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Off The Cuff: Central Banks Gone Wild

Big moves this week by the ECB, Switzerland & Canada
Friday, January 23, 2015, 11:41 AM

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

  • The ECB Bazooka
    • Making sense of Draghi's QE announcement
  • The Swiss Surprise
    • A massive shock to the status quo
  • The Canadian Cut
    • Suddenly panicking about their asset bubbles
  • Making Sense Of The Madness
    • We're suddenly a lot closer to the endgame
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The Consequences Playbook

What will happen as central banks lose control
Wednesday, January 21, 2015, 11:45 PM

Executive Summary

  • Desperate central banks are dangerous central banks
  • Why wealth disparity will get worse
  • The list of what comes next as central banks lose control
  • What you should do in advance

If you have not yet read When This Ends, Everybody Gets Hurt available free to all readers, please click here to read it first.

What’s really happened since 2008 is that central banks decided that a little more printing with the possibility of future pain was preferable to immediate pain.  Behavioral economics tells us that this is exactly the decision we should always expect from humans. History says as much, too.

It’s just how people are wired. We’ll almost always take immediate gratification over deferred, and similarly choose to defer consequences into the future, especially if there’s even a ridiculously slight chance they won’t materialize.

So instead of noting back in 2008 that it was unwise to have been borrowing at twice the rate of our income growth for the past several decades -- which would have required a lot of very painful belt-tightening -- the decision was made to ‘repair the credit markets’ which is code speak for: ‘keep doing the same thing that got us in trouble in the first place.’

Also known as the ‘kick the can down the road’ strategy, the hoped-for saving grace was always a rapid resumption of organic economic growth. That’s how the central bankers rationalized their actions. They said that saving the banks and markets today was imperative, and that eventually growth would return, justifying all of the new debt layered on to paper-over the current problems.

Of course, they never explained what would happen if that growth did not return. And that’s because the whole plan falls apart without really robust growth to pay for it all.

And by ‘fall apart’ I mean utter wreckage of the bond and equity markets, along with massive institutional and sovereign defaults. That was always the risk, and now we’re at the point where... » Read more

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What To Believe Anymore?

Mainstream media requires a huge dose of salt these days
Tuesday, January 20, 2015, 10:40 AM

Well, here we are in the late hours of the latest and biggest bubbles that central banks can blow. The whole world is involved and no country will be immune from the aftershocks when these nested bubbles in virtually all asset classes burst.

In fact, the whole scheme requires that political and monetary solidarity be maintained. If anyone breaks ranks, then the whole thing could come crashing down. » Read more

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Off the Cuff: The Return of Volatility

Stable prices are so 2014...
Friday, January 16, 2015, 4:50 PM
  • The Return of Volatility
    • Shaping up to be a major theme for 2015
  • The Implications of the End of QE
    • Chris' predicted 3-month delay is arriving now
  • All Eyes on the Fed
    • It's getting nervous (panicked?)
  • How To Position Your Portfolio
    • Prepare for the return of long-absent bargain prices
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The 6 Reasons The Next Economic Rescue Will Fail

Why the current unstable 'recovery' must topple
Thursday, January 15, 2015, 11:48 AM

Executive Summary

  • The 6 Factors
    • Rising inequality
    • Reversion to the mean
    • Cost overages
    • Diminishing returns
    • Misleading measurement
    • Expertise mismatch
  • Why the 'success' of the Federal Reserve and other world central banks is ultimately dooming them to failure

If you have not yet read Why Our Central Planners Are Breeding Failure available free to all readers, please click here to read it first.

In Part 1, we examined a variety of reasons why the apparent success of Keynesian monetary and fiscal policy may be transitional and brief rather than permanent.

Here in Part 2, we delve into the six other dynamics that make success destabilizing.

Rising Inequality—Perceived and Real

The highly touted “recovery” has been highly uneven in its distribution. The benefits of rising income and wealth have flowed disproportionately to the top 5%, 1% and even 1/10th of 1%.  Those who didn't make it onto the limited-seating Recovery Bus feel the gap between the prospects and wealth of the top tier and their own wealth and prospects widening. Indeed, psychological studies find that we assess our wealth and social position not by our actual material prosperity, but by the narrowing or widening of the perceived wealth gap with our peers.

This is precisely the situation in the U.S. and China. Both economies are supposedly expanding smartly, but the gains are concentrated in a relative few hands; the Rising Prosperity Bus has few seats.  The vast majority perceive themselves as being left behind, and that is highly... » Read more

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When Short-Term Thinking Slams Into Long-Term Predicaments

Guess which side trumps the other?
Monday, January 12, 2015, 8:10 PM

The tendency to make long-term decisions based on near-term data is simply part of the human condition. We tend to discount the future very heavily in favor of what's close and familiar.

The problem is that we are facing dozens of linked long-term predicaments which will require us to put off immediate satisfaction in favor of far-reaching considerations. » Read more

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Off The Cuff: Today's Low Oil Price Is A Massive Head-Fake

And will ultimately cause the price to rise MUCH higher
Thursday, January 8, 2015, 11:03 PM

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

  • The Carnage Wreaked By The Oil Price Collapse
    • Setting us up for whopping future price spike
  • The Geo-Political Chessboard
    • The stakes of the game are rising quickly
  • Forecasting the Fed in 2015
    • Will it (can it) continue to bail out everything & everybody?
  • Calling BS on Today's Market Prices
    • They assume a perfection that cannot exist
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Why No One Should Want This To Devolve Further

This kind of conflict has no victors, only losers
Thursday, January 8, 2015, 1:09 PM

Executive Summary

  • The 'Perfect Storm' of woe being applied to Russia
  • Why the West may end up hurt worse by its efforts than Russia is
  • Russia's most likely set of responses, and their global implications
  • Why are we willing to let our leaders play nuclear "Russian roulette", for stakes we don't agree with?

If you have not yet read The Road To War With Russia available free to all readers, please click here to read it first.

The Perfect Storm

Russia, like Venezuela and other oil exporting nations is facing a very large set of financial and economic problems as a result of the low oil prices. 

Besides the loss of oil export revenues, there are associated hits to their local currencies and rising yields on their sovereign debt which raises the cost of borrowing money.  This is a triple whammy and if it goes on long enough can lead to the outright default of the country on its debt, which is a hugely destabilizing moment. 

Russia faces 'perfect storm' as reserves vanish and derivatives flash default warnings

Jan 6, 2015

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight.

Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year.

Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly.

Markit says this implies a 32pc expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy.

Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

(Source)

It's clear that Russia is experiencing quite a bit of difficulty from all this, and as we saw above, they pin a lot of the troubles on a concerted effort by the west to bring about exactly the conditions that are troubling them.

However, left out of all the stories about Russia's relative difficulties is that fact that with oil's price slide there are winners and losers in every corner of the globe.  In terms of the local impact based on the local currency Russia is the least impacted of them all because... » Read more

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Stay Focused

There's suddenly a lot in motion right now
Monday, January 5, 2015, 11:49 PM

There is so much happening across the world right now -- politically, economically, environmentally and especially in the field of oil (energy) -- that it is very hard to stay focused on what really matters.

Compounding the difficulties is the fact that the media, either through sheer ignorance or gross mendacity, is perpetuating obvious political talking points and/or overt propaganda in favor of fact-based reporting. » Read more

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Off the Cuff: The Longer Reality Is Denied, The Bigger The Inevitable Crash

Economics meets Physics
Thursday, January 1, 2015, 2:25 PM

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

  • Guess The 2nd Best-Performing Currency of 2014
    • Hint: It's yellow. And shiny.
  • China: Due For "A World of Hurt" in 2015
    • Starting the year off with a run on bank deposits
  • Self-Delusion
    • Critical thought is completely absent from western media
  • Oil
    • The further prices go down now, the higher they'll spike later