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    The Death Of Hopium

    Tech Bubble 3.0 is in the process of bursting
    by Adam Taggart

    Tuesday, October 13, 2015, 8:48 PM

As many readers know, I spent 13 years living and working in Silicon Valley before partnering up with Chris to start Peak Prosperity.

I got my MBA at Stanford in 1999 when the dot-com bubble was at its zenith, and worked for both a VC-funded start-up as well as one of the biggest Internet juggernauts (Yahoo!). I lived in Palo Alto, the central core of the tech scene.

As a result, I have a pretty good read on how Silicon Valley works. Many of the folks I worked and went to school with are now in leadership positions at the big operating companies, VC firms and hedge funds in that ecosystem — so I have personal knowledge of who's making the decisions.

And it's no secret that I think things have degenerated into a steaming pile of hucksterism.

The "engine of our economy", the "cradle of innovation", the "land of tomorrow" — whatever breathless hyperbole the fawning media is using this week — is a sham. Silicon Valley has become a factory of hype, funneling gobs of early-stage capital into whatever half-credible concepts it can think of, and then pimping the artificially-inflated initial results of those tarted-up ventures to whichever "greater fool" is willing to acquire it or buy its IPO. Let that idiot figure out if it will ever turn a profit…

Like the too-cozy relationship between DC and Wall Street, I see a similar one between Wall Street and the Tech sector. They collude to pump out as many opportunities as they can — private placements, acquisitions, IPOs, secondary offerings — to cash out the insiders and foist the long-term financial risk onto the "dumb money" (pension funds, foreign capital, retail investors, corporations desperate to enter the "digital age"). The dreams of 'changing the world' or revolutionizing lives by making great products have taken a distant back seat to the drive to have as lucrative an "exit" as possible. If that exit requires selling junk to unassuming buyers, so be it.

As with Wall Street in general, the Tech story has been driven by ferocious and cheap liquidity. The Fed and the other major world central banks pumped trillions and trillions of freshly-printed money into the system starting in 2008, and it largely went into the hands of the major financial institutions and the top 1%. All that money has to go somewhere, and the high-potential rewards offered by tech ventures is a really attractive magnet for it. Coupling that with the administration's "Don't worry, technology will save us!" meme to calm market jitters, and the media's amplification of that message in desperate hopes it will come true, it should come as little surprise that money has been lining up to enter Silicon Valley over the past 6 years. There literally have not been enough ventures to invest in to soak up the supply of capital sloshing around Silicon Valley.

This, of course, has led to the stupidly fast pace at which we've entered Tech Bubble 3.0. Facebook, LinkedIn, Twitter, etc went public several years back to astronomical valuations given their (lack of) profits. Since then, a herd of "unicorns" — start-up companies with no profits but $multi-billion valuations — stampeded onto the scene. A new mythos of all-knowing visionaries (Musk, Kalanick, Dorsey, etc) emerged to replace the previous generation of "god like" sages (like Jobs, Schmidt, Bezos). A sense of hubris and entitlement returned to the rank-and-file employees working within the over-designed and over-perked corporate HQ-plexes that pepper the 101 corridor. Real estate prices in San Francisco and surrounding counties blew through the previous heights set in 2007, and housing affordability there is now at a record low. And a new dynamic this time, capital flooding in from Asia (mostly China and India), has provided the rocket fuel at the margin for prices of both homes and companies to soar.

How shockingly little we learn from history.

Not ancient history, mind you. We saw this same movie play out just 7 years ago in 2008. And that took place 7 short years after the initial dot-com bubble burst in 2001.

As they say, "Those who cannot remember the past are condemned to repeat it". The Ponzi-like party that the current crop of Technorati are enjoying cannot last forever. It can only continue as long as incoming capital flows exceed demand, and someone is willing to bid higher than the seller's basis.

Well, there's growing evidence that the end is nigh. (Finally! shout those of us living out here with a front row seat to the insanity).

As with all bubbles — which are a product of mass psychology — they resist all influence of logic and fundamentals until perception shifts. It's at that moment, when the veil of hopium is cleared from the public's eyes, that the fawning crowd can suddenly see that the emperor is actually naked.

And we are finally seeing the initial signs that sentiment is beginning to shift.

First, there's the obvious: several companies that were Tech's proudest 'darlings' just a year ago are now looking a lot uglier. For instance, last month, Twitter's stock price was down nearly 65% percent from its year-ago high, and had dropped below its IPO price — a shameful milestone for the former high-flier. It's CEO, Dick Costello, was ignominiously dumped; and after a much-criticized search for a replacement, the new CEO, Jack Dorsey, announced today that the company will be laying off 8% of it workforce, many of them engineers. Those who work in Silicon Valley will confirm that an engineering job has had about the same job security as academic tenure up to now. The fact that any company in the Bay Area, but especially a tech-bellwether like Twitter, is firing engineers en masse is a big discordant departure from the status quo here in Tech-land. If the engineers are getting cut, it's a sign that the senior executives are very, very worried.

But perception and sentiment aren't just about the numbers; they're about the vibe, the "feel" of things. What's being talked about in the hallways, at the trendy coffee bar, or voiced behind conference room doors. And the tenor of that vibe has suddenly become a lot more off-key.

During a recent gauntlet of industry conferences held in the Bay Area by the likes of Fortune, Re/code and Vanity Fair, the speakers gave voice to a nervousness that's been absent during the past half-decade of bulletproof optimism:

We talked to a lot of these execs, as well as the quieter folks behind the scenes, at the events and the parties afterward, and a common theme shone through: Everybody agrees we're in a tech bubble.

At the Code/Mobile conference in Half Moon Bay, there was a lot of chatter about "on-demand" companies such as Uber, Postmates, and Instacart. These companies sprung up over the last few years to provide conveniences at the touch of a smartphone button to busy professionals with disposable income.

But investors are worried that these companies have been subsidized by easy VC money for too long.  In many cases, their customer and usage numbers are going up because they're using VC money to expand into new cities, but customer-acquisition costs remain high and many of them are bleeding money. Worse, mature markets like San Francisco and New York are starting to see some scary, weak customer-adoption numbers, which bodes poorly for these companies as they expand into other regions.

Basically the theory is that you can only sell a dollar for $0.75 for so long until you run out of money. That's going to happen at some point, and some investors believe a lot of these companies will vaporize.

(Source)

The invading gloom has been noticed by journalist Dan Primack, who has covered the venture capital beat for years:

The party isn’t entirely over, but you can hear someone shouting “last call.”

Every couple of months I leave my small Massachusetts town — where most people still shop for their own groceries and drive their own cars — and head for the Bay Area. Suddenly, all of my cynicism and bubble worries are drowned out by the kind of unfettered optimism that only $1 billion valuations (on $0.00 earnings) can buy.

But not today. Not this time.

Since landing in San Francisco on Wednesday, I’ve met with an assortment of senior venture capitalists, bankers, entrepreneurs and crossover investors. All of them have, in one way or another, been involved with so-called ‘unicorn’ companies. As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear.

The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity — and still lots of it — but not necessarily at the terms they were receiving just two months ago.

“This shift is only five or six weeks old, so most companies haven’t felt it yet,” a senior tech banker explains. “But I know of many companies who raised money at $1 billion valuations last year that are now being told that, to raise money now, they need to take around $700 million or $800 million. Probably with some serious structure that protects investors, like ratchets, on top of it.”

The reality is that record-high private market valuations have been driven by two things: Wall Street’s lust for growth at all costs, and relatively high tech multiples in the public markets (and, more specifically, applying the former to the latter). But a variety of macro economics factors (China, the inscrutable Fed, etc.) have cut public equity prices and moved the spotlight to unit economics, which means some pretty large biz model disruption for the disruptors.

Moreover, many of the crossover investors fueling these big deals were playing primarily for IPO optionality, and the successful VC-backed tech IPO has become few and far between. No longer are they willing to have terms dictated to them when the endgame seems so much less certain, and particularly not based on ambitious internal growth projections that would never be provided to the public in filings or on earnings calls.

(Source)

Nick Bilton, technology and business columnist for The New York Times takes it even further, decrying current valuations as "out of whack" and advising it's time for tech investors to "put your money in your mattress" to protect it from the coming carnage:

So sentiment is shifting, but it's early on in the process. Like a ball tossed in the air that reaches its apex, it reverses direction slowly at first, but then speeds up with rapid acceleration.

We are likely to see one of the great confidence-supporting memes of the past 7 years — the unstoppable virility of our Tech sector as a jobs and capital gains engine — unravel over the next year and a half. This in-turn will remove one more of the dwindling number of pillars supporting the 'master plan' our central planners have been claiming is necessary for stabilizing the global economy. 

Once the public's faith in Tech is shaken, how far behind will its faith in the Fed follow? How quickly will tolerance of further taxpayer-funded welfare programs for our big banks evaporate? Or of the cronyist revolving door between DC and Wall Street? Or of more policies that expand farther the wealth gap between the 0.1% and everyone else?

Change happens quickly once beliefs shift. As we continually advise here, make your preparations now, in advance, while supplies are still abundant and affordable.

Oh, and develop a taste now for unicorn meat. There's going to be a heck of a sale on it over the next few years.

 

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80 Comments

  • Tue, Oct 13, 2015 - 9:35pm

    #1

    SingleSpeak

    Status Bronze Member (Offline)

    Joined: Nov 30 2008

    Posts: 166

    Adding Unicorn Meat

    to my list of reasons I'm happy to be vegetarian.

    It must be at least slightly amusing for you to see it happening from the other side of the bubble.

    Insightful article Adam.

    Thank you,
    SS

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  • Tue, Oct 13, 2015 - 10:21pm

    #2
    Time2help

    Time2help

    Status Platinum Member (Offline)

    Joined: Jun 08 2011

    Posts: 2261

    Re: The Death of Hopium

    Couldn't have happened to a nicer unicorn. crying

    I'm calling dibs on a case of that unicorn meat…that would go well next to the cases of Spam and Velveeta…

    Does it also have an infinite shelf life? And why does it look so much like Elk droppings?

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  • Tue, Oct 13, 2015 - 10:36pm

    #3

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Trust.

    The NSA doesn't help their cause. I get Google begging me to install their latest .exe but I won't. Can't trust their ethics. 

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  • Tue, Oct 13, 2015 - 10:50pm

    #4

    Wildlife Tracker

    Status Silver Member (Offline)

    Joined: Jan 14 2012

    Posts: 405

    Hopium

    Hopium is still $16 dollars on ebay! AND it's got 100% of your daily happiness…

    http://www.ebay.com/itm/1-can-of-Unicorn-Meat-Magic-in-every-bite-/271839985757?hash=item3f4aed005d

     

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  • Wed, Oct 14, 2015 - 12:32am

    #5
    macro2682

    macro2682

    Status Gold Member (Offline)

    Joined: Sep 03 2009

    Posts: 321

    Bernanke's Talk

    I just sat through a fascinating talk at the Chicago Theater with Ben Bernanke.  I actually got to ask him a question at the end.  I mentioned that society does not require growth, but that it seemed like the financial system does.  His response was predictable and unsatisfying, suggesting that economic growth doesn't have to involve "more stuff".  After the talk many people approached me and thanked me for asking.  The ideas presented in this forum are out there and adopted, but they are in hiding it seems.  The event was live streamed online. Check it out!

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  • Wed, Oct 14, 2015 - 2:05am

    #6

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4706

    Plenty of Hopium Left To Vaporize!

    Macro – great job on asking a Q to the Bernanke!  Of course, you knew even before asking that it would be an unsatisfying answer, but it was good for other people to hear you ask it.  Well played.

    In other news, scanning across the technopium landscape, there's still plenty of starry eyed dreamers out there, especially those buying stocks with a long track record, yet still are sporting p/e multiple of over 200.

    Netflix (NFLX) is one I am tracking as a bell weather for "loss of faith in the dream."

    It's got a p/e of 246 (ugh!) and is a full double this year alone.

    Yes, NFLX is down since August, but it's got a very loooong way to fall if it ever decides to get around to getting back to a fair value p/e or 10 or 15.

    On the other side of the hope ledger, we find that Twitter has been a real destroyer of capital and dreams.

    That's a roughly 50% loser from the peak…and probably will go a lot further.  Of course it doesn't even have a p/e to report because it's lacking a full year of positive 'e' to put in the equation.

    But it does have a market capitalization of $19 billion.  As soon as TWTR earns $10 million over the course of an entire year, finally, then it will sport a p/e of  1,900.  But if it could earn $100M, then the p/e would shrink to "just" 190.  To justify this company in a long-term portfolio you'd want to see a p/e in the vicinity of 15-20…and that would require earnings of ~$1 – $1.2 billion.

    This is why tech company investors hate earnings.  As soon as you get them you can value a company.  Best to not have them so you can continue to evaluate the company on "growth" and "eyeballs" and "market share."

     

     

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  • Wed, Oct 14, 2015 - 7:09am

    Reply to #5

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Me Drinking Mate Ben.

    economic growth doesn't have to involve "more stuff".  

    I assume the growth will have to be in "non-stuff". Paper, computer digits etc. To be more precise,  there is no limit to his left brain creating non-stuff ex nihilo. 

    Ben and I are of a mind. Who knows what the past will bring tomorrow?

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  • Wed, Oct 14, 2015 - 8:24am

    #7

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    And in further news, MS and the Russians get together.

    Microsoft and the largest Russian internet company Yandex have announced a partnership that appears to be a hammer blow for Google. Yandex will become the default homepage and search engine on Windows 10 devices in Russia, other CIS countries and Turkey.

    https://www.rt.com/business/318555-microsoft-yandex-windows-google/

     

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  • Wed, Oct 14, 2015 - 8:28am

    #8

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3156

    a pony in there somewhere

    I think there's a pony somewhere inside silicon valley.  Amongst all the silly startups, there really is some worthwhile stuff happening.  It just gets lost in all the me-too race for billion dollar valuations of zero earnings companies.

    I've used the Internet for a very long time, long before it was popular.  The first time my friends and I heard the word "internet" used in public was at a bar called the Tide House in 1991.  We were all surprised.  We'd all been on the net for years, but we didn't realize it had made it into the mainstream.  Of course, it was a silicon valley bar, which meant it wasn't really a traditional bar per se but rather than a medium-high end yuppie beer drinking place in a valley full of tech people, so … how mainstream is that, really?

    Anyhow, in the next 10 years, silicon valley made our quaint little Internet into a monster.  In so doing, it blew through hundreds of billions of dollars of investor money leaving wreckage in its wake.  Pets.com, eyeballs, AOL buying Time Warner (ha!), the silliness and the losses were legion.

    What did we get?  Well, Internet was rolled out worldwide, and it has enabled almost everything tech since then.  Smartphones/online cameras & 24/7 portable connectivity: Iphone and Android.  Amazon (dotcom survivor, still not profitable) + UPS.  Google: search, maps, translate.  Open source software: including complete operating systems!  And everyone is connected, everywhere.

    But boy was there sure a messy, expensive process in sorting out the good ideas from the crappy ones.

    What is silicon valley enabling now using this vast wall of money that is in its infancy, but will change the world 10 years from now?

    Situational AI: drones, self-driving cars.  3-D printing – biological, physical.  Quantum computing.  I hate to say "the cloud" because its so overhyped – but servers-on-demand (i.e. the cloud) which itself is an enabling technology for new services.  Integration of microfluidics, other sensor technology with smartphones – linking the real world to the internet.   There's other stuff that I don't see too, I'm sure of that.  Some of the hype will turn into real stuff that we'll then use every day.

    Buried in all the stupidity of twitter, facebook, and other silliness, real stuff is being created.  Its a messy, gold-rush-like process.  Why do we have to fund such utter stupidity along the way?  I don't know.

    All that said, do we want to kill off the goose that has laid a very large number of golden eggs down through the decades?  I don't think so!  I do think we need the crash periods to bring a reality check back to the process.   But we can't lose the silly part.  Somehow, it seems to help.  I'm not sure how, maybe it just gives permission (and money) for people to think outside the box.  In our current society, outside-the-box thinking is not rewarded very often; not in school or industry.

    There is also group-think in the funding process.  If you can cloak your new idea as the hot new thing (social media, the cloud, etc), you can get your crazy dream funded.  $4 million dollars on an 8 million dollar valuation – enough money to do "something" and probably blow up, but who knows for sure?  I think that's cool.  And the culture it enables, that of everyone thinking that, if they get a cool new idea, they can start their own company in their garage and eventually become Apple, is awesome.

    Am I a tech investor?  Ha.  That'll be the day.  Time, effort, energy – sure.  But money?  No way.  I save my investment money for a boring business that makes a profit every quarter.  🙂

    Anyhow, just some perspective on hopium.  I think it may be a required part of the process, though I'm not sure.  Just my two cents.

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  • Wed, Oct 14, 2015 - 10:53am

    #9
    macro2682

    macro2682

    Status Gold Member (Offline)

    Joined: Sep 03 2009

    Posts: 321

    Davefairtex

    I agree Dave. The productivity gains of the internet are very real, and our markets are struggling to quantify that.  The way social media, big data, and cell phones are changing society is incredibly significant; both wonderful and horrible at the same time.  

    We are getting  extremely efficient at producing the stuff we need/want.  Previous frictions in the machine, like logistics, manufacturing, marketing, and even development are being automated.  

    There was a time when 95% of society worked on farms to produce food.  Next came a period where energy and engineering allowed most of those farmers to pursue other jobs in manufacturing and services.  Tech and automation are reshuffling the deck yet again… Just 2% of the population is enough to make all of our food, and eventually just 5% of the population will be enough to make all of our "stuff". 

    The labor force participation rate is in a perpetual decline that will persist until a new global purpose emerges. I'm hopeful that things like climate change and space exploration play a major role in our society's next phase, but I'm worried that it is our government that will be doing most of the changing in the next iteration of society.

    I found it interesting in engineering school that the maximum possible efficiency of a thermodynamic process (coal plant, steam engine, etc) is a function of just two factors: the temperature on the way in, and the temperature on the way out).  I think a lot about what the Carnot (maximum) efficiency of humanity might look like.  Sometimes I think that our distribution of wealth is analogous to the temperature difference driving a thermodynamic process.  

    What is the smallest percentage of our population that can successfully produce all goods and services for the remaining bunch?  What economic and political system would thrive in an environment where the labor force participation rate is sub 20%?  Do we all become artists?  How will we be paid?  How will resources be distributed?

    I think capitalism (as we know it) might break down as this process continues.  I suppose we are seeing that now.

     

     

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  • Wed, Oct 14, 2015 - 11:16am

    #10

    KugsCheese

    Status Gold Member (Offline)

    Joined: Jan 01 2010

    Posts: 841

    Tech Bubble 3.0?

    When was Tech Bubble 2.0?   Are you including Biotech?  Not just Internet?

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  • Wed, Oct 14, 2015 - 11:33am

    #11

    KugsCheese

    Status Gold Member (Offline)

    Joined: Jan 01 2010

    Posts: 841

    Years ago my friend, an

    Years ago my friend, an optical engineer, wanted me to move out there.  He was pumping the local economy saying great for engineer/science/math types.  I said didn't want the earthquake risk.  I thought that bubble would have burst for good by now.  How we learn the hopium of central bankers!

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  • Wed, Oct 14, 2015 - 12:29pm

    Reply to #5

    HughK

    Status Gold Member (Offline)

    Joined: Mar 06 2012

    Posts: 571

    More stuff versus more virtual stuff

    [quote=Arthur Robey]

    economic growth doesn't have to involve "more stuff".  

    I assume the growth will have to be in "non-stuff". Paper, computer digits etc. To be more precise,  there is no limit to his left brain creating non-stuff ex nihilo. 

    Ben and I are of a mind. Who knows what the past will bring tomorrow?

    [/quote]

    This is a key question with respect to how our economy – especially the part denominated in paper currencies – will go forward.  While I agree with Macro (big props!!!) that Bernanke's answer seems lackluster, when one learns that people have made real fortunes selling virtual real estate in Second Life or building up World of Warcraft characters to level 90 and then selling them for real money, there is something to the idea that more and more of our economy will grow virtually.  Here's an extreme example of that in the form of a Black Mirror episode – well worth watching.

    I'm of the belief that while some of our economy will grow into this virtual space, and possibly alleviate the inflationary trend of money creation by occupying people's leisure time and funds in our modern Matrix, i.e. Facebook, Netflix, networked video games, and yes, even in some ways this website, that resource limits will still bite us, with the key resource limit being oil, our universal problem-solver, and that will lead to most or all of the consequences charted on the Limits to Growth curve.

    Perhaps little archologies mimicking our high-energy consumer society will remain, but if they are like the one depicted in 15 Million Merits, then maybe it would be better to just slide right off of Seneca's Cliff.

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  • Wed, Oct 14, 2015 - 12:52pm

    Reply to #5
    DennisC

    DennisC

    Status Bronze Member (Offline)

    Joined: Mar 19 2011

    Posts: 101

    In Vino Veritas

    One of my favorites:

    http://www.theonion.com/article/drunken-ben-bernanke-tells-everyone-at-neighborhoo-21059

     

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  • Wed, Oct 14, 2015 - 1:13pm

    Reply to #9
    jennifersam07

    jennifersam07

    Status Member (Offline)

    Joined: Oct 14 2012

    Posts: 115

    What's lacking is a new global purpose

    The labor force participation rate is in a perpetual decline that will persist until a new global purpose emerges.

    That's a good way to put it. The social media/Silicon valley growth model is still based on selling stuff. The ad revenue still comes from car companies, consumer products and so forth. Ultimately that is the source of growth. Now that the consumer is failing, there is a growing realization that eyeballs doesn't translate to people buying products from advertisers when many of those eyeballs are ISIS. 

    Having just seen the movie, The Martian, I'm again more hopeful that something good could happen to give us a new global purpose. Although a false flag invasion from another planet might be more successful considering the global's current state of war mongering. 

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  • Wed, Oct 14, 2015 - 1:18pm

    #12
    jennifersam07

    jennifersam07

    Status Member (Offline)

    Joined: Oct 14 2012

    Posts: 115

    Great article

    by the way. Really articulates a lot I've noticed in my visits to the area recently. 

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  • Wed, Oct 14, 2015 - 2:30pm

    Reply to #8

    Adam Taggart

    Status Platinum Member (Offline)

    Joined: May 25 2009

    Posts: 2618

    You Have To Dig Too Deep To Find It

    Dave –

    Love the pony analogy. My opinion is that you have to dig through too much excrement to find it these days.

    I'm glad you're giving me the opportunity to clarify that I am painting with a broad brush here. Yes, value is still being created/unlocked in the midst of all the glop I'm ranting about. I do loves me my smartphone. Am I saying the entire industry is unneeded? No.

    But perhaps we differ on our tolerance level for "silliness/stupidity". Should tech ventures have a higher potential payoff (and, correspondingly, flame-out rate) because zany entrepreneurs want to try running things in a way no one has tried before? Sure. I agree that enabling folks with the courage and vision to reach for the stars is our best path for actually arriving at them someday.

    But does that give the Tech industry a hall-pass on the abuses of capital, trust, and privilege now rampant there? No, in my opinion.

    I see it as analogous to Finance (though not quite as egregious). Do I think we need a banking system and financial markets? Absolutely. Do I think that justifies the stranglehold the TBTF banks have on the world, the vast amount of wealth hoovered up by the Wall Street elite, the systemic fraud, and the deeply unfair playing field facing investors? Absolutely not.

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  • Wed, Oct 14, 2015 - 2:49pm

    Reply to #9

    charleshughsmith

    Status Bronze Member (Offline)

    Joined: Aug 15 2010

    Posts: 685

    topic of my next book

    Macro, you describe the topic of my next book to a T. As goods, services and finance are automated, and labor costs keep rising (for a lot of reasons), there won't be much work that is profitable for humans to do. I agree with you that the state is itself dependent on profitable companies and their employees for taxes, and the decimation of that model means the state will also have to change the way it functions as well.

    Clearly, the emergence of mobile technology fueled Tech Bubble 3.0. there was an entire infrastructure to build out, and that has pretty much been accomplished. The evidence for this is the derivative nature of so many Unicorns–"we're the Uber of parking spaces," etc.

    Nice work, Adam–this is a topic that is still well below the MSM radar.

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  • Wed, Oct 14, 2015 - 3:00pm

    #13

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4706

    Massive hopium left in the shale space too

    This idea of crazy amounts of money chasing crazy dreams and doing stupid things is not confined to the tech industry…Exhibit A from the shale industry came out yesterday with the announcement of the first wave of resets to the lines of credit (LOC) for a raft of major and minor shale oil players.

    While the table is really poorly formatted (thx Reuters!) I've taken the liberty of marking it up a bit.

     Here's the punch line:  Out of the tens of billions of open lines of credit, the banks only made $1,150 million in LOC reductions were made (in pink/red) while some $775 million in expansions were made (green) with the remaining balance not changed at all (blue).

    (Source

    This net reduction of $425 million is chump change in the larger story of lending to the shale players.  In the total table above, it represents a decline of just 2% in total net lending.

    This against a slump in oil prices of ~50%, declines in operating profits that in many cases are now losses (not profits), and the supposed write-downs of underlying assets by 50% or more.

    The reason for this gigantic mismatch?  The banks know that if they cut lending to these companies the banks will end up owning assets they'd rather not have.

    Owe the bank a million dollars and you have a problem.  Owe the banks a billion dollars and the bank has a problem.

    Solution:  Extend and pretend.  That's what the above table represents.

     

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  • Wed, Oct 14, 2015 - 3:21pm

    Reply to #9
    macro2682

    macro2682

    Status Gold Member (Offline)

    Joined: Sep 03 2009

    Posts: 321

    charleshughsmith

    [quote=charleshughsmith]

    Macro, you describe the topic of my next book to a T. As goods, services and finance are automated, and labor costs keep rising (for a lot of reasons), there won't be much work that is profitable for humans to do. I agree with you that the state is itself dependent on profitable companies and their employees for taxes, and the decimation of that model means the state will also have to change the way it functions as well.

    Clearly, the emergence of mobile technology fueled Tech Bubble 3.0. there was an entire infrastructure to build out, and that has pretty much been accomplished. The evidence for this is the derivative nature of so many Unicorns–"we're the Uber of parking spaces," etc.

    Nice work, Adam–this is a topic that is still well below the MSM radar.

    [/quote]

     

    Charles,

    I'll look forward to reading it, sharing it, giving it as Christmas gifts, and someday tracking you down for a signature. 

    As it relates to restoring perpetual growth… I always laugh when someone suggest efficiency as a solution.  Growth is an exponential function, efficiency is logarithmic.  It's like helping a short person grow by telling him to stand on his toes. 

    Ben Bernanke's response was Mathematically wrong.  And he ran our financial system. 

     

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  • Wed, Oct 14, 2015 - 3:30pm

    #14

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4706

    Ooops...there goes another hope (WMT)

    Well, this is about as far from silicon valley as you can get, but WMT just tanked after releasing their strategic outlook and guidance..

    A -10% hit is a pretty big for this bell weather stock…combine it with all the other data and we're in a recession, or damn close.

    The 'hope' now is that any weakness will be met with even more Fed buying.

    I think that's a reasonable hope…but….only after a ton of pain makes that okay to do politically.

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  • Wed, Oct 14, 2015 - 4:15pm

    #15

    Snydeman

    Status Member (Offline)

    Joined: Feb 06 2013

    Posts: 523

    I keep waiting

    …for the Idiocium to end too.

     

    Alas.

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  • Wed, Oct 14, 2015 - 6:00pm

    #16

    Jim H

    Status Diamond Member (Offline)

    Joined: Jun 08 2009

    Posts: 1798

    Well written piece Adam

    Congrats on getting picked up by ZH.. 12K reads.

    http://www.zerohedge.com/news/2015-10-13/death-hopium

    Not only do you put the pieces of the picture together in a way that makes it obvious… I love the way you put words together here.  My favorite;  

    the Tech story has been driven by ferocious and cheap liquidity

    Telling the story of the newest Wall Street Tech Bubble;  Hundreds of Billions of dollars

    Putting the words, "ferocious" and "liquidity" together;  Priceless. 

    Then as I was still admiring Adam's work, Chris absolutely cracked me up with this comment;

    This is why tech company investors hate earnings.  As soon as you get them you can value a company.  Best to not have them so you can continue to evaluate the company on "growth" and "eyeballs" and "market share."

    LOL.. making me laugh a second time as I post this. 

     

       

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  • Wed, Oct 14, 2015 - 6:10pm

    Reply to #13

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3156

    shale space credit reduction

    Or should I say, "reduction."  That's pretty pro forma.

    I read articles where bank regulators had meetings with the big banks last month, suggesting that they carefully scrutinize the shale industry loans they've made.  Apparently, these cosmetic reductions are the fig leaf that was carefully calculated to be just barely big enough to cover both the regulators and the banks.

    Great find Chris, I was looking for that sort of summary data.  Extend and pretend describes it perfectly.  I guess drilling can proceed apace.  They lose money on every well, but they make up for it in volume.

    Or something like that.

    I guess it shouldn't surprise me that nobody wants the ponzi to end.  Managers at the companies keep drawing their salaries, receiving their bonuses, and perhaps hoping a miracle will occur and oil will pop back up to $80/bbl.

    I peeked at the Director's Cut from the Bakken.  Production in August was 1.186 mbpd, down 5k vs Jan 2015.  115 wells completed, 74 rigs active (down from 160 in Jan), 993 wells awaiting waiting completion.

    They are still drilling about 180 wells/month.  At 7M per well, that's about a 1.2 billion/month spend.  They have to drill (and complete), or they lose the rights to the properties.  Can't play the ponzi shale land game if you don't drill wells on the land.

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  • Wed, Oct 14, 2015 - 6:51pm

    Reply to #14
    macro2682

    macro2682

    Status Gold Member (Offline)

    Joined: Sep 03 2009

    Posts: 321

    Hope for more printing...

    [quote=cmartenson]

    The 'hope' now is that any weakness will be met with even more Fed buying.

    I think that's a reasonable hope…but….only after a ton of pain makes that okay to do politically.

    [/quote]

    Hope for more printing isn't doing much for equities today.  But the HUI is certainly reflecting that eventuality.  

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  • Wed, Oct 14, 2015 - 7:45pm

    #17

    Mark Cochrane

    Status Platinum Member (Offline)

    Joined: May 24 2011

    Posts: 828

    How miracles happen?

    Davefairtex wrote:

    I guess it shouldn't surprise me that nobody wants the ponzi to end.  Managers at the companies keep drawing their salaries, receiving their bonuses, and perhaps hoping a miracle will occur and oil will pop back up to $80/bbl.

    Why do I get the feeling that there is a drawing board up somewhere laying out an attack on a Saudi port that could somehow be made to look like Iran was the culprit? Or, maybe the Yemenis suddenly pull off a series of pipeline attacks in Saudi Arabia? Possibly an oil tanker is mysteriously sunk in the Straights of Hormuz? The only question is how much production needs to be taken offline for how long to breathe new life into the Shale ponzi scheme…

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  • Wed, Oct 14, 2015 - 8:29pm

    Reply to #6

    HughK

    Status Gold Member (Offline)

    Joined: Mar 06 2012

    Posts: 571

    Good timing and a timing question

    [quote=cmartenson]

    Netflix (NFLX) is one I am tracking as a bell weather for "loss of faith in the dream."

     

     

    This is why tech company investors hate earnings.  As soon as you get them you can value a company.  Best to not have them so you can continue to evaluate the company on "growth" and "eyeballs" and "market share."

    [/quote]

    Talk about good timing: Netflix shares plunge 7% as US user growth misses

    While lots of great points have come through in both Adam's article and the thread, one question I have is, if stocks don't have a major correction, or worse, in October of this year, how likely is it that they will fall significantly in November through May?

    My impression is that a lot of the major market busts have happened in October and that if they don't happen in the fall months, that stocks are unlikely to experience a major crash until the following fall.  I think it's quite possible that the bubble pops in the next couple of weeks, but if it doesn't, then when?

    My anectdotal evidence is shaky and based on the availability bias, I think, but I was wondering if anyone with more experience in markets has an opinion on when equity bubbles would be likely to pop if not in October of this year.

     

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  • Wed, Oct 14, 2015 - 8:34pm

    Reply to #9
    DLWELD

    DLWELD

    Status Member (Offline)

    Joined: Jun 07 2015

    Posts: 4

    productivity

    Yeah, we're getting more efficient at producing more things – except maybe wages. It's a problem – how to distribute the wealth so that the economy perks along. If the super wealthy end up with all the cash, pretty soon a consumer society falls apart – no consumers, no small businesses, no startups – just stasis – like the old South American dictatorships. Oddly, I suspect if the massive bailout and QE money had all been allocated directly to the "un deserving poor” and the middle class, instead of being squirreled away for the banks to gamble with, the economy would be perking right along – instead of choking due to lack of spending (hey, we need stuff to spend!).

    Couldn't do that though – you have to work for it, or inherit it, or win it, or scam the system somehow – no way any sort of socialism is acceptable.

     

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  • Wed, Oct 14, 2015 - 10:00pm

    Reply to #5

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Real Stuff.

    with the key resource limit being oil, our universal problem-solver

    Either get the per capita energy use down, which means ditching planned obsolescence as opposed to creative destruction which can be a good thing,

    Or get off the planet if we want to continue increasing our per capita energy usage. Lord help the fish stocks if we get Cold Fusion and are not living at the la Grange points. Nothing will bring home the interconnectedness of things like living in a 200km long coke can ,

    Or we can shrug and keep marching off the cliff. 

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  • Thu, Oct 15, 2015 - 2:42am

    #18
    s.ful

    s.ful

    Status Member (Offline)

    Joined: Feb 06 2011

    Posts: 1

    Hopium

    Enjoyed the article.  As I sit looking out my window from the 17th floor of an office building in downtown Austin, counting the cranes, observing the dozens of buildings that didn't exist 10 years ago, I can smell the coming crash just like one can smell the rain in advance of a Central Texas thunderstorm.  It won't be forever, it won't end the long term arc of inevitable growth of this very desirable community, but it will surprise the heck out of large number of residents lost in the fog of a huge bubble.  Many are going to be caught napping leaning towards second base.  Haven't noticed outright fear just yet, but the number of people perceiving that we're deep into a bubble is increasing rapidly.  Sounds like Silicon Valley is the leading indicator for the timing of how this all develops.

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  • Thu, Oct 15, 2015 - 4:49am

    #19

    kaimu

    Status Member (Offline)

    Joined: Sep 20 2013

    Posts: 161

    OPM

    Aloha!

    The drug of choice …

    OPM=Other People's Money

    Like Socialism and Vulture Capitalism the high turns into a low when they run out of OPM!

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  • Thu, Oct 15, 2015 - 6:14am

    Reply to #9
    californiawoman

    californiawoman

    Status Member (Offline)

    Joined: Sep 25 2010

    Posts: 10

    consumer society

    My guess is that the consumer society will be eventually propped up by the chinese especially in the U.S.  i live in the bay area near silicon valley and have never seen so many mandarin speaking residents walking along our trail.  there has been a massive influx purchasing homes with cash.   they may also be  invested in the metals so may reap the rewards and will be the ones consuming. 

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  • Thu, Oct 15, 2015 - 10:32am

    Reply to #13
    rich black

    rich black

    Status Member (Offline)

    Joined: Oct 11 2015

    Posts: 7

    consolidation

    "The banks know that if they cut lending to these companies the banks will end up owning assets they'd rather not have."

    Ultimately, Chris, don't you believe that the large multinational energy companies will end up with almost all the shale energy resources, purchased for less than dimes on the present dollar, and that once that happens, and far fewer hands control those resources, the prices of oil and nat gas will climb?

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  • Thu, Oct 15, 2015 - 11:18am

    #20
    rich black

    rich black

    Status Member (Offline)

    Joined: Oct 11 2015

    Posts: 7

    Coding boot camp bubble

    Does anyone out there think that there is a coding boot camp bubble?

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  • Thu, Oct 15, 2015 - 12:14pm

    Reply to #13

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4706

    The oil majors will win

    [quote=rich black]

    "The banks know that if they cut lending to these companies the banks will end up owning assets they'd rather not have."

    Ultimately, Chris, don't you believe that the large multinational energy companies will end up with almost all the shale energy resources, purchased for less than dimes on the present dollar, and that once that happens, and far fewer hands control those resources, the prices of oil and nat gas will climb?

    [/quote]

    Yes, that's exactly what I believe…and I noted in a report some while back that where the mids and smalls had cut back on drilling heavily, the majors were all still horizontal drilling at the exact same pace in 2015 as they were in 2013 and 2014,.

    Why would they do that?  Because they are dumb or because they know that if they can keep the relative flood of oil going they can help to keep the price down long enough to drive out those smalls and mids and scoop up their assets on the cheap?

    This would be an especially important strategy because shale is the real deal (at the right price for oil) and the majors were all too slow to the game to get good  acreage during the opening scramble.

    But the other side of being big and slow is that you can play the long game, and that's what we're seeing now.

    Heck, it's just business, and I'd be advising the majors to do exactly what they seem to be doing; knocking out their competitors and positioning themselves for the future.

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  • Thu, Oct 15, 2015 - 1:48pm

    #21

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Karen and Gad discuss consumerism

    Chatting with the Gadfather! (Prof. Gad Saad): http://youtu.be/3DQAPrlOeFE

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  • Thu, Oct 15, 2015 - 5:45pm

    #22

    Snydeman

    Status Member (Offline)

    Joined: Feb 06 2013

    Posts: 523

    How many red lights?

    How many red lights can be flashing on the dashboard before this all comes tumbling down? Between PP.com and Zerohedge, one wonders how ANY of this is being held up. Is it just hope keeping things together?! It feels like endgame but the damned thing just keeps on going, and my stress level is through the roof. I'm also getting alarm fatigue. I think I may need to step away a bit to regain some psychological and spiritual balance.

     

    Someone please text me when the dominoes really start falling. Until then I'll be out back figuring out how to grow garlic n stuff.

     

    /sighs

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  • Thu, Oct 15, 2015 - 6:52pm

    Reply to #9

    kanute

    Status Member (Offline)

    Joined: Mar 21 2014

    Posts: 36

    I also believe a new global

    I also believe a new global purpose will emerge, historically it has been war.

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  • Thu, Oct 15, 2015 - 6:56pm

    Reply to #20

    kanute

    Status Member (Offline)

    Joined: Mar 21 2014

    Posts: 36

    rich black wrote:Does anyone

    [quote=rich black]

    Does anyone out there think that there is a coding boot camp bubble?

    [/quote]

     

    My brother is an engineer at Twitter.  Ignoring the fact that he sits between a guy from India and a guy from the Phillipines,  every one of my pre-teen nephews wants to be a coder.  They grew up with smartphones and minecraft and they all want to be developers.  I think we are going to see peak-developer in a few years as it becomes highly commoditized.

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  • Thu, Oct 15, 2015 - 7:51pm

    #23

    newsbuoy

    Status Bronze Member (Offline)

    Joined: Dec 10 2013

    Posts: 134

    Classic Tech Bubble Example

    We can see what your describing out east in Silcon Alley aka yo Brooklyn with SSYS/Makerbot.

    Layed off half of their engineers since Jan. the below link makes it obvious why.

    http://schrts.co/06HkrG

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  • Thu, Oct 15, 2015 - 9:17pm

    Reply to #22
    macro2682

    macro2682

    Status Gold Member (Offline)

    Joined: Sep 03 2009

    Posts: 321

    Snydeman wrote:How many red

    [quote=Snydeman]

    How many red lights can be flashing on the dashboard before this all comes tumbling down? Between PP.com and Zerohedge, one wonders how ANY of this is being held up. Is it just hope keeping things together?! It feels like endgame but the damned thing just keeps on going, and my stress level is through the roof. I'm also getting alarm fatigue. I think I may need to step away a bit to regain some psychological and spiritual balance.

     

    Someone please text me when the dominoes really start falling. Until then I'll be out back figuring out how to grow garlic n stuff.

     

    /sighs

    [/quote]

     

    Remember that a righteous collapse is not the only possible end game… Socialism/Totalitarianism is a very probable alternative, which can exist for decades before lack of resources causes a revolution. 

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  • Thu, Oct 15, 2015 - 11:05pm

    Reply to #22

    Snydeman

    Status Member (Offline)

    Joined: Feb 06 2013

    Posts: 523

    Ah, well

    [quote=macro2682]

    [quote=Snydeman]

    How many red lights can be flashing on the dashboard before this all comes tumbling down? Between PP.com and Zerohedge, one wonders how ANY of this is being held up. Is it just hope keeping things together?! It feels like endgame but the damned thing just keeps on going, and my stress level is through the roof. I'm also getting alarm fatigue. I think I may need to step away a bit to regain some psychological and spiritual balance.

     

    Someone please text me when the dominoes really start falling. Until then I'll be out back figuring out how to grow garlic n stuff.

     

    /sighs

    [/quote]

     

    Remember that a righteous collapse is not the only possible end game… Socialism/Totalitarianism is a very probable alternative, which can exist for decades before lack of resources causes a revolution. 

    [/quote]

     

    I need not worry about that possibility, because I'd stand against a totalitarian government with force if need be, so I'd be dead quickly.

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  • Thu, Oct 15, 2015 - 11:43pm

    #24
    robie robinson

    robie robinson

    Status Gold Member (Offline)

    Joined: Aug 25 2009

    Posts: 880

    Michael Rudmin

    You're mare must be settled.

    I know mine is.

     

    husband father farmer optometrist

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  • Thu, Oct 15, 2015 - 11:43pm

    Reply to #22

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 866

    Patience, Snydeman

    Snydeman, I don’t expect that the price of gold will skyrocket for another year; three years is well within the realm of reason.
    Though it could happen, I don’t expect that the mass dieoffs will even start for another year; we won’t be back to 1950s population levels for quite some time, maybe even thirty years.

    Looking at the graphs posted by Chris, everyone here does expect we will get there.

    Part of the whole point of Peak Prosperity, it seems to me, is to AVOID the catastrophes.

    You do that by making your local community independent of the systems that cannot succeed in the long run. The more time you have, the more independent you can be, and the better prepared you will be.

    So in line with that, you shouldn’t be looking for the catastrophes; you shouldn’t be getting alarm fatigue. For you, there should be no alarm.

    So how do you make your community independent of the failing structures?

    Well, the ideas on PP are pretty good for a start. But your structure has to be resilient to arriving refugees, too. They are an asset, not a problem, but you have to be ready.

    Let me give you a Bible verse:
    Isaiah 59:4

    “No one calls for justice;
    no one pleads a case with integrity.
    They rely on empty arguments, they utter lies;
    they conceive trouble and give birth to evil.
    5They hatch the eggs of vipers
    and spin a spider’s web.
    Whoever eats their eggs will die,
    and when one is broken, an adder is hatched.
    6Their cobwebs are useless for clothing;
    they cannot cover themselves with what they make.”

    My advice?

    Spend your time making that which clothes you in dignity and justice; not weaving webs to catch the next fly.

    And don’t work yourself up too much bursting other peoples’ lies: you’ll just wind up with a viper out to kill you.

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  • Thu, Oct 15, 2015 - 11:58pm

    Reply to #24

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 866

    I wish I knew

    I wish I knew the full depth of meaning of your phrase “mare is settled”. I have read it a number of times here, and not fully understood it.
    Yet I fear that far from being settled, my mare has miscarried: that which I depended on most seems to have proven empty; now I am running on vapors in the hope that I just have not been able to see clearly.

    Yet reason dictates, for me, that the foundations which I learned, must be right, somehow. Thus the vapors, but nothing more. So I advocate as truly as I know, and I attempt to blindly follow that which I know, though the path be completely hopeless.

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  • Fri, Oct 16, 2015 - 1:51am

    #25

    sand_puppy

    Status Platinum Member (Offline)

    Joined: Apr 13 2011

    Posts: 1942

    World goes down and market goes up

    I sure agree Snydeman, Macro, Chris and everyone–the global economy is crumping, a faction is trying to pull off a totalitarian transformation, and yet the stock market rises and the masses sleep.  This is very distressing.  I'm exhausted.

    So as therapy, today I purchases some 5 gallon buckets with screw-on "gamma lids" and some metal 10 gallon pails.  It occurs to me that we may be having quite a few neighbors and relatives over for dinner and a very very generous supply of rice, beans and powdered non-fat milk may help get us all through.  I understand that $400 will buy enough for the caloric need of one person for one year.

    [I'm going to make them get down on the floor, kiss my feet and apologize 10 times for calling me a "crazy prepper" and "paranoid conspiracy theorist" before I serve them dinner, though.  angry]

    One plastic 5 gallon bucket with a screw on lid will fit INSIDE the metal pail so that rodents don't chew through the metal and moths don't get in because of the sealed screw on "gamma lid."  (Thanks pinecarr!)  I believe that this plastic pail within a steel pail will let is store grain in a back yard shed.

     

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  • Fri, Oct 16, 2015 - 3:04am

    #26

    Jim H

    Status Diamond Member (Offline)

    Joined: Jun 08 2009

    Posts: 1798

    You aren't so crazy SP : )

    Now, if you were to electrically ground your metal pail for EMP protection, and bury a small, hand crankable shortwave radio in along with the rice … well then you would be a crazy prepper.  But only then.  wink

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  • Fri, Oct 16, 2015 - 4:21am

    #27
    dryam2000

    dryam2000

    Status Bronze Member (Offline)

    Joined: Sep 06 2009

    Posts: 255

    Preppers

    IMO, the most viable preppers will be those who prepped under the radar.  

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  • Fri, Oct 16, 2015 - 8:51am

    Reply to #22

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3156

    flashing red lights

    Snydeman-

    Its a process.  Even if you just follow markets, the top in 2008 took a very long time to play out.  As in, peak was in September 2007, and even in Aug 2008, the market was not all that far from its high.

    Even once things got serious, it took 7 months from breakdown to bottom.

    That's one scenario.

    Another scenario is a big derivatives accident.  If that happens, it could all play out in a weekend.  And they might even rescue that with some sort of massive mulligan.  (That's what I would do if I were in charge).  "Derivatives.  Bad idea.  Let's pretend they never existed."

    The trick is to find some way to enjoy the ride.  Quite a trick, I know.

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  • Fri, Oct 16, 2015 - 10:09am

    Reply to #25

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 866

    Two things to watch out for.

    One is bean weevils. If there’s one in the entire set of beans, it will reproduce and eat everything in there.
    Another is fungus.

    The second is handled by keeping moisture low.

    The first and the second may be handled by putting some dry ice in the bottom of your bucket before you store it. It is a way of storing grain; yet it will not protect against other things such as botulin, so I’m not 100% sure what will protect against everything.

    Maybe a freeze drying system.

    Oh, well.

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  • Fri, Oct 16, 2015 - 10:31am

    #28

    Jbarney

    Status Silver Member (Offline)

    Joined: Nov 25 2010

    Posts: 198

    Collapse

    I appreciate everyone's comments about the stress involved with knowing about possible futures, etc, but I have gotten to the point where I am truly comfortable working away to be resilient.  Just a case in point.  So up here in Vermont it is totally dark by 7:00 pm now.  I usually get to work at 7:00 am and have been working with the after school programs for the last week…effectively 10 hour work days….but EACH day this week, I came home and went up into the land that will be my future orchard. Fighting against the sunset, trying to make every moment of possible work count.  Running the chainsaw, taking care of scrub wood.  Mentally planning where fencing is going to go, etc.  There is something calming about taking steps to solidify food supplies on my property.  Nobody knows what the future holds, but I am having a lot of fun getting there.  And there are side benefits as well….all of the clearing I am doing for the orchard, I've been able to stack a lot of usable firewood if their ever is a grid down scenario.  I certainly don't have enough for an entire winter yet.  However….I'm getting there. 

    Peace,

    Jason

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  • Fri, Oct 16, 2015 - 3:24pm

    #29

    Snydeman

    Status Member (Offline)

    Joined: Feb 06 2013

    Posts: 523

    We're definitely not just

    We're definitely not just sitting on our hands here at Chateau Snydeman…

     

     

     

     

    But it never feels like enough, and my fatigue comes in trying to figure out WHEN to go hog-crazy buying up necessities faster than we currently are. 

     

    I also need another 5 years to not feel like a complete noob at gardening!

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  • Fri, Oct 16, 2015 - 6:27pm

    #30

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4706

    You heard it here first! Tech IPOs withering...

    Well, looks like Adam was reading the signs correctly.

    I wonder how long before the US stock “”market”” catches on to the fact that sentiment has shifted?

    Exclusive: Silicon Valley IPO market boom winding down

    Oct 16, 2015

    Last year, many tech IPOs enjoyed soaring valuations in their Wall Street debut, raining cash on the companies and their investors and boosting concerns about another Silicon Valley bubble.

    Now, the party is winding down, according to data analyzed by Reuters: Five of the 12 U.S.-based tech companies that went public this year, or 42 percent, priced their shares at a valuation below or nearly the same as their private market value, compared to 24 percent of the 29 that went public in 2014.

    "People are no longer out of their minds with valuations and expectations," said Adam Marcus, managing partner at OpenView Venture Partners in Boston.

    A recent example is Pure Storage (PSTG.N), whose IPO earlier this month gave the data storage company a $3.1 billion market cap that almost matched its valuation in the private market.

    The shift in the investing climate comes as payments company Square filed this week for its own IPO later this year, becoming one of the most prominent of the so-called "unicorns," or private companies valued at more than $1 billion, to try to go public.

    According to interviews with bankers, venture capitalists and late-stage investors, this shift in the venture investing climate is just getting underway and likely to accelerate.

    It is also an about-face from the last few years, when hot tech companies found no shortage of investors for their private financing and experienced massive valuations, and then demanded an even higher market cap in an IPO.

    But now the public market is less willing to play along, venture capitalists said.

    If nobody is there to hand the hot potato to, the venture capitalists will reel in their horns, too.

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  • Sat, Oct 17, 2015 - 3:05am

    #31

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Opposite of a Prepper.

    Has anyone got a word for the opposite of a Prepper? 

    A grasshopper? 

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  • Sat, Oct 17, 2015 - 4:08am

    Reply to #31
    Time2help

    Time2help

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    Joined: Jun 08 2011

    Posts: 2261

    Good luck Arthur

    [quote=Arthur Robey]

    Has anyone got a word for the opposite of a Prepper? 

    A grasshopper? 

    [/quote]

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  • Sat, Oct 17, 2015 - 5:18am

    #32

    Mark_BC

    Status Bronze Member (Offline)

    Joined: Apr 30 2010

    Posts: 298

    Great write-up and comments,

    Great write-up and comments, it took me a few days to get the time to read through them all properly!

    But of course, here we all know that the drill rigs now are not the same as then. They are actually more complicated but extract less oil!

    That's what technology has gotten us: razor thin excess wealth "generation", fully maximized efficiencies, all efficiency advances gobbled up and negated by the growth monster (in other words, some banker stole that excess wealth), population levels unheard of in a natural ecological context absent fossil fuel inputs, and a critical dependence on microprocessors to handle this efficiency that would result in mass die-offs were it to fail. Thanks, computers. But I do like the information sharing capacity of the internet.

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  • Sat, Oct 17, 2015 - 5:33am

    Reply to #22

    Mark_BC

    Status Bronze Member (Offline)

    Joined: Apr 30 2010

    Posts: 298

    Snydeman wrote:How many red

    [quote=Snydeman]

    How many red lights can be flashing on the dashboard before this all comes tumbling down? Between PP.com and Zerohedge, one wonders how ANY of this is being held up. Is it just hope keeping things together?! It feels like endgame but the damned thing just keeps on going, and my stress level is through the roof. I'm also getting alarm fatigue. I think I may need to step away a bit to regain some psychological and spiritual balance.

    Someone please text me when the dominoes really start falling. Until then I'll be out back figuring out how to grow garlic n stuff.

    [/quote]

    I'm getting tired of the warnings of imminent catastrophe too (to clarify: I am not referring to Adam's piece, but rather to the warnings that the reset is right around the corner, which it never is, until of course that one fateful day when it will be, after the 500th consecutive week of warnings that the reset was just around the corner…) They have little impact on me anymore. IMO this could keep going for a long long time with the printing press and electronic support of the markets. Periodic crashes could occur to flush things out but they would not be allowed to destroy the system.

    However, it WILL end when physical precious metals run out. When that will happen, who knows. It should have already happened. That is why I think they have tapped into some additional gold reserves, possibly this fabled Yamashita gold. I think we are in the final stages now, maybe a year or two, or less, maybe even a month. But TPTB will know for sure when we are nearing the end and we should look for clues that they are prepping for it. So I just monitor the metals markets. And continue prepping. But financially it is trying and dragging on.

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  • Sat, Oct 17, 2015 - 4:21pm

    Reply to #22

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Beware your European blood.

    Beware your European blood. Our views and values were formed when life was short and brutal.  I offer you our Ragnarok. We have been contemplating the end forever. 

    It sates itself on the life-blood of fated men,
    paints red the powers' homes with crimson gore.
    Black become the sun's beams in the summers that follow,
    weathers all treacherous.
    Do you still seek to know? 
    And what?
     
    Brothers will fight and kill each other,
    sisters' children will defile kinship.
    It is harsh in the world,
    whoredom rife—
    an axe age, a sword age—
    shields are riven—
    a wind age, a wolf age—
    before the world goes headlong.
    No man will have mercy on another.
    So be of good cheer.

    If you worry, you die. If you don't worry,  you still die. So why worry?

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  • Sat, Oct 17, 2015 - 7:22pm

    #33

    Adam Taggart

    Status Platinum Member (Offline)

    Joined: May 25 2009

    Posts: 2618

    The Plot Quickly Thickens

    Boy, that escalated quickly…

    Since this post went live on Tuesday, a drumbeat of similar and related articles has quickly followed.

    Chris noted the piece from Reuters, but in the past few days we've learned of layoffs at high-flying companies like Flipagram and Snapchat, med-tech disruptor Theranos is suddenly fighting for its life, and today saw an excoriating screed from venerated Tech venture capitalist Michael Moritz:

    One glance at the list of so-called unicorns — those private technology companies valued at more than $1bn — illustrates this point. A handful of these businesses will become the great, enduring companies of tomorrow. But a good number seem the flimsiest of edifices. Forget the fact that some of these valuations are illusory because the most recent investors have structured their investments as debt in all but name, meaning that they will stand to profit even if the company is worth far less.

    The more salient point is that for the past three or four years private investors have just been more forgiving than their public market counterparts, who, had they been presented with the most recent financial reports of a good number of these companies, would have decimated the stocks. In the past few quarters, the founders of several technology companies have discovered a far chillier reception as they tramped around on initial public offering roadshows than they were accorded in the private shadows.

    Most of the leaders of the subprime unicorns who continue to enjoy the fruits of the private market delude themselves about the difference between control and discipline.

    But the most interesting development has been the commentary I've received from Silicon Valley since my article posted.

    I'd prepared myself for a fair amount of vitriol from those who are still bought in to the Tech dream, both professionally and emotionally. It would be understandable, especially since I threw some pretty hard punches.

    But surprisingly, the most glowing praise I've received has been from venture capitalists and senior tech managers. 

    One impressively-seasoned venture capitalist called me, explaining that he had been forwarded my article by another even more prominent VC, one at the same peer level as Mortiz — who described the analysis as "100% spot on". I was floored to hear this kudos. Apparently, the article struck a chord because it voiced what many senior executives and investors are thinking, but up to now has been taboo to voice. 

    But most interesting to me was what I learned further on in the phone conversation. After reiterating my belief that the retreat of the Asian buyer at the margin will have huge deflationary impact for Tech asset prices, the VC interrupted me. He agreed with the conclusion, but he wanted to emphasize an observation I had not yet heard: the Asian buyer is already gone.

    Apparently, he personally has seen a massive drop-off in "deep pocket" Asian buyers since May — both in the real estate market as well as venture deals. 

    If this observation is accurate (and I'm checking a few other sources to see if I can get corroboration), then this is a tremendously heavy shoe that has dropped. I have long considered the drying up of hot Asian money as an inevitable and essential step to presage the next major market correction. Hearing from a high-positioned Silicon Valley insider that this milestone may be here, my full attention is now on it. If confirmed, my confidence that the 7-year bull market has come to end will be solidified. And we better all get ready for a *really* rocky 2016.

    Update: since posting this comment, I've spoken with friend-of-the-site Robert Mish, a bullion dealer with 50 years experience. He also reports that, of recent, money from Asia is compromised. Buyers are purchasing a lot fewer PM collectibles (though bullion demand is still robust), which is a sign that discretionary funds are becoming tight. And in China, it's becoming harder for customers to pay him. Among other challenges, his bank account has been blocked several times from China. This suggests that more capital controls are being put in place. He is seeing a similar tightening in Hong Kong, too, which has traditionally been much more loosely controlled.

    This thread gets more interesting the more we pull on it.

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  • Sat, Oct 17, 2015 - 9:12pm

    Reply to #33

    pinecarr

    Status Gold Member (Offline)

    Joined: Apr 13 2008

    Posts: 1088

    Congrats Adam!

    …on your article, and on getting your analysis out ahead of the crowd!  -The feedback you're getting from high-level people from Silicon Valley confirming your analysis (and adding to it) is very interesting as well.  Congratulations!

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  • Sat, Oct 17, 2015 - 10:50pm

    #34

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Unfulfilled Needs.

    The strength of Capitalism is that one finds the Biggest Unsolved Need of the market, fulfils it and is rewarded.  What is the BUN of today? Take your pick. Over population?  Vaccines and phages.  
    Energy? Cold fusion
    Labour costs? Robotics
    Soil depletion? Mycelia
    Climate instability? Relocation services, (Container housing)

    New apps for Android? I seem to survive with only a few.
    Money shortage? A printing press.
    Please feel free to contribute to the list.

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  • Sun, Oct 18, 2015 - 12:46am

    Reply to #31

    Mark Cochrane

    Status Platinum Member (Offline)

    Joined: May 24 2011

    Posts: 828

    Opposite of a prepper?

    Well Arthur, I'd say that depends on the moment.

    In good times you call them optimists. In bad times you call them fools.

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  • Sun, Oct 18, 2015 - 1:23am

    #35
    Time2help

    Time2help

    Status Platinum Member (Offline)

    Joined: Jun 08 2011

    Posts: 2261

    SHTF

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  • Sun, Oct 18, 2015 - 11:08am

    #36
    denisaf

    denisaf

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    Posts: 7

    fundamental physical principles

    The construction, operation and maintenance of the vast infrastructure of industrialized civilization irreversibly uses up 89 non-renewable natural resources (NNrs) with oil being one of the major ones. In addition, the operation of this infrastructure produces material wastes, many of them toxic, doing damage to the environment, including climate disruption, ocean acidification and warming, together with reducing soil fertility and aquifer water.

    Society does not take this stark reality into account – yet – to an appropriate while many engage in money games.

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  • Sun, Oct 18, 2015 - 12:11pm

    Reply to #36

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 866

    What do you mean by irreversibly?

    I can see oil use being irreversible. Climate consumption, if you will, is irreversible (we’re consuming the Gulf Stream, and the Antarctic glaciers).
    But the same technology that was used to position atoms for a 27-atom by 50-atom text “IBM” could be used to separate out elements from landfills *with the application of energy*. so I wonder what else you are calling irreversible.

    Do you have a source for your statement?

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  • Sun, Oct 18, 2015 - 3:43pm

    Reply to #33

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3156

    asian buyer already gone

    Wow Adam, that is a big deal.  Its not every day when you can discover a turning point in real time.  Usually it's only in books written years after the fact.  Looks like you really kicked over the anthill with your article.

    This smells like Chinese capital controls are becoming a lot more stringent/effective.  And that must mean the Chinese government is substantially more motivated than before.  And that only signals that the Chinese economy is in pretty bad shape.  They don't want to see that pile of treasury bills vanish faster than it came in.

    This ties in with Charles and his article about the chinese home buyer and bay area real estate.  And perhaps Australian real estate too.

    Super interesting stuff.  Although I'm all for silicon valley's dream machine as I mentioned earlier, I really do favor businesses that actually can imagine making money at some point during their lifetimes.  I never quite did get "eyeballs" back during dotcom.

    In 2013 I saw snapchat refuse 3-4 billion dollars from facebook & google.  I was appalled.

    Bears win, bulls win, pigs get slaughtered.

    I wonder how this flows through to the larger markets – or if its just a canary in some sort of coal mine.

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  • Sun, Oct 18, 2015 - 3:51pm

    Reply to #36
    Time2help

    Time2help

    Status Platinum Member (Offline)

    Joined: Jun 08 2011

    Posts: 2261

    Entropy

    [quote=Michael_Rudmin]I can see oil use being irreversible. Climate consumption, if you will, is irreversible (we're consuming the Gulf Stream, and the Antarctic glaciers). But the same technology that was used to position atoms for a 27-atom by 50-atom text "IBM" could be used to separate out elements from landfills *with the application of energy*. so I wonder what else you are calling irreversible. Do you have a source for your statement?[/quote]

    [quote=merriam-webster]Entropy – "a measure of the unavailable energy in a closed thermodynamic system that is also usually considered to be a measure of the system's disorder, that is a property of the system's state, and that varies directly with any reversible change in heat in the system and inversely with the temperature of the system; broadly :  the degree of disorder or uncertainty in a system"[/quote]

    She sums it up:

     

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  • Sun, Oct 18, 2015 - 8:00pm

    #37
    pgp

    pgp

    Status Member (Offline)

    Joined: Mar 01 2014

    Posts: 165

    Shifting the Zeitgeist

    The population seems to group into subsets, each having its own zeitgeist; a mood or sentiment about the world around them.

    Clearly the zeitgeist in the "common" communities has been declining for years.  Now however the negative sentiment that fears collapse appears to be infecting the wall-street minions who are normally hopped up on bravado, delusions of grandeur and self-adulation.

    Where did the new zeitgeist come from?  It was triggered from the old one.  The one where exploitation is the new capitalism.  A mood created out of dwindling resources and unsustainable industry scrambling to maintain impossible profits or just survive against deflationary pressure  The atmosphere created by governments and corporations as they suck people dry, pillage the savings of old ladies, overcharge the middle class, kill real industry, ruin opportunity while bailing out financial sponsors.  A culture that says the customer is no longer right just ripe for the warm smile and heavy plundering.

    The new zeitgeist that will grow (is growing) out of the despair created by this exploitative culture, will reveal humanities true nature.  The animal that lies within.  The one that hides behind the facade of self-importance and civility.  One that will unleash a time of pain and suffering, as collapse always has in the past, until human-life becomes cheap again and death from war or rage becomes something to be expected like snow or strong winds.

    People think they are more than just animals but when you see the how the humanity moves in a single direction like a giant worm, oozing along in whatever direction appears to be most prosperous you realise that humans are not all that aware after all.  They act like a hive and as such they will evolve like one, slowly and painfully.

     

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  • Mon, Oct 19, 2015 - 9:13am

    Reply to #36

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Dunno T2H.

    The hypothesis Under consideration Is that energy cannot be created nor destroyed. If we can find one example that this Is not the case then the hypothesis fails and must be consigned to the bin.

    I offer you the Big Bang. Energy was created ex nihilo at the Big Bang. Therefore energy can be created out of nothing. And matter, being another manifestation of energy can also be created ex nihilo. 

    Or as McKenna put it. Modern physics is like 

    Grant us one miracle,  and we can explain the rest. 

    Hubris, ego and declarative statements.  Bad cocktail.  

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  • Mon, Oct 19, 2015 - 10:08am

    Reply to #36

    Michael_Rudmin

    Status Gold Member (Offline)

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    Posts: 866

    Big bang is not proven

    There are two events that are indistinguishable from each other: the big bang, and the collapse of a black hole as viewed from the inside.
    Both events will look the same; both events will result in the generation of a huge amount of space. Both events, as currently understood, violate conservation of energy (the black hole appears to be violating it at the SC radius).

    However, there is a simple error which is possibly being made:

    If you multiplied (a+b)(a+b) and got a^2+2ab+b^2, you would be correct. If you got a^2+b^2, you would have lost the cross terms. In the same way, in doing the Lorentz transformation, if you forgot the cross terms, you would get the current Lorentz transformation; if you included them, you would suddenly discover that they no longer violated conservation of energy. (for more on this, google ‘an isotropic metric by j.d. rudmin).

    My point is that we don’t even understand black holes well or the Lorentz transformation; how then can we understand the big bang, which is similar but long ago?

    Therefore, these things are not useful in proving or disproving a much better understood theorem.

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  • Mon, Oct 19, 2015 - 5:41pm

    #38

    Snydeman

    Status Member (Offline)

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    Posts: 523

    Adam

    Adam, please keep us updated as you have more real-time information pour in. This could be a real shift- a harbinger of the kind of change we all both fear and are preparing for.

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  • Mon, Oct 19, 2015 - 10:36pm

    Reply to #36
    Cornelius999

    Cornelius999

    Status Bronze Member (Offline)

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    Posts: 365

    Pity about that Michael R as

    Pity about that Michael R as I love Mckenna's formulation as described by Arthur.

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  • Tue, Oct 20, 2015 - 5:08pm

    #39

    Mark_BC

    Status Bronze Member (Offline)

    Joined: Apr 30 2010

    Posts: 298

    (No subject)

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  • Tue, Oct 20, 2015 - 11:20pm

    Reply to #36
    Time2help

    Time2help

    Status Platinum Member (Offline)

    Joined: Jun 08 2011

    Posts: 2261

    LENR

    [quote=Arthur Robey]

    The hypothesis Under consideration Is that energy cannot be created nor destroyed. If we can find one example that this Is not the case then the hypothesis fails and must be consigned to the bin.

    I offer you the Big Bang. Energy was created ex nihilo at the Big Bang. Therefore energy can be created out of nothing. And matter, being another manifestation of energy can also be created ex nihilo. 

    Or as McKenna put it. Modern physics is like 

    Grant us one miracle,  and we can explain the rest. 

    Hubris, ego and declarative statements.  Bad cocktail.  

    [/quote]

    Part of me really hopes you are right about LENR Arthur.

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  • Wed, Oct 21, 2015 - 3:31am

    Reply to #36

    Jim H

    Status Diamond Member (Offline)

    Joined: Jun 08 2009

    Posts: 1798

    Who says LENR is energy out of nothing?

    Peter Hagelstein does not … he is still working to understand it based on all available data and observation – I think he will get it soon;

    http://coldfusionnow.org/wp-content/uploads/2015/09/Hagelstein-Talk-09-2015.pdf

    Note lots of discussion of Pd.. just saying.  

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  • Wed, Oct 21, 2015 - 3:54am

    Reply to #37

    Arthur Robey

    Status Platinum Member (Offline)

    Joined: Feb 03 2010

    Posts: 1814

    Collapsing Zeitgeist.

    One Zeitgeist whose demise I would cheer is that medicine is a market place. And I see that as my old friend Death claims his due that the idea that medicine is a patented plaything of Big Corporations is dying itself.

    Medical Marijuana is now legal to grow throughout Australia. (But where is the patent/profit in that?)

    Death,  my old friend, what kept you so long? Traffic?

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  • Tue, Oct 27, 2015 - 10:14pm

    #40

    newsbuoy

    Status Bronze Member (Offline)

    Joined: Dec 10 2013

    Posts: 134

    Unicorn Bubble Infographic?

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  • Fri, Oct 30, 2015 - 7:29pm

    #41

    HughK

    Status Gold Member (Offline)

    Joined: Mar 06 2012

    Posts: 571

    NADAQ - 20 year chart - lower high or not?

    I was just looking at a NASDAQ 20 year chart and the last time we had a lower high that's visible on this scale was in May of 2008, aside from some small blips in July of 2010 and October of 2011.  If we break 5200 then the last two months may end up being just a small blip too, but if we go back down below 5000, do people think that it's a pretty clear sign of a broken NASDAQ bull?

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  • Fri, Nov 13, 2015 - 8:51pm

    #42

    HughK

    Status Gold Member (Offline)

    Joined: Mar 06 2012

    Posts: 571

    NASDAQ's lower high is clear now

    While it was probably already considered a failed attempt at a higher high by those more savvy than me, today seems to seal the possibility of NASDAQ making a new high (at least in terms of this most recent rally). The July high of just over 5200 stands, with the highs of early November never reaching 5150, and at present we're at 4935. Things would have to turn around pretty quick for us to end the week above 4950 at this point. 

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  • Thu, Apr 20, 2017 - 7:36am

    #43
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Online)

    Joined: Oct 31 2017

    Posts: 1612

    Lami

    Your analysis is correct, the recession and the operation is the main imagination of society.I'm common rail come from sensor

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