When Does the Story Break? (June C)
The most common question I get from Epsilon Theory readers is when. When does the market break? When will the Narrative of Central Bank Omnipotence fail? To quote the immortal words of Devo, how long can this go on? Implicit (and sometimes explicit) in these questions is the belief that this – whatever this is – simply can’t go on much longer, that there is some natural law being violated in today’s markets that in the not-so-distant future will visit some terrible retribution on those who continue to flout it. There has never been a more unloved bull market or a more mistrusted stock market high.
The definition of death rattle is a sound often produced by someone who is near death when fluids such as saliva and bronchial secretions accumulate in the throat and upper chest. The person can’t swallow and emits a deepening wheezing sound as they gasp for breath. This can go on for two or three days before death relieves them of their misery. The American retail industry is emitting an unmistakable wheezing sound as a long slow painful death approaches.
European Central Bank President Mario Draghi signaled policy makers are ready to take action in June should they see low inflation becoming entrenched.
“What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between between low inflation, falling inflation expectations and credit, in particular in stressed countries,” Draghi said in a speech at an ECB conference in Sintra, Portugal. “The key issue today, however, is timing.”
“What has happened, essentially, since 2008 since the money printing began in earnest is equities have performed well and also precious metals. Now, the question is, how long can this go on? Will it go on forever or will there be a time when the additional money printing doesn’t translate into higher equity and precious metals prices. That is the big question that is on investors’ minds at the moment.”
The sachets of hemp hearts on the shelves at Costco (COST), Safeway (SWY), and Whole Foods Market (WFM) are Mike Fata’s last laugh. The founder of Manitoba Harvest has spent the past decade working to transform hemp—a variety of cannabis—from the butt of weedy jokes into a supermarket staple. Fata’s investors are particularly happy about the mass-market breakthrough. “Our customers are bright enough to know that it does not have dope in it if Costco’s selling it,” says Jim Taylor, a founding partner of Avrio Capital, a Calgary-based venture capital company that was one of Manitoba Harvest’s early backers.
We are confused: on one hand the Fed is injecting hundreds of billions of liquidity into the market, boosting the S&P to all time highs and making the rich richer (Piketty taking Excel lessons from Rogoff notwithstanding) while the economy remains stagnant because, according to the BLS, inflation is too low, and as everyone knows the biggest lament of the impoverished middle class is that "the value of my dollar isn't being destroyed fast enough for me to feel confident about the future." On the other hand, the very same Federal Reserve Bank (of Chicago), just announced that as a result of "prices continuing to increase between 3% and 33%" (!), beginning May 27 it is hiking the prices in its cafeteria. So, clearly prices are rising at a 33% clip due to, how does the IMF put it, lowflation, right? Oh, and harsh weather.
The simple truth is that much of the world’s easy oil has now been exploited. The world isn’t running out of oil any time soon, but we will need much higher prices to bring new supply online. Nothing illustrates this better than last month’s announcement of yet another delay at Kazakhstan’s massive Kashagan oil field. Let me copy a few paragraphs from an article published in Quartz on the latest delay.
Fracking California’s Monterey Shale was always going to be politically difficult. Now it looks as if it’s physically impossible. This week, the Energy Information Agency cut its estimates for the amount of recoverable oil in the Monterey Shale by 96 percent, from 13.7 billion barrels to 600 million.
Gold & Silver
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