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It's Better to Be a Year Early Than a Day Late

Use the time we have now wisely
Friday, December 14, 2012, 2:28 PM

Executive Summary

  • Don't bet against gold, especially right now
  • Collective thinking and shifting baselines are putting us in great danger of a surprise we're not prepared for
  • When the next disruptive event happens, it will happen faster than the system can react
  • Where I recommend allocating capital right now

If you have not yet read QE 4: Folks This Ain't Normal, available free to all readers, please click here to read it first.

My Thoughts on Gold

Bluntly, anybody selling their gold here does not understand what is happening.  These are the most extraordinary and unique times that anybody has witnessed because the entire world is engaged in an attempt to print our way to prosperity.

Maybe that will come to pass, but the odds very much do not favor that outcome.  It's never worked before, and I really have not yet seen any articulate description of why it might work this time.  From a betting perspective, it's like facing a roulette wheel where every slot is black except for that solitary green bin.  People selling gold here are placing their chips on green.

But I don't really think that gold's current market price or recent behaviors have anything useful to do with gold's value here.  As I noted in a recent Insider, in the run up to the QE4 announcement and then in the days right after, some entity has been selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.  Again, there is no other legitimate explanation for this activity of which I am aware besides having an intent of pushing the price down.

Whether there is some motivation for this activity besides 'making money,' I remain convinced that the gold market, like many others, is no longer sending useful price signals. Instead it is telling us that some entity has found it useful to sell thousands of gold contracts all at once.

The interesting part of this story is that this has been the most sustained, intensive, and yet ineffective gold-selling that I have yet seen.  In the past, such bear raids, as they are called, would have resulted in a sharply lower gold price.  Right now, that has not yet really happened. 

I am wondering if a big up move is not right around the corner for gold.  I can tell you that if even one fourth of the recent QE effort was announced five years ago, markets would have exploded and gold would have absolutely launched... » Read more


Off the Cuff: We're in Danger of an Unwind of Everything

Sick economy + printing press = collapse risk
Wednesday, December 12, 2012, 9:07 PM

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

  • QE4
    • NOT a sign of a 'recovering' economy
  • Asset overpricing
    • The liquidity flood is making nearly every asset class overvalued now
  • No exit
    • The Fed has no plan on how eventually to remove this liquidity from the market
  • Potential for a monster upward move in gold
    • It's relatively undervalued, and it's the only safe haven left

A Couple of Bad Ideas

Practical thinking remains in short supply
Sunday, December 9, 2012, 8:46 PM

This week a couple of very bad ideas were floated, one having to do with U.S. natural gas (NG) supply, and the other a proposal for how the U.S. president could avoid having to deal with the pesky debt ceiling.

Throughout the entire unfolding of the crisis, we have all been patiently waiting (if not agitating) for reality to gain a place at the table of ideas.  Instead, we still have the usual fare of the absurd and the ridiculous, indicating that we are not quite ready yet to entertain the serious business of negotiating the various predicaments that we face. » Read more


Off the Cuff: Willful Blindness

Our leaders are ignoring signs of both success & abuse
Wednesday, December 5, 2012, 8:34 PM

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

  • Willful Blindness of the Fiscal Cliff
    • Our politicians choose the wrong path despite models for success
  • Gold Manipulation
    • Price discovery is broken in today's markets. Patient bullion holders will be eventually rewarded.
  • America's Growing Demographics Problem
    • Fewer workers making fewer real products
  • Money Printing Forever
    • Why it's the surest bet

Forecasting the Future of Rental Housing and Home Valuations

Crowded trades end badly, no matter how rosy the projections
Tuesday, December 4, 2012, 11:33 AM

Executive Summary

  • Why the momentum for household formation is still downwards, despite the gains in recent years
  • Why "rental price fatigue" is putting today's increasingly rosy housing valuations at jeopardy
  • Why the fiscal and monetary stimulus that has boosted the housing market in recent years cannot continue further
  • How housing may turn from the “can’t lose” investment into an anchor of debt and a “now I can’t move to a better job” debacle

If you have not yet read Real Estate: Is the Bottom In, or Is This a Head-Fake?, available free to all readers, please click here to read it first.

In Part I, we reviewed the fundamentals that have been pushing housing prices higher in 2012. Many of these forces are the result of explicit real estate-supportive Federal and Federal Reserve policies, while others, such as restricting the number of defaulted properties on the market, are implicit policies of the financial cartel that has much to gain from a recovery in housing.

What, if anything, could derail this manufactured housing recovery?

Before we get to specifics, we should start by discussing unintended consequences. What happens when politically expedient policies are imposed with a simplistic goal?

Exhibit #1 is the Federal Reserve policy of lowering interest rates and increasing liquidity to boost “risk assets” such as stocks. This had the unintended consequence of inflating a stock bubble that burst with painful consequences in 2000-02.

Like all central-planning agencies, the Fed followed this policy error by doing more of what had failed: It lowered rates even more, enabling an unprecedented bubble in housing, which subsequently burst in 2007-08 with even more devastating consequences, as that implosion nearly took down the global financial system.

With FHA having replaced the bankrupt Fannie Mae and Freddie Mac agencies as the mortgage-guarantor of last resort, the Federal government has also doubled down on the failed subsidies that enabled the housing bubble.

What are the unintended consequences of pushing investors into the “crowded trade” of rental housing?  If we answer this, we will be closer to understanding whether housing has bottomed or not.

Let’s start by reviewing the fundamentals of supply and demand that influence housing and rentals. » Read more


Last Night’s Gold Manipulation Event

A blatant raid caught on the tape
Tuesday, December 4, 2012, 11:27 AM

We have another certified manipulation event happening in gold and silver right now.  It began last night.

I was talking with one of our financial advisers yesterday and was queried about the near-term direction of gold and silver.  I noted that the commercials had built up one of the largest short positions ever.

When they do this, it is a guarantee that prices will be subjected to a hard and fast bear raid at some point.  I've personally seen this trick about a dozen times, so I am quite familiar with it. It goes like this... » Read more


Mixed Messages

We're being told one story, but the data is telling us anoth
Monday, December 3, 2012, 2:38 AM

We are surrounded by mixed messages.  Is the economy recovering or stumbling?  Are we are at the edge of a new energy bonanza or not?

One of the particular difficulties about trying to make sense of things these days is the shameless amount of statistical manipulation (i.e., official lying) for political purposes and for shaping market reactions -- as well as the amount of paid PR material that is masquerading as real news from unbiased sources.

The level of sophistication in controlling messages is really something to admire, as long as one is unconcerned with the damage such spins and distortions are dong to our collective futures... » Read more


Off the Cuff: Out of Order

We are dependent on models that don't work
Thursday, November 29, 2012, 12:36 PM

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

  • Fiscal Cliff Follies
    • Whatever 'solution' is enacted won't solve much
  • The Broken U.S. Education Model
    • We are graduating a generation of debt slaves
  • Dangerously Optmistic Stock Prices
    • Assuming elevated earnings in perpetuity
  • Pension Fund Posion
    • No way these funds will meet their actuarial targets

While there are no guarantees that any progress will emerge from the Obama-Boehner showdown, what is clear is that the impact of any agreements (higher taxes and spending cuts) struck on the "Fiscal Cliff" will be GDP-negative. So plan for the headwinds on our economy to strengthen in force next year.

Despite this certainty, as Chris and Mish look across the markets today, they see way too much 'pricing for perfection.' For example, corporate profits are far above their historical norm due to a number of extraordinary events over the past few years. But their underlying stocks are priced as if these elevated earnings levels will continue unabated far into the future. » Read more


Investing Strategies for the New Energy Era

Positioning yourself for the trillions in spending soon to c
Monday, November 26, 2012, 3:33 PM

Executive Summary

  • The criticality of innovating better storage solutions
  • The pros & cons of investing in energy inputs (coal, oil, etc.) or new energy technologies
  • The impact of increased carbon taxation & higher oil prices
  • Watch where global energy demand is shifting
  • The four ripe sigmoidal growth opportunities
  • Why coal remains the king of fuel

If you have not yet read The New Future of Energy Policy, available free to all readers, please click here to read it first.

As oil went through a price revolution starting in 2004, the venture capital community embraced an array of greentech start-ups. But the first wave of these, which centered on biofuels and other liquid-based replacements for oil, were destined to fail – and fail they did. It has apparently taken a period of digestion and reflection for investors, innovators, and venture capital to quantify better which areas are more promising in the new energy landscape.

Just recently, for example, investment vehicles controlled by Peter Thiel and Bill Gates were among those who funded energy storage company LightSail, which is exploring the use of compressed air as a method for energy storage. This is meaningful.

It indicates an awareness that not only is global energy demand switching over to the grid, but also, that the grid of the future will need much greater flexibility. So, yes, the grid is the future. But storage the ability to retain surplus electricity for release at a later time will be crucial. The reason is that the blend or mix now developing: coal, nuclear, natural gas, hydro, utility-grade wind, and solar (including residential solar) will present a challenge to the grid with its enormous variability in supply.

Storage, to use an economics term, allows for intertemporal supply: the ability to spread power over time. Whether or not LightSail’s technology works and is commercially scalable is a question that awaits an answer. But to target investment in this area, rather than in algae fuels, is right on the mark.

And the need for storage is already becoming critical. The “variability problem” is especially a concern... » Read more


Off the Cuff: Will We Learn from Japan's Missteps In Time?

Its fate could shock other countries into action
Thursday, November 22, 2012, 3:14 AM

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

  • Japan's Kamikaze Monetary Policy
    • The yen may be poised for destruction
  • Denial is a river in Germany, Greece, and Spain
    • Poor decisions being made in all three countries
  • Fiscal Cliff: Deal or No Deal?
    • What's most likely at this point

In this Thanksgiving edition of Off the Cuff, Chris and Mish are grateful for Japan. Why? Because Japan will likely collapse under its unsustainable monetary and fiscal policies before the U.S. does.

Much of the structural rot that ails the U.S. has been festering for much longer in Japan. With signs growing that the Japanese economy is nearing its predictable endgame, its implosion might be shocking enough to cause our leaders to think seriously that fate could be ours if we don't take radically different actions immediately. » Read more