World Markets about to Crash
Together?
Chris Laird
www.PrudentSquirrel.com
May 31, 2006
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 Gold
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.
(This week's issue was very short because I was ill this last
week).
Chris Laird
Editor in Chief
website: www.PrudentSquirrel.com
email: editor@PrudentSquirrel.com
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