Saturday, January 9, 2016

This Is the Worst Start Ever for U.S. Stocks.....Even Worse Than 2008!

This Is the Worst Start Ever for U.S. Stocks

U.S. stocks finished Friday 
deep in the red, posting their worst opening week in history. 

The Dow is down 1400 points in a week from 17,660 to 16,250.  WOW!

It should be obvious now that we are at an important inflection point, this is not a typical market event. 

The equity market is now following the breakdowns in credit, commodities, and currencies. Considering how far many of those other markets have fallen, stocks may have a lot of "catch down" to do in the months ahead.

Stocks fell hard on Friday after a jobs report that beat expectations.  Financials and health care were leading the losses, down 1.6% and 1.4% respectively, followed by the energy sector, down 1.3%. The index booked a 6% weekly loss.  

When most investors talk about "the market," they're referring to the S&P 500. Right now, the S&P 500 is pointing to trouble in the market. But this doesn't reflect how ugly things really are below the surface. That's because a few large stocks, which impact the index more than small stocks, have been propping it up. The S&P 500 has gone nowhere over the past four months. Now it's off to its worst new-year start ever.

Friday trading was choppy all day before the final hour saw stocks slide to their lowest levels of the session and this ugly close will surely have investors on high alert come Monday.

The credit markets? They had their second-worst start to a year ever. The only worse year was 2008, which was a disaster for investors. And several corners of the credit market continue to behave as if something very bad is lurking just off the mainstream radar.

It was a Market Massacre......

The Dow Jones Industrial Average dropped 167.65 points, or 1%, to 16,346.45 and reported a 6.2% weekly decline.
The Dow is down 1400 points in a week from 17,660 to 16,250.

The S&P 500 closed 21.08 points, or 1.1%, lower at 1,922.02, with all 10 of its main sectors in negative territory. 
S&P down 6 of the last 7 days. Post Fed rate-hike - S&P down 6.5% for the weekThe S&P 500 is now down 9% from its previous high. Individual S&P 500 stocks are down 20% on average from their 52-week highs.

The Nasdaq Composite ended the day down 45.80 points, or 1%, at 4,643.63 and was down 7.3% over the week. This is the longest losing streak for the index since November 2011.

Friday, 444 stocks on the New York Stock Exchange fell to new 52-week lows. Only three stocks hit 52-week highs.

The Russell 2000 Index also sank to a 15-month low. 
Small Caps down 6.9% - worst week since Nov 2011.

Dow Transports down 7.1% - worst week since Sept 2011.

VIX broke back above 25... VIX up 60% in 2 weeks - biggest jump since Black Monday.

Many financial stocks suffered huge technical breaks earlier in the week … then took out the lows on Friday.

Homebuilders collapsed... Financials and Materials were next worst... 

Homebuilders down 8.6% - worst since Aug 2011
Financials down 6.6% - worst week since May 2012
Materials down 7.4% - worst week since Sept 2011

The indexes turned lower as oil prices tumbled to new lows suffering a steep decline in the last thirty minutes of trading. Crude down 5 days in a row touching a $32 handle at the lows... biggest weekly drop since Nov 2014.

China's Shanghai Composite index finished down 10% on the week.

European stocks  suffered their worst week since August 2011

The effects of the China-inspired selloff lingered Friday as worries about slowing growth in China weighed on oil prices because the world's second-largest economy is a large importer of commodities. China's gyrations are expected to continue to affect sentiment. China is in an impossible bind: "The Chinese Communist Party has tried to create a state-controlled free market system. It's an absurd concept that never had a chance to succeed. They have lost any element of control they ever had. Their stock market is tanking, their capital account is evaporating, the yuan is overvalued, their banking system is a joke, their billionaires are disappearing, and they have no idea what to do next. 

The strong U.S. jobs  number didn't give stock markets a huge boost, given weakness in the pace of wage growth. The number one pressure on inflation is wage growth—and we are not seeing any of that. Strong jobs data now "clear the way for the Federal Reserve to continue its process for hiking rates at its projected pace.  IF THEY DON'T CONTINUE TO RAISE RATES THEY LOSE ALL CREDIBILITY, IF THEY DO THE MARKET WILL CONTINUE TO COLLAPSE!

The market-implied expectation is for two rate increases in 2016 whereas the Fed's own projection is for four hikes. The market is "so far behind the Fed," and the jobs data suggest that "the market is going to have to reprice lower, perhaps much lower, not the other way around. 

The Fed's baseline projection of four rate hikes in 2016 will destroy a lot of the delusion in the market.

The market reaction to those news items suggests a couple of things to me: 

A) The problems in China, and throughout the emerging markets, are so severe, they offset U.S. domestic economic strength.

B) Investors are placing bets that this is "as good as it gets," and that the economy will weaken in 2016.

What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China's banking system loses 10%, you are going to see them lose $3.5 trillion.

What's the magic number in their FX reserve pile today? When you look at banking system assets divided by their foreign exchange reserves, China is 7x, it's one of the worst in the world. I think people are mypoically focused on a giant number of reserves, of $3 trillion or thereabouts, and no one is really paying attention to the size of the system and what's about to happen. Virtually nobody else is paying attention to this epic question of scale, especially as it relates to another topic China's soaring, and dramatically underreported non-performing loans. 

China has been avoiding a credit, or non-performing loan cycle, and fabricating the data, but the time has run out. !!!!!

Chinese banks' bad debts ratio could be as high 8.1%, a whopping 6 times higher than the official 1.5% NPL level reported by China's banking regulator.The real figure may be closer to 21% when one takes into account the shadow banking sector. If losses don't manifest in financial sector losses, they will do so via slowing growth and deflation.

China is confronting a massive debt problem, the scale of which the world has never seen. !!!!!!

The Dow is down 1400 points in a week from 17,660 to 16,250. !!!!!


Stocks are getting there...!!!!! STILL MORE DOWNSIDE TO COME!



These 7 developed world markets are already in a bear market,down 20%.



Energy Stocks finally woke up to reality in the credit underlying commodity...



US financials have started to plunge back to credit/yield curve reality...



An epic week for China...FAR MORE DOWNSIDE TO COME!



Europe was a disaster...THE EURO IS HISTORY, DEAD MAN WALKING!




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