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How To Avoid The Pain Of The Coming Market Downturn

The 9 steps to increase your true wealth
Thursday, January 18, 2018, 8:35 PM

Executive Summary

  • Bubble markets short-circuit our assessment of risk
  • Bubble markets are hard to resist, and wear down your resolve
  • How to avoid the pain of the coming market downturn
  • The 9 steps to increase your true wealth

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

I truly despise the many bubbles the central bankers have blown. I consider them ill-advised and distracting at a critical moment of history.

Where we should be attending to serious matters -- like accelerating ecosystem destruction, reigning in the practice of borrowing more than can ever be paid back, and transitioning rapidly off of fossil fuels -- people instead cheer the latest new shiny Dow Jones price record. Folks are just too distracted to have any interest in acknowledging the sobering predicaments we face.

It’s all rather cartoonish. The thinking, if I can call it that, goes like this; “But if any of your concerns were indeed true, certainly we’d not all be getting rich in the stock markets?”

Rising prices seem to be all the comfort these folks need to conclude that everything is A-OK.

“Your arguments are invalid because I'm richer today than I was yesterday.” As if a few more printed-up claims on wealth were the same thing as a better future.

So the prime reason that I hate the central banker-created bubbles is that they short-circuit the important conversations we should be having.

Rising equity prices coupled with the endless cheerleading they receive on the TV and in the press blunt people’s sense that we maybe should be doing things differently. And there is so much we need to be doing differently right now -- in the long run to secure a prosperous future, and in the immediate term, to protect against the inevitable destruction when these bubble markets burst.

Specifically, we need to... » Read more

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Off The Cuff: The Brain-Dead Fed

Its power is exceeded only by its cluelessness
Thursday, January 18, 2018, 11:51 AM

In this week's Off The Cuff podcast, Chris and Axel Merk discuss:

  • Brexit: An Update
    • Axel's observations from London
  • The Reason Behind The Weakening US Dollar
    • The coming ECB tapering is being factored in
  • Tax Cross-Currents
    • Reforms will disrupt more than folks realize
  • The Brain-Dead Fed
    • Can't admit it does it what it does

In this wide-ranging discussion -- covering taxes to Brexit to gold to the markets -- Axel shares with Chris his conclusions on the inner workings of the Federal Reserve from his interactions with many of the folks involved in running it. Despite being perhaps the single most influential entity in the global economy, like any institution, it is run by fallible people who, in this case, can't recognize and/or admit that their actions are in full violation with their promised policy.

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
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Winning Against The Big Club

Protect & grow the purchasing power of your wealth
Friday, January 12, 2018, 7:43 PM

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... » Read more

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Off The Cuff: China's Warning Shot

The recent Treasury gambit is classic geopolitics
Thursday, January 11, 2018, 5:30 PM

In this week's Off The Cuff podcast, Chris and Wolf Richter discuss:

  • China's Warning Shot
    • The recent Treasury gambit is classic geopolitics
  • Downdraft Risk
    • Will it be possible to avoid a crash in 2018?
  • Real Estate Is Looking Vulnerable
    • Key markets are running out of buyers
  • Rising Oil Prices
    • A major candidate for the pin to pop this bubble

Wednesday, the markets lurched in fear as China announced it was thinking of slowing/stopping future purchases of US Treasurys. Later, a Chinese spokesman declared the story "fake news". But was it? Or was this a deliberate geopolitcal chess move meant to deliver a stern warning to America?

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
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China Says “No More Treasurys!”

Is the 30-year bond bull market now dead?
Wednesday, January 10, 2018, 12:04 PM

The big news early this morning is that Chinese officials have publicly announced that they are considering halting the purchase of additional US Treasurys.

This news initially sent shock waves though the “markets” (still in quotation marks because they are no longer true markets, distorted beyond recognition by ten years of coordinated central bank intervention) with both bonds and stocks selling off.

Naturally, “stabilizing” forces showed up almost immediately; purchasing US equities in the futures market while also selling gold. But the fear in response to China's declaration remains evident. » Read more

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Off The Cuff: Is This The Blow-off Top?

And if so, how long can it continue?
Thursday, January 4, 2018, 7:42 PM

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

  • How Long Can This Continue?
    • Debt has been rising faster than income everywhere for decades
  • The Rules Will Certainly Be Changed
    • Desperate elites will always act in their best interest
  • Are We Seeing The Blow-off Top?
    • Dear God, let's hope so
  • A Commodities Price Spike Will Pop This Bubble
    • If it doesn't collapse under its own overshoot, first

Chris and John kick off the new year by remarking how similar the conditions now feel to 1999 and 2007. The world financial markets have been running much too hot for far too long, and yet they've kicked into an even higher gear of late. Fortunes are being made in the cryptocurrencies -- a space most of the investors throwing their capital into have next to zero understanding of. The Dow is hitting new price records faster than it ever has in its history.

Obviously this can't end well, and it won't. And when the inevitable crash occurs, expect those who created this mess to take cruel-handed measures to sacrifice the rest of us in order to protect whatever amount of their privilege they can.

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
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So What Comes Next & How Can We Prepare For It?

Prices and incomes are headed (much) lower
Friday, December 29, 2017, 7:14 PM

Executive Summary

  • The dangerous unintended risks and consequences of central bank policies
  • Returns diminish as you move along the expansion S-curve
  • Why the current practice of moderating extremes will fail
  • What comes next & how to prepare for it

If you have not yet read Part 1: The Inescapable Reason Why the Financial System Will Fail, available free to all readers, please click here to read it first.

In Part 1, we covered the financial system’s dependence on credit, and the central bank’s conundrum: they can’t raise rates without stifling the credit-binge-dependent “recovery” and asset bubbles, but they also can’t keep pushing asset bubbles higher without increasing systemic risks, as valuations are already stretched to historic extremes.

So what happens next?  Can central banks raise rates without popping the bubbles the system needs to remain solvent? Or can they keep yields near zero and keep pushing asset valuations higher for years or decades to come?

I hate to spoil the ending, but the short answer is: these are incompatible goals.  The central banks cannot raise yields (i.e. normalize rates to historically average levels) and push asset valuations higher, nor can they eliminate the systemic risk generated by extreme valuations and leverage.

Unintended Risks and Consequences

Extreme financial policies generate unintended consequences as a result of being extreme: a moderate policy wouldn’t have the “whatever it takes” impact, but it also wouldn’t jam all the levers to maximum.

Once the levers are on maximum, the extremes generate instability and blowback, as those who benefit from the extremes are incentivized to go even deeper into speculative gambles in the mistaken belief that “the central banks have my back” while those who did not benefit express their dissatisfaction in the political arena, a dynamic that is often dismissed or derided as “populism.”

Central banks have suppressed measures of volatility in an effort to mask the rising risk that their policy extremes will trigger...   [enroll now to continue reading] » Read more

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Off The Cuff: A World Of Rising Interest Rates

Means a future of falling prices -- in nearly everything
Friday, December 29, 2017, 3:55 PM

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

  • The Crashing Treasury Curve
    • Interest rates are on the move
  • Get Ready For Interest Rates To Start Rising
    • The end of a 30-year downtrend
  • When Rates Rise, Prices Will Fall
    • Bonds, stocks, housing --- nearly everything
  • What's Next For Bitcoin?
    • We're witnessing a historical moment

Charles and Chris discuss the implications to anticipate should interest rates indeed start rising. The quick summary? It will change everything...

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
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Off The Cuff: Tax Americanus

There's a lot to hate within the new tax bill
Tuesday, December 26, 2017, 7:42 PM

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

  • The New Tax Bill
    • There's a lot to hate about it, despite the "cuts"
  • Watch The TED Spread Carefully
    • The big trouble will arrive in the bond market
  • A Hike Too Far
    • Rising rates threaten to break the back of this bull market
  • Bitcoin: Where To From Here?
    • When the insiders start dumping (as they are), it's time to pay close attention

There's a lot to be outraged about in the newly-passed tax legislation. Here's just a tidbit, from Mish:

There are a couple of the things that are in there that are particularly galling, like special breaks for people who own private jets on getting them maintained. There's a tax break specifically for jet owners, okay? I believe it's safe to say that you and I and anyone listening doesn't have a private jet.

Now, Senator Bob Corker from Tennessee, who was against this bill for months on end because it increased the deficit, finally voted for it. And the day that he voted for it, there was a special provision in there just for him – well, not just for him – for anyone who happens to own investment real estate. Orrin Hatch wrote this in personally, and admitted it. A special break for real estate investors. And guess what? His wife has a half million-dollar real estate property. So special breaks for them. 

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
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Off The Cuff: Bubbles Everywhere!

Ideas for undervalued assets to rotate your capital into
Monday, December 18, 2017, 2:57 PM

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

  • Nearly Every Market Is At A Record Bubble High
    • But 95% of the population is living under recessionary conditions
  • What Can Investors Rotate Into For Value/Safety?
    • There are a few asset classes that make sense
  • The High Cost Of Pursuing Continued Economic Growth
    • We're destroying essential components of the ecosphere
  • Money And Work Unchained
    • Charles lays out the key insights of his new book

Chris and Charles begin with a romp through the near-endless list of asset classes that have risen to nose-bleed overvaluations in today's markets. The gap between price and value is absolutely insane right now. Where can a cautious investor park their capital in conditions like this? Chris and Charles have several candidates to recommend.

They then dig into an important and fascinating discussion of Universal Basic Income. Make no mistake: we will be hearing an increasing chorus of politicians and the populace clamor for such a solution -- but it's a fool's errand; one that would be tremendously destructive to both our economy and our social fabric. This is the topic of Charles new book, Money And Work Unchained. (If you'd like to read the first few chapters of the book for free, Charles is making them available for free to Peak Prosperity readers here).

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.