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Off the Cuff: Disturbing Data

Further validation of peak resource concerns
Wednesday, February 6, 2013, 11:19 PM

In this week's Off the Cuff podcast, Chris and Adam discuss:

  • A classic symptom of Peak Oil
    • The 4 largest oil majors report production declines for 2012
  • Rampant insider selling
    • The selling-to-buying ratio is at an abnormally high 9-to-1
  • Gold's flight to China
    • The West-to-East bullion transfer accelerates
  • Scarce platinum
    • Mine shutdowns and growing demand sends prices higher
  • The upcoming Peak Prosperity Seminar at Rowe, MA
    • Now's the time for those interested to register
Insider

Why You Really, Really Need to Care About the Implications of QE

It leads to the death of the dollar
Tuesday, February 5, 2013, 10:25 AM

Executive Summary

  • The Fed's money-printing actions are simply creating new unsustainable bubbles in certain assets, like stocks
  • QE-created huge excess reserves on banks' balance sheets are the rocket fuel that can and like will trigger explosive inflation
  • The Fed is extremely unlikely to be able to unwind its QE efforts in a controlled way
  • Things WILL correct, and when they do, the lack of an exit strategy will result in a massive financial dislocation
  • The fundamental case for owning gold

If you have not yet read QE for Dummies, available free to all readers, please click here to read it first.

The Risks of Money Printing & 'Excess Reserves'

The first is that the recipients of all this thin-air money could just sit on it and do nothing.  No loans would be made, which means no new deposits would be made, which means the 'miracle' of fractional reserve money multiplication would not happen, which means the economy would not get juiced.

Indeed, that's exactly what has happened.  We can detect this in the form of what are called 'excess reserves,' which are dollars that banks now hold that are in excess of what they need to have on hand to satisfy reserve requirements.

There must be a lot of disappointment at the Fed that all of these funds are just piling up there and not doing anything (yet) to supercharge the economy, and so you might wonder why the Fed persists in 'quadrupling down' on a strategy that is not working as intended.

Unfortunately, I don't have a satisfying answer for that, as it mystifies me, too.  The only thing that makes sense is that the Fed is essentially just gunning for higher stock and bond prices in the hopes that asset inflation will bolster confidence and insulate large financial institutions from potential losses.

But this brings us to the second risk... » Read more

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Running on Fumes

Things are beginning to run recklessly hot
Friday, February 1, 2013, 5:49 PM

The stock market blasted higher, with the Dow crossing the 14,000 mark because the jobs report came in well under expectations.  In today's world, one follows the other.

In yesterday's world, the one where logic and reason ruled the day, that first sentence would not have been written.  Economic weakness would not have been rewarded with a big surge in stocks.

But this all makes perfect sense in today's world, once you tilt your view to the "new normal" and get with the program.

I titled this piece 'running on fumes' because, in one very real sense, that's exactly what this current market is doing.  The fumes in this case happen to be thin-air money that the Fed is injecting into the financial markets to the tune of $85 billion per month, or roughly $4 billion per working day.

When an engine finally runs out of gas and turns to fumes, the last act of that engine is to run really hot – to race for a while – before finally quitting. » Read more

Insider

Off the Cuff: Negative Numbers

Are we at a turning point?
Thursday, January 31, 2013, 12:29 PM

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

  • The GDP Surprise
    • Is the economy stalling?
  • Housing
    • Is there reason for optimism?

Chris and Mish weigh in on the surprising negative GDP growth seen in Q4. Lots of noise in that data - as we've been animatedly discussing here. » Read more

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Why the Robot Age May Create a Massive Deflationary Bust

And could create epic inequality
Tuesday, January 29, 2013, 12:02 PM

Executive Summary

  • The transition back to an electricity-centric economy is regressive
  • Declining net energy and peak expansion are co-incident
  • Change that substitutes labor without providing a higher use for it is deflationary and results in inequality
  • Our challenge is to find sustainable work for society

If you have not yet read The Siren Song of the Robot, available free to all readers, please click here to read it first.

Capitalism demands fast gains in productivity. Capitalism seeks revolutionary change. But it’s not clear whether a revolution in machine intelligence leads to a deflationary boom, per Schumpeter, or a deflationary bust.

Writers such as Paul Krugman have perhaps moved too quickly, too easily, to conclude that a massive increase in production from such technology leads sustainably to large growth in GDP without severe consequences. Indeed, in a recent essay responding to Robert Gordon's paper on the end of growth, Krugman takes the view that (positive) returns from technology are just beginning to unfold.

I conclude that Krugman is actually concerned about and open to the possibility that an enormous wave of disruption to manufacturing from robots could produce higher GDP initially and also problems thereafter. What happens to wages in the broader economy?

One does not have to be a Luddite about technology to fear yet another huge new round of wage deflation. The West has already been treated to an era of “cheap, quickly manufactured goods that enhance people’s lives” during the past two decades. And it’s not clear that a flood of goods has necessarily improved well-being.

While I certainly wouldn’t make the curmudgeon's case that electronic devices have reduced well-being, it’s not clear that the I.T. revolution has accomplished much in the way of delivering to consumers cheaper and better quality energy, food, or health care. » Read more

Insider

Off the Cuff: Nonsensical Logic

We don't support what we claim to value
Wednesday, January 23, 2013, 7:57 PM

In this week's Off the Cuff podcast, Chris and I discuss:

  • Market Mania
    • Our "no worries" financial  markets
  • Nonsensical Logic
    • From Japan's monetary strategy to Obama's inaugural speech
  • The Managed Rise in the Price of Precious Metals
    • Intentional, yet unsustainable, manipulation
  • The Really, Really Big Picture
    • Peak "cheap" oil, "net" energy crisis, and flow rates
Insider

Slamming Face-First into the Limits to Growth

Money will no longer guarantee wealth
Tuesday, January 22, 2013, 9:27 AM

Executive Summary

  • Escalating costs of resource extraction and associated pollution are key headwinds on future economic growth
  • For the first time in generations, the same limits to growth that handicapped pre-industrial society are reasserting themselves
  • Our economic and political leaders are misdiagnosing the root problem, and therefore prescribing the wrong treatments
  • Remember stagflation? Get ready to experience it again – with a vengeance

If you have not yet read The Tangled Relationship between Wealth & Money available free to all readers, please click here to read it first.

The forces driving today’s ongoing economic crisis were sketched out decades ago in the pages of the Club of Rome’s epochal 1973 study, The Limits to Growth.  Mention that book to most people nowadays, and those who admit they’ve heard of it at all routinely insist that it made false claims about the future.

The irony – and it’s not a small one – is that this simply isn’t true...

A society in this situation can expand its production of goods and services – its 'wealth economy,' in the terms used in Part I – up to the limits of the environment’s ability to provide resources and absorb waste. Once those limits appear in the rearview mirror, though, any further expansion of the wealth economy runs into two insurmountable difficulties... » Read more

Insider

Off the Cuff: "Hand-to-Mouth" Tightness Seen in Silver Inventories

A strong bullish signal for silver investors
Thursday, January 17, 2013, 1:23 AM

In this week's Off the Cuff podcast, Chris and Ted Butler discuss:

  • Germany's Gold Grab
    • What impact with the reserve repatriation by the Bundesbank have?
  • Silver's Screaming Fundamentals
    • The size of the silver market is TINY
  • The Future Price of Silver
    • Betting on higher prices still seems the smart move here
Insider

How Energy Woes Will Trigger Financial Crisis

The mortal pin that will pop our unsustainable system
Tuesday, January 15, 2013, 8:56 PM

Executive Summary

  • Petroleum is bumping along its global maximum plateau
  • Global demand (led by Asia) will soon far outstrip supply
  • Why oil is getting scarcer, but cheap oil is already non-existent
  • How insufficient net energy will be the mortal pin that pops our unsustainable financial system

If you have not yet read The Really, Really Big Picture, available free to all readers, please click here to read it first.

Global Supply

Where the U.S. shale plays have been getting an undue allotment of press compared to their current and projected flow rates, the major story remains that oil companies are spending more and more as oil becomes more difficult to find and challenging to produce.

What's interesting is that so many people hold the opposite view, perhaps shaped by the breathless manner in which new finds are announced, but rarely with an appropriate level of context or caution so that we can judge how significant or likely these finds actually are.

Here's a relatively recent example that captures this dynamic rather well.  Back in 2010, a very exciting discovery was splashed all across the news with some very heady claims:

McMoRan Exploration announced a potentially major natural gas discovery in its operated Davy Jones ultra-deep prospect drilled in the shallow waters of the Gulf of Mexico (commonly referred to as the "shelf"), just 10 miles off the Louisiana coast. 

Positive drilling results could be a huge boom for the company. McMoRan Exploration had proved oil and gas reserves at year-end 2009 totaling 271.9 Bcfe (billion cubic feet of natural gas equivalents), compared with 344.8 Bcfe in 2008.

Estimates of the size of the discovery range from 2 trillion to 6 trillion cubic feet of natural gas, rivaling the largest gas finds ever made in the Gulf. 

(Source)

This is the nature of such press releases, as I now think of them.  Yes, it's exciting that billions of barrels could be discovered and that these finds might produce as much as 15 billion barrels of oil.  Unfortunately, a short euphoric sound bite like that is all of the story that every really gets transmitted to the casual reader.  I combat these perceptions constantly in my live Q&A sessions after speeches.

The full reality is contained within the context-free but vitally important statement that tapping this field requires drilling down to more than 28,000 feet (!).

Fast forward to 2012 and here's the reality of that find... » Read more

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Hasbro

They're Not Even Trying to Hide It Anymore

"Too big to jail"
Monday, January 14, 2013, 12:48 AM

When asked why I think that the price of gold is manipulated to keep its price within an acceptable band to central planners, I will respond with the quip 'because they can.'

It's really very simple.  If we know that the Fed is extremely concerned about the health of the financial markets and maintaining confidence in them and the major institutions, and it has already stepped way over the line by targeting the price of money, bonds, and equities, it's pretty much a guarantee that the Fed has got its eyes on and hands in everything. » Read more