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Housing Tumbles (or, Why the US is Headed Towards a Bond Market Disaster)

Thursday, June 2, 2011, 3:56 PM

There has never been an economic recovery without a rebound in housing. Of course, we don't really have an economic recovery now; it's more of a statistical mirage, thanks to trillions in thin-air money printing.  And we don't have a recovery in housing.

I have written extensively on the housing topic over the years because a rebound in housing will be an important signpost that some sort of stable economic recovery is actually underway.  

In the Crash Course chapter on bubbles, I suggested that if the housing bubble behaved like other bubbles throughout history, then 2015 would be a reasonable place to begin looking for a rebound. The evidence is now beginning to support that rough guess.

We begin with home prices, which hit a new low in the post-bust era, effectively rolling prices back to those last seen in 2002:

» Read more


How To Position For The Next Oil Shock

Friday, May 27, 2011, 9:50 AM

How To Position For The Next Oil Shock

Friday, May 27, 2011

Executive Summary

  • Saudi Arabia's reserve capacity is a myth
  • World oil demand is increasingly overwhelming supply
  • Why exports matter more than total world production
  • What the next oil shock will do to stock, bonds, commodities, precious metals, and real estate
  • What you should do to prepare

Part I: Past Peak Oil - Why Time Is Now Short

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

Part II: How To Position For The Next Oil Shock

Putting It All Together

Let’s review the situation in the KSA:

  1. Despite assurances of 12.5 mbd of total capacity, the KSA has not yet produced more than 9 mbd on a sustained basis in 2011.
  2. The IEA is begging the KSA to pump more.
  3. The KSA has turned to outside companies to help it begin to unlock heavy oil reserves that will take a lot of time, energy, and money to prosecute.
  4. The KSA has a vastly expanded rig count as they expand drilling operations to produce more oil (odd behavior for a nation with an alleged 3.5 mbd of spare capacity?).

The simplest and therefore most likely explanation for all of this is that the KSA does not actually have 12.5 mbd of total capacity, it is already at peak, and it's now struggling to maintain even 9 mbd of total output on a limited basis.

Of course, there are other possibilities, but since those will not shake the world to its bones if they happen to be true, the safe course of action here is to go with the ‘KSA is at peak’ story.  Sooner or later it will be true, so there’s not a lot of harm in being early to it, while being late could be costly.

Now let's move onto the last part of this puzzle: demand.


Japan Teeters Over

Tuesday, May 24, 2011, 8:58 AM

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months.  Note that the earthquake struck on March 11, so there really are only a couple of weeks of "earthquake impact" in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory. » Read more


Gold & Silver

Tuesday, May 17, 2011, 3:49 PM

In response to the last piece, several of you asked me to clarify my views on gold and silver, especially regarding whether this is a good time to buy...or sell.  Here are my thoughts.

I’m going to preface the views that follow by saying that they utterly depend on QE II (quantitative easing) ending on schedule and as advertised. There are numerous ways that the Fed might short-circuit the proposed termination of QE, such as simply calling "additional money-printing" something else, asserting that it is being done for some other purpose, or other new sets of reasons. What we are looking for, very simply, is for the Fed’s balance sheet to stop expanding. Even here we have some difficulty. Although the Fed publishes the data at a high level, we cannot easily track whether or not it is playing games by revaluing the assets already on there, or even whether the Fed is being truthful. Without an audit, we’ll never really know.

» Read more


Positioning For The Coming Rout

Thursday, May 12, 2011, 12:23 PM

Positioning For The Coming Rout

Thursday, May 12, 2011

Executive Summary

  • What private and public debt levels are telling us
  • Housing's prospects for worsening the situation
  • Why endless compound growth is impossible
  • The crushing pain of a deflationary downdraft
  • Predictions and conclusions for the future

Part I - Why Growth Is Dead

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

Part II - Positioning For The Coming Rout

Looking Deeper 

Okay, that's the big picture. It is why I am convinced that the next twenty years are going to be completely unlike the last twenty years. For starters, we're not going to be able to double credit this next decade, and that alone is a big shift with huge implications. But we're also going to be facing higher energy costs, which will further impair the smooth operation of the economic machine, because energy is an input cost to literally everything else. 

But to have an idea of what is going to happen next (say, over the next year) so that we can make better personal and investment decisions, it's important to dig a little deeper into the data. Here we want to lift the covers on total credit market debt and housing because these are the key elements of this story.

Total credit market debt is first broken into two main buckets: financial and non-financial sector debt. Financial sector debt belongs to commercial banks, savings institutions, credit unions, life insurance companies, brokers, dealers, and government-sponsored agencies. Non-financial sector debt belongs to households, businesses, and governments.

At this level we already see where some of the trouble lurks.


The Rout Is On

Saturday, May 7, 2011, 9:01 AM

The rout is on.  More market weakness lies dead ahead - unless the Fed reverses course, and soon.

Eight weeks ago, on March 8, 2011, I wrote that there was a very high chance of a rout in all of the major markets - stocks, bonds, and commodities - due to the sudden disappearance of quantitative easing (QE) money at the end of June.

Since markets are supposed to be forward-looking, if the 'rout' thesis is correct, we'd expect the markets to begin selling off well before the last POMO. Perhaps even right about, oh, say this past week.

But first, let's review what I said in The Coming Rout:

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What The Recent Volatility In Gold and Silver Means

Tuesday, May 3, 2011, 1:30 PM

Following several months of remarkable price appreciation, precious metals (PMs) have been experiencing whipsaw volatility over the past 48 hours. Quite understandably, PM investors (and those thinking about becoming ones) are trying to make sense of what's next for gold, silver, and the miners. Many of you have written in to us with the questions you're most interested in getting insight into.

This morning, I spoke with three respected experts in the precious metals field. According to their expertise, I put a brief question to each: 

  • What's behind the current downdraft in bullion prices? (Ted Butler)
  • Having lagged the increases seen in the metals, are the miners attractive here? (Frank Barbera) 
  • For money looking to enter the PM market, is now a good time to enter? (John Doody)

Here is the summary of their responses:

» Read more


Why You Should Get Busy Now

Thursday, April 21, 2011, 2:56 PM

I want to respond to a couple of member questions to the last report.  

Here are two flavors of the same question, written in response to "How This Will All Play Out,"  both wondering why I am advocating that people accelerate their plans, whatever they may be, to become more resilient.

Lemonyellowschwin wrote:

Chris wrote:

"If your plans include moving, selling a house, or making big improvements to your current house, I would strongly recommend putting those plans into high gear."

Is this because of concerns about rapidly-rising interest rates (killing the ability to buy or sell real estate) and inflation increasing the cost of improvements?

nickbert wrote:

I myself am wondering the same thing. My family and I don't own any real estate anymore (at least not in the US) and are not planning to buy anytime soon so that's not an issue for us, but if there is another specific reason I would love to hear it.

As usual, there's no easy answer to this, such as Because everything will stop working on June 12th, 2012 at 3:05 p.m.!! Nobody knows when the next difficulties will begin, obviously, or how serious they will be. Such is the nature of complex systems.

Given this, the best we can do is constantly weigh and then reweigh the various risks as circumstances change.

» Read more


How This Will Play Out

Tuesday, April 19, 2011, 11:23 AM

How This Will Play Out

Tuesday, April 19, 2011

Executive Summary

  • Why downward pressure on the US dollar is building
  • What to expect when the Fed "ends" quantitative easing in June
  • The factors most likely to cause a major breakdown in the dollar
  • What you should do to protect against a dollar collapse
  • Why time is your most precious (and depleting) asset right now

Part I: The Breakdown Draws Near

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

Part II: How This Will Play Out


Inflation continues to climb in every market except the United States, which tells us that US inflation statistics are probably wrong. In a global economy where the dollar is the world's reserve currency, and given the fact that the dollar is down roughly 8% over the past year, it is practically impossible for inflation to be higher everywhere besides the US.

In Europe, the highest monthly gain in inflation in the record series was just recorded:


Worse Than First Feared

Tuesday, April 12, 2011, 11:24 AM

The economic impact of the earthquake, tsunami, and ongoing Fukushima disaster on Japan's economy, that is.

Of course, that's not much of a surprise to readers here, but it will definitely be creeping out into the broader markets over time, and should be fully recognized in another two months or so.

The economic minister of Japan, not usually given to anything other than very measured statements, has come out with some rather bold pronouncements, including the idea that Japan may have difficulty financing all of the costs due to an already too-high level of debt.

Here's the story:

» Read more