World Markets About To Crash Together?

World Markets About To Crash Together?

Christopher Laird

Recent stock headlines include a collapsed India stock market, collapsed not just dropping. Collapsed Middle East stock markets on the order of 50%. Dropping European markets, and US markets. Very weak Japanese stocks, probably looking to crash like the Middle East and India markets because the Nikkei is/was up 50% in a year.
Very weak Chinese stocks, rapidly weakening ’emerging’ markets because of a slowing commodities bull. Weak Russian markets. … In short, the whole world is just about to fall into a synchronized stock cascade.
Here is a typical headline, one of many these last weeks:
European sell-off continues after U.S., Asia falls Autos, miners among decliners following steep Wall Street fall
LONDON (MarketWatch) — European markets dropped sharply Wednesday morning, extending the week’s losses and taking their cue from a steep fall in the U.S. on the back of rising oil prices and falling consumer confidence.
I offered a theory in World Speculation Dominoes that the world financial markets are all synchronized and will crash together. It appears that we are very near such an event right now.
The causes
I have written several articles with ‘stock crash alert’ in the title this year. One of the major impetuses was the imminent unwinding of the Japanese Yen carry trade. In that ten year old free money spree, Japan allowed financiers world wide to borrow Yen for a literally zero interest rate and then invest that money in world stock markets and to buy other nations bonds for about a 3% interest rate premium. The amount of borrowed Yen invested in the world’s financial markets is astounding. We are talking trillions of dollars value in Yen that has found its way into every major financial market in the world.
The US is considering a pause in its interest rate hikes of late. The interest rate differential the US holds over Japan and Europe is as much as 3%. If that differential is not maintained, trillions of dollars of US denominated financial investments are going to be unloaded on the world markets. A combination of unwinding the Yen carry trade and a serious drop in the value of the USD will just simply pull the rug out from under every major financial market that has benefited from the cheap USD and Yen.
Liquidity is being pulled from world markets as we speak. It could get really ugly in a very short time friends. There are substantial reasons for major stock collapses due to very large macro economic trends affecting both the Yen and the USD.
This is made worse by the bubble nature of world stock markets as of the last year, where many Asian markets saw gains over 50%, such as the Nikkei and Korean markets. They are/ were in stock manias. And then add the literal collapse of the Middle Eastern markets in Saudi Arabia and Kuwait….and India.
Then add emerging market weakness, and the fact that the Nikkei and the US stock markets are also definitely tipping down as we speak, and there is definitely a little panic in the winds.
To say the least.
I’m going to go out on a small limb and say we are looking right now at a gigantic world stock collapse. I don’t like writing this, I get no fun out of writing gloomy financial analyses. It is still possible that these world market drops will be forestalled, but the end is nearing now for a world financial mania that started in Japan in the early 1990’s with their ridiculous zero interest rates. As a matter of fact, the whole financial mania we are about to see collapse began in Japan in the 1980’s when they created their own stock and real estate bubbles that collapsed in the early 1990’s.
Then the US had its financial and real estate bubbles in the late 1990’s and early 2000’s. Just as late as last year, the financial manias took hold in India, the Middle East and Korean and even emerging markets….and are now crashing as we speak.
Now the flagship markets of the US and Japan are shuddering. The final gasp of a world financial mania is appearing before our eyes right now.
The big story out now is the appearance of world stock collapses that may get out of control. I have been writing about this for months already for my readers. The other big story is an impending energy war in the Middle East.
Look at your stock portfolio right now. Imagine how you would feel if it dropped 50%. That has happened this year in the Middle Eastern markets. Something like this has happened in India as well just recently. It’s so bad in the Middle East that the Saudi Royal Family has offered to guarantee middle income people ($144k a year there) with guaranteed stock purchases for several years if they will go back into their stock markets. How about that one?
As a matter of fact, I am only giving a brief rehash of the quite recent stock collapses. The number of nations involved is many. Trust me, go look for that kind of news, you will find a lot of it recently.
There are two major forces that are propelling gold upward. One is fear of financial market collapses that are appearing like burned popcorn everywhere. The other is an imminent energy war in the Middle East. Iran is the pretext. It does not help that their leader is a maniacal Iranian mystic/politician that believes he is ushering in the end of ‘history’ – his own words.
So, we have a huge overhang over the world financial markets with the unwinding of the Yen carry trade. The over blown real estate markets that are now collapsing just like everyone feared world wide. The imminent dropping of the USD that is making world central banks very afraid that a lower USD will pull more liquidity out of the speculative bubble world stock markets. And fear of an energy war in the Middle East with Russia and China and Iran on one side, Israel right in the middle, and the US and its few allies on the other side.
No wonder gold is up about 200 bucks this year, and is having no problem holding onto its 650$ range.
I’m sure gold is going to go well over 700 quite soon now. Read my article about “Huge Action and Earth Shaking Change Imminent”.
Now there is talk among central bankers that they are in crisis mode. The ECB and BOJ have both made comments like that, the BOJ much more gentle, but just as concerned. The ECB and friends are talking of crisis mode operations and financial crisis war games as we speak. They are concerned about the implications of a dropping USD and the liquidity that will pull out of world financial markets.
The list goes on. Russia, emerging now from its decade old financial collapse following ‘perestroika’ is now joining a growing list of energy producers who are creating oil bourses denominated in anything but USD. The Proposed Ruble bourse is the latest.
This is just one snippet, to be added to Iran’s Euro Oil bourse, and all the coordinated oil / resource nations now collaborating with hostility to the Western Economies.
A new world financial order is just now emerging and it looks very much, very much like the pre-1930’s.
Oh, did I mention that we are seeing the highest insider selling of stocks since about 2000??
I think this delineation of financial market bad news could be ten pages. I’m just hitting some of the more recent high points.
So perhaps some of you with gains in stocks should take some money off the table and put it where it is safe. OF course that is the big question of the day isn’t it?
What, with the usual safe haven of good sovereign bonds being very questionable. Besides the imminent decline of the USD and that affecting the yield of USD bonds, Japan will have some trouble maintaining their bond quality if they tip into deflation again. And of course who else has bonds people want? Not many.
There has been a lot of discussion about the Euro becoming the next alternative to the USD. Problem is there aren’t enough of them to do the job. There are probably over 100 trillion US dollars out there now working as the de-facto world currency. The number and penetration of Euros is less that one tenth of that.
It is going to be interesting to see what happens should there be a simultaneous precipitous drop in world stock markets of the order of 50%. I wonder if the USD is going to survive that. The last time there was a great world depression the USD was a flight to safety. This time, it could be just the opposite.
There are two big stories out now. One, and the biggest, is the impending energy war in the Middle East. The other is an emerging world stock collapse.
The Prudent Squirrel Newsletter is a big picture gold and economic commentary. Stop by and have a look. (This week’s issue was very short because I was ill this last week.)
May 31, 2006
Christopher Laird
Editor-in Chief

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