The stock market just finished a brutal third quarter…

The S&P 500 fell 8%…and so did the Dow and the NASDAQ. It was the worst quarter for U.S. stocks since 2011.

Stocks around the world dropped too. The MSCI All-Country World Index, which tracks 85% of global stocks, also had its worst quarter since 2011. The STOXX Europe 600 Index, which tracks 600 of Europe’s largest companies, fell 10%. It was the worst quarter for European stocks since 2011 as well.

China’s Shanghai Composite fell 28% last quarter, its largest quarterly decline in seven years. The MSCI Emerging Markets Index fell 19%. It was the worst quarterly decline for emerging market stocks in four years.

In total, last quarter’s selloff erased nearly $11 trillion in value from stocks around the world.

•  Casey Report readers know this is part of our “script”…

In the latest issue of The Casey Report, E.B. Tucker called the end of the six-year bull market in U.S. stocks that began in 2009:

We believe the era of asset prices soaring on a wave of easy credit is over. Last month’s major stock market decline is the start of a very tough time for stocks and the economy…

Regular readers know the Federal Reserve’s response to the last financial crisis was extraordinary. The Fed cut its key interest rate to effectively zero in December 2008…and it’s left it there ever since.

The Fed made it ridiculously cheap to borrow money. Consumers borrowed to buy homes they would never be able to afford in a “normal” economy. Property developers borrowed to build new houses. And investors borrowed to buy stocks.

Easy money allowed a buying binge that sent prices soaring. Many asset prices have completely lost touch with reality. We recently explained how U.S stocks are roughly 50% more expensive than their long-term average, according to a popular valuation metric called CAPE.

•  Many currencies also had a horrible quarter…

As a group, Asian currencies had their worst quarter since the 1998 financial crisis. The Malaysian ringgit fell 14% against the dollar. And the Indonesian rupiah fell 9%.

On top of that, emerging market currencies as a group hit their lowest level since 2002. The Brazilian real lost 23% during the third quarter…the Russian ruble lost 16%.

Regular readers know commodities have not been spared from the bloodbath

The Bloomberg Commodity Index, which tracks 22 different commodities, had its worst quarter since 2008. It fell 15% and is now at its lowest level since 1999. Wheat, lumber, and oats each fell more than 17%.

Oil was hit the hardest. It had its worst quarter since 2009. A barrel of oil now costs 26% less than it did three months ago…and 50% less than it did a year ago.

•  Regular readers know China’s slowing economy is a big reason for the commodities selloff…

China is the second largest economy in the world. It’s also the largest commodity consumer. China consumes half of the world’s aluminum, nickel, copper, steel, and coal.

China also consumes 60% of the world’s concrete. Last December, Microsoft founder Bill Gates pointed out that China poured more concrete between 2011 and 2013 than the United States did during the entire 20th century.

But now, China is growing at its slowest pace in 25 years. That means it’s building fewer buildings, roads, and bridges. So China doesn’t need as much steel, aluminum, concrete or other “building block” commodities.

This is hurting countries that rely heavily on commodity exports to keep their economies going…like Australia, New Zealand, and Canada. The Australian dollar, the New Zealand dollar, and the Canadian dollar have each lost more than 16% against the U.S. dollar since last September.

•  With financial markets around the world looking extremely fragile, “Dr. Doom” says the “U.S. could be on the verge of an economic collapse”…

Marc Faber is one of the world’s most respected contrarian investors. He predicted 1987’s Black Monday, when the Dow lost an incredible 23%. It was the worst day in the history of the U.S. stock market. Faber also predicted the Asian financial crisis of 1997-1998.

Faber’s knack for calling huge crashes has earned him the nickname “Dr. Doom.” Now he thinks the recent selloff in U.S. stocks could be the start of something very dangerous. He’s been warning investors about a coming crash for months.

During a July interview with CNBC’s Trading Nation, Faber said the market was beginning to crack. It was a bold call…at the time, U.S. stocks were still near all-time highs. But Faber predicted U.S. stocks were going to plunge: “In the U.S., the market could easily drop 20 to 40%, easily.”

The next month, the S&P 500 lost 11% in six days. And, for the first time in four years, the U.S stock market entered a correction. (A correction is when an index falls 10% from a previous high.)

Faber also said the U.S stock market was in “a stealth bear market.” And he listed a few reasons stocks could keep falling:

….the valuations, as you know, are relatively high. And we have numerous other problems in the world: [including] excessive debt loads in the most advanced economies; slowing down Chinese economy that, in my opinion, will go into recession; and collapsing commodity prices, especially on the industrial side.

•  Faber had simple advice for investors…

He said it’s time to get defensive. And he urged every investor to have “some money outside the financial market and outside the financial sector.”

Like us, Faber thinks gold is the best defense during a market collapse…the ultimate form of financial wealth insurance.

Later this month, Faber will join us at the 2015 Casey Research Summit. At the Saturday night banquet dinner, attendees will have a chance to eat dinner with Dr. Doom himself. If you sit at Faber’s table, you can pick his brain about where the economy and stock market are headed while sharing a meal and a glass of wine.

And if you don’t sit at Faber’s table, you can sit with one of the other investing legends who will be there…including multi-millionaire entrepreneur James Altucher, famous trend forecaster Gerald Celente, and of course, Doug Casey himself. Not to mention senior Casey Research editors like Louis James, Bud Conrad, and E.B. Tucker.

The Summit is only two weeks away…on October 16-18 at the five-star Loews Ventana Canyon Resort in Tucson, Arizona. We hope you can join us, but you have to act soon…Click here for more information on the 2015 Casey Research Summit.

•  In today’s mailbag, Charlie S. asks…

Why is the dollar so strong when there are so many of them around?

Justin Spittler responds: You’re right to question the “strength” of the dollar. The Federal Reserve has created nearly $3.5 trillion dollars since 2008. And every dollar created makes the dollar weaker.

The key is how we measure the dollar's strength…

To measure the value of something, you need a unit of measurement. The world generally uses the dollar as a unit of measurement. A share of ExxonMobil stock is worth $74. An ounce of gold is worth $1,114.

But you can't measure a dollar in dollars. So we measure the strength of a dollar against a different currency, like the euro or the Japanese yen.

Regular Casey readers know that virtually all major governments are using easy-money policies. For example, both Europe and Japan are currently doing “Quantitative Easing” (QE). This means they are creating billions of new euros and yen every day and injecting them into their economies. This makes their currencies worth less.

The U.S. used QE to create dollars from 2008-2014. But for now, it’s stopped using QE to create new dollars.

So, for the time being, U.S. monetary policy is “less easy” than other major players like Europe and Japan.

And because we measure the dollar against other currencies like the euro and yen, the dollar appears strong.

So when we say the U.S. dollar is “strong,” we're really saying the dollar is “strong relative to other currencies,” like the euro and yen.

Chart of the Day

Keep this in mind next time you hear “strong dollar”…

Regular Casey readers know the U.S. dollar “broke out” last summer. The U.S. dollar index is up 21% since last July. This index measures the dollar’s performance against other major currencies. One reason the dollar is strong right now is that other major currencies are rapidly weakening. As we just mentioned, the Fed stopped QE last year. But the European Central Bank (ECB) and the Bank of Japan (BOJ) are still doing QE.

Today’s chart shows how much the euro and yen have crashed against the surging dollar…

As you can see, the U.S. dollar has gained about 20% vs. other major currencies in the last year. That may not sound like a lot…but it’s actually a huge move for a currency. After all, it represents the value of cash in peoples’ bank accounts…not some volatile penny stock. 

Regards,

Justin Spittler
Delray Beach, Florida
October 01, 2015

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