If you are surprised by what is happening in the financial world right now, you probably haven't been paying much attention. Stock prices were obscenely high and many investors were massively overleveraged.

The Dow Jones Industrial Average plummeted by more than 1,000 points on Monday, and stock prices are still obscenely high and many investors are still massively overleveraged. During the days ahead, we are going to see some wild ups and some wild downs, and this tragedy is going to take some time to fully play out. But without a doubt, we have got a major problem on our hands.

After the chaos that we witnessed on Friday, I wasn't sure that we would see even more carnage on Monday, but that is precisely what transpired.

That is the first time in history that has ever happened.

If you can believe it, there was a time early on Monday when tech companies had collectively lost close to a trillion dollars in market capitalization.

Tech stocks bounced back a bit the rest of the day, but the "Magnificent 7" are still collectively down about 3 trillion dollars from their all-time record high market capitalizations.

That is a lot of money.

Over the last three trading sessions, the Dow, the S&P 500 and the Nasdaq have all gotten absolutely hammered.

But in Japan things have been even worse.

On Monday, the Japanese experienced a stock market crash of epic proportions.

As I write this article, Japanese stocks are bouncing back in a major way, and the same thing could happen to U.S. stocks when the markets open here.

So why is this happening?

Some are blaming the bad economic news that we have been getting and inaction by the Federal Reserve.

Others are suggesting that what we are witnessing "is the result of investors having to untangle complicated, heavily leveraged trades".

The truth is that a lot of factors are at play.

But after several years of one way traffic, a lot of people are quite shocked by how rapidly stock prices have started to move in the other direction.

For a long time, the Federal Reserve and other global central banks were artificially propping up the financial markets.

Now that artificial support has been withdrawn, and many are having difficulty "adjusting to the end of easy money globally".

Of course the Fed could choose to intervene at any time.

At this moment there is growing optimism that the Fed will come riding to the rescue with an emergency rate cut.

In fact, many bond traders are placing very large bets that this is about to happen.

I wouldn't recommend holding your breath waiting for that to take place.

The Dow would probably have to fall to at least 35,000 before the Fed would even consider an emergency rate cut.

But I do believe that one will probably be coming at their next scheduled meeting.

Of course a rate cut isn't exactly going to save us from what is eventually coming.

As James Howard Kunstler has aptly noted, "everything that can break is breaking".

This doesn't mean that every day is going to be a down day for the financial markets.

During bull markets, the waters are calm and stock prices tend to rise slowly and steadily.

During bear markets, the waters get very choppy and there are wild ups and downs.

So if the Dow jumps hundreds of points in a single day, don't think that the crisis is over. A huge swing either way is a bad sign.