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Off the Cuff: The Importance of Anti-Fragility

Something our systems & our culture are dearly lacking
Thursday, March 5, 2015, 8:29 PM

In this week's Off the Cuff podcast, Chris and Charles Hugh Smith discuss:

  • Why It's Still All About Net Energy Flows
    • Don't be misguided by today's low oil prices
  • Anti-fragility & The Singularity
    • Why the siren song of new technology is so dangerous 
  • The Limits Of Financial Markets
    • They can't price long-term risk well
  • The Value Of Culture
    • Sets priorities the market doesn't/can't
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Why Oil Is Going To Double In Price

ETA? About a year from now
Tuesday, March 3, 2015, 10:01 AM

We’ve got an oil emergency brewing right now. I know that this idea runs utterly counter to the mainstream narrative of a shale oil bonanza that has us swimming in oil; but that’s why this site exists.

Within a year, possibly a little longer but not much, I think the price of oil is going to double from its current per barrel price of $50 US/$60 Brent. » Read more

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Investing In The Age Of Anomalies

More important than ever to follow the flows of capital
Wednesday, February 25, 2015, 9:06 AM

Executive Summary

  • Will global capital continue to push US stocks higher, despite their stretched valuations?
  • Global capital is becoming more cautious
  • S&P outperforming as capital seeks the safety of "blue chip" companies
  • Investing in the age of anomalies

If you have not yet read Part 1: Time To Toss The Playbook available free to all readers, please click here to read it first.

This leads us to equities and, again, this very important concept of being flexible in thinking and behavior. Historically, valuation metrics have been very important in stock investing. Not just levels of earnings and cash flow growth, but the “multiple” of earnings and cash flow growth investors have been willing to pay to own individual stocks. This has been expressed in valuation metrics such as price-to-earnings, price relative to book value, cash flow, etc. To the point, in the current market environment, common stock valuation metrics are stretched relative to historical context.

In the past we have looked at indicators like total stock market capitalization relative to GDP. The market capitalization of a stock is nothing more than its shares outstanding multiplied by its current price. The indicator essentially shows us the value of stock market assets relative to the real economy. Warren Buffet has called this his favorite stock market indicator.

The message is clear. By this valuation metric, only the... » Read more

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First The Fall...

A Special Report: Deflation is here
Tuesday, February 24, 2015, 12:41 AM

One of the models of the future that I favor is the Ka-Poom theory put out by Erik Jansen of iTulip.com back in 1999.

Basically it states that the end of a bubble era begins with a sharp deflationary event (the ‘Ka’ part of the title), but ends in a highly inflationary blow-off, (the ‘Poom’).

It’s a one-two punch. Down then up. » Read more

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What Will Happen Next For the US Dollar

And why it will be bad for all, including America
Wednesday, February 18, 2015, 9:44 PM

Executive Summary

  • Why currency wars are heating up, and will get more intense from here
  • Why it's critical to understand the influence that Triffin's Paradox has on the situation
  • Why global crises will cause the dollar to strengthen further
  • What will happen next

If you have not yet read How Many More “Saves” Are Left in the Central Bank Bazookas? available free to all readers, please click here to read it first.

In Part 1, we reviewed the deterioration of the dominant narrative of the past six years—that central banks can move markets higher and generate growth more or less at will.  In shorthand: central bank omnipotence.

Three dynamics are undermining that narrative: diminishing returns on central bank monetary policies and public relations pronouncements; a collapse in oil prices that is destabilizing a key sector of the global economy, and the strengthening U.S. dollar, which is wreaking havoc on emerging-market currencies and economies.

If central banks really had such absolute control of the financial universe, would they let these three trends undermine their policies and power? The answer is clearly “no.”

There are a number of other factors undermining the “central banks are in control” narrative, but the field of battle where central banks are most likely to lose is foreign exchange (FX), for two fundamental reasons:

1.  The FX market dwarfs the central banks. The equivalent of the entire Federal Reserve balance sheet ($4.5 trillion) trades in the FX markets every few days.  Given the size of the market, central banks cannot manipulate the FX market via proxies or direct purchases for long. The only central-bank controlled factors that influence FX are interest rates paid on government bonds and money-printing. The first supports the currency, the second weakens it.

2.  The FX market is still an open market, influenced by government bond interest rates, trade deficits and surpluses, perceptions of risk and speculative bets. This mix is much more dynamic than the two levers controlled by central banks: setting interest rates targets and creating new money to buy bonds.

Let’s trace the primary dynamics of the FX market, which is currently being destabilized by the rising U.S. dollar... » Read more

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Our 'Truman Show' Markets

Little more than scripted fiction at this point
Tuesday, February 17, 2015, 2:45 PM

The financial “markets” of the US, Europe and Japan have become Truman Show creations. Markets is in quotes to denote the fact that they are more simulation than reality. In a world where the continuance of the programming depends on the virtual reality bubble being maintained, nothing is left to chance. » Read more

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Off The Cuff: Shades Of World War One

A similar powderkeg of geopolitical tension haunts us today
Thursday, February 12, 2015, 5:35 PM

In this week's Off the Cuff podcast, Chris and Charles Hugh Smith discuss:

  • The Seeds Of World War 3
    • Where our path in Ukraine, Syria, Afghanistan, Libya, Iraq may lead
  • Financial Conquest
    • A more bloodless form of war being waged round the world today
  • A Crisis Is Unavoidable At This Point
    • We're too far down the path of 'extend & pretend' to avoid consequences
  • Lack Of Leadership
    • Our system seems too broken to produce anymore courageous leaders
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America Vs Russia: What's At Risk

Guidance for the concerned citizen
Thursday, February 12, 2015, 1:26 AM

Executive Summary

  • Ukraine's economic free fall
  • The real risk of Ukraine igniting the next world war
  • Why a lasting peace is unlikely
  • What you should do in preparation of escalating conflict between Russia and the West

If you have not yet read Part 1: The US' Suicidal Strategy On Ukraine, available free to all readers, please click here to read it first.

What's At Risk

Now we come to the hard part of this report, the part where we have to discuss what might happen next.  My analogy for this period of history is the year(s) before WW I.  Historians still cannot quite say what led up to the immense human disaster that we now call World War I, but enough failed diplomacy, bugled treaties, inept leadership, and inflexible political institutions were all grating against one another that a single assassination of a single archduke was a sufficient spark to set the whole pile ablaze.

Were those other failures not all stacked up like so much try tinder, a dozen archdukes could have been shot without anything more serious than a dozen solemn state funerals would have resulted. 

Similarly, today we have a conflict in Ukraine which nobody can exactly say what the US's compelling interests are with Ukraine because nobody really knows.  It's more a matter of principle, with that principle being the US gets to do what it wants, when it wants, and nobody is supposed to challenge that.

Putin said as much on Feb 7, 2015:

“There clearly is an attempt to restrain our development with different means,” he told trade union activists. “There is an attempt to perturb the existing world order... with one incontestable leader [Obama] who wants to remain as such thinking he is allowed everything while others are only allowed what he allows and only in his interests. This world order will never suit Russia.”

(Source)

Clearly Russia is no pushover country and has no interest in having dangerous coups and rising ultra-nationalism on its borders go unchecked, and this is why we are in such dangerous territory.  The US has not been up against a legitimate foe for such a long time, it may be like the school yard bully that fails to properly evaluate the new kids at school before picking a fight.

Russia is making its position known to the world.  It has been... » Read more

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Off the Cuff: The Black Swans Are Getting Ready To Land

Incoming!
Friday, February 6, 2015, 1:13 PM

In this week's Off the Cuff podcast, Chris and John Rubino discuss:

  • The Importance Of Greece
    • Exposing the fatal flaw of the global economy
  • The End Of The Fiat Currency Regime
    • Today's woes were predictable back in 1971
  • Horrible Time For Investors
    • Tons of risk and precious little safe havens
  • Timing For The Crash
    • Unknowable, but closer than ever
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The Approaching Great Unraveling - Are You Prepared?

Greece is just the start of the global insolvency crisis
Thursday, February 5, 2015, 3:54 PM

Executive Summary

  • Which countries are next in line to "go Greek"?
  • Which major countries will be hit by deflation next? Which will instead see massive inflation?
  • How individuals should start preparing
  • Why huge massive losses and wealth transfer are inevitable for many

If you have not yet read Part 1: Greece Exposes The Global Economy's Achilles Heel, available free to all readers, please click here to read it first.

At a high level, the suite of predicaments we face are as obvious as they are serious. 

Perhaps the largest predicament we face is that infinite economic growth on a finite planet is an impossibility and yet that's exactly what our monetary and banking systems require.

Not merely because the bankers and politicians want it, which they do, but because that's how the system itself is designed.  When you loan money into existence, you get an exponential increase of that money over time.  Actually you get an exponential increase in debt too, only at a faster pace which translates into larger quantities.

For as long as debts are growing at an exponential pace, everything is fine with the world, the economy hums along, politicians get re-elected and the big banks churn out profits year after year.

However, when the debt growth stops, financial panic sets in, the banking system threatens collapse, and the fiscal and monetary authorities pull out all the stops in their efforts to prevent these various ills from getting any worse.

What the political and banking folks are desperately seeking to prevent is nothing less than a Great Unraveling.

Their task is impossible.

The Great Unraveling will be a set of related economic and financial crises that end up taking inflated expectations and reducing them to match reality.  Perhaps this process will take years, or maybe it will take decades, or maybe it will take months.  Nobody knows.  But the longer that... » Read more