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How the Market Failure Will Happen

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Thursday, February 28, 2013, 10:34 AM
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Executive Summary

  • The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
  • HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
  • Persistently high gasoline prices are choking economic growth
  • A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
  • Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
  • Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
  • Why you don't want to be long in this market when that happens

If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.

Hey, Where's My Cheap Gasoline?

Expensive energy is a serious drag on economic growth.  It always has been and always will be, for obvious reasons.

The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.  

Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should.  But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices: 

How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?

The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year...

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