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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.
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The Massive Coming Oil Shock

$10 per gallon gas within two years? Quite possible.
Friday, December 15, 2017, 6:41 PM

Executive Summary

  • Why America Will NOT Soon Become A Net Exporter Of Oil
  • The Gross Global Mis-Pricing Of Risk
  • The New Fed Looks Even Worse Than The Old
  • What You Should Do To Prepare

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

The "America Will Soon Be A Net Exporter Of Oil" Big Fat Lie

This brings us to the part where the oil myth has gone entirely off the rails.  Using the fraudulent oil recovery (EUR) estimates in play, the International Energy Agency (IEA) has built that into an outlook that might not only be wrong, but decisively and destructively wrong.

The IEA came out with a bombshell report recently that dramatically claims the US will not only become a net oil exporter in 2025 and remain as such for decades afterward, but that it will be able to increase its production by another incremental 8 million barrels per day above current levels:

US will become a net oil exporter within 10 years, says IEA

Nov 13, 2017

The shale revolution in north America means the US is destined to become a net oil exporter within 10 years, for the first time since the 1950s.

The International Energy Agency said it expected that American oil production between 2010 and 2025 would grow at a rate unparalleled by any country in history, with far-reaching consequences for the US and the world.

The last time the US exported more oil than it imported was 1953, and a ban on oil exports was lifted only in 2015.

Technological developments in drilling and fracking since the turn of this century have unlocked huge reserves of gas and oil trapped in shale rock, and redrawn the energy landscape.

(Source)

Well, I can assure you that if the IEA is using EUR’s that are off by 100%, then its projections are not only laughably wrong, but extremely dangerous.

Based on this sort of deeply-flawed analysis, anybody making plans off of this, which might include politicians, regulators, companies, or individuals deciding on whether or not to buy that F350 truck with a 15+ year lifespan, is relying on some very bad information.

And more than that, it's critical for us to understand how oil is about to violently... » Read more

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Off The Cuff: Are We About To See Taper Tantrum 2.0?

The Fed wants to tighten. Will markets stand for it?
Thursday, December 14, 2017, 12:16 AM

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

  • Taper Tantrum 2.0?
    • The Fed wants to tighten. But can it?
  • Bad Balance Sheets
    • Can central banks simply hold their bad assets forever?
  • The Flattening Yield Curve
    • A classic signal of approaching recession
  • Bitcoin
    • Trying to make sense of the recent run-up

Recorded before today's FMOC announcement, Chris and Axel discuss the next moves of the central banks, who's intervention and collusion have driven markets more than any other factor over the past decade. Most people don't realize that monthly liquidity injections are currentlyat their highest ever since QE began.

Now that the Fed is talking seriously about tightening -- can it? Or will the markets revert to throwing a tantrum as the global liquidity spigots begin to reduce their flow?

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.