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Off the Cuff: Signs of Instability All Around Us

Cracks are everywhere
Thursday, May 24, 2012, 1:00 PM

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

  • The Facebook faceplant
    • A great example of how artificial price supports end badly
  • The Inevitable 'Grexit'
    • The faster Greece hits rock bottom and can start recovering, the better
  • Where next for home prices?
    • Mish thinks we may be at a good entry point; Chris predicts more downside

Wherever one looks these days, there are signs of growing instability. Perennial investor darlings like Apple and Facebook (and their social media brethren) are stumbling. Europe continues to devolve as the players there dance to delay the inevitable. And most asset classes (housing, stock market, etc.) are likely to experience more downward price movement until and unless the next major round of money printing is announced. Both Chris and Mish agree that gold offers good protection against the growing instability, as well as against the purchasing power destruction that further quantitative easing will cause. » Read more


Buy Gold Today

Technical indicators are flashing green
Wednesday, May 23, 2012, 2:18 PM

I don’t often make market calls or indicate when to buy or sell, but...if you have been waiting to buy gold, or have a dollar-cost averaging strategy in play, today served up a very compelling buy signal for gold.

For years, I tracked and traded the gold futures market very closely, and over time I discovered that charts alone were insufficient to provide a useful trading edge; I had to incorporate another set of market indicators, which I'll get to below.

First a chart of gold: » Read more


The Cruel Math of the Marginal Barrel

Lower prices lead to lower supply, ultimately pushing prices
Tuesday, May 22, 2012, 10:59 AM

Executive Summary

  • Why oil price vulnerability is growing 
  • Why the marginal cost of oil is rising higher at an accelerating rate
  • Why the marginal cost of oil for non-OPEC regions is now above $90
  • The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
  • The new rules that will govern the price of oil from here
  • The alarming growing risk of large-scale war for oil

Part I: OPEC Has Lost the Power to Lower the Price of Oil

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

Part II: The Cruel Math of the Marginal Barrel

An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.

This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.

Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.


credit: Mike Shedlock

No 'Off the Cuff' This Week Due to Sad News

Joanne Shedlock (Mish's wife) has passed away
Friday, May 18, 2012, 10:47 AM

I'm very sorry to relate that Mish's wife Joanne has passed away. As a result, there will be no 'Off the Cuff' podcast this week.

Mish shared Joanne's battle with ALS (aka Lou Gehrig's Disease) in an earlier OTC podcast with Chris, which offered a poignant window into a very private story. Her fight, and Mish's devoted efforts to make the most of her remaining time, offered an inspiration rarely seen these days. » Read more


What To Do When the Central Banks Blink

Be prepared to deploy your capital swiftly & purposefully
Wednesday, May 16, 2012, 7:29 AM

Executive Summary

  • Where the gold price is most likely to go from here
  • History rhymes: Why today resembles 2008
  • How to best deploy your capital once the central banks announce the next round of money printing
  • Why prudent actions you can take now are so much more valuable than the options you'll have once the correction is underway

Part I: Get Ready: We’re About To Have Another 2008-Style Crisis

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

Part II: What To Do When the Central Banks Blink

Where Gold Goes From Here

While I personally would not part with my gold these days, and certainly not at these prices, I do expect the price of gold to drop going forward.

The reason is that gold has multiple elements contributing to its price, and some of that is attributable to the speculation and rampant liquidity that is sloshing through the system. Various hedge funds and other speculative funds are holding quite a bit of gold, mainly the paper variety, and when they dump that because the tables have turned and/or their liquidity sources have dried up, they will sell that paper gold and the apparent price will go down.

Further, weak hands holding gold via the GLD ETF will be shaken out during a liquidity crisis, putting physical gold back onto the market.

However, it is my strongest contention that this will represent a very nice buying opportunity. Someday, nobody knows when, the central banks will announce another big round of thin-air money printing and that will be a turning point in the price of gold (and many other things, including stocks and commodities).


The End of the Free Lunch

Monday, May 14, 2012, 11:40 AM

Executive Summary

  • How the State supplanted community enterprise with an entitlement-driven economy
  • Why the State's entitlement approach is unsustainable, mathematically -- and is finally imploding as we watch
  • What to expect at this point: more egregious abuse to keep the system working, ultimately triggering serious social unrest 
  • How self-reliance and local enterprise will emerge as paramount once the current State system collapses

Part I: Acknowledging the Arrival of Peak Government

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

Part II: The End of the Free Lunch

In Part I, we examined four key drivers of Central State expansion and how they are now likely entering an era of prolonged contraction.

This historic vast expansion did not occurred in a vacuum; as our social and economic orders are not infinite, the State’s expansion largely came at the expense of community (private society) and the marketplace.

Many observers have noted that the Central State has largely replaced community within the nation’s social order. That is, the Central State now dominates the society and the economy, while community and the marketplace operate beneath its shadow. 

Some see this withering of community as occurring off-camera, so to speak, for reasons that had nothing to do with the State. In other words, the decline of community left an opening that has been filled by the State. This view discounts the active encroachment by the expansionist Central State on private society and markets such as housing and equities, which have become State-managed platforms for perception management and private predation.


Off the Cuff: Fasten Your Seat Belts

Bumpy ride ahead
Thursday, May 10, 2012, 8:08 PM

In this week's Off the Cuff with Mish & Chris podcast, Mish has the week off, so Chris and Adam sit down to discuss:

  • Europe: What will be the implications of the newly elected leadership in France and Greece?
  • Gold: Will the free fall in price end soon?
  • The Markets: Will things stabilize soon, or is a bigger correction in the picture?

There is a lot of news afoot this week, including the breaking announcement today from JP Morgan admitting to unexpectedly large trading losses (in the $billions) right after this interview was recorded. We appear to be entering a time in the markets where it's important to make sure your seat belts are securely fastened.


The Looming Dislocation Risks Posed by Resource Scarcity

Wednesday, May 9, 2012, 11:45 AM

Executive Summary

  • Why many entrepreneurial ventures addressing resource scarcity have less time than they imagine
  • Why understanding the unintuitive economics created by resource scarcity is key
  • Copper is serving as a case study in how peak supply is putting upward pressure on world prices
  • The approaching "dead end" for millionaries
  • Why physical networks will trump the importance of digital ones in tomorrow's economy

Part I: 'Cornucopians in Space' Deliver a Dangerously Misguided Message

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

Part II: The Looming Dislocation Risks Posed by Resource Scarcity

One of the most stunning and repeated patterns seen in the 2000-2010 timeframe is that, right as many natural resources experienced phase transition to much higher prices, the production rate of those resources either slowed, stalled out, or in some cases fell.

This is the real reason, in my opinion, why so many writers and thinkers are grappling with the problem of creating future wealth and obtaining (or recapturing, if you will) the kind of abundance we once enjoyed.

It’s positive, actually, that the news story about mineral mining in space has been so popular and covered in just about every major newspaper, because it unintentionally articulates the very long timeline to the solution of resource scarcity now facing human economies. To Peter Thiel’s point, therefore, it would be better to solve our problems in ways that actually serve humanity on relevant timescales, than to delude ourselves into thinking that miracles are just around the corner.


Alasdair Macleod (Part II): How a Collapsing Europe will Cause Asset Revaluations Worldwide

What actions to take against the growing risk from Europe
Friday, May 4, 2012, 8:59 PM

In Part II of Chris' detailed interview with Alasdair Macleod on the inevitable outcome to the European credit crisis (click here for Part I), the discussion deepens, exploring a number of important topics including:

  • What the key risks are at this stage
  • What the most likely scenarios are
  • Gold ownership and capital controls
  • What options concerned individuals should consider

Off the Cuff: The Belief Bubble

Thursday, May 3, 2012, 10:36 AM

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

  • Europe
    • Led by Spain, it's quickly getting worse there again
  • Limits of Monetary Policy
    • Why the Fed and other central banks can't provide much more "help" even if we wanted them to
  • The Stock Market
    • Why prices are now in a "belief" bubble

With the US stock markets at near-record highs, Mish and Chris are getting extremely nervous about how far prices have diverged from fundamentals. By twisted logic, bad data has come to equal 'positive' news - with investors expecting more liquidity from central banks as the economic news becomes gloomier. At some point (likely very soon) reality will intervene, and when it does, it will be very painful for those investors long the market. » Read more