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This Region Of The World Is Being Hit By The Worst Economic Collapse It Has Ever Experienced March 7, 2017

South America On The Globe - Public DomainThe ninth largest economy in the entire world is currently experiencing “its longest and deepest recession in recorded history”, and in a country right next door people are being encouraged to label their trash so that the thousands upon thousands of desperately hungry people that are digging through trash bins on the streets can find discarded food more easily.  Of course the two nations that I am talking about are Brazil and Venezuela.  The Brazilian economy was once the seventh largest on the globe, but after shrinking for eight consecutive quarters it has now fallen to ninth place.  And in Venezuela the economic collapse has gotten so bad that more than 70 percent of the population lost weight last year due to a severe lack of food.  Most of us living in the northern hemisphere don’t think that anything like this could happen to us any time soon, but the truth is that trouble signs are already starting to erupt all around us.  It is just a matter of time before the things currently happening in Brazil and Venezuela start happening here, but unfortunately most people are not heeding the warnings.

Just a few years ago, the Brazilian economy was absolutely roaring and it was being hailed as a model for the rest of the world to follow.  But now Brazil’s GDP has been imploding for two years in a row, and this downturn is being described as “the worst recession in recorded history” for that South American nation…

Latin America’s largest economy Brazil has contracted by 3.6 percent in 2016, shrinking for the second year in a row; statistics agency IBGE said on Tuesday. It confirmed the country is facing its longest and deepest recession in recorded history.

Data shows gross domestic product (GDP) fell for the eighth straight quarter in the three months to December, down 0.9 percent from the previous quarter. The figure was worse than the 0.5 percent decline economists had forecast and left the country’s overall GDP down 3.6 percent for the full year following a 3.8 percent drop in 2015.

“In real terms, GDP is now nine percent below its pre-recession peak,” Neil Shearing, chief emerging markets economist at Capital Economics, told the Financial Times.

“This is comfortably the worst recession in recorded history,” he added.

It had been hoped that things in Brazil would be getting better by now, but instead they just keep getting worse.

The number of bankruptcy filings has soared to an all-time record high, and the official unemployment rate has more than doubled since the end of 2013.  The following comes from Wolf Richter

In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.

Meanwhile, hordes of hungry people are rummaging through garbage cans in Venezuela in order to find something to fill their aching stomachs.

Things have gotten so bad that one of President Maduro’s chief opponents has urged citizens to label which trash bags have food in them so that people that are searching through the garbage can find food scraps more easily

Controversial Priest and opponent to President Nicolás Maduro’s administration Father Jose Palmar posted on social media this week about labeling discarded waste so those looking through it for food can do so more easily and “with dignity.”

Palmar called on Venezuelans to celebrate Lent by identifying bags where food has been discarded for those with no where else to turn. That way, they don’t have to dig through non-edible items to find it.

And previously I have written about how people are so hungry in Venezuela that some of them are actually slaughtering and eating cats, dogs, pigeons and zoo animals.

I keep telling people that this is coming to America, but a lot of people out there don’t want to believe me.

But it is most certainly coming.

Thanks to chronically empty store shelves and severe food shortages, people in Venezuela are losing weight at an astounding pace.  In the United States it would be a good thing if much of the population lost this much weight, but in Venezuela it definitely is not

Three quarters of the country’s population lost an average of over 18 pounds over food shortages in 2016, according to a survey by Venezuelan universities and nonprofit groups. Last year, over 80 percent of foodstuffs disappeared from shelves and many had to get by with one meal a day, Foreign Policy reported.

Venezuela was once South America’s most powerful petrostate. But decades of government mismanagement sent the country into decline. Maduro’s predecessor Hugo Chavez choked the economy with heavy-handed regulations, price controls, and a campaign to nationalize major industries that chased out foreign investments.

Further north, very alarming signs are starting to pop up in Mexico.

It probably won’t happen next week or next month, but there are indications of emerging “liquidity problems” which could precipitate a major debt crisis at some point…

In Mexico foreign investors hold around $100 billion of the country’s local-currency government debt, the most for any emerging market economy. That’s almost 20 times what it was 20 years ago. They also hold billions of euros worth of corporate bonds, which are also showing signs of strain, prompting some Mexican business leaders to call for “new programs” to be implemented before the situation causes “a large-scale crisis” among Mexican companies.

The most ominous sign yet came last week when Bloomberg reported sources saying that the Bank of Mexico (or Banxico, as it is referred to) had sought a swap line from the Federal Reserve in case of “liquidity problems,” which immediately triggered furious denials from Banxico. “I can say clearly and unequivocally that we are not in the process of asking for any credit line from any authority,” said the central bank’s governor, Agustin Carstens, who has postponed by six months his departure from the bank, initially scheduled for May.

One of the biggest problems for nations such as Brazil, Venezuela and Mexico is the strength of the U.S. dollar.  During the good times they went into tremendous amounts of debt, and much of that debt was denominated in U.S. dollars.  So when the U.S. dollar becomes stronger, it takes more of their own local currencies to pay that debt back.

And if the Federal Reserve raises interest rates at their next meeting, that will strengthen the U.S. dollar even more and put even more pressure on emerging market economies.

Unfortunately, it appears that this is precisely what the Fed is going to do

Even one small interest rate increase by the Fedcould have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday.

“I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.”

The global economy is more interconnected than ever before, and pain that starts in one region can rapidly spread to others.

The biggest debt bubble that the world has ever seen is starting to burst, and over the coming years we are going to see financial pain on a scale that would be unimaginable to most of us at this moment.

But even now there are those that would suggest that this colossal debt bubble can continue growing much faster than global GDP indefinitely, and this sort of exceedingly reckless optimism is leading many astray.

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Retail Apocalypse Gains Momentum As David Stockman Warns ‘Everything Will Grind To A Halt’ After March 15th February 26, 2017

Retail Apocalypse 2017 - Public DomainJ.C. Penney and Family Christian Stores are the latest retail giants to announce widespread store closings. As you will see below, J.C. Penney plans to close between 130 and 140 stores, and Family Christian is closing all of their 240 stores. In recent months the stock market has been absolutely soaring, and so most people have simply assumed that the “real economy” must be doing well. But that is not the case at all. In fact, the retail apocalypse that I have been documenting for quite some time appears to be gaining momentum.

J.C. Penney is not in as rough shape as Sears is just yet, but it is definitely on a similar trajectory. In the end, they are both headed for bankruptcy. That is why it wasn’t too much of a surprise when J.C. Penney announced that they are getting rid of about 6,000 workers and closing at least 130 stores

J.C. Penney (JCP) plans to close 130 to 140 stores and offer buyouts to 6,000 workers as the department-store industry sags in competition with online sellers and nimble niche retailers.

The company said Friday that it would shutter 13% to 14% of its locations and introduce new goods and services aimed at the shifting preferences of its customer base.

Meanwhile, many observers were quite surprised when Family Christian Stores decided to fold up shop for good. They were known as the largest Christian retailer on the entire planet, but now after 85 years they are going out of business forever

Family Christian, which bills itself as the “world’s largest retailer of Christian-themed merchandise,” announced Thursday it is closing after 85 years.

The non-profit company, employing more than 3,000 people in 240 stores in 36 states, said in a brief statement that the retailer had been facing declining sales since filing for bankruptcy protection in 2015 and had no choice but to shut down.

These two announcements are part of larger trend that we have been witnessing all over the country. As I have documented previously, Macy’s announced that it would be closing 100 stores earlier this year, and about the same time Sears said that it would be closing another 150 stores.

Back in 2010, Sears had a staggering 3,555 stores.

Before their recent announcement, Sears was down to 1,503 stores, and now this latest round of cuts will leave them with somewhere around 1,350.

Of course it won’t be too long before Sears has zero stores, and my regular readers know that I have been talking about the demise of Sears for a very long time.

The cold, hard truth of the matter is that the “real economy” is a total mess, and that is one of the primary reasons why these ridiculous stock market valuations that we are seeing right now are not sustainable.

One expert that agrees with my assessment is former Reagan Administration White House Budget Director David Stockman. In a recent interview, he explained why he believes that “everything will grind to a halt” after March 15th…

Stockman, who wrote a book titled “Trumped” predicting a Trump victory in 2016, says, “I don’t think there is a snowball’s chance in the hot place that’s going to happen. This is delusional. This is the greatest suckers’ rally of all time. It is based on pure hopium and not any analysis at all as what it will take to push through a big tax cut. Donald Trump is in a trap. Today the debt is $20 trillion. It’s 106% of GDP. . . .Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in. Yet, he wants more defense spending, not less. He wants drastic sweeping tax cuts for corporations and individuals. He wants to spend more money on border security and law enforcement. He’s going to do more for the veterans. He wants this big trillion dollar infrastructure program. You put all that together and it’s madness. It doesn’t even begin to add up, and it won’t happen when you are struggling with the $10 trillion of debt that’s coming down the pike and the $20 trillion that’s already on the books.”

Then, Stockman drops this bomb and says:

“I think what people are missing is this date, March 15th 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop. The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.”

In that same interview, Stockman also predicted that “markets will easily correct by 20% and probably a lot more“, and he noted the glaring disconnect between current stock prices and how the U.S. economy is actually performing

“The S&P 500 has been trading at 26 times earnings while earnings have been dropping for the past six or seven quarters. There is no booming recovery coming. There is going to be a recession and there will be no stimulus baton to bail it out. That is the new fact that neither Trump nor the Wall Street gamblers remotely understand.”

It is very difficult to argue with Stockman on this.

There are some people out there that seem to think that Donald Trump can miraculously turn the U.S. economy around just because he is Donald Trump.

It doesn’t work that way.

We are 20 trillion dollars in debt, and we are currently adding about a trillion dollars a year to that total. There is no possible way that Trump can cut taxes, increase military spending, build a border wall, spend much more on veterans and spend an extra trillion dollars on rebuilding our crumbling infrastructure.

We are flat broke as a nation and there simply is not money available to do everything that Donald Trump wants to do.

So we shall see what happens after March 15th.  Unfortunately, I happen to agree with Stockman that economic reality is about to come knocking and Trump and his supporters are about to get a very rude wake up call.

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Virtually Everyone Agrees That Current Stock Market Valuations Are Not Sustainable And That A Great Crash Is Coming February 21, 2017

Stock Market Collapse Toilet Paper - Public DomainCurrent stock market valuations are not sustainable.  If there is one thing that I want you to remember from this article, it is that cold, hard fact.  In 1929, 2000 and 2008, stock prices soared to absolutely absurd levels just before horrible stock market crashes.  What goes up must eventually come down, and the stock market bubble of today will be no exception.  In fact, virtually everyone in the financial community acknowledges that stock prices are irrationally high right now.  Some are suggesting that there is still time to jump in and make money before the crash comes, while others are recommending a much more cautious approach.  But what almost everyone agrees on is the fact that stocks cannot go up like this forever.

On Tuesday, the Dow, the S&P 500 and the Nasdaq all set brand new record highs once again.  Overall, U.S. stocks are now up more than 10 percent since the election, and this is probably the greatest post-election stock market rally in our entire history.

But stocks were already tremendously overvalued before the election, and at this point stock prices have reached a level of ridiculousness only matched a couple of times before in the past 100 years.

Only the most extreme optimists will try to tell you that stock prices can stay this disconnected from economic reality indefinitely.  We are in the midst of one of the most outrageous stock market bubbles of all time, and as MarketWatch has noted, all stock market bubbles eventually burst…

The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.

If corporations were making tremendous amounts of money, rapidly rising stock prices would make logical sense.

But that is not the case at all.  Corporate earnings for the fourth quarter of 2016 were actually quite dismal, and this disconnect between Wall Street and economic reality is starting to really bug financial analysts such as Brian Sozzi

The S&P 500 has gone 89 straight sessions without a 1% decline. Considering that Corporate America didn’t exactly light up on the top and bottom lines during the fourth quarter, such a streak is rather troublesome. Granted, the stock market is a forward-looking mechanism that appears to be trading on hopes that Trump’s unannounced stimulus and tax plans will be lifting economic growth in 2018. Even so, the inability of investors to at least acknowledge persistent struggles among companies and ongoing chaos in Washington is starting to become disturbing.

It is a basic fact of economics that stock prices should accurately reflect current and future earnings.

So if corporate earnings are at the same level they were at in 2011, why has the S&P 500 risen by 87 percent since then?  The following comes from Wolf Richter

The S&P 500 stock index edged up to an all-time high of 2,351 on Friday. Total market capitalization of the companies in the index exceeds $20 trillion. That’s 106% of US GDP, for just 500 companies! At the end of 2011, the S&P 500 index was at 1,257. Over the five-plus years since then, it has ballooned by 87%!

These are superlative numbers, and you’d expect superlative earnings performance from these companies. Turns out, reality is not that cooperative. Instead, net income of the S&P 500 companies is now back where it first had been at the end of 2011.

The cyclically adjusted price-to-earnings ratio was originally created by author Robert Shiller, and it is widely regarded as one of the best measures of the true value of stocks in existence.  According to the Guardian, there have only been two times in our entire history when this ratio has been higher.  One was just before the stock market crash of 1929, and the other was just before the bursting of the dotcom bubble…

Traditionally, one of the best yardsticks for whether shares are over-valued or under-valued has been the cyclically adjusted price earnings ratio constructed by the economist Robert Shiller. This ratio is currently at about 29 and has only twice been higher: in 1929 ahead of the Wall Street Crash, and in the last frantic months of the dotcom bubble of the late 1990s.

We can definitely wish for the current euphoria on Wall Street to last for as long as possible, but let there be absolutely no doubt that it is going to end at some point.

It would take a market decline of 40 or 50 percent to get the cyclically adjusted price-to-earnings ratio back to a level that makes economic sense.  Let us hope that the market does not make such a violent move very rapidly, because that would likely be absolutely crippling for our financial system.

Markets tend to go down a lot faster than they go up, and every other major stock market bubble in U.S. history has ended very badly.

And this bubble is definitely overdue to burst.  The bull market that led up to the great crash of 1929 lasted for 2002 days, and this week the current bull market will finally exceed that record.

Trying to pick a specific date for a market crash is typically a fruitless exercise, but market watchers are becoming very concerned about some of the signs that we are now seeing.  For example, the “CCT indicator” is currently showing “the lowest bullish energy ever”

The first factor is the CCT indicator. This indicator is a proprietary internal measurement of the general volume of the New York Stock Exchange. The measurements take into account the institutional participation as a ratio of the overall volume. Also measured is the duration of heavy block buying in rallies.

The sum total of all the measurements now shows the lowest bullish energy ever — even lower than in 2008, just before the market crash.

In other words, this current bull market appears to be completely and utterly exhausted.

The laws of economics cannot be defied forever.  Traditionally, commodity prices and stock prices have tended to move in unison.  And this makes perfect sense, because commodity prices tend to rise when economic conditions are good, and in such an environment stock prices are typically going to move up.

But now we are in a time when commodity prices and stock prices have become completely disconnected.  In order to bring this ratio back into line, the S&P 500 would need to fall by about 1000 points, and such a decline would cause a level of financial chaos that would be absolutely unprecedented.

This current stock market bubble has lasted much longer than many of the experts originally anticipated, but that just means that the eventual crash will likely be that much more devastating.

In the end, you don’t need to know all of the technical details in this article.

But what you do need to know is that current stock market valuations are not sustainable and that a great crash is coming.

It may not happen next week or next month, but it is going to happen.  And when it does happen, it is likely to make what happened in 2008 look like a Sunday picnic.

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