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Blast Shields Up! Prepare for Incoming!

Get busy with defensive maneuvers – now
Tuesday, August 27, 2013, 4:05 PM

Executive Summary

  • Central bank policies to prop up the global economic system are failing
  • Developing countries and the PIIGS are the periphery where we can see the crumbling now accelerate
  • The emerging Syria crisis could hardly come at a worse time & could have an explosive effect
  • The steps every concerned individual should be taking now

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

When Help Turns to Harm

The story, so far, goes like this:  A global credit crisis so worried the powers that be that they promised to do ‘whatever it takes,’ (Draghi) even if that means lying from time to time (Junker).  This has only resulted in larger and larger interventions in the form of more aggressive QE programs (U.S. Fed), doubling of the monetary base (Japan), and repeated ‘Final Bailout Ever’ goal lines that keep getting moved back (ECB re: Greece).

Each of these interventions, in combination with ultra-low and highly distortive interest rates, has only served to make markets more speculative, more risk-tolerant, and therefore more prone to some future accident.

Puzzlingly, and certainly off-script, has been the steady rise in long-term U.S. interest rates, which we’ve been tracking as the most interesting development in an otherwise boringly placid set of global equity markets.

That began in early June.  Now at August's end, we have a better picture to illuminate why that happened and where it’s probably headed next.

The initial data came to us via the Treasury International Capital (TIC) report that tracks the net buying and selling of financial securities in both directions across the U.S. border.  The June numbers were a real eye-opener, as they marked the first time in history that virtually every category of U.S. financial assets was net sold by foreigners.  It also showed the total amount of selling was even greater than the prior record set in October of 2008:

(Source)

Of course, this data is from June, and the TIC report, as good as it is, always comes out a month and a half after the fact.  So we can only guess at what has happened since.  (The July data will be released Sept 15).

The summary of the TIC data is this:  Countries across the globe are now selling more U.S. paper than they are buying, and that is very much a game-changer.  To understand why the game has changed, all we have to do is understand that the interventionist policies of the Fed, ECB, and Bank of Japan could never last forever and that eventually things would go into reverse.

This will prove to be quite surprising to many, but especially those who hold the belief that central banks actually have everything under control.  Certainly we cannot disagree with the idea that central banks have a tremendous amount of power and that they can distort things for far longer than we might think possible, but eventually they cannot prevent reality from being what it is.

It is our view that the tide has now turned.

From the Outside In

So if the story was one of Western central banks flooding the world with liquidity (including Japan as an honorary ‘Westerner’ in this story), and of that “money” rushing into various foreign markets, driving bond and equity prices up in those same markets, while the respective central banks fought the coincident strengthening of their local currencies by recycling that money back into U.S. paper assets (principally Treasury paper) well, that story eventually had to flip.

We’ve already seen... » Read more

Insider

Off the Cuff: The Global Cargo Cult

Praying for the return of unearned prosperity
Thursday, August 22, 2013, 2:27 PM

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

Insider

The Real Story to Focus On

Given the macro trends, how do we "win"?
Monday, August 19, 2013, 12:12 AM

Executive Summary

  • What Detroit tells us about continuing the status quo
  • The shocking true size of the real U.S. debt
  • Why time is our most valuable but scarcest asset
  • Where your efforts need to be placed to address the big picture

If you have not yet read Part I: Why We All Lose If the Fed Wins, available free to all readers, please click here to read it first.

If we can't even have an honest conversation six years into this failed experiment about its core aspects, then it is little wonder that there's virtually no appetite for the bigger burning questions of our time, such as where do we want to be in twenty years and what do we need to do to get there?

Instead, the focus is simply on preserving the status quo and doing everything possible to maintain it. Never mind that the status quo is obviously failing in many key regards and needs some serious adjustments.  All that the Fed and D.C. have in mind here is more of the same.

And this is why we will lose the war.

The Detroit Harbinger

If we want to know what happens when we ignore reality and just soldier on, we need look no further than Detroit to see how that works out. For years, that city mismanaged its finances, continually banking on the idea that eventually jobs and opportunity would return. They continued to offer yet failed to fund lavish pension promises to municipal employees, even though anybody with a pocket calculator could work out that the plans were not viable.

But the plans were offered, and the union reps on the other side of the table accepted the terms, even though at some point it would have made sense for someone to raise the obvious by noting that the plans were utterly insolvent and almost certain to stay that way.

Right now, the pensions in Detroit are underfunded by $3.5 billion, according to official figures.  But those same officials are assuming an 8% rate of return on current pension assets, a rate that nobody is actually achieving in the pension world thanks, in large part, to Bernanke's 0% interest rate policy.

Here's how they got to this point: » Read more

Insider

Off the Cuff: Things Are Getting Interesting Again

The summer sameness is over
Thursday, August 15, 2013, 1:11 PM

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

  • Rising Interest Rates
    • The big game-changer
  • To Taper or Not?
    • Hard to see the Fed delivering on the threat
  • Gold
    • Finally looking brighter again
  • The Markets
    • Be very, very concerned
Insider

Key Considerations for Starting an Intentional Community

Success depends on making the right decisions early on
Tuesday, August 13, 2013, 11:17 AM

Executive Summary

  • How to recruit the "best-fit" members
  • How to develop community rules in advance to attract the best prospects and set expectations from the beginning
  • Ownership/management options for running communities (including a recommended structure)
  • The 6 key guiding principles for running an intentional community 

If you have not yet read Part I: The Growing Appeal of Intentional Community, available free to all readers, please click here to read it first.

In Part I, we surveyed some of the more common variants of traditional communities: religious communities, family-based hamlets, cohousing and cooperative housing. In Part II, we’ll examine some of the issues that must be addressed when starting an intentional community.

I hope I won’t shock you too terribly by starting with the observation that human beings are notoriously difficult to deal with when assembled in groups.  Those of you who participate in community groups need no further explanation, as you are already nodding your head in agreement.

Trying to achieve consensus on every issue is either impossible or impossibly time-consuming, and so every organization, from church to nation-state, has a structure to simplify participation and authority.

There are two sets of problems in launching an intentional community: assembling a group of people with the collective capital and will to bring a complex project to fruition, and locating a practical, affordable building or parcel for the community... » Read more

Insider

Off the Cuff: The Future of the Fed

So much hangs on it
Thursday, August 8, 2013, 1:35 PM

In this week's Off the Cuff podcast, Chris and Adam discuss all things Fed-related

  • Will the taper happen? If so, what will be its impact on markets?
  • Who will the next Fed Chair(wo)man be?
  • What are the Fed's real options from here?
  • What to do while Fed liquidity drives asset prices ever higher than fundamentals justify?

No time for a deeper summary today, as I'm off to sign a contract with a new IT partner who will be taking over back-end management of the PeakProsperity.com website. This new partnership will allow us to deploy new features on the site more quickly. We're excited!

Insider

Off the Cuff: Baffling with B(L)S

When the numbers aren't good, change them
Thursday, August 1, 2013, 12:42 PM

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

  • BLS B.S.
    • Almost a century of GDP numbers revised
  • Fed Fakeout
    • Markets rise on non-news from the Fed
  • The Next Fed Head
    • What the Chairmanship transition likely will bring
  • The Coming Correction
    • Smart ways to position in advance
Insider

How You Can Limit Your Exposure to the Fed's Financial Interference

There are ways to protect yourself
Thursday, August 1, 2013, 1:18 AM

Executive Summary

  • Understanding the Fed's ability to impact (or not) health & education, pensions, and inflation
  • What you can do to insulate yourself from the impacts of the Fed's financial interference
    • Mindset
    • Major expenses
    • Debt
    • Resilience
    • Income

If you have not yet read Part I: The Fed Matters Much Less Than You Think, available free to all readers, please click here to read it first.

In Part I, we found that the supposedly omniscient Federal Reserve is irrelevant to the engine of real wealth creation (innovation) and actively inhibits the allocation of capital and labor to innovation by incentivizing speculation and malinvestment.

In Part II, we’ll look at what else matters that the Fed either negatively influences or does not control, as well as specific actions we can take as individuals to insulate ourselves from the collateral damage caused by misguided central bank policies.

Health and Education

We all know health and education are vital to individuals and the economy, and like everything else that matters, the Fed’s influence is limited to financial repression of interest rates that enables the Federal government to avoid the sort of healthy fiscal discipline that higher rates would demand. In other words, the Fed has widened the moat around government spending, protecting it from the hard choices that would accompany massive deficits and bond issuance in a free-market economy.

Public and Private Pensions

By at least one measure, the Fed’s repression of interest rates (designed to recapitalize the banks at no direct cost to the Fed or government) has cost savers $10.8 trillion in lost income. Since the majority of savings in the U.S. are in public and private pension plans, 401Ks, and IRAs (individual retirement accounts), the Fed’s repression of interest rates has pushed these income-security savings into risky speculative asset bubbles in stocks, bonds, and real estate, and critically undermined the financial health of pensions by radically reducing their low-risk, safe returns. » Read more

Insider

The New Disposition of Things

How life will work in a future of forced simplicity
Monday, July 29, 2013, 7:08 PM

Executive Summary

  • The end of plentiful resources will challenge many deeply held social beliefs
  • Downscaling and re-localization will be the dominant economic trends
  • What this will mean for “work”
  • What this will mean for lifestyles
  • What this will mean for social relationships

If you have not yet read Part I: Class, Race, Hierarchy, and Social Relations in The Long Emergency, available free to all readers, please click here to read it first.

I’d also argue that the recent historical saeculum — the climax decades of turbo-industrialism post World War Two — produced extremely anomalous social and economic conditions that have torqued our expectations in highly unrealistic directions. Chief among these was the assumption that the economic equations of the late 20th century would persist indefinitely; that there would always be more of everything, including cheap fossil fuels and monetary credit to support our activities. Now, as we encounter the onrushing reality of no-longer-cheap energy, our expectations for technological rescue become ever more detached from reality. On the money side of things, we vainly try to offset the impairments of capital formation with pervasive accounting fraud, asset price manipulation, and market interventions, all of which only worsen the impairments of capital formation. In short, the principal arrangements of modern economies are headed for an inflection point, probably sooner rather than later, where we can expect critical systems to founder — banking, agriculture, trade, transportation — and thus for social conditions to enter a flux of change as well.

The economic abnormalities of climax turbo-industrial life also produced a range of ideological distortions around questions of social organization, in particular the conflation of technological progress with expanding social equality. The idea was defective in more than one way, but certainly in the sense that technological progress itself was assumed to be limitless. The 20th century cavalcade of wonders — movies, airplanes, radio, atom bombs, heart transplants, computers, etc. — had programmed the public to expect nothing less. This hubristic techno-narcissism was most conspicuous among the techies themselves. No one could imagine the possibility of a time-out from progress, let alone an end of technological dazzle. The idea of ever-greater social leveling was also at odds with the human predilection for status-seeking. And, in fact, technology became both a signifier and an enabler of social status in the computer age for the billionaires who developed it and the young people who used iPhones and Facebook minute-by-minute to jockey for status enhancement. All the while, in the background, peak cheap oil was provoking a concentration of financial wealth in the shenanigans around capital, so the basic gulf between the haves and have-nots only grew deeper and wider... » Read more

Insider

Bernanke's Suspicious Remarks on Gold

His dismissal of its importance is not very credible
Thursday, July 25, 2013, 8:33 PM

Recently, on July 18, 2013, Federal Reserve Chairman Ben Bernanke told Congress a number of things about gold that make us wonder which one of two interpretations is correct: Is he really that out of touch? Or is he telling us lies with the bumbling skill of a four-year-old? » Read more