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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


Europe's Mexican Standoff

All's fine until someone blinks
Tuesday, November 20, 2012, 3:08 AM

Executive Summary

  • Germany is unlikely to break solidarity with the rest of the Eurozone while Merkel remains in charge. But she may not last as long as she'd like.
  • France's economy is deteriorating at an alarming rate.
  • Most of France's "stability" to date is due to inflows of money fleeing Spain and Italy. That will stop soon – and then what?
  • The UK is suffering from many of the same ills as the U.S. However, its banks are too dependent on Eurozone debt for it to take drastic counter-measures, and so it is handcuffed to the future of the Continent.
  • All is well as long as no one defaults or no one leaves the Eurozone. With each player's position deteriorating, how long can the status quo last?

If you have not yet read Europe Is Now Sinking Fast, available free to all readers, please click here to read it first.

In previous articles, I have given Peak Prosperity's enrolled members the lowdown on the weak Eurozone governments and looked at the crisis from Germany’s point of view. With respect to Germany, all that can be added is that her political elite is still frozen in inaction and show no signs of snapping out of it. Mrs Merkel, particularly, is still pursuing the out-of-date Euroland ideal. It is as if she has decided that she has no alternative. Come what may, it will have to succeed in the end, and she is not going to be the one who calls “uncle.”

I don’t know how these things work in Germany, but in the UK there comes a point where “the men in grey suits” metaphorically tap the leader on the shoulder and politely instruct him or her to resign. It happened to Mrs Thatcher, and unless she has a change of heart, it could happen to Mrs Merkel before next November’s German elections. And when that happens, the withdrawal of Germany from the euro can be expected to begin.

In this article we will update the deteriorating situation in two other key players on Europe's chessboard: France and the United Kingdom. And we'll reveal why the current system is like a Mexican standoff: Everything is stable until someone makes a move. Then all hell breaks loose... » Read more


Unrealistic Expectations

Too many want too much
Friday, November 16, 2012, 3:24 PM

Mish and I were unable to connect this week, so here's what was on my mind for that podcast.

One of the fundamental aspects of life today is that so many people are unable or unwilling to understand the nature of the predicament, which leads to all sorts of understandable, but unproductive, outbursts.

Put simply, people don't want their stuff to go away.  This is perfectly normal and understandable; the only problem is that a lot of people's expectations are entirely unrealistic and were formed during a period of time when they were, individually or collectively as a nation, living well beyond their means.

Cutting back is hard, and necessary, and it seems that many people are unwilling to entertain either the prospect of having less or the inevitability of the coming decline in living standards... » Read more


Why the Fed Will Fight to the End

'It's the assets, stupid'
Wednesday, November 14, 2012, 6:29 PM

Given the choice between accepting the risk of future inflation and dealing with the immediate and destructive consequences of deflation now, our fiscal and monetary authorities will always choose inflation.  At least if 800 years of history and the last four years are any guide.

If I had to boil the whole thing down to one trite statement suitable for an election campaign, it might be, It’s the assets, stupid.

Here’s why. » Read more


Why Gold & the Dollar May Both Rise from Here

An important possibility to consider
Tuesday, November 13, 2012, 11:05 AM

Executive Summary

  • Triffin's Paradox leads to four principal conclusions that indicate why the U.S. dollar may well continue to strengthen from here
  • Why the euro's troubles have been good for the price of gold
  • Why the dollar can strengthen despite the United States' wishes
  • Why the future may well see the price of both gold and the U.S. dollar rise

If you have not yet read Part I: Gold & the Dollar are Less Correlated then Everyone Thinks, available free to all readers, please click here to read it first.

In Part I, we examined the commonly offered correlations between the dollar, gold, interest rates, and the monetary base, and found no consistent correlations between any of these and the domestic economy.  Clearly, the trade-weighted value of the dollar and the value of gold have at best marginal impact on the domestic economy. 

Perhaps the dollar’s primary impact is on the international economy, as suggested by Triffin’s Paradox, which begins with the premise that the needs of the global trading community are different from the needs of domestic policy makers.

Prior to 1971, the dollar was backed by gold, which acted as a supra-national anchor to the dollar's reserve status.  As the U.S. monetary base expanded while gold remained artificially pegged at $35 an ounce, roughly half of America’s gold reserves were shipped overseas before the policy was jettisoned.

Here is the Wikipedia entry on Triffin’s Paradox:

The Triffin paradox is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit. (emphasis added)

The use of a national currency (i.e. the U.S. dollar) as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. Net currency inflows and outflows cannot both happen at once.

This leads to some startling conclusions that many have great difficulty accepting... » Read more


Off the Cuff: Awaking with a Whopper Hangover

Reality can be cruel
Friday, November 9, 2012, 1:06 PM

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

  • Post-Election Plunge
    • Why are the markets selling off so hard?
  • The Return of the EuroCrisis
    • It worsened while we ignored it.
  • The Fiscal Cliff
    • Will we drive off it? And at what speed?
  • Gold's Resurgence
    • Showing strength as investors demand safety

America awoke on Wednesday with the Presidential election finally over and talk from the re-elected incumbent of moving 'forward' again. » Read more