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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

The Pruitt-Igoe Myth

The Destruction That Awaits

The ponzi elements of the shale story start to implode
Tuesday, December 23, 2014, 3:31 PM

Executive Summary

  • Predicting when US shale oil production will peak
  • Why these lower oil prices *must* result in substantially lower US shale production
  • How the 'shale miracle' indeed has numerous ponzi elements that are on the brink of collapsing
  • Expect a tsunami of shale bankruptcies to arrive soon

If you have not yet read Part 1:The Dangerous Economics of Shale Oil available free to all readers, please click here to read it first.

Production Workflow, Timelines, National Projections

Now let's zoom out, from one company in the Bakken to the whole Bakken region, which is probably the best shale region in the US. My key source of information about the current trends in the Bakken region is the Department of Mineral Resources in North Dakota, website here: Every month the Director (Lynn Helms) produces the “Director's Cut”, a just-the-facts summary of oil production in North Dakota. Yes, it really is called the Director's Cut.

So now that we have an idea of when wells are profitable, we can use the Director's Cut stats to track all the stages of producing oil, to see how the region reacts to the change in oil prices. We have, in order of workflow:

  • drilling permits

  • rig counts

  • wells awaiting completion

  • well counts

  • monthly production

The spreadsheet segment below shows each element from the Director's cut. We can see permits, rig counts, wells awaiting completion, total well counts, and total production. From these numbers we can calculate some other interesting details.

But first, look at the production month-over-month change. It went negative in October. That's because... » Read more



Off the Cuff: More Fed-Induced Froth

Don't worry stock market, Janet's got your back
Thursday, December 18, 2014, 12:58 PM

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

  • Janet's Joy Juice
    • The Fed speaks and markets soar
  • Currency Crashes
    • Venezuela & Russia are showing us the risks of fiat money
  • Oil's Collateral Damage
    • The 40% price drop is having real consequences
  • What The Next Crash Will Look Like
    • Why past crashes may not be a good guide


Who Will Dominate This Century?

Which country(ies) are best positioned to exert themselves?
Wednesday, December 17, 2014, 11:14 AM

Executive Summary

  • The key requirements for being a word power
  • Is the "superpower" model sustainable in today's age?
  • The key ability to leverage resources
  • Which country(ies) is most likely to dominate in this century?

If you have not yet read Who Will Be Tomorrow's Superpower? available free to all readers, please click here to read it first.

In Part 1, we surveyed the nature of power to explore the concept of superpowers.  In this Part 2, we look at power as the ability to solve problems.

What Are the Available Resources?

Solving problems in the real world is not an abstract project, though abstract concepts may undergird the solutions. In the real world, we have to use whatever resources are available, with an eye on cost, scale and sustainability.

Alternative energy offers a useful example. Almost everyone agrees that alternatives to fossil fuels would be beneficial, but what is generally overlooked is the tiny scale of alternatives in the current scheme of things.  Depending on what’s being included as alternative (hydropower, etc.), alternative energy sources currently comprise a few percentage points of total energy consumption.

To scale alternatives up to even 50% of current consumption will require not just a monumental amount of capital investment; it also requires the invention and manufacture of new systems of energy storage on an equally vast scale.

As has been noted many times, this capital investment includes an extended period of fossil fuels consumption, as we need huge amounts of energy to construct alternative sources and storage systems. Some have characterized this as building an aircraft in the air while keeping your current aircraft aloft.

As Peak Prosperity members know well, capital has a variety of forms, all of which work together: financial, intellectual, social, human, cultural and symbolic. All these forms of capital must be... » Read more



Deflation Is Still Winning!

OK, folks: this is it
Monday, December 15, 2014, 9:20 PM

As we've written on and warned about before, deflation is winning.  We're starting to see very serious cracks in the façade, beginning with oil, then various peripheral currencies -- especially from emerging market oil exporters -- and now equities. » Read more



Oil Armageddon Arrives

It's beginning to look at lot like 2008 all over again
Friday, December 12, 2014, 5:08 PM

Yesterday, WTIC -- that's US oil -- just broke under $60 a barrel on very heavy volume. Canada heavy crude is at $42 a barrel, and Brent is at $61.73.

All of these are multi-year lows not seen since the great oil crash of 2008 that preceded the even greater financial crash that came just a few months later. » Read more


Off the Cuff: The Buck Stops Nowhere

Market manipulation to torture. Where's the accountability?
Thursday, December 11, 2014, 3:27 PM

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

  • Zig-Zag Markets
    • More evidence the long term trend is reversing
  • When Will Oil Find A Floor?
    • And where will the collateral damage of the current drop be most felt?
  • US Admits To Torture
    • Are we going to hold anyone accountable?
  • Gold Shows A Slight Glitter Again
    • Dare we begin to hope?

Michael Wick/Shutterstock

What Deflation Means For Investors

Beware: we're used to investing in an inflationary regime
Wednesday, December 10, 2014, 11:21 AM

Executive Summary

  • The 3 reasons why deflation will continue to haunt the global economy
  • The importance of cash flows in a deflationary environment
  • Understanding the deflationary reasons behind the recent drop in oil prices and the material implications this will have going forward

If you have not yet read Part 1: Deflation Is Winning available free to all readers, please click here to read it first.

So an very important question remains despite the trillions in new currency printed around the world in the past few years: Why are deflationary pressures still present?

  1. The debt overhang from the prior cycle has not vanished by a long shot. In fact today there is significantly more debt outstanding globally than was the case at the highs of 2007, primarily driven by global government borrowings.  The following chart is total US credit market debt relative to GDP.  You can see that very little has been reconciled since the peak.  By the way,

Data Source:  US Federal Reserve       

Additional global debt assumption means additional interest cost burdens, even under an environment of interest rate suppression.  And that means... » Read more


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The Oil Shock Has Arrived

Why today's price collapse will lead to a future price spike
Monday, December 8, 2014, 10:59 PM

The absolutely stunning drop in oil prices, which hit a new recent low, is really important to both track and understand.

There are two issues here, one near term and one long. » Read more



Off the Cuff: Bankers On Edge

An insane high wire act nears the end
Thursday, December 4, 2014, 8:22 PM

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

  • Gold is being driven by speculators in lock-step with the yen
  • So is the S&P 500
  • Why labor pricing power is broken and will stay that way
  • The shale oil Ponzi scheme breaks...and defaults are sure to follow
  • China's economic miracle is about to become a mirage

Charles: And it certainly seems that oil is being used as a weapon. But you know, let's also I would like your view on the idea that the world economy is going into recession. It seems sort of obvious to me. Europe is already either in recession or so stagnant that it is the same as recession. The US is stumbling along with fake growth in terms of households. And then China is rolling over. Japan is going down the sinkhole.

So what will that do to oil if demand really craters like we get another 2008 situation where the financing dries up and people stop borrowing because they are afraid and they stop spending and the whole thing that causes recession. I think that is going to have a potentially huge impact on oil and it would hurt everybody that is producing oil the Saudis included. They may be talking bravely, but I believe that their production costs have risen considerably because they have had to run hundreds of miles of pipe and they are injecting carbon dioxide and sea water and stuff into their wells to keep their production up.

Chris Martenson: The old days of Saudi Arabia sticking a straw in the ground and pulling oil out at a dollar or two a barrel those are long gone because if you have ever seen they have a rack of four pipes that stretch, I forget, 100 miles or something going from the ocean to one of their fields. And each one of those pipes is about the diameter of a large room. They are like 14 feet in diameter they are extraordinarily huge. There is four of them and they are just pumping seawater and they are injecting that down into the field at a variety of points. So yea, that's expensive. And worse the rate of inflation in the mining business has been roughly around 10% for the last 10 years. That means that your costs are going to completely double every seven years when you've got 10% inflation. So that is what the mining industry and particularly the petroleum has been putting up with.