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Fintastique | Dreamstime.com

Get Ready For Strange Days

We're in the twilight of American Federalism
Wednesday, January 8, 2014, 12:52 PM

Executive Summary

  • The case for a regional fracturing of the US
  • Why the balance of power will shift from the Federal government to local seats
  • How each US region will likely fare during this transition, given their idiosyncrasies
  • Why chaos will trump order moving forward

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

The last time the USA faced a comparable political convulsion was the decade leading into the Civil War, but this time it will be more complex and confusing and it will have a different ending.

A Preview of What's to Come?

In the 1850s, the dominant Whig party choked to death on its own internal contradictions — mainly its failure to take a coherent position on slavery — and morphed into the Republican Party. The original Democratic Party broke apart into southern and northern factions. All of the doctrinal and legal debates of the day — states’ rights, property rights, et cet. — could not overcome the growing moral revulsion against human bondage. When Lincoln was elected in 1860, seven southern slave states seceded from the Union before his inauguration. The ferocity of the ensuing Civil War — the world’s first industrial-strength slaughterfest — came as a great shock to many who had expected little more than a few symbolic romantic skirmishes on horseback preceding a negotiated settlement.

I believe we are headed now into a breakup of the nation into smaller units, but this time there will be no reconstituting the original USA as in 1865. I realize this is a severe view, but the circumstances we face are more severe than the public seems to imagine. To some degree the coming political rearrangement would appear to be the unfinished business of the 1860s. The old animosities remain, mainly in cultural rather than economic terms. But the real driving force of schism will be catabolic economic collapse expressing itself in scale reduction of all our support systems: food production, energy production, transportation, finance, commerce, and governance. Everything is going to have to get smaller, get more local, and be run differently. Just as political rhetoric failed to contain the revulsion against slavery, all the debates of the Left and Right in our time will not overcome the geophysical limits of energy resource scarcity and its affect on the other major systems of everyday life. Environmental degradation (including climate change) will amplify the journey downward in the viable scale of human operations... » Read more

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Here We Go (Again)

We've seen this movie before
Tuesday, January 7, 2014, 2:12 AM

One of the things I am fond of pointing out is that it seems like nobody in high finance or the central banks learned anything from the great crisis of 2008.  The very same excesses that created the prior crises are being committed again.

I know...maybe this time it will turn out differently. » Read more

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Adrian Hughes | Dreamstime.com

Off the Cuff: Trend Reversal?

The New Year begins with a stark break from the old
Friday, January 3, 2014, 11:35 AM

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

  • Trend Reversal?
    • The New Year starts with a surprise
  • 6 Years of Extreme Global Monetary Intervention
    • With more to come?
  • Big Trouble Brewing in Asia
    • Don't bet on East eclipsing West anytime soon
  • Middle-Class Squeeze
    • Getting even tighter in the future
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Outcomes to Bet On in 2014

Challenges to central authority will break out
Tuesday, December 31, 2013, 2:10 AM

Executive Summary

  • The productive class will increasingly look for ways to protect its income and wealth from State hands
  • Geographic redistribution of classes will increase, favoring lower-cost locales
  • Expect tax revolts to start breaking out
  • Diminishing returns and increased fragility of the status quo will result in a resurgence of volatility

If you have not yet read Part I of The Trends to Watch For in 2014, available free to all readers, please click here to read it first.

In Part I, I listed eight more trends to watch in 2014, in addition to the eight that are still in play from 2013.  Following last year’s format, here are some of the consequences to look for in 2014-15:

Outcomes

1. Opting out will become increasingly attractive for the productive class.  Since the Status Quo suppresses political resistance (in official eyes, the line between protest and domestic terrorism is awfully thin) while it loads on higher costs of friction, complexity, junk fees, taxes, etc. on the still-productive, opting out—retiring, quitting, cutting back, selling out—becomes a compelling option for those who can afford to do so.

Many have opted out simply because they have no other choice.  Those who are close to retirement age and unable to find employment that pays more than Social Security benefits opt to retire and take the benefits early.  The Social Security Administration has professed surprise that Baby Boomers are retiring early in larger numbers than the SSA projected.  (File under “Duh!”)  Millions of others have managed to qualify for Social Security disability (SSI), another form of opting out.

The Affordable Care Act (Obamacare) is one of many forces incentivizing opting out. The perverse incentives of the ACA make it “smart” to not enroll and not pay the penalty, either, as the IRS has already said that it won’t enforce the penalty for some time.

The ACA also heavily incentivizes managing your income to levels that qualify the household for subsidies. Higher-income households have a big incentive to lower their incomes to avoid paying sky-high premiums.  Those with salaries cannot easily adjust their incomes, but households with self-employed or contract workers can opt to work less and thus earn less... » Read more

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Tverkhovinets | Dreamstime.com

Here We Go?

Interest rates on the move
Friday, December 27, 2013, 1:11 PM

The Achilles heel of every over-leveraged sector but especially the sovereign sector is interest rates.  Specifically, high interest rates. » Read more

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Off the Cuff: Ben Bernanke's Departing Taper "Lite" Surprise

Markets loved the news
Thursday, December 19, 2013, 12:43 AM

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

  • The Fed's Taper "Lite" Surprise
    • $10 billion less per month going forward
  • Social Instability Due to Growing Wealth Gap
    • The pitchforks are being sharpened
  • Un-representative Democracy
    • Our leaders no longer work in our interests
  • Beating Cancer
    • Mish' happy health news
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Off the Cuff: Self-Mastery

A cool head through coming change will be invaluable
Thursday, December 12, 2013, 11:12 AM

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

  • The Case for a Coming Crash
    • One that could erase the gains of the past 2 decades
  • Focus on Resilience, Not Money
    • Don't define yourself by your portfolio size
  • Post-Crash Investments
    • What to buy once the world is 'on sale'
  • Emotional Mastery
    • A critically important success requirement
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The Case for Cash

The wisdom of storing up 'dry powder' today
Tuesday, December 10, 2013, 4:23 PM

Executive Summary

  • Why the next stock market decline could be in excess of 50%
  • What historic indicators of coming decline are telling us
  • The case for holding cash now
  • If the market does roll over substantially in early 2014, how long may the decline last?

If you have not yet read The Case for a Crash, available free to all readers, please click here to read it first.

In Part I, we attempted to answer the question, Which forecast is more likely to be accurate: that the Bull market in stocks will continue for years to come, or the market will swan-dive in yet another multi-year crash?

We concluded that there was little historical evidence to support the claim that the S&P 500 will extend higher for an additional three to five years.

Here in Part II, we’ll look for clues about the possible amplitude and timing of the decline that the five-year cycle of the “new normal” suggests is likely.

(A reminder on gold: I detailed a forecast on gold earlier this year based on price action around key support/resistance levels, and nothing in recent price action has caused me to amend that forecast.  I have also noted that gold does not correlate well with either stocks or the U.S. dollar; i.e., its dynamics are largely independent of stocks and the USD. To the degree that gold is viewed as a “risk-off” safe-haven asset, it should do well if “risk-on” assets such as stocks crater.)

Forecasting the Amplitude of the Next Decline

A number of technical analysts have noted this megaphone pattern in the stock market, a pattern formed by alternating higher highs and lower lows.  This is one basis of forecasts for the SPX to drop to the 500-600 level in the next downdraft, potentially retracing the entire Bull advance from 1995. 

While this megaphone may not play out, it establishes a potential target for a crushing drop from current highs... » Read more

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Anything Goes, Inc.

A better name for what America has become?
Monday, December 9, 2013, 1:46 PM

It turns out that corporations are like people.  When they feel threatened, they'll do anything to get back at their perceived nemeses. The instinct to survive can bring out the worst in people and, it seems, corporations, too. » Read more

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The Very Real Danger of a Failure in the Gold Market

And why it's increasingly likely to happen
Friday, December 6, 2013, 1:52 AM

Executive Summary

  • Central planning are colluding but failing to diminish world demand for bullion
  • The BRICS are planning a future of less dependence on the West, and gold will play a role
  • The East sees gold as "on sale" at today's prices
  • Analysis shows they're right; gold is much cheaper than it should be compared to pre-QE levels

If you have not yet read There Is Too Little Gold in the West, available free to all readers, please click here to read it first.

In Part I, I went through the history of Asian demand for gold, starting with the Arabs’ need to find a home for increasing quantities of petrodollars from the late 1960s onwards. My conclusion was that there is very little bullion in private ownership left in the West, there is an unmanageable short position in the unallocated gold accounts held with the bullion banks, and the bulk of accessible monetary gold controlled by central banks is already leased and has been sold into the market to satisfy Asian demand.

The result is that merely suppressing the gold price to enhance credibility of the dollar as a reserve currency is no longer the problem. The problem is now one of crisis management. Western central banks have done everything they can, even persuading the Reserve Bank of India to suppress India’s gold imports. We know this is most probably the case because the Indian authorities have already learned the lesson that gold imports could not be controlled, which is why the Gold Control Act was abolished in 1990. Furthermore, the newly-appointed RBI Governor, Raghuram Rajan is an ex-IMF chief economist, has spent a significant part of his career in the U.S., and is therefore likely to be fully sympathetic with Western central bank objectives. He appears to be the West’s place-man.

Other than the question of Indian demand, there are two possible reasons for the flows of gold from West to East: geo-political, whereby one or more Asian nations are deliberately creating a potential crisis for the West, and different valuation criteria. Both are true and... » Read more