Markets Manifest the Systemic Breakdown Collapse

On “‘Black Monday’: Hundreds of Billions Wiped Off World Stock Markets in Worst Plunge since 2008,” headlined the London Irish Independent.

Asian stock markets fell by 6-8%; Europe’s by 4-6%; the Wall Street exchanges by just under 4%, or almost 600 points; Mideast markets plunged even more steeply; Brazil’s Bovespa exchange lost 6%.

The commodity collapse accelerated. West Texas crude oil is below $39/barrel. Bloomberg’s Commodity Price Index of 22 commodities is falling at 2-3%/week, according to Bloomberg News Aug. 24, and is now at 1998 crisis levels. That index has dropped by 51% since the end of 2013 as economic growth disappeared in trans-Atlantic, then in Russia and Brazil; but the drop is clearly accelerating this Summer. It was the trigger in Spring-Summer 2008 for the bank blowout of the Autumn.

One of the largest categories of corporate debt has gone “underwater” in the crash. The larger U.S. corporations have borrowed $1 trillion/year since 2013, overwhelmingly (90-95%) for the purpose of buying their own stocks, or other company’s stocks in takeovers. The markets’ plunge has now pushed that several trillion in corporate debt into hundreds of billions in unrealized losses, which will expand further.

Credit default spreads for major banks widened in an accelerating way, indicating “counterparty risk” — their assets are bad. The high-yield bond spread (the difference between corporate/muni bonds and junk bonds, mainly in energy) zoomed up through 5%.

Wall Street banks were plunging faster than the market. On Aug. 20-21 combined, Citigroup shares lost 6.06%; JPMorgan Chase 6.01%; BOA 7.95%.

World trade shipping rates are in collapse, having fallen 60% in three weeks and 27% in the last week alone, to $467/TEU on the Shanghai Containerized Shipping Index. About $800-1,000/TEU is a profitable level.