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Off the Cuff: Housing Insanity

Why should this bubble end any differently than the last?
Thursday, August 21, 2014, 12:54 AM

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

  • Housing Bubble 2.0
    • How quickly we forget the errors of our ways...
  • China's Impending Massive Implosion
    • A bubble of historic proportion
  • An Investing Cycle vs A Demand Cycle
    • Things will collapse after the greatest fool buys in
  • Lack Of Good Options
    • Asset bubbles everywhere, not just in housing
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The Rise Of The East

5 billion vs 1 billion
Wednesday, August 20, 2014, 12:05 PM

Executive Summary

  • The West is extremely vulnerable to financial and currency de-stabilisation through precious metals
  • Access to energy supplies will be the real weapon used in the battle over Ukraine (and future geo-political wars)
  • Why sanctions against Russia will not succeed
  • The East is mobilizing to become less dependent on the West

If you have not yet read Is Part 1: Ukraine: A Perspective from Europe available free to all readers, please click here to read it first.

Russia’s strategy towards Ukraine appears to be to ensure NATO is excluded from Ukrainian territory, the irony being that if NATO members hadn’t interfered with Ukrainian politics in the first place the current crisis would not have occurred. As it is, at a minimum she will seek to secure Donetsk and Luhansk and force the Kiev government to drop any ambitions to join the EU economic bloc.

The fact that NATO is divided between on the one side the US and UK plus all its ex-communist members and on the other the great European welfare states, requires there to be two distinct levels of Russian strategy. They must not be confused with each other, one macro and the other micro.

Macro-Geopolitics Linked To Gold

At the higher level there is the geopolitical clash with the US. This is not just a matter of Ukraine, but it is rapidly becoming the Shanghai Cooperation Council versus America. The US is also embroiled in territorial disputes between its allies and China over mineral rights in the South China Sea. The Middle-East now sells more oil to China than the US, and by leaving the US sphere of influence will fall increasingly under the SCO’s spell. Presumably, America has woken up to the threat to its hegemony from the powerful alliance that is the SCO, together with the loss of Pakistan and India into that sphere of influence. It goes further: even Turkey, a long-standing NATO member, plans to defect to the SCO, apparently a personal project of Recep Erdoğan, the recently re-elected Prime Minister.

American-initiated actions against Russia will probably be kept by Russia and the SCO in this big-picture context. It will be treated as an attack against an SCO member, speeding up integration and trade agreements designed to exclude the US dollar as a settlement medium. In this context the SCO members already appear to have agreed on the need to increase gold ownership as an undefined part-solution to replace the US dollar as the currency standard. In other words, the rush to acquire above-ground gold stocks will continue, and China through her refiners is processing and keeping increasing quantities of African-sourced gold as well as her own which would otherwise have gone to the West.

The Russian central bank has been adding to her monetary gold reserves and officially now has more than China (though China is known to have substantial holdings of bullion not currently declared as monetary reserves). All mine output is likely to be absorbed by the State. Russia has continued to build her gold reserves at a time when it could be argued by western analysts that she needs to hold on to all her foreign currency, given the prospect of escalating sanctions. The truth is that... » Read more

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Neil Lockhart | Dreamstime.com

Is A Global Housing Bubble About To Pop?

Warning signs abound from China to the U.K.
Tuesday, August 19, 2014, 12:40 AM

Looking past all of the major events transpiring in Ukraine, Iraq, Ferguson, and other hotspots, there's still plenty of worrisome smoke emanating from the global economic engine compartment.

The most recent installment comes from what appears to be abundant signs of bursting housing bubbles in several major markets. » Read more

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Off the Cuff: The Age Of Limits

Our choice: how hard do we want to slam into them?
Thursday, August 14, 2014, 6:47 PM

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

  • Limits To Growth
    • Our current system is acting as if they don't exist
  • Financial Chicanery
    • All the smoke & mirrors can't hide the fact it's a zero sum game
  • False Stability
    • The current calm will end when the central banks fail
  • Energy, Energy, Energy
    • In the end, ownership/access to energy is all that matters
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The End of Dollar Dominance?

Loss of reserve currency no longer an idle threat
Monday, August 11, 2014, 7:24 PM

Dollar Daze

One thing that is absolutely crystal clear at this point is that Putin and Russia consider the US and its dollar hegemony to be a parasitic anachronism that no longer serves anybody besides the US.  Putin has made many direct comments to that effect and then followed them up with concrete deals struck in ways that bypass the dollar entirely.

Here's what he said back in 2011, well before any of the recent action started: » Read more

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Anthony Aneese Totah Jr | Dreamstime.com

Off the Cuff: Jittery Markets

Things are looking more & more "toppy"
Thursday, August 7, 2014, 1:18 PM

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

  • Russian Retaliation
    • Putin announces sanctions against food from the West
  • Jittery Markets
    • Have we seen the top?
  • The Danger In Bonds
    • That's where the real carnage will come
  • The Age Of Bubbles
    • We live in it, though it may be ending
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Prepare For The Bear

The data make a clear case the long Bull run is ending
Wednesday, August 6, 2014, 10:35 AM

Executive Summary

  • The underappreciated impact of the Fed's current tapering
  • Get ready for corporate profits to start rolling over
  • Why record margin debt is such a big danger
  • The myth of de-leveraging
  • Why the data make a clear case the long Bull market is ending

If you have not yet read Is Part 1: Is This Decline The Real Deal? available free to all readers, please click here to read it first.

In Part 1, we looked extremes in valuations, sentiment, leverage and complacency, and how these make the Bull case for further advances in stock prices difficult to make without drawing this time it’s different parallels with previous asset bubble tops.

In this Part 2, we’ll look at how the fundamentals of the Bull case have been weakened or threatened, and determine whether indeed we are witnessing a key moment of direction-reversal in the markets.

The Federal Reserve’s Tapering of Quantitative Easing

Everyone who follows the financial news is aware that the Federal Reserve has tapered its unprecedented Quantitative Easing bond and mortgage buying program from $85 billion a month to $25 billion a month, and has made noises about ending the program entirely by October of this year.

Observers see two primary consequences of the end of QE:

1.  Interest rates, no longer suppressed by Fed bond and mortgage buying, will likely tick higher from historic lows.

2.  The support for stocks and other risk assets provided by QE will end, removing a key prop under stocks.

It’s clear that interest rates—shown here by a commonly used proxy for interest rates, the 10-year Treasury bond yield—have hit bottom, and while they might bounce along the bottom for some time, they don’t have much room to decline even if “risk-off” buying of Treasuries pushes the T-bill yield lower.

In other words, even if Treasury yields fall as investors flee ‘risk-on” assets such as stocks for the safety of Treasuries, this doesn’t necessarily translate into... » Read more

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Meanwhile In Iraq, The Situation Grows More Dangerous

World oil prices & regional stability at high risk now
Monday, August 4, 2014, 7:29 PM

As if there wasn't enough to concentrate on given all that's happening in Ukraine between Russia and the West, and in Gaza between the Israelis and the Palestinians, the situation in Iraq has been taking some decidedly worrisome turns of late.

As ever, we keep our eye on this hot spot because of its special importance to the world supply of oil, any loss of which will rapidly lead to much higher prices. » Read more

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Off the Cuff: A European Perspective On The Conflict With Russia

Playing with fire
Friday, August 1, 2014, 10:55 AM

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

  • Europe's Quizzical Acquiescence
    • Acting like the junior partner to the US agenda
  • The Significance of Russian Energy
    • Europe has no real Plan B if Putin turns off the gas
  • The Role of Gold
    • Russia has been dramatically increasing its gold reserves. To what end?
  • The Vulnerability of the Global Economy To Russian Hardball
    • Russian defaults would ripple through the banking system
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Scott E Read/Shutterstock

How The Coming Confrontation Will Unfold

How bad could things get?
Thursday, July 31, 2014, 10:52 AM

Executive Summary

  • The 4 most likely scenarios of Russian response
  • Europe is more vulnerable, and will feel more pain sooner than the US (though the US is still at risk)
  • The risk to the world economy and financial markets
  • What you should be doing now, in case things worsen

If you have not yet read Part I: The West's Reckless Rush Towards War with Russia available free to all readers, please click here to read it first.

Europe Will Pay the Price First

Europe is already on the edge of slipping back into outright economic contraction and can ill afford any sort of protracted sanction warfare with Russia, a major trading partner in both directions.

While the sanctions levied by Europe were very carefully crafted to cause the least amount of pain for itself as a fist order of business, while imposing maximum pressure on Russia second, they will still bite.

‘EU sanctions on Russia will hit UK economy’ – Foreign Secretary

Jul 30, 2014

EU sanctions aimed at ‘imposing economic pain’ on Russia following the MH17 crash will hit the UK economy, Foreign Secretary Philip Hammond has warned, saying ‘you can't make an omelette without breaking eggs’.

Hammond said the measures had been “designed to maximize the impact on Russia and minimize the impact on EU economies.”

“It will affect our economy... but you can't make an omelet without breaking eggs, and if we want to impose economic pain on Russia in order to try to encourage it to behave properly in eastern Ukraine and to give access to the crash site, then we have to be prepared to take these measures,” he told Sky.

On Wednesday, The Russian Foreign Ministry criticized the new package of EU sanctions, saying it was disappointed Europe was unable to act independently from Washington in the International arena. 

“We feel ashamed for the European Union who, after long searching for a unified voice is now speaking with Washington’s voice, having practically abandoned basic European values, including the presumption of innocence,” the Foreign Ministry said in a statement.

(Source)

Indeed, it's easy to imagine how disappointed Russia might be to have so many unresolved questions about MH-17 lingering yet having Europe rush forward with punishment despite a long and warming history of economic ties.

Of course, the main consideration for Europe now that autumn is just a couple of months away is... » Read more