Warning Signs of a Crash

There are so many warning signs of a financial crash being close it would be foolish to ignore even one of them.  They are many and varied but let’s just look at a few…

  • Yields on junk bonds are soaring.  They did this just before the GFC as well.  But this time it is far far worse.  US corporations have issued an incredible $9.3 trillion (well over 50% of US GDP) in bonds since the GFC. For what?  Not investing in P&E or improvements, but buying their own stock or issuing dividends, and of course lifting share prices to record levels.  Junk grade bonds have risen to an eye watering $2.2 trillion and yields have more than doubled in a year to over 16% - spurred along by the yuan devaluation last week.  For the Fed to raise rates now with this happening would be financial market suicide.  In broader bond market terms we have seen bonds (remember bonds are just issued debt) markets grow from $80 trillion to over $100 trillion since the GFC.  The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.  Game over if that collapses.
  • Copper (often referred to as Dr Copper in reference to its defacto economist role on the health of global markets) is at a post GFC low.  As the graph below clearly depicts the price is equal to that just before the GFC.  Despite the Fed printing $3.6 trillion, and likewise Japan, plus China, and plus the ECB, it is falling again.  

If you think Copper is too narrow a metric, more broadly the Shanghai Containerised Freight Index to Europe crashed by 23% in just 5 days.

  • And if we just look at cycles - one person who has called markets pretty well over time using cycle analysis is Larry Edelson, editor of Real Wealth Report and Supercycle Trader.  Here’s what he had to say this week:

“On October 7, 2015, the first economic super cycle since 1929 will trigger a global financial crisis of epic proportions. It will bring Europe, Japan and the United States to their knees, sending nearly one billion human beings on a roller-coaster ride through hell for the next five years. A ride like no generation has ever seen. I am 100 percent confident it will hit within the next few months.”

As a reminder if you look at the 5 worst years on the Australian stock market in about the last 50 years they fell on average 24.5%.  In those very same years gold averaged a RISE of 38.5%.- i.e. gold saved 63% of your money.  More simply in the GFC, shares halved and gold doubled.  Are you ready for what is coming?