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Pre-ALERT: Trump Risks War With Russia

The Syria powderkeg threatens to explode
Tuesday, June 27, 2017, 6:44 PM

Trump has now backed his administration into a corner.  If there’s another suspected poison gas attack in Syria, he’s promised to escalate the situation by beginning bombings.

It appears that what I feared might happen under a Clinton presidency (and I still think probably would have, anyways) is now happening under the Trump administration.

Let me be perfectly clear: bombing Syria risks a direct confrontation with Russia.  If that happens, all bets are off. Anything could happen next, up to and including a nuclear exchange.  » Read more

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The Value Drivers Of Cryptocurrency

These factors will determine which coin(s) will win out
Friday, June 23, 2017, 9:27 PM

Executive Summary

  • The critical value of scarcity
  • Understanding the utility of the blockchain
  • Will (can?) governments ban cryptocurrencies?
  • A coming geometric explosion in the price of cryptocurrency?

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

In Part 1, we surveyed the exciting but confusing speculative boom phase of cryptocurrencies. Here in Part 2, we will contextualize this mad swirl by running it through two filters: scarcity and utility.

What’s Scarce? Scarcity Creates Value

Regardless of one’s economic ideology or system, scarcity creates value and abundance destroys value.  When we say supply and demand, we’re really talking about scarcity and abundance and the rise or fall of demand for the commodity, good or service.

In classical economic theory, scarcity is met with substitution: ground beef too expensive due to relative scarcity? Buy ground turkey instead.

But this model has weaknesses.  There aren’t always substitutes, or the substitutes are more expensive or problematic than what is now scarce. 

As a general rule, profits flow to any scarcity of goods and services with high utility value.  We value what’s scarce and useful, and place little value on what’s abundant and of limited utility.

Currency has three basic functions: a store of value (it will retain its purchasing power over time), means of exchange (we can use it to trade goods and services, pay debts, etc.) and as an accounting mechanism to track assets, debts, income, expenses and exchanges/trades.

We assume all currency has this function, but only currency that is easily divisible and easily tradable enables easy accounting.  If a notched stick is a unit of currency, and one stick buys a pig, what do I use for purchases smaller than a pig?

In today’s world, a currency must be.... » Read more

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Off The Cuff: The Approaching Minsky Moment

The world is unprepared for the reset heading our way
Wednesday, June 21, 2017, 9:00 PM

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

  • A Study In Failure Of The State
    • Chris shares his on-the-ground observations from So. America
  • It Can Happen Here
    • Mish shares his on-the-ground observations from Illinois
  • Virtually All The Macroeconomic Data Is Miserable
    • Yet the Fed & the markets are acting like everything's great
  • The Approaching Minsky Moment
    • It's a matter of if, not when

This week's Off The Cuff discussion is an interesting one. Both Chris and Mish have front-row seats to two failing governments -- Chris in Argentina, and Mish in Illinois. It feels to them like they are getting a preview of the economic pain soon to come to the rest of the world.

Both are *very* concerned that citizens and investors across the globe are being duped by the (lack of) signals and messages today's ""markets"" are providing. Looking at the steady drumbeat of bad & worsening macroeconomic data, as well as the immense gap between fundamentals and asset prices, Chris and Mish are as confident as they have ever been that a massive painful reset is nigh. But too many of our leaders, and too much of the public, remain complacent/ignorant (willfully or not) regarding this risk. 

Their conclusion? The world is woefully unprepared for the Minsky moment headed its way.

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. » Read more

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Everything You Need To Know About The Credit Impulse

And why it's signalling a coming recession, likely this year
Friday, June 16, 2017, 7:23 PM

Executive Summary

  • The case of the missing credit impulse
  • The credit impulse is the worst its been in recent history
  • How the situation is deteriorating fast
  • Why a credit impulse-driven recession is nigh

If you have not yet read Part 1: The Pin To Pop This Mother Of All Bubbles? available free to all readers, please click here to read it first.

The Case Of The Missing Credit Impulse

An enormous oversight of nearly every major economist is the role of debt in both fostering current growth but also stealing from future growth. 

It seems like such a simple concept, and it’s one I covered in great detail back in 2008 in the original Crash Course, but it remains a mysterious oversight of most here in 2017.  The concept is easy enough; if I borrow money to increase my spending here today, it probably makes sense to take note of that if you're an economist responsible for tracking spending.

My debt-funded spending today is my lack of spending in the future when I pay down the debt. 

Professor Steve Keen has this topic nailed beautifully. In it, he explains how even simply keeping a massive pile of previously accumulated debt at the same level as last year is a net negative on economic growth. A very simple and a very profound concept that still is not a part of conventional thinking.

Now here where things get interesting. And frightening. If we look at... » Read more

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Off The Cuff: What Today's Rate Hike Means

Another increase, plus a reduction of the balance sheet
Wednesday, June 14, 2017, 8:30 PM

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

  • Unpacking Today's Rate Hike
    • What will the impact be?
  • When Is A Rate Hike Not A Rate Hike?
    • The Fed's hikes aren't really pulling liquidity out of the market
  • Every time The Fed Talks Gold Goes Down
    • Manipulation (for optics) is alive & well
  • Can The Fed Engineer A Soft Exit?
    • Hardly likely

Chris and John break down today's Fed announcement of a 0.25% rate hike, plus its presented schedule for starting to reduce it's $4.2 trillion balance sheet. 

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. » Read more

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Get Ready For The Coming Massive Correction

One we may never fully recover from
Friday, June 9, 2017, 7:46 PM

Executive Summary

  • The economic data is getting darker fast
  • The over-indebtedness of the economy is the worst it's ever been
  • Predicting the timing of the next major market correction
  • As the risks mount, what should the concerned investor do?

If you have not yet read Part 1: Why The Markets Are Overdue For A Gigantic Bust available free to all readers, please click here to read it first.

The Data Says…Another Downturn Is Upon Us

Our view is that a massive market correction is coming, one that may well rip the financial markets apart, and cause very long-term and long lasting damage, possibly to the point of taking generations to repair in any meaningful sense.

In fact things may never actually recover to the current heights because recovery requires energy and there simply isn’t the net energy per capita that existed in the past.

For now, we see plenty of signs of fundamental economic weakness, and this is not surprising at this stage of the so-called economic expansion.  The truth is this expansion has been phony to a large degree, and quite probably should have broken down many times in the past, most recently in early 2016.

But the central banks prevented that and we can all feel thankful at the extra time that has provided us to become more resilient under reasonably calm circumstances.

And yet, the one thing that central banks have never been able to do is... » Read more

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Off The Cuff: Signs Of An Approaching Downturn

We're seeing more & more of them
Thursday, June 8, 2017, 12:00 AM

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

  • The Late-Stage Housing Bubble
    • From the US, to Canada, to China
  • Signs Of The Approaching Downturn
    • Data everywhere is flat-lining
  • Soaring Debt Levels
    • At levels that make 2008 look tame
  • Canary In The Coal Mine
    • The bullet-proof Bay Area showing weakness?

The diverse data sets that Wolf tracks are showing increasing signs of building weakness across the global economy:

We see weakness all over the place now in the United States. In terms of the corporate credit cycle, we have commercial and industrial loans flat-lining since November, meaning they have grown very strongly from the financial crisis and they peaked in October. Since then, it’s all just flat-lining.

And the only time this ever happened in the past, it’s been affiliated with a recession because these are loans that companies take out to fund equipment purchases and for expansion purposes and for the things that are useful to an economy. These are not loans that are used to buy back stocks. This is not for financial engineering. These are actual productive funds. And when you see companies putting a lid on this, they’re not expanding anymore. They’ve borrowed as much as they’re going to borrow, and at some point, these commercial industrial loans will turn down. And this has happened in every recession before.

Plus, we have now a surge in bankruptcies in the United States in terms of commercial bankruptcies. I just did a report on that earlier in May. The prior peak in bankruptcies was during the financial crisis.

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. » Read more

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Off The Cuff: The Demise Of The Current World Order

A worldwide reset is approaching
Friday, June 2, 2017, 4:00 PM

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

  • History Is Full Of Cycles
    • 80-year & 240-year being the most dominant for empires
  • At The Cycles End
    • The US is at the end of both a 240-yr AND 80-yr cycle
  • A Global Reset
    • Given the huge distortions, a worldwide reckoning is overdue
  • What Will Emerge From The Ashes?
    • Will the new order make better decisions?

This week, Chris and Charles look across the expanse of history, at past empires and the paths they followed as they collapsed. They see many signs that the current world order is reaching its last moments before something new emerges -- likely out of the chaos of a systemic reset.

Before that happens though, the current system needs to topple under the weight of its shortcomings, one of which is the concentration of wealth and power into fewer and fewer hands. Charles explains where to keep our focus:

90% of our entire income, national income, and interactions are with a handful of cartels. Which we now have new ones. We've got Google, which is essentially a monopoly. We have Facebook, which is a monopoly. The dominant players are Apple, Netflix. The usual crowd. Amazon. They are so large, so wealthy that they're basically so far beyond competition that they're a monopoly. Once they start lobbying the pay for play democracy we have, then they're really going to be unassailable. Once they learn the tricks of the insurance companies and the military industrial complex and higher education, then they're going to build a regulatory moat that no one can get around, on top of their other advantages.

We've got for profit cartels and then we have the central state. Which is married to the cartels -- because they both need each other, they feed off each other. Those are failed models. Those platforms are going to unravel

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. » Read more

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Understanding The Fed's Endgame Is Key To Protecting Your Wealth

When all this breaks, the carnage will be astounding
Friday, May 26, 2017, 11:52 PM

Executive Summary

  • Why the Fed's rate hikes are not actual "hikes"
  • The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
  • Why the Fed's intervention in the financial markets is creating worrisome instability
  • As the risks mount, what should the concerned investor do?

If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.

When Is A Rate Hike Not A Rate Hike?

The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing.  In fact they are doing the opposite.

I know that’s a controversial statement, so let me explain.  The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system.  That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter.  The same as if you don’t have quite enough money at the end of the month, things are tight. 

This means that the interest rate is the derivative, and the amount of money is the main driver.  You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along.  They are the result, not the cause.

Or at least that’s how it used to be.  But not any longer.

In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system.   Money out = interest rates up.

Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.

How did we get to this ‘upside down world’ where a rate hike increases money? 

To understand let’s be sure we are clear on... » Read more

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Off The Cuff: Buy The @%&^ Dip!

This phrase will be a widow-maker in the next downturn
Thursday, May 25, 2017, 5:20 PM

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

  • Fake, Fictitious Markets
    • None of today's prices is justified by the underlying data
  • Death By Drowning
    • Too much liquidity is killing our markets
  • Housing Bubble Trouble?
    • Prices now declining in the San Francisco Bay Area
  • Buy The @%&^ Dip!
    • What will happen when this universal strategy no longer works?

After last week's brief re-emergence of volatility in the financial markets, the world's various sovereign plunge protection teams have been hard at work flooding liquidity into the system to push prices back up. Losses will not be tolerated!

And so the "Buy the dip!" crowd is victorious once again. This strategy, mindless as it is, has worked extremely well over the past 6 years -- due to an ever-present influx of 'thin air' $billions supplied by the central banks. But for many reasons, that mindless approach can't -- and won't -- continue forever. And likely not for much longer.

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. » Read more