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Off the Cuff: Down From Here?

Odds are the market top is behind us
Wednesday, February 5, 2014, 11:24 PM

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

  • Down From Here?
    • Odds are the market top is behind us
  • Lack of Fear
    • Despite the evidence, too much investor optimism remains
  • Why the Fed Cares More About Growth Than Consumers
    • Because the banks can't function without it
  • Europe on the Verge
    • Expect the big players to fail this time
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The Unraveling Continues

Time to buckle up
Monday, February 3, 2014, 8:03 PM

The U.S. stock markets had a bad day, as did Japan's and Europe's. Of course, the whole world is linked now, so that's no surprise.

As goes one, so go the others. » Read more

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Off the Cuff: Vicious Volatility

And the case for a major market pullback
Friday, January 31, 2014, 10:46 AM

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

  • Emerging Mayhem in Emerging Markets
    • Weakness at the periphery is accelerating
  • Vicious Volatility in the Financial Markets
    • Investors have whiplash from this week's price moves so far
  • The Case for a Big Market Pullback
    • Even the bulls think a correction at this point would be healthy
  • False Safety
    • Treasurys will be a safe place to part capital....until they aren't
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How Things Unravel

Slowly, and then all at once.
Wednesday, January 29, 2014, 11:46 PM

In a recent article, I noted the various signs that things are unraveling at the periphery. In the comments that followed, plenty of people (myself included) expressed the belief that the various Powers That Be are doing everything they can to limit the damage as much as possible.

After a full weekend of burning up the phone lines and the midnight oil, the central banks of the world seemed to have calmed things down a bit by Tuesday (1/28/14), as evidenced by directional reversals in the prices of various currencies, gold, and stocks.  Everything that needed to head back the way it came, from a central banker perspective, was headed back in the "right" direction. » Read more

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Is This It?

Global market weakness is now quickly escalating
Friday, January 24, 2014, 11:59 AM

Is this it?  Are we seeing signs that after a very long period of Fed inspired insanity, et al. (courtesy of folks who lack any imagination beyond sustaining the unsustainable), are we finally entering a long-awaited financial correction?

Using our ‘outside in’ methodology, there’s lots to suggest we are entering such a phase.

All is not well on the periphery, with weaker economies now flashing serious warning signs in their bond and currency markets. It's enough that it’s time to... » Read more

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Off the Cuff: 'Bizarre' Capitalism

When speculation is the only way to get ahead
Thursday, January 23, 2014, 6:13 PM

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

  • 'Bizarre' Capitalism
    • Speculation, not productive work, is now the driver of gain
  • China's Future
    • Scary signs that cronyism and capital flight are big risks
  • Eroding Public Trust
    • Dangerous when your money system is trust-based
  • Canary Candidates
    • Which country will be the first to keel over?
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Why Your Own Plan Better Be Different

Because the cavalry isn't coming
Tuesday, January 21, 2014, 3:40 PM

Executive Summary

  • Why the insolvency hole the U.S. is in may be much deeper than appreciated.
  • Current 'best case' assumptions show us doubling the size of our economy TWICE over the next 75 years. Why that's just not achievable.
  • Why the above assumptions get even worse when the energy story is taken into account.
  • Why action at the individual level is your best bet now.

If you have not yet read Part I: "Endless Growth" Is the Plan & There's No Plan B available free to all readers, please click here to read it first.

A Big Hole

When the Treasury Department estimates that the U.S. has a ~$65 trillion NPV (Net Present Value) shortfall in its main accounts, it's saying that using its assumptions, the U.S. government would need to have $65 trillion today in an account, earning a stated rate of interest, in order to be solvent.

Since the U.S. government don't have that have that kind of scratch, it's insolvent. 

But the real picture is likely worse. The Fed calculates the NPV shortfall to be closer to $100 trillion. And if you believe Lawrence Kotlikoff's math, the figure is closer to $200 trillion. Either way $65 trillion, $100 trillion, or $200 trillion the sum cannot be paid.

So it won't be.

And the real trouble is that all of these numbers make the same implicit assumption: The future will more or less resemble the past. That is, some form of future growth exponential future growth of the economy is at the heart of every single calculation.

But we might question that, because somewhere between here and there, economic growth will have to come to an end. Or at least a pronounced deceleration. Why? Quite simply, because the earth is finite.

Now, we might comfort ourselves with the belief that our future date with hard limits is lifetimes away. But when we do, we shortchange ourselves (if we're wrong) and our progeny (if we're right). After all, the time to make an adjustment is when the resources and energy exist to make that change.

And that's now. Or, really, decades ago... » Read more

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Off the Cuff: All Hail the Mighty Fed!

Powerful? Yes. Wise? Hmm....
Thursday, January 16, 2014, 1:58 PM

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

  • All Hail the Mighty Fed!
    • It's proven it wields more financial influence than the world thought
  • The Economy vs. The Markets
    • Despite its goal to influence the former, it only can the latter
  • A Congress of Millionaires
    • The rich are indeed running the show
  • The (Un)Affordable Care Act
    • Is anyone saving money under this plan?
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The NSA Scandal Is Just Getting Worse

Snowden's revelations are beginning to snowball
Wednesday, January 15, 2014, 6:32 PM

Now that the NSA scandal is hitting corporations (collaborators, if you will), does this mean people will pay more attention to it than when it was "just" our privacy being seriously invaded?

With every revelation from the Snowden documents, we've found that the snooping by the NSA was far more pervasive, sophisticated, and unlimited than practically anybody suspected. It's all but certain that even more startling releases are to come. » Read more

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The Consequences of American Autarky

A contrarian view that may be the U.S.'s best future bet
Wednesday, January 15, 2014, 4:13 PM

Executive Summary

  • Will profit-chasing bring corporate capital back to the U.S.?
  • China's dwindling T-bill leverage
  • The decline of dependence on Mid-East oil
  • Autarky may be the best investment for the U.S. (and similar nations)

If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.

In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency.  In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.

The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?

Of the potential consequences, let’s focus on several high-visibility possibilities:

  1. China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
     
  2. The dependence of U.S. corporations on foreign sales and the weak dollar for profits
     
  3. The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions

Profits as Priority

As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar.  When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.

I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.

In other words, the Chinese did not impose this trade on U.S. companies the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.

In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.

That the locale that makes the best financial sense is the U.S. is a new thought for many... » Read more