Investing in Precious Metals 101 Ad

Posts by charleshughsmith

  • Blog
    Getty images

    Is This Downturn A Repeat of 2008?

    Crashes differ, so be cautious about your assumptions
    by charleshughsmith

    Monday, January 7, 2019, 9:50 AM

    16

    Are we in a repeat of the global financial meltdown and recession of 2008-09? The sharp drop in equities is certainly reminiscent of 2008. Indeed, the December decline is the worst in a decade. Or are we entering a different kind of recession, the equivalent of uncharted waters?

    And if we are entering a recession, what can central banks and governments do to ease the financial pain and damage? We can’t be sure of much, but we can be relatively confident central banks and states will respond to the cries to “do something.”  This poses two questions: what actions can central banks/states take, and will those policies work or will they backfire and make the recession worse?

    Read More »

  • Insider

    The 8 Systemic Failure Points Of The Global Economy

    The macroeconomic fault lines to monitor closely
    by charleshughsmith

    Friday, January 4, 2019, 7:06 PM

    22

    Executive Summary

    • The 8 Systemic Failure Points Of The Global Economy
    • Why The US May Weather The Next Collapse Better Than The Rest Of The World
    • The Fed's Long Game
    • Why Allowing Recession Now May Be A Policy Goal

    If you have not yet read Part 1: Is This Downturn a Repeat of 2008?, available free to all readers, please click here to read it first.

    In Part 1, we concluded the current global downturn isn’t a repeat of the 2008 global crisis; rather, it has characteristics of three types of recession: liquidity/currency mismatches, the popping of credit-asset bubbles and a business-cycle exhaustion of credit impulse, what I call a credit-demand exhaustion.

    Let’s add a potential fourth recessionary impulse: energy. Right now the world’s oil importers are feasting on a 40% decline in the cost of oil, but as Chris and other analysts (Gail Tverberg, Richard Heinberg, and Nate Hagens) have explained, we’re approaching a point where the cost of extracting, processing and distributing oil is rising as the cheap oil has been consumed.  Producers need high prices or they will stop producing. But consumers, the vast majority of whom have stagnant incomes, can’t afford high energy costs.  Beyond a rather low price point, higher energy costs trigger a recession.

    This may not be driving the current downturn, but it looms large in the background.  I see the current collapse in oil prices as a head-fake: the sharp drop makes it appear oil is abundant, but this abundance is temporary, not permanent.

    Moreover, we aren’t privy to the opinions and machinations within the world’s major central banks, but it’s clear that the U.S. Federal Reserve is diverging from other central banks, which remain accommodative while the Fed raises rates and reduces its balance sheet by $30 billion a month.

    Of the four primary central banks—the European Central Bank, the Bank of Japan, the Bank of China and the Fed—why is the Fed the one bank diverging from the other three, despite the appeals of the ECB to remain accommodative?

    I see several reasons, and the first is…

    Enroll Now
    Or Sign In with your enrolled account.

    Read More »

  • Insider

    Get Ready For “QE For The People”

    A solution even worse than the problem
    by charleshughsmith

    Thursday, October 25, 2018, 11:12 PM

    14

    Executive Summary

    • What to expect when "QE for the people" (highly inflationary) is implemented next
    • Why stagnating productivity will exacerbate the impact of higher inflation
    • How energy constraints will make the situation even worse
    • Why "QE for the people" will ultimately result in less prosperity for all

    If you have not yet read Part 1: The Coming Inflation Threat, available free to all readers, please click here to read it first.

    Having received precious little of the $45 trillion in asset wealth generated since the launch of the Federal Reserve’s QE for the Rich in 2009, the bottom 90% of households are less than enthused about another round of saving the super-wealthy from their speculative excesses in the next recession, which is due in 2019 or possibly 2020.

    This time around, the political zeitgeist favors QE for the People, that is, direct transfers of newly created cash to households rather than to banks.  QE for the People includes a spectrum of policy options, including Universal Basic Income (UBI), generally defined as a no-strings-attached stipend to every adult of $1,000 per month (the precise sum varies with every proposal); debt jubilees, for example, forgiving most or all of the $1.5 trillion in student loans, and tax credits for low-income workers.

    Large-scale federal spending on infrastructure such as repairing bridges, building high-speed rail lines, upgrading the national electrical grid, constructing affordable housing, etc., are generally viewed as indirect QE for the People, as massive federal spending benefits the populace (as opposed to the top .1%) via improved infrastructure and it creates jobs for the bottom 95% rather than bigger bonuses for the .1% of financiers and bankers.

    The political appeal of QE for the People is understandable, and it cuts across the usual ideological lines: both sides of the aisle can support higher infrastructure spending, as some of the new funds will flow into every congressional district.

    So what’s not to like? 

    As we'll show below, QE for the People is highly inflationary. None of these programs increase productivity to any significant degree while they put trillions of dollars into a stagnant economy to chase the existing supply of goods and services which is constrained by declining productivity, cartels that can impose artificial scarcities and government regulations that add costs and delays without adding effectiveness, efficiency or productivity.

    Let's begin with (…)

     
    Enroll Now
    Or Sign In with your enrolled account.

    Read More »

  • Blog
    Sandusky Register

    The Coming Inflation Threat: The Worst Of Both Worlds

    Expect falling asset inflation, but rising cost inflation
    by charleshughsmith

    Thursday, October 25, 2018, 5:48 PM

    20

    Inflation is a funny thing: we feel it virtually every day, but we’re told it doesn’t exist—the official inflation rate is around 2.5% over the past few years, a little higher when energy prices are going up and a little lower when energy prices are going down.

    Historically, 2.5% is about as low as inflation gets in a mass-consumption economy t like the U.S. that depends on the constant expansion of credit.

     

     

     

    Read More »

  • Insider
    Shutterstock

    The Coming Valuation Crisis

    And why it will be so difficult to contain
    by charleshughsmith

    Friday, July 27, 2018, 10:49 PM

    2

    Executive Summary

    • The Fed's inability to recognize the true dynamics of the 2008 crisis has re-inflated a market bubble and unfairly rewarded the big banks
    • More credit/liquidity cannot solve valuation/collateral crises. But that's exactly what central banks tried to do — creating today's "Everything Bubble"
    • How the Crisis of 2018/2019 will differ from 2008
    • Why this time, the Fed's fixes will be futile

    If you have not yet read The FAANG-nary In The Coal Mine, available free to all readers, please click here to read it first. Note that this Part 2 is an updated version of a report first published in 2014.

    In Part 1, we noted the eroding good options for investment capital in today's "Everything bubble" financial markets, as well as the dangerous risks that another 2008-style crisis is brewing. If markets are fractal, as argued by Benoit Mandelbrot, then we can anticipate more “once in a lifetime” crises than economists expect, and that such crises will be less predictable than expected.

    In Part 2 of this report, we explain why the policies of the governments and central banks around the world that have boosted assets such as stocks, bonds and real estate to new bubble highs will cause a crisis that will be as damaging as 2008 — yet unfold quite differently, in ways the system is not prepared for.

    Fighting the Wrong Battles

    The outlines of the coming crisis were readily visible in 2007; the subprime domino was toppling the market for mortgage backed securities which in turn was toppling the market for credit defaults, collateralized debt obligations (CDOs) and a host of other exotic financial instruments.

    Those of you who were actively following stock markets in 2007 and 2008 may recall the wild surges of euphoria that accompanied every Fed policy announcement. Stock indices shot up every time, only to falter once again as the liquidity injections failed to resolve the underlying collateral/valuation crisis.

    When liquidity programs failed to fix the erosion of collateral, markets went into a free-fall.

    We can anticipate that the Fed (and other central banks) will respond to a renewed collateral/valuation crisis in the same way they resolved the crisis in 2009—by buying assets directly in vast quantities.  The Fed’s option of buying stocks directly (for example, index contracts or funds) is sometimes referred to as the Nuclear Option, the ultimate backstop to a global meltdown.

    But the nuclear option won't fix anything, because…

    Enroll Now
    Or Sign In with your enrolled account.

    Read More »

  • Insider
    Shutterstock

    6 Essential Strategies For Prospering Through The Next Crisis

    Be one of the few positioned to prosper when crisis hits
    by charleshughsmith

    Saturday, April 7, 2018, 3:32 AM

    11

    Executive Summary

    • The trends that have driven the past 10 years are now ending/over. Ride their reversal wisely.
    • Crisis can destroy or magnify your prospects. Your decisions today will control which outcome you experience.
    • In many cases, you need to do the opposite of what the 'herd' is doing
    • The 6 essential strategies for prospering through the next crisis

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

    Strategies For Prospering Through The Next Crisis

    Those with the open-mindedness, courage and optimism to adapt in time will be far less impacted — and indeed, will have much better odds of coming through this transition the better for it. Amazing opportunities will arise during this time to increase all aspects of your wealth (yes, money — but also in all the other important Forms Of Capital, too).

    Don’t count on currency “money” retaining its purchasing power. 

    States (governments) always follow the same pathway: when financial promises can’t be kept, states debauch/devalue their currencies as a politically expedient short-term solution.

    But alas, just like central bank stimulus, the short-term expediency becomes the permanent policy, and the unintended consequences start piling up, for example, a loss of trust in the state’s currency.

    I see Venezuela’s destruction of its currency as the canary in the coalmine. The first canaries to drop lifeless from their perch will be non-reserve currencies.  Then the weakest of the reserve currencies will be over-issued (via credit rather than actual money-printing) and then even the mightiest will collapse.

    Many people reckon the US dollar (USD) is the weakest, and perhaps they’ll be right, but I think the Chinese yuan (RMB), Japanese yen and EU euro will lose purchasing power first.

    The RMB isn’t actually a “real currency,” it’s simply a derivative of the USD via the official peg. As for becoming gold-backed, please examine any chart of Chinese debt issuance (all of which is currency) and then compare that to…

    Enroll Now
    Or Sign In with your enrolled account.

    Read More »

  • Blog
    Shutterstock

    This Is The Turning Point

    The driving trends of the past decade are now reversing
    by charleshughsmith

    Saturday, April 7, 2018, 3:32 AM

    39

    The saying "the worm has turned" refers to the moment when the downtrodden have finally had enough, and turn on their powerful oppressors.

    The worms have finally turned against the privileged elites — who have benefited so greatly from globalization, corruption, central bank stimulus and the profiteering of state-enforced cartels.

    Read More »

  • Insider
    Shutterstock

    Social Unrest: The Boiling-Over Point

    Understand the coming threat & position wisely in advance
    by charleshughsmith

    Saturday, January 27, 2018, 3:04 AM

    4

    Executive Summary

    • Understanding the anatomy of the "Winner Take Most" economy we now live
    • How technology is making labor obsolete faster than we can imagine
    • Our current models for driving social change are broken
    • The approaching future of Disunity & Disruption

    If you have not yet read Part 1: The Pie Is Shrinking So Much The 99% Are Beginning To Starve, available free to all readers, please click here to read it first.

    In Part 1, we reviewed the shift from the expanding economic pie of the second half of the 20th century that enabled a parallel expansion in universal rights and entitlements. 

    But here in the 21st century, the pie is shrinking and the social movements that reduced asymmetries of wealth and power in the 20th century are no longer effective. 

    In Part 2, we’ll go deeper into the structural changes of the economy, and explore why social movements have slipped into ineffectual symbolic gestures that fuel fragmentation and frustration — and why that will lead to a dangerous boiling over of the 99% against the elites controlling the system.

    The “Winner Take Most” Economy

    An economy characterized by soaring wealth and income inequality is clearly a “winner take most” economy: Richest 1% Made 82% Of Global Wealth In 2017

    Peak Prosperity has covered the structural changes that have created the WTM economy at length for many years, so we can quickly summarize the key dynamics:

    Cartels, state-corporate governance. Structurally, large banks and corporations have aggregated wealth and political power to the degree that they can enforce cartels and quasi-monopolies with a combination of market heft and regulatory capture (a complicit state enforces monopoly under the guise of consumer protection or other cover). The owners/managers of the cartels skim enormous profits while providing poor-quality products and services to consumers who have little choice in a rigged market.

    Systemic incentives favor speculation, debt and leverage: those closest to the cheap-credit spigots (corporations, banks and financiers) can outbid everyone else to buy up the productive assets of the economy—assets that generate income and capital gains. These perverse incentives fuel speculative asset bubbles, misallocation of national wealth and malinvestment in marginal projects that are originated solely to reap short-term profit by any means available, which in a rigged system includes fraud, embezzlement, misrepresentation of risk, etc.

    This dependence on rising speculation, debt, leverage and opaque gaming of the system is financialization.  Where the entire financial sector once represented 5% of the economy, now it is over 20% of the economy once we include financialization that’s hidden inside firms such as Apple, GE, etc.

    Together, these form what I call the Plantation Economy, an asymmetric structure in which(…)

    Enroll Now
    Or Sign In with your enrolled account.

    Read More »

  • Blog
    Melissa E Dockstader/Shutterstock

    The Pie Is Shrinking So Much The 99% Are Beginning To Starve

    How much longer until the pitchforks come out?
    by charleshughsmith

    Saturday, January 27, 2018, 3:04 AM

    40

    Despite the endless media rah-rah about “growth” and “recovery,” it is self-evident to anyone who bothers to look beneath the surface of this facile PR that the pie is now shrinking. 

    This dynamic is increasing inequality rather than reducing it.

    Read More »

  • Insider
    surpriseme/Shutterstock

    Winning Against The Big Club

    Protect & grow the purchasing power of your wealth
    by charleshughsmith

    Saturday, January 13, 2018, 12:43 AM

    5

    Executive Summary

    • Taking Advantage of Subsidies
    • The Importance of Adding New Income Streams
    • Income-Producing Assets
    • Hedges, Cost-Controls & Other Strategies

    If you have not yet read Part 1: Drowning In The Money River, available free to all readers, please click here to read it first.

    In Part 1, we compared official rates of inflation with hard data from the real world, and found that it’s not just the cost of burritos that has soared over 100% while inflation has supposedly been trundling along at 1% or 2% per year. The real killer is the soaring cost of big-ticket essentials such as rent, higher education and healthcare.

    So what can we do about it? There are only a few strategies that can make a real difference: either qualify for subsidies (i.e. lower household income), own assets and income streams that keep up with real-world inflation, or radically reduce the cost structure of big-ticket household expenses.

    Assets & Income Streams

    One strategy to avoid being crushed by real-world inflation is to earn enough extra income to keep up with higher costs. This is problematic in an economy in which wages/salaries are declining as a share of the gross domestic product (GDP).

     

    This is a long-term secular trend that is affecting not just middle-income workers but the highly educated technocrat/managerial class. This reality suggests that trying to earn more income via wages/salaries is akin to pushing sand uphill: it is possible, but it’s running up against powerful secular trends.

    The alternative strategy is to seek assets and income streams that might increase purchasing more than wages/salaries.

    The data speak volumes about the difference between wealthy households and middle-class households: the middle-class households’ primary asset is the family home, while the wealthy households’ primary asset is business equity: ownership of an enterprise or shares in enterprises.

     

    Developing a profitable enterprise is easier said than done (it helps to inherit a family business), and there is no guarantee a business that’s successful today will still be successful next year.

    Nonetheless, it’s striking that the middle class is heavily indebted, house-rich and business-equity poor, while the top 1% has little debt and is business equity-rich and relatively house-poor.

    This is not to say it’s a poor investment to own a home, but it does suggest that you can beat the erosion of inflation by…

    Enroll Now
    Or Sign In with your enrolled account.

    Read More »