Nasdaq - Nasdaq 100 Ratio at 2000 Levels - Massive Crash Just around the Corner?

After 19 long years the Nasdaq - Nasdaq 100 Ratio has reached the record lows it saw in 2000, when a hand full of tech stocks outperformed the broader market.  This occurred at the market peak just before the dotcom bubble burst taking the Nasdaq down almost 80% and the rest of the market over 40%. This time will be no different with a massive market crash just around the corner, with all signs such as global inverted yield curves and trade wars pointing to a severe recession ahead:

Bitcoin 2017 Vs Home Builders 2008 Vs Nasdaq 2000

Most periods of excessive booms end with speculative busts. The dotcom bust of 2000 produced a recession so did the housing bust of 2008. Today's poster child seems to be bitcoin. Just as the internet was here to stay back in 2000 so is block chain technology today. However crypto currencies are trading at levels suggesting they could become reserve currencies of the world replacing the dollar and that implies a reset on short order. It's never different and always the same:

Yield Curve about to Invert?

The spread between 10 year US bonds and 2 year US bonds is currently at 5 year lows and will likely go negative post the fed rate hike next week. This would most likely cause the US yield curve to eventually invert and is a harbinger of a decelerating/recessionary economy going forward. Will tax cuts save the day? I doubt it.

Emerging Parallels to the Fall of 2007 - Hallmark of a Brand New Crisis

The fall of 2017 is increasingly looking like the fall of 2007 when risky assets topped out:

Comparison of the Environment during Major Market Crashes to the Market Environment Today

Gold - The Then and Now

Gold prices have been incredibly volatile this year and are currently near the middle of the observed range in 2016 near $ 1175/ Ounce having started the year close to $1075 / Ounce and trading as high as $1375 / Ounce during the course of the year. Gold often benefits from increased liquidity in the financial system and has been traditionally viewed as a hedge against inflation. Gold also tends to have a safe haven status and tends to benefit during financial crises when Central Banks flood the world with liquidity. So thinking ahead lets take a look at what is in store for Gold prices?

To do this let us look at the historical performance of Gold since the Great Recession of 2008. Three years after the start of the Bernanke Fed's quantitative easing program in the United States, gold prices reached a high we've still yet to see again as this gold chart based on events that affected the price of gold and gold IRAs over the past few years since the Financial Collapse of 2008 shows. Recovering back from its January 2016 low by March, another peak in May before reaching July's high of around $1387 per ounce so far this year for GCG7 (February Gold Futures) traded on CME and Eurex exchanges looks a bit short-lived, given today's February Gold Futures price of $1173 as on December 8 2016.

As can be seen above Gold surged sharply higher between 2008 and 2011 following Quantitative easing (QE) embarked by central banks across the globe. The gold price well over doubled from reaching as high as $1975 in August 2011. From there Gold endured a sharp correcting falling over 40% and reaching the $1050 mark in December 2015 following the first FED rate hike and the end of QE. With no further FED hikes forth coming Gold resumed its upswing reaching a high of $1387 following Brexit. However following the Trump win in the US presidential election Gold has sold off yet again on prospects of reflation, a strong Dollar and an upcoming FED hike.

With the FED taking center stage yet again It would be interesting to see if the sell off in Gold continues on a strengthening Dollar from a possible FED hike or Would gold become a safe haven play yet again much like in December 2015 and benefit from capital outflows from risky assets like stocks and emerging market currencies?

Chart of the Week - Real Gross Domestic Income

The chart of the week is courtesy Mike Shedlock via SafeHaven and looks at real Gross Domestic Income (GDI) in the US. Every time GDI has turned negative we have had pretty significant slowdowns or recessions. The GDI has just entered negative territory indicating another major slowdown is just around the corner:

Chart of the Week - Deutsche Bank 2016 vs Lehman Brothers 2008

The Chart of the day is via Chris Vermeulen from the goldandoilguy.com and shows a comparison of the price performance of Lehman Brothers in 2008 to the current price performance of Deutsche Bank today. With a number of European and US banks having similar charts to Deutsche Bank and the bank index not confirming recent new highs in the broader market, once can all but wonder if a repeat of 2008 is on the cards:

Chart of the Week - Global GDP

The chart of the week is courtesy of Bloomberg and shows historic and projected levels for Global GDP. Global GDP has remained below levels observed before the great recession of 2008-2009 and is expected to remain so for the foreseeable future:

Interesting Jim Rogers Interview

A very interesting interview that legendary investor Jim Rogers did recently where he discusses an imminent global recession:

Performance of Retailers and Global Financial Institutions - Parallels with 2008

An interesting article from John Rubino via SafeHaven that highlights parallels between the rapidly deteriorating performance of  retailers and global financial institutions, very similar to that observed in 2008:

Interesting parallels between now and 2008 in the performance of key banking and retail stocks from Rajveer Rawlin

Chart of the Day - Emerging Market Debt

The chart of the day comes courtesy The Telegraph and shows Non-Financial corporate debt in emerging markets hitting record levels in several key currencies. The debt is well over 20 Trillion dollars and is over double the amount observed in 2008 prior to the great recession.

 

Chart of the Day - Velocity of Money

The chart of the day shows the velocity of money (data courtesy the St. Louis Fed) since 1959. It shows that the velocity of money is below levels observed in 1959. The velocity of money typically rises during periods of growth and falls during recessionary periods. So the recent plunge to new lows suggests that QE's from global central banks have really not worked and a major recession may just be lurking around the corner.

All is not Well with Global Financial Markets

It does appear that all is not as rosy as it used to be in the global financial market landscape:

First and foremost global shipping activity appears to have come to a screeching halt, as pointed out by Jeff Berwick via the Market Oracle and this likely has recessionary implications:

Secondly when a single bank's derivative exposure exceeds the GDP of a country or region you know you are bound to have problems as ETF daily news rightly points out the case of Deutsche Bank:

Thirdly as QuandaryFX points out via Seeking Alpha the S & P 500 starts turning down when manufacturing starts to turn down like we are seeing off late:

Last but not the least the Safehaven plunge into Gold,Treasuries & the Japanese yen is clearly taking hold as pointed out by Chris Vermeulen via CNA Finance:

Interesting Market News and Views from Global Financial Markets-11

1) What the oldest stock market index is saying now

From www.marketwatch.com - Today, 7:21 PM

The Dow Transports are unusually weak, and a well-known investing-newsletter editor just flashed a ‘sell’ signal, writes Mark Hulbert.

2) Stock market dividend gusher may be drying up

From www.telegraph.co.uk - December 15, 4:09 PM

Dividend income from the FTSE 100 could face a nasty haircut next year

3) From ‘Bubble’ to ‘Crash,’ the Incredible Origins of 7 Finance Terms

From www.wsj.com - December 15, 4:10 PM

Wall Street Journal personal-finance columnist Jason Zweig’s new book, “The Devil’s Financial Dictionary,” is a satirical glossary of investing terms.

4) Five Mind-Blowing Stats from the Selloff in the Biggest Junk Bond ETF

From www.bloomberg.com - December 15, 4:06 PM

Big numbers from a big day in bonds.

5) The Incurable Japanese Syndrome And Europe | Ec...

From www.scoop.it - December 15, 4:07 PM

For the fifth time in seven years Japan is back in recession, with GDP shrinking by a further 0.2% in the third quarter. Meanwhile, inflation has fallen from more than 2% to zero in just over six months.

6) Junk-Bond Rout Deepens, Sending Shockwaves Through Stocks and Other Markets

From www.wsj.com - December 12, 9:45 PM

Traders say the selloff was triggered by the abrupt liquidation of Third Avenue Management’s high-yield bond mutual fund.