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Off the Cuff: Red Sky at Morning

Investors take warning
Thursday, February 28, 2013, 5:28 PM

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

  • Rough Seas Ahead
    • Chris issues a rare warning for a 40%+ correction in the stock market
  • Happy Sequester!
    • What will its impact be?
  • The Japan Mess
    • Looking more & more like it will be the first major country/currency to fail
  • The "Affordable" Care Act
    • A misnomer if there ever was one
  • The Barnburner at Rowe
    • This year's seminar is shaping up to be one for the ages

How the Market Failure Will Happen

Get out or get short
Thursday, February 28, 2013, 10:34 AM

Executive Summary

  • The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
  • HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
  • Persistently high gasoline prices are choking economic growth
  • A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
  • Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
  • Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
  • Why you don't want to be long in this market when that happens

If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.

Hey, Where's My Cheap Gasoline?

Expensive energy is a serious drag on economic growth.  It always has been and always will be, for obvious reasons.

The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.  

Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should.  But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices: 

How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?

The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year... » Read more


The Forces That Will Reverse Housing's Recent Gains

Get ready for the "poverty effect"
Monday, February 25, 2013, 4:56 PM

Executive Summary

  • Intervention in the housing market by central planners is experiencing diminishing returns
  • The four major trend reversals most likely to depress housing prices in the coming future
  • The power deflationary force of reversion to (or perhaps below?) the mean
  • Why demographics do not support rising prices

If you have not yet read Part I: The Unsafe Foundation of Our Housing 'Recovery', available free to all readers, please click here to read it first.

In Part I, we sketched out the larger context of the housing market: the dramatic rise of mortgage debt, the stagnation of income for 90% of households and the unprecedented scope of Central Planning intervention in the housing and mortgage markets.

In Part II, examine what will likely cause this nascent rise in housing prices to reverse, and to resume the decline Central Planning halted in 2009.

Intervention Has Only One Way to Go: Diminishing Returns

As noted in Part I, every Central Planning support of the mortgage and housing markets has already been pushed to the maximum, so there is nowhere left to go. Interest rates are already negative, over 90% of the mortgage market is backed by Federal agencies, the Fed has already pledged to buy trillions of dollars in mortgages, etc.

Four years of this massive intervention has stripped the mortgage and housing markets of the ability to price risk, capital, and assets. This has created a culture of supreme complacency, as participants have come to believe interest rates will stay near-zero for the foreseeable future and Central Planning intervention is permanent.

But nothing is permanent in life. And the current extremes of intervention and complacency have set the stage for some important reversals: » Read more


Off the Cuff: Things are Getting Interesting

Painful, but interesting
Thursday, February 21, 2013, 10:25 AM

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

  • The FOMC Freak-out
    • Why markets dove after the Fed minutes were released
  • Stocks Slip, PMs get Slaughtered
    • Why the markets look very treacherous from here
  • The Sinister Sequestration
    • What will likely result if it happens

The 10 Next Predictable Steps to Japan's Unfolding Disaster

As Japan goes, so will the rest of the world soon after
Monday, February 18, 2013, 5:05 PM

Executive Summary

  • Japan is intentionally devaluing its currency through money printing. The recent boost in the Nikkei is simply the result of this flood of new money.
  • Japan industry is now experiencing cost increases on two fronts: inflation of the money supply, and rising prices on the global market for commodities.
  • Rising bond rates are all but guaranteed.
  • Gold vs. the yen is surging and will pick up momentum from here
  • The ten predictable events that will happen next, as the unavoidable Japan disaster unfolds

If you have not yet read Part I: The Arrival of Japan's Sunset available free to all readers, please click here to read it first.

In Part II we explain why Japan has unequivocally entered the terminal phase of its 20-year reflationary experiment.

Further “abundance” harvesting from this point forward will be difficult if not impossible.

Is the devaluation of the yen really the successful technology that will fool nature? We think not. The outcome will have spectacular implications for many global assets, ranging from real estate, to stock markets, to oil and gold.

Observers of Japan from this point forward should be sober about the threshold the country has now crossed. Japan has effectively said to the world: Go ahead, make my day. Sell our currency, give us inflation, and get out of our bonds.

Japan has indeed taken to heart the Krugman dictum, and committed to irresponsibility. » Read more


Off the Cuff: When the Wheels Will Come Off

The argument for a major correction by Spring
Thursday, February 14, 2013, 10:47 AM

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

  • The (Dire) State of the Union
    • The money for the Administration's grand vision just doesn't exist
  • The Housing Market
    • Bubble pricing returning to several markets
  • Currency wars
    • Why the dollar will likely strengthen further from here
  • The Next Correction
    • Here by summer?

How to Increase Your Financial Resilience

Whether you're an individual, a family, or a business
Tuesday, February 12, 2013, 9:24 AM

Executive Summary

  • Treat your household as a business enterprise; the rules for financial resilience are the same
  • The 5 Rules of Financial Resilience
  • Eliminating vulnerabilities
  • Focusing on value creating and income diversification
  • The number of options for increasing your financial resilience is much larger than you likely expect. Your challenge is first truly understanding this, and then having the courage to see a few of them through.

If you have not yet read Don’t Worry, Be Resilient available free to all readers, please click here to read it first.

In Part I, we sought to understand what financial resilience means, and found that reliance on debt for consumption and on speculation for collateral, and an inflexible, high cost basis were the characteristics of fragile finances for households, enterprises, and nations.

In Part II, we ask the question, what are the characteristics of a financially resilient household? What strategies can we pursue to increase the resilience of our own households? » Read more


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

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


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