Holy Hell About to Break Loose

by Larry Edelson, 10/7/15, Money and Markets

I've long maintained that the final quarter of this year, starting with the historically volatile month of October, would be the start of a roller coaster ride through hell. And if you haven't already noticed, it's shaping up to be precisely that.

Global equity markets are teetering on the edge of a cliff. For some, like Europe's markets, it will be the beginning of a long, drawn out bear market.

For others, like our markets, it will be a severe sharp pullback that gets the majority bearish, but then sets the stage for yet another bull leg higher.

You can see the blood starting to spill almost everywhere.  Europe's markets are cratering, with Germany's DAX, the bulwark of the European Union, starting to rollover to the downside. If you look closely, you can see the blood starting to spill. You can see it — if you look closely — with our equity markets: Where more than half of all publicly traded U.S. stocks are now down more than 20% from their record highs. Where the Dow Transports are now down 15.43% from the record high Nov. 14. Where the Dow Utilities have slid as much as 18.8% since their January record high. And where many U.S. stocks are down even more, many losing more than half their value since their record highs over the past year.

Thing is, it's going to get much worse this month for stocks, all over the world. Germany's DAX is set to crash. The Dow Jones Industrials will plummet to 15,000 then possibly to 13,900 before recovering.  And stocks aren't the only asset class where holy hell is breaking loose.  

Bubbles are bursting in the biggest markets of all, sovereign debt. That's true no matter what Janet Yellen and the Federal Reserve do with their official interest rates.

In Europe, German bunds are starting to look like they will implode any day now. Same for Japan, where the Japanese government continues to print money with reckless abandon and Japanese government bonds have nowhere to go but down.

Here in the U.S., hardly anyone realized it, but interest rates started moving up way back in July 2012, when the 10-year U.S. Treasury note yield bottomed at 1.394%.

Slowly, but surely, investors worldwide are starting to shun sovereign debt, realizing that there are no returns to be had there and that the safety of government debt today is nothing but a mirage.

 

Short-term interest rates, on the other hand, are indeed falling, with three-month Treasury bill yields now negative at -0.02%.  They could get even more negative as investors flee the stock markets and park capital in money markets, pushing short-term yields even further into negative territory.

But don't be deceived: Even in the short end of the yield curve, a government debt bubble bursting looms high.

Then there is the commodity sector, in one of its worse deflations ever. So  bad that the world's largest and most sophisticated commodity company,  Glencore, has seen its share price plummet more than 70% this year, with half  that loss occurring on Sept. 28.

Gold, which has fallen more than 40% since its high in  September 2011. Silver getting clobbered. Copper annihilated. Other base metals prices shedding 70% or more. Grain markets reeling. Soft commodity prices such as coffee, cocoa and sugar cut in half or more. 

Right now, a bounce is overdue, especially in gold and silver. But here too, don't be deceived. We have not yet seen the final lows in gold or silver and any bounce is nothing but a fake out. So don't — I repeat,  DO NOT — get caught now in any commodity bounce. It will merely rob you blind.

And what about the geo-political scene, where I warned way back in 2012 that the war cycles were ramping up, and where Martin Armstrong, one of the foremost economists alive today, also agrees? Consider the refugee crisis in Europe — while I am for humanitarian efforts, the strain of the crisis will be the final nail in the coffin for indebted European governments. And where cultural conflict is sure to rise.

But that's not the point. His popularity is threatening the  status-quo in Washington, showing you that the people are finally rising up  against harebrained politicians who want nothing more than to save their butts at  your expense.

Or how about ISIS and Syria — where for the second time since the Cold War, Russia and the U.S. are polar opposites, just like they are regarding Ukraine?

Potential for a future international war? Very possible.  Leaders in Washington, Brussels and Moscow need to divert their peoples' attention away from the lousy state of domestic economic affairs.

And more, now all coming together on the world stage, starting to turn nearly all markets upside down and inside out.  Stay safe and best wishes, Larry

Source: Money and Markets