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January 7, 2019

From 'Market Crash of 2018' to 'Financial Crisis of 2019'?



Stock markets are crashing all over the world, we are seeing extremely violent “flash crashes” in the forex marketplace, economic conditions are slowing down all over the globe, and fear is causing many investors to become extremely trigger happy.  The stock market crash of 2018 wiped out approximately 12 trillion dollars in global stock market wealth, but things were supposed to calm down once we got into 2019.  But clearly that is not happening.  After Apple announced that their sales during the first quarter are going to be much, much lower than previously anticipated, Apple’s stock price started shooting down like a rocket and by the end of the session on Wednesday the company had lost 75 billion dollars in market capitalization.  Meanwhile, “flash crashes” caused some of the most violent swings that we have ever seen in the foreign exchange markets…
It took seven minutes for the yen to surge through levels that have held through almost a decade.
In those wild minutes from about 9:30 a.m. Sydney, the yen jumped almost 8 percent against the Australian dollar to its strongest since 2009, and surged 10 percent versus the Turkish lira. The Japanese currency rose at least 1 percent versus all its Group-of-10 peers, bursting through the 72 per Aussie level that has held through a trade war, a stock rout, Italy’s budget dispute and Federal Reserve rate hikes.
This is the kind of chaos that we only see during a financial crisis.
Investors are also being rattled by the fact that China just experienced its first factory activity contraction in over two years…
The People’s Bank of China said on Wednesday evening it had relaxed its conditions on targeted reserve requirement cuts to benefit more small firms.
The move came after China reported its first factory activity contraction in over two years in December. A long-term Chinese slowdown would cause global havoc.
But of course the biggest news of the day was what happened to Apple.  The Dow Jones Industrial Average was down 660 points on Wednesday, and the huge hit that Apple took was the biggest reason for that decline.
Including the 75 billion dollars that was just wiped out, the value of Apple has now fallen by 452 billion dollars since October 3rd…
In only three months, Apple has lost $452 billion in market capitalization, including tens of billions on Thursday as the tech giant’s stock sank further.
Apple shares have fallen by 39.1 percent since Oct. 3, when the stock hit a 52-week high of $233.47 a share. With its market cap down to about $674 billion, those losses are larger than individual value of 496 members of the S&P 500 — including Facebook and J.P. Morgan.
Ironically, the truth is that Apple is actually one of the strongest companies on Wall Street financially.  It is just that the company was priced well beyond perfection, and so any hint of bad news was likely to cause a decline of this magnitude.
The amount of paper wealth that stock market investors have just lost is absolutely staggering.  To put this in the proper perspective, here are some more facts about the money that Apple investors have lost that come from CNBC…
  • more than double the size of Wells Fargo
  • more than three times the size of McDonald’s
  • more than five times the size of Costco
  • more than 10 times the size of Raytheon
At this point U.S. financial markets are hypersensitive to any piece of bad news, and the fact that Apple sales are way down in China is definitely bad news.
One analyst said that this was “Apple’s darkest day in the iPhone era” and he expressed his opinion that “the magnitude of the miss with China demand …was jaw-dropping.”
Of course Apple is far from alone.  Economic activity is slowing down substantially all over the planet, and on Wednesday we learned that U.S. factory activity just declined by the most since the last recession…
Beyond Apple, investors were also rattled by the biggest one-month decline in US factory activity since the Great Recession. The closely-watched ISM manufacturing index tumbled to a two-year low, providing further evidence of slowing growth and pain from the US-China trade war.
In addition, both of Bloomberg’s economic surprise indexes have “turned negative for the first time since Trump was elected”.
The hits just keep on coming, and it is becoming quite clear that this is going to be a very tough year.
As this crisis continues to escalate, keep an eye on our big financial institutions.  Italy’s tenth largest bank just imploded, and it is likely that we will see more financial dominoes start to topple as the losses mount.
Over the past decade, there have been other times when Wall Street has been rattled, but those episodes only lasted for a few weeks at the most.
It has now been three months, and this new crisis shows no signs of abating any time soon.
What that means is that we are in a heap of trouble.  Because once this giant financial avalanche fully gets going, it is going to be impossible to stop.
For the moment, I think that this current wave of panic selling is subsiding and that Friday will be better for investors.  Of course the markets are so jittery at this point that a single piece of bad news could instantly send them tumbling once again.  But barring any bad news, hopefully things will be calmer on Friday.
There will be good days and there will be bad days in 2019.
There will be ups and there will be downs.
But it has become exceedingly clear that the downturn that so many have been anticipating has finally arrived, and the financial crisis of 2019 looks like it is going to be a doozy.
Courtesy of Michael Snyder, author of several books, and founder of The Economic Collapse (more articles by Michael here).
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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