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How far can we fall?
How ugly are things going to get?
How likely is a 2008-style meltdown?
I have a two-word answer for you:
Dow 7,000!
That’s an incredibly likely downside target. So today, I’m going to lay out my shocking case for a 4,000-point drop — and tell you what you need to do right away to protect yourself from it!
European Bank Run Every Bit
as Serious as 2007-2009
European policymakers would like you to believe we can never have another Lehman Brothers-style implosion. They want you to believe that their banks are safe … that the markets are just going through a temporary soft patch … and that they have the political willpower and financial ability to plug all the holes in the financial dike over there.
Don’t listen to that malarkey! The markets are telling you the exact OPPOSITE story! Just consider …
* Earlier this week, Greek 2-year note yields surged above 50 percent. FIFTY PERCENT! Subprime credit card borrowers don’t even pay rates like that, which tells you everything you need to know about how serious their debt crisis is.
* Italian bonds just fell in value for 11 straight days, erasing most of the gains notched after the European Central Bank agreed to step into the breach and buy Italian and Spanish bonds.
* Belgian bond yields just blew out to the widest premium against core German bond yields since the euro currency was introduced in 1999! That indicates the crisis is spreading even beyond the so-called “PIIGS” countries.
* Then there’s the Credit Default Swap (CDS) market, where professional investors buy and sell insurance against bond defaults. The cost of protecting against losses on senior bonds issued by 25 major European banks and insurers just surged to the highest level ever — 278,000 euros per year for every 10 million euros in bonds!
Not convinced yet?
Then look at the Euribor market, where European banks lend short-term money to each other. It’s going haywire, with the cost of borrowing surging there just like it did here in the U.S. in 2007-2009.
Two-year swap spreads, which represent the cost of exchanging fixed-rate income streams for floating-rate payments between derivatives traders, are also blowing out here in the U.S. That last happened in 2008. And it signals that banks are increasingly worried about counterparty risk on interest rate trades.
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| European banks are squirreling away their money with the ECB instead of lending it. |
Plus, the amount of money that European banks are parking with the ECB — rather than lending to each other — is skyrocketing. It just hit 166 billion euros, the highest since last August.
Bottom line: Every reliable popular and esoteric credit market indicator I follow is flashing bright red … just like they did in 2007-2009!
U.S. Economy Sinking toward
2009 Levels … or Worse!
If all the problems were “across the pond,” as they say, our markets could potentially shrug off some of the European selling. But they’re not! Here in the U.S., the economy is clearly slumping toward recession for the second time in the past couple of years.
The hard evidence?
==> Our country created precisely zero jobs last month for the first time since the 1940s. ZERO! Job losses were widespread across a wide range of industries, from construction to manufacturing to retail.
As if that weren’t enough, average hourly earnings actually FELL … the first time that has happened since January 2008. Over the year that followed, the Dow plunged roughly 4,000 points.
==> The Conference Board’s consumer confidence index just sank to 44.5 in August from 59.2 in July. That was the worst reading since April 2009. At that time, the Dow was trading around 8,100 …
==> GDP grew at a rate of only 0.4 percent in the first quarter. The last time the U.S. economy grew that slowly, the Dow was trading for around 7,500 …
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| The number of home buyers applying for mortgages has taken a header. |
==> The Philadelphia Fed index just tanked to -10, the lowest since March 2009. The last time it was this lousy, the Dow traded for roughly 7,200 …
==> Purchase mortgage application activity just slumped to its lowest level since December 1996. The last time this few home buyers were applying for loans, the Dow was going for 6,300.
Bottom line: Major European and U.S. bank stocks are plunging to levels last seen in the 2007-2009 crisis. Key economic data is slumping to levels last seen during the 2007-2009 crisis. And credit market risk indicators are soaring toward levels last seen in the chaotic days of 2007-2009.
So I ask you a simple question:
“Why shouldn’t the Dow plunge back toward those levels too?”
Wall Street pundits have no good answer for that. I bet your broker wouldn’t if you asked him or her, either.
Yet I’m here to tell you that it’s not only likely we hit Dow 7,000, but that you don’t have to just sit there and let a 4,000-point Dow decline rip your portfolio to shreds again! You can — and should — take protective steps immediately … and even consider shooting for PROFITS from a major downside move.
How can you get started? Watch our new, completely free video, America’s Financial Doomsday. It walks you through the credit and economic crises we face — and gives you step-by-step instructions on what to do to avoid them.
There’s not much time folks, so I urge you not to wait. The next 4,000 Dow points could be lost at any time!
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Economy will be weak for the next 10 years as said by one of the economist.
Jobs being outsourced to India and China.
China and India population 2.3 billion can easily cater to the entire world with cheap labor.
Even most of the business jobs can be done in INDIA.
manufacturing already gone to China in 80-90’s.
Already 2million jobs in IT sector went to India between 2004-2010.
Another 8 millions ( IT and business ) jobs slated to Go to Asian Countries in the next 10 years ( 2010-2020)
Sorry.. But that is the reality.
IBM hired 100K ( hundred thousand) people in INDIA between 2005-2010 and reduced their work force by 40000 in USA.
If Corporation have a policy to reduce their work force , how can jobs grow in USA?
Impossible.. Do the math. Every company of USA hiring in INDIA even today.
All auto mobile jobs are in Japan.
Manufacturing jobs went to China during 1977-1999 ( 20 million ).
Now Information technology job( 13 million ) , going to India / Malaysia / Philippines / China.
USA needs more jobs… Companies should hire more employees.
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It’s all due to GLOBALIZATION:
Making their goods overseas, American multinationals can slash their workforces and reduce wages at home, while retaining revenue and increasing profits.
The middle class is being significantly and systematically reduced, leaving well-paid professionals at the top of the pyramid with low-paid service workers at the bottom.
Talk about a dead cat bounce!
the meek shall inherit the world should be the poor will take over america.
This could be because there are lots more poor people there now than ever however they are under educated relative to americas education infrastructure.
Only now with lower dollar value can real jobs be created. you can’t have your eggs fried both ways.
By this I mean that a rich person can get taxed less (%)than a poor person in this world and do less work for it. And you can’t have it the other way!
COMMUNISATION is a scary outcome of scrrewing an economy I’m sure.
Cats and dogs living together etc etc
In GLOBALISATION (australian spelling) the whole world is used as efficiently as possible with no room to spare and the highest possible turnover produced so we get communal living. Will take a while to build the infrastructure needed but is a possible outcome if there is one company left making everything for a zillion people on the planet.
To build this you need a government ready to builld it. we have it the u.n.
what we don’t need is religion amongst other thing s that people are continually fueding over. Seriously people where has christianity the koran, budism and other religions gotten the people of the 2000’s. In eleven years religion has cost america ‘its way of life forever’ .
Warning shocking truths about the american way of life.
Suicide
endowed: end of the dow
Never before were the net profits per share and the net margin of the non-financial sector of the S&P500 and Dow so high. Net margin of the non-financial sector is presently 8.5% and even growing towards 9% when you include the 80 companies of the financial sector. Net margin of the non-financials was peaking at 8% in 2007 and at 7% in 2000. EPS of the financials is presently more than cut in half because of legally enforced share emissions.
All that wealth of Wall Street has not been translated into wages on Main Street, already for more than a decade. That creates a risky social and economic environment. The economist Andrew Smithers stated in an Interview on Bloomberg on August 24 that the S&P500 at 1130 is 40% overvalued. This site is following suit with its prediction of a 30%-40% decline of the stock market. It usually happens when earning, margins, and estimates thereof are peaking.
The earnings and margins are peaking as companies follow the road to rationalization with cheap labor without creating higher added value jobs at home. That process is bound to continue as it is dictated by shareholders, the owners. A decline in the Indices will generally siphon away money from the smaller investors and speculators into the hands of big money. Let there be no doubt, Banks are shorted by their colleagues who get richer. As long as big shareholders keep dictating big CEO’s to go abroad for higher earnings without creating higher added value jobs at home, we will see Wall Street moving up and down, out of sync with Main Street. This will not be a long enduring downturn of Wall Street. It will move down to the 5000 to 7000 level and then quickly move up again, while leaving Main Street where it was and has been already for quite a while.
We need a new war! Yes. 2003 Iraq war, 2009 to today currency war, next? A real war. Btw, no, I do NOT want people die. Let’s see.