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What Will Happen When Japan Breaks

Mapping the contagion risk to world markets
Thursday, November 6, 2014, 9:36 AM

Executive Summary

  • The data that proves Japan is a ticking time bomb
  • Why the yen may still fall a lot further from here
  • How Japan's contagion can threaten world markets (and yes, the US)
  • Why the contagion is now underway, and what you should do about it

If you have not yet read Central Planners Are In A State of Panic available free to all readers, please click here to read it first.

Japan, By The Numbers

I completely understand why the Japanese authorities are freaking out and taking enormous risks.  It's because they have no good choices left.  More fundamentally (and worse) they are in charge of a system that is destined to fail.

Exponential money systems have to eventually fail because all paper money is just a marker for real wealth, it is not real wealth itself, and therefore ever-increasing exponential paper claims being stacked up  against a world of real wealth that is growing much less quickly (and someday reversing entirely) is a mathematical formula for a monetary accident.

But it's quite bizarre that Japan, of all places, cannot see through to this math predicament given their very publicly and often discussed demographic decline.

Having peaked at 128 million in 2005, Japan now has 127 million inhabitants and is on its way to 90 million by 2050, and 45 million by ~2100.


This means that.. » Read more



The Turn May Be At Hand

Possibly within the next 2 months
Tuesday, November 4, 2014, 12:35 AM

What this world desperately needs is a long term plan to deal with its shrinking net-energy-per-capita ratio. This metric will someday turn into a complete sinking negative that will, in turn, utterly ruin all of our capital markets. » Read more



The Hard Facts About Shale Oil

Its impact wil be short-lived. Much shorter at these prices.
Tuesday, October 28, 2014, 8:15 AM

Executive Summary

  • Why prices under $100 per barrel just aren't cash flow positive for shale oil producers
  • VIDEO: all you need to know about the shale oil industry
  • Why the Boom/Bust cycle is swinging to 'Bust' for shale companies
  • Why a prolonged 'Bust' in oil prices will create massive economic shockwaves

If you have not yet read Part 1: About That Shale 'Miracle'... available free to all readers, please click here to read it first.

The Shale Reality

Now, let me build on the case that not only are shale companies not profitable at $50 per barrel oil, but they are often not profitable at prices nearly 100% higher than that.

I’m not about to make the case that all shale operators are unprofitable or about to go bust on the plays, but I am going to make the case that any sweeping statements like “technology will bring us Shale 2.0” are utterly adrift from the evidence at our disposal.

Let’s go back to September 2014, before any oil price weakness had crept into the picture.  At that point in time, according the WSJ author, the shale operators should have been swimming in cash.

Well, that’s just not the case. And some of them were losing their shirts:

Sumitomo’s US shale oil foray turns sour

Sept 29, 2014

Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings.

On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalisation, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015.


Hmmmm. I guess Sumitomo just failed to use enough smart technology or something, because otherwise how is it possible to lose $1.6 billion at a time when oil was solidly priced in the $100 range?

Sarcasm aside, the truth is that it’s all too easy to lose money in the shale plays, something I believe is already completely indicated by the negative free cash flows of the industry. 

In fact, that negative free cash flow evidence tells me that... » Read more


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Off the Cuff: The War On Savers

Why it's now policy to target the prudent
Sunday, October 26, 2014, 2:58 PM

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

  • The State of Silver
    • Notes from this year's Silver Summit
  • The War On Savers
    • Further exploration of the Fed's 'financial repression'
  • The Inevitable Market Crash
    • More predictable than ever
  • The Broken American Dream
    • Out of the reach for most now


The Case For Owning Physical Gold Now

When physical stocks are empty, paper gold will be worthless
Wednesday, October 22, 2014, 12:30 PM

Executive Summary

  • Why China & Russia are placing the highest priority on increasing their gold reserves
  • The Asian SCO's agenda for re-defining trans-Asian money
  • The looming crisis in paper currencies
  • The 6 key reasons to amass paper gold today

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

Part 1 summarized gold’s technical position, the market position, made a value judgement against fiat dollars, described and quantified the paper market, and noted the long-term shifts of bullion into Asia. There are three big subjects left to deal with: the dynamics at the hear of the West-to-East flow of physical bullion, the scope for an accelerated deterioration in the purchasing-power of paper currencies, and the financial cold war between the advanced western economies and the Asian Shanghai Cooperation Organisation (SCO.

Understanding The Flow Of Gold Into China & Russia


China’s appetite for gold has only become obvious in recent years. In reality, we do not know how much gold China has imported. We only know that for whatever reason she appears to be importing significantly larger quantities than publicly admitted. It is worth bearing in mind that this started long before the Shanghai Gold Exchange was established in 2002; the original regulations delegated total control of gold and silver to the Peoples Bank (the central bank – PBOC) in June 1983. Given at that time the west was selling gold down to the $250 level, China has most probably been secretly stockpiling gold for the last thirty years.

The 1983 regulations appear to have been introduced to take advantage of freely-available supply. Between 1983 and 2002 there was significant leasing activity by European and other central banks as well as outright sales in addition to mine output. Furthermore, the bear market from 1980-2000 led to considerable divestment of privately owned gold vaulted in Switzerland. The following table summarizes the estimated effect.

Approximately half the above-ground stocks in 2002 appears to have changed hands since 1983. The principal buyers were the Middle East until the mid-1990s and India after the Gold Control Act was rescinded. No one has suspected China of acquiring meaningful quantities of gold during this period, but the timing of the 1983 regulations suggests otherwise. India’s demand between 1990 and 2002 was only 5,426 tonnes, with perhaps 2,000 tonnes smuggled in the seven years previously, leaving 68,424 tonnes unaccounted for. And while Middle Eastern oil exporters were certainly buying in quantity it is unlikely they would have taken more than 35,000-40,000 tonnes, which leaves 28,000-33,000 tonnes unaccounted for. Conversion of bullion into jewellery for the European and North American markets could have absorbed 5,000 tonnes at most, but equally there were other sources of supply such as Russia, which was forced to sell all her gold (507 tonnes) during the financial crisis in 1998, and potentially some net selling as a result of the Tiger economies’ crisis at about the same time.

There is only one logical conclusion: China passed regulations in 1983 to acquire gold bullion. This being the case, before 2002 she could easily have secretly acquired over 20,000 tonnes. And this explains why she was then happy to let her own citizens in on the act... » Read more


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Off the Cuff: Market Mayhem

After the recent carnage, what's next?
Thursday, October 16, 2014, 9:12 PM

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

  • The Market Meltdown
    • What the heck just happened?
  • The Next Round of Bailouts
    • If you hate the problem, wait till you see the solutions
  • Gold
    • Ready for a return to the limelight?
  • Ebola
    • Is the media selling us too much fear?

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Prudent Precautions To Take Now

Panic? No. Prepare? Yes.
Wednesday, October 15, 2014, 9:34 AM

Executive Summary

  • Who is at risk of contracting ebola?
  • What are the odds of the current string becoming more virulent?
  • The worrisome responses governments are considering
  • Should a pandemic occur, here's what you need to survive it

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

Those At Greatest Risk

Those at greatest risk of catching Ebola have close and prolonged contact with Ebola victims. Caregivers seem particularly at risk probably because of their proximity (closeness) and the length of time they are in contact.

One measure of how much we need to fear a particular virus is how effective it is in crossing hosts. Some viruses are really incredible at it, such as measles which infects an average of 18 other people from each sick person.

The chart below puts Ebola at the very low end of infectivity:


There are a host of complicating factors at work in determining just how infective a virus is, and one of those factors is whether or not you can look at the person while they are in the transmissive phase and see that they are sick. If you can, you may avoid them or take extra precautions.

Again, the Ebola victims are in obviously bad shape by the time they are in the infective stage.

However, I think we are going to have to nudge Ebola over to the right a bit on that above chart because it now seems probable that the mode of infection for this current strain is a whole lot easier than initially thought.

The CDC still claims that the only way to catch Ebola is by direct contact with fluids from an infected person.

However, it's been known since 2012 that direct contact is not necessary as this study rather conclusively proved that... [Sign In/Enroll to read the full article] » Read more



The Market Crumbles

How bad could things get from here?
Monday, October 13, 2014, 11:33 PM

~ Is a market crash possible here?

For so many years the stock markets has done just one thing: Go up.  And then up some more; until everyone "knew" that the stock market could never go down again, and that the Fed would ride to the rescue if it ever started to go down.

Well, for better or worse, the Fed is now committed to ending QEternity here in October 2014. A decision they cannot easily undo.

And various markets around the globe are in trouble. » Read more


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Off the Cuff: Volatility With A Vengeance

Suddenly erupting all around us
Thursday, October 9, 2014, 1:23 PM

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

  • What Is Market Volatility Telling Us?
    • Sign of a top, or preparing for another leg up?
  • Have Capital Flows Changed the Story?
    • Is too much money entering the US for the markets to correct?
  • Where Is Gold Heading From Here?
    • Long-awaited bullish signals are appearing
  • Society's Happiness Drought
    • Why do we have so much, yet feel so unsatisfied?


Desperately Seeking Substance

Pursuit of the superficial is creating a social depression
Tuesday, October 7, 2014, 9:50 PM

Executive Summary

  • As we increasingly revere the superficial, we increase our subconscious craving for substance
  • What the success of Breaking Bad tells us about our confidence in meritocracy
  • The hopelessness of achieving the sold "American Dream" has created a cultural social depression
  • Healthy, authentic social mores will be found in our own making of them, not the idiot box

If you have not yet read The Schizophrenia Tormenting Our Society & Economy available free to all readers, please click here to read it first.

In Part 1, we set the stage for an analysis of American TV as a reflection of the cultural schizophrenia created by a widening gap between the few at the top of the celebrity/wealth pyramid and everyone else. TV’s winner-take-all competitions reflect the normalization of our acceptance of a society that produces few winners and an abundance of losers, and of the partial redemption offered by temporary recognition or social-media popularity.

On the surface, such shows reflect our culture’s belief in merit as the arbiter of success: the “best” competitor wins fair and square.  But beneath this superficial elevation of meritocracy are a variety of questions about the critical role of judges (experts) and the rewards of recognition, however fleeting: if the public spotlight is inaccessible, attracting a large number of “likes” for “selfies” photos offers a consolation form of popularity.

That such adulation of celebrity and the gaze of others trigger the loss of an authentic self is never mentioned; asking why draws a blank, as that interpretation of celebrity simply doesn’t exist on the cultural stage.

Let’s continue our exploration of TV’s subtexts by examining the ground-breaking series, Breaking Bad.

The Many Subtexts of Breaking Bad

Let me start by stipulating I am no expert on the series Breaking Bad, or indeed, on any TV series; I am commenting not on the plots or characters per se but on the series’ subtexts.

Many have noted the implausibility of a schoolteacher in America not having health insurance (and also not qualifying for Medicaid), not to mention the premise (that a schoolteacher starts manufacturing one of the most destructive and addictive drugs on the planet, crystal meth, to pay for his cancer treatments).

James Howard Kunstler recently took note of... » Read more