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Four More Years

Predicting a global recession in 2013
Thursday, November 8, 2012, 11:51 AM

Obama has been re-elected. Given the hyperbole and highly emotional rhetoric of the election, it is hard to imagine that the U.S. is anything but slightly more divided than before, with the gaps and divisions widening more and more as time goes on.

The real tragedy in this story is that virtually none of the really big and important issues were even touched in this election cycle. One party pointed to how much they managed to increase military spending while the other promised to exceed even that. One side said they'd promote even faster drilling and extraction of our dwindling energy reserves and the other promised they could do it even faster. Both said they wanted more growth and more jobs and more, more, more. » Read more

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Image by NASA, Flickr Creative Commons

Off the Cuff: Forces of Nature

Man can only hold them back for so long
Thursday, November 1, 2012, 6:17 PM

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

  • Behind the Bogus Jobs Numbers
    • Overestimates in the hundreds of thousands
  • The Massive Cost of Hurricane Sandy
    • The indirect costs are as concerning as the direct ones
  • Oh...Canada
    • No longer immune to the ills of its trading partners
  • The Fallible Fed
    • Out of arrows at this point?

The carnage of Hurricane Sandy provided a distraction this week from the election spectacle. Expect only a few more weeks of juiced-up numbers (e.g., jobs) and economic claptrap (the rebuilding from Sandy will be an economic boon and increase GDP!) before the unavoidable sinks in: There is no more carpet left to sweep things under. Recession is claiming nearly all of the G7 countries, the $20+ billion cleanup price tag from Sandy will be a sucker-punch to the already-toddering U.S. economy, and our leaders – irrespective of who wins the Presidential elections this month – are out of options. The forces of nature have been at bay long enough – and will now exert themselves, with prejudice.

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Reducing Your Exposure to Oil Prices

Get the global shift to the powergrid working in your favor
Tuesday, October 30, 2012, 11:23 AM

Executive Summary

  • How to cut household exposure to oil prices
  • Spending is shifting from road to rail transport. You need to get out in front of this.
  • How to take advantage of the energy arbitrage that rail transport will offer in future years
  • Important case studies of what's to come
  • The big change ahead (and the argument for optimism)

If you have not yet read Part I: Getting On The Train, available free to all readers, please click here to read it first.

Portland, Oregon is a city well known internationally for its commitment to sustainability. Over the years, the downtown area has been wisely restored into a very pedestrian-friendly streetscape. And while Portland continues to have problems – mainly a weak economy that could benefit from greater diversification – the city continues to attract people from all over the world who are looking for a better place to ride out some of the problems now facing developed economies.

Over the past year, since moving to Portland myself, I've had a chance to do some accounting of how much I've reduced my own exposure to oil. Let me first say that getting oil out of the household budget was not my only reason for moving to Portland. However, as someone who started looking at these issues 10-15 years ago, the prospect of greatly reducing my oil consumption was a key factor in my decision to relocate.

Now, while it's true that reduced oil consumption is more common for everybody living here in Portland, the other important element (and this will seem obvious) is that living in other cities and regions typically means a greatly increased exposure to oil. So while the cost of food, medical care, and many goods is just as expensive here in Portland as elsewhere, it is now rather sobering to consider the burden of high oil prices in other regions from my new vantage point – especially given that oil has found a new equilibrium price around $100 a barrel.

By moving to Portland, we completely shifted the core of our energy consumption to natural gas and also electricity, which in the Pacific Northwest is largely sourced through hydropower. Electricity rates in the Pacific Northwest are either the lowest or among the lowest in the United States. Also, because of the rich offerings in public transportation choices, we were able to drop one of two cars. But there's more... » Read more

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Understanding the Economic Impact of Peak Government

Unpopular choices; no winners
Monday, October 29, 2012, 7:46 PM

Executive Summary

  • The U.S. is less prepared for contraction than the U.S.S.R. was
  • The pressure to print money and the spectre of runaway inflation
  • What we must learn from the Japan example (the U.S. is unlikely to tread a similar path)
  • Why you must expect and prepare for the rules to change

If you have not yet read Part I: Anticipating the Devolution of Big Government, available free to all readers, please click here to read it first.

In Part I, we surveyed the four critical dynamics that will lead to the devolution of Peak Government: massive borrowing, institutionalized mal-investment, erosion of trust in government, and diminishing returns on public debt.  In Part II, we consider how the devolution of Peak Government may play out in the real world.

We are indebted to author Dmitry Orlov for examining how apparently stable global empires can suddenly destabilize, much to the surprise of everyone involved.  Orlov experienced the collapse of the Soviet Union first hand, and in his book Reinventing Collapse, he contends that America is actually less prepared than the former U.S.S.R. to weather the collapse of Central State institutions.

As I noted in my first series on Peak Government, this does not mean government ceases to exist; what it does mean is that government shrinks and assumes a different role in society and the economy.

Though there are many obvious differences between the former U.S.S.R. and the U.S., Orlov’s primary point is that complex, apparently stable governments can destabilize rather quickly once invisible “tipping points” are reached... » Read more

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Off the Cuff: On the Knife's Edge

Options are running out across the board
Thursday, October 25, 2012, 11:11 PM

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

  • Phony employment
    • More workers being hired to do less work more poorly
  • Phony hopium
    • Despite QE3, over half the companies reporting Q3 earnings are under analyst expectations
  • Germany entering recession
    • The EU's only functioning economic engine is sputtering
  • Japan on the knife's edge
    • Between crushing deflation and currency destruction
  • Time for our politicians to clarify our priorities
    • What are we not going to do?

As we enter the fall and the upcoming elections, we find the status quo is becoming less and less sustainable on many fronts.

[Short summary tonight due to WS game 2. With all respect to Bob and Jim H -- Go Giants!!]

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If We're Ever Going to Take Control of Our Destiny, the Time is Now

Which actions make the most sense today?
Monday, October 22, 2012, 7:25 PM

Executive Summary

  • Adapting our behavior is a must at this point. We really don't have the option not to.
  • The number of claims on real wealth is increasing. How much of the "real wealth" do you own?
  • Our economy is now truly a confidence-based system. What will be the fallout when that confidence falters?
  • What are the key knowns & unknowns we need to be addressing now?

If you have not yet read Part I: In a Bad Spot, available free to all readers, please click here to read it first.

What is completely unknown at this point is what will happen to our very complex and interwoven financial system when it finally comes to grips with the idea that old-style growth is never coming back.  One worrisome idea is that it will experience something akin to cardiac arrest and simply break down one day. 

Maybe this will happen, maybe not.  I will note that the degree to which the central banks have set themselves up as the ultimate saviors of the system has both an upside and a downside, and it is the downside that worries me the most at this point.

While all the trillions of dollars of intervention have stabilized the system, which I consider to be a good thing, the downside is that the central banks have placed themselves in a position where they had better succeed.  If not?  Then we discover just how important confidence is to a monetary system built, owned, and operated on trust.  My guess is "very." » Read more

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Off the Cuff: Picking Our Poison

At this stage, we're offered only toxic choices
Wednesday, October 17, 2012, 6:50 PM

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

  • The Presidential Debates
    • The only big winner is the status quo
  • Surprisingly Rosy Data
    • Reality? Or election year fudging?
  • The Universality of Human Behavior
    • Chris' UK trip reaffirms his confidence in his forecasts
  • Recession vs Higher Deficits
    • Picking our poison
  • Holding Gold
    • The trend is gaining in popularity

Despite the posturing and soundbyte zingers, both Chris and Mish do not find any substantial difference between the two presidential candidates when it comes to the Three Es. » Read more

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Dreamstime

Where Stock Prices Are Headed Over the Next Year

The battle between the real economy and asset prices
Tuesday, October 16, 2012, 11:12 AM

Executive Summary

  • Why household balance sheets are worse off than advertised
  • Why the recent rosy BLS jobs numbers actually mean bad news
  • How the Fed is squeezing investor capital out of other traditional asset pools and into the stock market
  • Expect to see the stock market moving higher in 2013; that is, until QE3 fails
  • What to expect if QE3 fails sooner than anticipated

If you have not yet read Part I: The Future of Gold, Oil & the Dollar, available free to all readers, please click here to read it first.

Market historians have recently started to point out that the current advance in the S&P500 is now 40 months old and has made gains of over 115% since the March 2009 lows. In other words, the doubling from the lows in price and the duration of the advance now late in its third year together suggest that a cyclical top is near. Furthermore, despite some noise in U.S. macro data – which has been briefly more hopeful, yet remains well within the phase of stagnation – earnings estimates have been coming down as the world economy continues to shift into lower gear.

Perhaps for the first time in a while, we can actually say that the Fed's decision to start QE3 was moderately anticipatory, in contrast to its ad-hoc and reactive policymaking over the past five years. It is not merely that the Fed soberly accepted that the economy was not getting better. The stagnant, tractionless macro data over the past year has spoken quite loudly to that fact. Indeed, the U.S. economy is merely treading water, and the Fed's move to QE3 serves as a sharp retort to those who would relentlessly attempt to portray stagnation as recovery. » Read more

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Finding Authentic Happiness

The steps that build a solid foundation
Wednesday, October 10, 2012, 7:22 AM

Executive Summary

  • Why buying into the Status Quo undermines personal empowerment
  • Echew debt and consumerism. Instead, focus on cultivating resilience and social capital
  • The importance of differentiating hedonia vs eudaimonia
  • The key roles of Expectation, Narrative, and Challenge
  • The foundations of happiness

If you have not yet read Part I: The Pursuit of Happiness, available free to all readers, please click here to read it first.

In Part I, we challenged the assumption that the successful pursuit of happiness is based on material prosperity and what we might call the psychology of the atomized individual.

If material prosperity is necessary but insufficient, and our social and financial order is sociopathological, what does an authentic pursuit of happiness entail?

For answers, we can survey recent research into human happiness, and consider “powering down” participation in a deranging social and financial order.

Pondering Power

The primacy of power in human society is omnipresent. Humans scramble for power in all its forms to improve social status and the odds of mating, living a long life, and acquiring comforts.  What is remarkable about the current American social order is the powerlessness of the vast majority of people who have “bought into” the Status Quo. 

When the public vehemently disapproves of a policy, such as bailing out the “too big to fail” banks, they are routinely ignored, and for good reason: They keep re-electing incumbents.  Most have little control over their employment status, workflow, or income, and most devote the majority of their productive effort servicing private debt and paying taxes that service public debt.

The one “power” they are encouraged to flex is the momentary empowerment offered by purchasing something; i.e., consuming.  The corporate marketing machine glorifies acquisition as not just empowering but as the renewal of identity and the staking of a claim to higher social status – everything that is otherwise out of the control of the average person.

The dominant social control myth of our consumerist Status Quo is that wealth is power because you can buy more things with it.  But the power of consumption is one-dimensional and therefore illusory.  The only meaningful power is not what you can buy – a good, service, or experience – but what you control – your health, choice of work, income, surroundings, level of risk, and your circle of colleagues and friends.

The “wealthy” who own an abundance of things but who are trapped in debt are not powerful.  Their choices in life are limited by the need to service the debt, and their pursuit of happiness is equally constrained.

The kind of wealth that enriches the pursuit of happiness is control over the meaningful aspects of life. It is no coincidence that studies of workplace stress have found that those jobs in which the worker has almost no control over their work or surroundings generate far more stress than jobs that allow the worker some autonomy and control.

Financial and material wealth beyond the basics of creature comfort is only meaningful if it “buys” autonomy and choice.

We all want power over our own lives.  Once we free ourselves from social control myths, we find that becoming powerful and “wealthy” in terms of control does not require a financial fortune. It does, however, require sustained effort and a coherent long-term plan... » Read more

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Off the Cuff: When Trillions Aren't Enough

Our banks' bottomless need for capital
Thursday, October 4, 2012, 11:36 AM

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

  • No Joy on Wall Street
    • Banks cry poor despite record profits
  • The Invisible Recession
    • Hidden by faulty data
  • The Fallible Fed
    • It really doesn't know what's going on
  • Our Taxing Tax System
    • The case for simplification

It's clear to all that QE3 is a continued push by the Federal Reserve to rescue the banking system. But why is it necessary? » Read more