NEW YORK – The resumption of the global stock sell-off on Monday deepened investor concerns that an anticipated meltdown in debt markets that could rival the 2008 collapse had begun.
As WND reported last Friday, the underlying causes of the current global market downturn trace back to the collapse in oil prices that Citibank strategist Jonathan Stubb has dubbed an “Oilmageddon.”
A sharp decrease in the price of oil has coincided with the collapse of the Chinese stock market, caused by a dramatic slowdown in China’s growth and mounting bad debts that threaten the country’s banking system.
Meanwhile, the Federal Reserve Open Market Committee in December decided to raise interest raise rates for the first time since June 29, 2006, increasing the target federal funds rate modestly, from zero to 25 basis points (0.25 points).
WND has reported analysts’ warnings that the Federal Reserve’s Quantitative Easing policy – under which it printed money to buy U.S. Treasury debt – was an artificial means that ran through much of the Obama presidency to contain interest rates at near zero that would backfire in a broad stock-market selloff once the Fed began to raise benchmark interest rates.
On Monday, the Dow plunged some 400 points then rallied at the end of the day to close down 177.92 points at 16,027.05. The S&P was down 26.61 to 1,853.44 and the Nasdaq was down 79.39 to close at 4,283.75.
Banks hit hard in Europe
Shares in Deutsche Bank in Germany fell 10 percent Monday, bringing the year-to-date loss to nearly 40 percent. Even more troubling, the valuation of Deutsche Bank has fallen to around 30 percent of book value as concerns deepen that the bank may fall deficient on the capital base required to meet regulatory requirements.
The Stoxx Europe 600 Banks index, the EU’s measure of overall bank strength, lost 5.59 percent in Monday trading, marking six straight weeks of declines in the longest weekly losing stretch since 2008, when European banks booked 10 weeks of losses.
Very low interest rates caused by the European Central Bank emulating the Quantitative Easing policies of the U.S. Federal Reserve have backfired. Low interest rates have hurt the profits banks expect to earn on loans, the Wall Street Journal pointed out Monday.
The Wall Street Journal further reported that the difficulty banks in Europe face to build up their barely adequate capital bases got little sympathy from Mario Draghi, president of the European Central Bank. When asked recently about bank stability in the current EU low-interest rate environment, he said protecting bank profits was not his job.
Threat of ‘Grexit’ returns
Compounding the EU banking crisis, the prospect of a Greek exit from the EU, known as a “Grexit,” has surfaced once again despite the recapitalization boost EU banks in concert with the International Monetary Fund provided Greece last December after a near-disastrous confrontation with the leftist government of Greek Prime Minister Alexis Tsiparas.
Protest riots in the streets have resumed as Greece enters the first phase of a fiscal review imposed by its EU-bank and International Monetary Fund creditors. There is no agreement in sight on the controversial pension reform the creditors demanded in return for providing the recapitalization agreement Greece needed to avoid the technical bankruptcy of defaulting on scheduled loan interest payments.
In the last three days of trading, Greek bank stocks have lost half their value, causing bank stocks in the country to plummet to their lowest levels since December 1989.
Warning that Greece is no longer “fixed,” popular economic blog ZeroHedge.com cautioned that another ATM-halting crisis is looming for the EU and Greece this spring and summer. EU bankers and the IMF have decided to “go to war” with Tspiras once again, not only over pension reforms but over demands to accept more migrants from the Middle East.
Dot.com Internet bubble 2.0
Particularly hard-hit in the 2016 stock market sell-off have been Internet tech stocks, prompting concerns of a tech-stock crash termed on Wall Street as “Dot.com Internet bubble 2.0,” suggesting fears tech stocks could collapse much as the Dot.com Internet bubble burst in 1999.
Last Friday, Linkedin Corp’s shares closed down 43.6 percent, wiping out nearly $11 billion of market value. It was the worst day in the stock’s history, raising the fears of professional money managers that the stock of even profitable Internet firms is being abandoned.
The tech-oriented NASDAQ Composite Index dropped 5.4 percent last week, sliding some 13 percent in 2016 so far, with losses taken in Internet giants across the board, including downward selling pressure on shares of Google-owner Alphabet, Facebook Inc., Twitter, Groupon and Netflix Inc.
The 462 information-technology stocks composing the Russell 3000 index have lost approximately half-a-trillion dollars as of last week.
