BDI is due to an “overabundance of new ships.” However, the CEO of A.P. Moeller-Maersk, the world’s largest shipping line, put that nonsense to rest when he admitted in November that “global growth is slowing down” and “[t]rade is currently significantly weaker than it normally would be under the growth forecasts we see.”

In addition, another very troubling sign is the fact that initial jobless claims are starting to surge once again

The number of Americans applying for unemployment benefits in mid-January reached seven-month highs, perhaps a sign that the rate of layoffs in the U.S. has risen slightly from record lows.

Initial jobless claims climbed a seasonally adjusted 10,000 to 293,000 in the seven days stretching from Jan. 10 to Jan 16, the government said Thursday. That’s the highest level since last July.

Since the last recession, the primary engine for the creation of good jobs in this country has been the energy industry.

Unfortunately, the “oil boomtowns” are now going bust, and workers are being laid off in droves.  As I mentioned the other day42 North American oil companies have filed for bankruptcy and 130,000 good paying energy jobs have been lost in this country since the start of 2015.  And as long as the price of oil stays in this neighborhood, the worse things are going to get.

A lot of people out there still seem to think that this is just going to be a temporary downturn.  Many are convinced that we will just go through another tough recession and then we will come out okay on the other side.  What they don’t realize is that a number of long-term trends are now reaching a crescendo.

For decades, we have been living wildly beyond our means.  The federal government, state and local governments, corporations and consumers have all been going into debt far faster than our economy has been growing.  Of course this was never going to be sustainable in the long run, but we had been doing it for so long that many of us had come to believe that our exceedingly reckless debt-fueled prosperity was somehow “normal”.

Unfortunately, the truth is that you can’t consume far more than you produce forever.  Eventually reality catches up with you.  This is a point that Simon Black made extremely well in one of his recent articles…

Economics isn’t complicated. The Universal Law of Prosperity is very simple: produce more than you consume.

Governments, corporations, and individuals all have to abide by it. Those who do will thrive. Those who don’t will fail, sooner or later.

When the entire financial system ignores this fundamental rule, it puts us all at risk.

And if you can understand that, you can take simple, sensible steps to prevent the consequences.

Sadly, the time for avoiding the consequences of our actions is now past.

We are now starting to pay the price for decades of incredibly bone-headed decisions, and anyone that is looking to Barack Obama, the Federal Reserve or anyone else in Washington D.C. to be our savior is going to be bitterly disappointed.

And as bad as things have been so far, just wait until you see what happens next.

2016 is the year when everything changes.

 

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13 Comments

  1. JBernDrApt says:

    Excellent article! Yes, where are we headed? Are we prepared and ready for the consequences of living beyond our means and consuming more than we produce? And we seem to be going bankrupt spiritually and materially! Might be time to get things right on every level! What did I do to be ready this week? Highest regards Rourke.
    Keep Looking UP

  2. Zenblaster in SC says:

    Enjoyed the article. I’ve been listening to many books via audio books from Audible.com while driving etc. One of the best prepper related books discussing Financial System issues is “American Exit Strategy” by Mark Goodwin. My opinion is that he really hits points very well and also projects some interesting possible future outcomes and government responses. Going to non-fiction, I’m a fan of Jim Rickards with Currency Wars, The Death of Money, and his upcoming New Case for Gold. With all the money printing, deficit spending, and vastly unsustainable promises made (federal state and corporate pensions, etc), this ponzi just cannot last. When the faith in the dollar goes, our world will change big time. Take care, prepare.

    1. JR says:

      Zenblaster – Have you read “Book of Noah” by Mark Goodwin yet? Another good one though I did like American Exit Strategy and the follow up books even better. Really got me thinking and think I will listen to the series again. Yes – I do the Audible books as well.

      1. Zenblaster in SC says:

        Yes, enjoyed the “Book of Noah” series also. So many good ones out there. I m on the road a decent amount for work and have gone thru the 299 Days series and Going Home series by A.American too. Both have very good ideas. Just finished the Survivalist series latest book by Dr Arthur T Bradley who wrote the really excellent non-fiction book on EMPs. Even a quick 10 minute drive can get further into an audiobook.

        I always try to make notes on paper or in phone when listening of interesting ideas. The books make you think and by thinking through the issues we can all prepare better.

        Rickards doesnt talk much about prepping, other than financially. Land, hard assets, physical gold/silver, art, timber, and some actual cash, stuff like that to protect assets. People are all different and maybe cash on hand as an emergency fund & prep may be all thats possible. Food/Water even for a couple weeks is sure important. We try to balance out what we do, something going to happen in the next year or so I have a feeling.

  3. Lightning says:

    Exc. article. How is everyone faring who was affected by Winter Storm Jonas?Here in upstate NY we didnt get one flake which is rare for us.Its very cold here though 7 last night. Lightning

    1. JR says:

      Lightning – My area came to a crawl due to ice and a bit of snow. Main roads were cleared pretty well but back roads were very slick. Lots of accidents but I did not hear a whole lot about power outages luckily. We dropped down in the high 20’s nowhere near 7. Brrrrr……

  4. Irish-7 says:

    Grim financial news, indeed. The media seems to be ignoring the situation. Most of the global economic woes that I’ve read about have been online. The Fox News Channel has reported Wall Street in decline, but I don’t recall them tying in the world market mess. That is the problem with the television stations being owned by wealthy corporations. That point was even brought out in the comedy Anchorman II! I don’t have a lot of money in the stock market, roughly the same figure in US savings bonds and gold. Our investment have been in beans/bullets/band-aids for the past 5 years!

    1. JR says:

      Thanks Irish-7. Agree on all points. I have money from my 401k in the market but it has limited exposure to market changes. I look at that as my preps for retirement just in case it doesn’t all come crashing down.

      I am still looking at silver. I am surprised as the markets increase in their volatility that silver and gold hasn’t increased.

      1. Irish-7 says:

        I predicted that ammunition MAY be a form of currency in any LONG TERM crisis or disaster. Time will tell if that was an accurate assessment………..

  5. goingray58 says:

    Good read .. (not really upbeat, but good info)..Maybe it’s media head in sand.. or somewhere else dark.. but if my conspiracy side peeks out.. maybe it’s very deliberate .. With the cost of Oil and now with the Iraq/Iran thing.. sneaking toward Saudi.. and out unwillingness to do ANYTHING.. It is possible for them to crash out economy.. China has big money problems now too .. guess who our primary lend has been for 5 years .. China!! Recon what they will do if they fail .. NOT GOOD.

    JR .. been thinking about the simple explanation you did.. about why buy precious metal.. about why you do vs not.. sounds like a middle of the road approach as a buffer at least.. is a good idea… as you already knew .. depends on the scope of the failure if any I suppose.

    I’ve also seen a few articles going by that show gun confiscation in other countries.. Chile for instance.. totally unreported in our media. Remember the UN thing about gun control a few years ago .. I wonder if this as well as Barry’s moves here is related.. one world thingy ? UN has pretty mush less noisy since .. that is usually the way something happens when a plan is imminent or being executed. I know conspiracy minded .. bleh..
    But if you were going to crash the world economy as a rest or take over .. What would you need to control or two things.. Food and Weapons.. meds too I suppose.

    too far out there, and do I need meds too 🙂 ?

    1. JR says:

      Nothing would surprise me anymore goingray58. I tend to be on the conservative side when it comes to things that sound like conspiracies – but many things I thought were total hogwash a few years ago sound more realistic today.

  6. JohnP says:

    Last week on Neil Cavuto he had on an economist who predicted that by the end of the month China would be in a financial mess and in a year to a year and a half the market would be down to 6000 points, another recession?

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