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Why The Coming Currency Crisis Will Push The USD Higher

Which will crush stocks
Wednesday, November 25, 2015, 12:11 PM

Executive Summary

  • Other currencies are inflating faster than the USD
  • The USD is still backed by a preponderance of the world's assets
  • The potential for a global currency crisis is rising
  • Why USD will be the (initial) safe haven when it arrives

If you have not yet read Part 1: How Much Higher Can The U.S. Dollar Go?, available free to all readers, please click here to read it first.

In Part 1, we reviewed the technical evidence in support of a second move higher in a multi-year U.S. dollar rally. Here in Part 2, we ask: What conditions might drive such a move higher?

To answer this question, let’s start with another question: What’s scarce in the world of foreign exchange (FX)?

We ask this because capital, profits and gains flow to what’s scarce and in demand. This boils down to supply and demand: gains go to whatever is in high demand and scarce, and whatever is not in demand and over-supplied will lose value.

Supply and Demand

Like every other commodity, currencies respond to supply and demand: whatever currency is scarce and in demand will rise, while currencies that are in oversupply and not in demand will decline.

Though many presume the world is awash in dollars as a result of Federal Reserve quantitative easing, the reality is that expansion of USD via bank loans (credit) and Fed money-creation is modest compared to the expansion of other global currencies such as China’s renminbi (RMB), a.k.a. yuan.

Consider this chart of bank credit expansion in the U.S. and in China since the onset of the “Great Recovery” in early 2009: China’s bank credit has soared by 260%, a sum that is roughly 140% of China’s entire Gross Domestic Product (GDP), while U.S. bank credit rose by a modest 12% of U.S. GDP.

If we compare M2 money supply, we find... » Read more


Shutterstock/Alex Zabusik

Russian Jet Shot Down By NATO Member

A very dangerous provocation by NATO
Tuesday, November 24, 2015, 1:35 PM

This morning two Turkish F-16 fighters shot down a Russian jet, claiming that it was in Turkey’s airspace after it had ignored repeated warnings.

There are two problems with this story. The first is that Russia claims to have evidence that the Russian jet never left Syrian airspace.  The second is that even if the Russian jet had strayed into Turkish airspace, Turkey knew there was zero threat to its security from a single Russian jet. Everybody and their uncle knows what Russian jets are doing in the area.

This means that NATO, of which Turkey is a member, had given a greenlight to the idea of shooting down Russian planes. » Read more



Off The Cuff: Race For The Exit

Everybody's dancing near the doorway
Friday, November 20, 2015, 3:18 PM

In this week's Off The Cuff podcast, Chris and Mish Shedlock discuss:

  • The Fab 5
    • Without these 5 stocks, the S&P would be negative for the year
  • The "Positive" Impact Of The Paris Attacks
    • Are they kidding???
  • The Insatiable Military Industrial Complex
    • Crisis is being fabricated to keep it fed
  • Housing Is Looking Sick
    • More and more weakness is showing

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today. » Read more


Rob Byron/Shutterstock

Off The Cuff: Spinning Apart

The centrifugal forces of deflation are accelerating
Thursday, November 12, 2015, 11:24 PM

In this week's Off The Cuff podcast, Chris and John Rubio discuss:

  • Worrisome Weightlessness
    • It feels like the moment before everything heads South
  • Spinning Apart
    • Europe and Asia are hurdling towards crisis as their economies falter
  • Ridiculous Markets
    • There's no precedent, nor any sanity, to guide us right now
  • Bankrupt Policies
    • Our policy responses have already failed. It's just no one wants to admit it.

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today. » Read more



How Things May Well Get Ugly Quickly

What to do if full-blown war breaks out
Friday, November 6, 2015, 8:05 PM

Executive Summary

  • The US/Russia proxy war in Syria is fast escalating to dangerous levels
  • Much of the unrest today was imminently avoidable and sadly ignored
  • The US neo-con model is making more enemies both outside and inside America
  • The risks of full-blown war breaking out
  • What to do to prepare in advance

If you have not yet read Part 1: Making The World A More Dangerous Place available free to all readers, please click here to read it first.

Look, we’ve given these warnings before and unless you happen to live in one of the unfortunate countries that is being bombed or overtly or covertly supplied with the weapons of war by the west, they seem to not have amounted to much.

Such is the nature of reading tea leaves.  Instead of thinking of them as binary outcomes – things that either happened or didn’t happen - think of them as ‘probability fields.’  Like the chance of rolling a three with a 6-sided die vs. the chance of rolling a three with a 20-sided die.  The ‘probability field’ of the 6-sided die is a lot higher.

The probabilities and forces that push us closer to and further from war are ever changing and highly complex.  They shift with events and decisions, most of which we are unaware of because they are either not reported on or reported with heavy distortion of the truth.

So reading the tea leaves is the best we can do.

Our advice for any war breaking out anywhere in the Middle East, or especially between Russia (or China) and the West would be to have all of your preparations done a year before that moment.

Anything that disrupts global maritime trade, even for a very short while will rock the financial systems of the world.  Anything that calls into question the desire or ability of a country to repay its foreign debts (and wars are great excuses to stiff your creditors if they happen to be attacking you) will rock the financial world.

Heck, anything that... » Read more



Off The Cuff: The Invisible Recession

Evidence is everywhere but no one wants to see it
Wednesday, November 4, 2015, 11:04 PM

In this week's Off The Cuff podcast, Chris and Brian Pretti discuss:

  • The Invisible Recession
    • Horrible economic weakness that everyone is ignoring
  • The Insiders Are Getting Out
    • Those in the know are taking chips off the table
  • Real Estate Is Peaking
    • Rents and prices can't maintain at these levels
  • Ever-Doubling Debt
    • US national debt has DOUBLED since 2008

Sergey Nivens/Shutterstock

Time To Review

Markets are soaring on terrible, awful data
Monday, November 2, 2015, 11:37 PM

Back in August things were falling apart.  Macro-economic indicators were steadily worsening, corporate profits and revenues were suddenly falling, and US unemployment came in far worse than expected.

Of course in today's bizzarro logic, that meant only one thing:  the equity “”markets”” were going to be bid up, and gold was going to be held in check.

Both have not only come to pass, but have done so in spectacular fashion. » Read more


Everett Collection/Shutterstock

Somebody Has To Be Wrong Here

Either it's truly different this time, or it isn't
Tuesday, October 27, 2015, 9:52 PM

As we suffer the interminable wait for the global monetary and fiscal authorities to finally relent and allow some semblance of reality to creep back into the financial markets, it’s completely obvious that somebody has to be wrong here.

Either it’s possible to continue to inflate asset markets forever, even in the absence of organic (or even inorganic) economic growth, or it’s not. » Read more



Off The Cuff: Deploy The Flying Pigs!

All rationality has left the markets
Monday, October 26, 2015, 4:06 PM

In this week's Off The Cuff podcast, Chris and Mish discuss:

  • Looks Like We'll Need A Bigger Bazooka
    • Draghi hints at more QE
  • The Schizophrenic Fed
    • Exploring both raising & lowering rates
  • No Rationality Left
    • Depression-level results RAISES stocks?
  • Banning Physical Cash
    • Still the plan of the central bank cartel

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today. » Read more



Why The Next Drop Will Likely Be 30-40%

A re-awakened bear can do a lot of damage to a bubble market
Friday, October 23, 2015, 3:12 PM

Executive Summary

  • New bear market + re-enter recession = 30-40% drop in stock prices
  • What are the chart of the best technical indicators telling us?
  • Confusion reigns during the transition from bull market to bear
  • Why volatility will reign & capital protection should be prioritized

If you have not yet read Part 1: Has The Market Trend Shifted From Bull To Bear? available free to all readers, please click here to read it first.

It’s The Global Economy, Stupid!

I believe another key question for equity investors right now is whether the recent noticeable slowing in global economic trajectory ultimately results in recession.  Why is this important?  According to the playbook of historical experience, stock market corrections that occur in non-recessionary environments tend to be shorter and less violent than corrections that take place within the context of actual economic recession.  Corrections in non-recessionary environments have been on average contained to the 10-20% range.  Corrective stock price periods associated with recession have been worse, many associated with 30-40% price declines known as “bear market” environments.

We can see exactly this in the following graph.  We are looking at the Dow Jones Global Index.  This is a composite of the top 350 companies on planet Earth.  If the fortunes of these companies do not represent and reflect the rhythm of the global economy, I do not know what does.  The blue bars marked in the chart are the periods covering last two US recessions.  US recessions that were accompanied by downturns in major developed economies globally.  As I’ve stated many a time, economies globally are.... » Read more