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Peak Insiders
Peak Insiders
by
Chris Martenson
Executive Summary
- The wisdom and value of scenario planning
- Scenario #1: A Slow Burn
- Scenario #2: Fragmentation
- Scenario #3: A Hard Landing
- The prudence of taking individual action now, vs depending upon "the system" to react to future events
If you have not yet read Part 1: Ready Or Not… available free to all readers, please click here to read it first.
It all begins with the clear-eyed recognition that the old way of doing business is clearly unsustainable. And yet knowing that the various governmental and institutional powerbrokers are doing everything they can to perpetuate the status quo way of doing business.
Business-as-usual is literally going to end in some flavor of disaster, and yet we collectively adhere to it, even when the end-point is as obvious as calculating the linear rate of withdrawal of water from a non-renewing aquifer.
But there's nothing linear about the nested and/or intertwined complex systems we call the Economy, the Environment and Energy. Each of these is independently complex, meaning they often easily defy the attempts to manage them. And they are utterly unpredictable for anything longer than the immediate term.
For example, of the three, Energy seems the simplest, and it is. But even there, we note that the amount of energy that can and will be extracted is a function of the price of energy, available technology and skills, capital available for investment, and what's actually down there in the earth to be pulled up. In that list, several factors are courtesy of the Economy, which is itself dependent on Energy. A glitch in one can feedback rapidly to create a glitch in the other.
Given all of this complexity, one good way to get a handle on things is to identify the scenarios we deem to be most likely given all available evidence, and then assign probabilities to each. Asking ourselves, What can we today to prepare for Scenario X? then allows us to begin constructing action plans to mitigate our vulnerability, and even better in cases, position ourselves to prosper as the future unfolds.
Scenario #1: A Slow Burn
In 2008, the practice of borrowing too much caught up with the developed world and a serious financial crisis threatened to take down the entire financial system. Indeed, according to after-action reports from Hank Paulson (then Treasury Secretary) and Mervyn King (then BoE chairman), the world came within mere hours of a full-blown global banking system meltdown…
The 3 Likeliest Ways Things Will Play Out From Here
PREVIEW by Chris MartensonExecutive Summary
- The wisdom and value of scenario planning
- Scenario #1: A Slow Burn
- Scenario #2: Fragmentation
- Scenario #3: A Hard Landing
- The prudence of taking individual action now, vs depending upon "the system" to react to future events
If you have not yet read Part 1: Ready Or Not… available free to all readers, please click here to read it first.
It all begins with the clear-eyed recognition that the old way of doing business is clearly unsustainable. And yet knowing that the various governmental and institutional powerbrokers are doing everything they can to perpetuate the status quo way of doing business.
Business-as-usual is literally going to end in some flavor of disaster, and yet we collectively adhere to it, even when the end-point is as obvious as calculating the linear rate of withdrawal of water from a non-renewing aquifer.
But there's nothing linear about the nested and/or intertwined complex systems we call the Economy, the Environment and Energy. Each of these is independently complex, meaning they often easily defy the attempts to manage them. And they are utterly unpredictable for anything longer than the immediate term.
For example, of the three, Energy seems the simplest, and it is. But even there, we note that the amount of energy that can and will be extracted is a function of the price of energy, available technology and skills, capital available for investment, and what's actually down there in the earth to be pulled up. In that list, several factors are courtesy of the Economy, which is itself dependent on Energy. A glitch in one can feedback rapidly to create a glitch in the other.
Given all of this complexity, one good way to get a handle on things is to identify the scenarios we deem to be most likely given all available evidence, and then assign probabilities to each. Asking ourselves, What can we today to prepare for Scenario X? then allows us to begin constructing action plans to mitigate our vulnerability, and even better in cases, position ourselves to prosper as the future unfolds.
Scenario #1: A Slow Burn
In 2008, the practice of borrowing too much caught up with the developed world and a serious financial crisis threatened to take down the entire financial system. Indeed, according to after-action reports from Hank Paulson (then Treasury Secretary) and Mervyn King (then BoE chairman), the world came within mere hours of a full-blown global banking system meltdown…
by
charleshughsmith
Executive Summary
- The critical role of interest rates and carry trades
- How capital flows across borders
- The growth in supply of dollars is slowing
- The rationale for the dollar strengthening from here by 50-100%
If you have not yet read Is Part 1: The Dollar May Remain Strong For Longer Than We Think available free to all readers, please click here to read it first.
In Part 1, we reviewed the key concepts that drive supply/demand (and thus the price/relative value) of the U.S. dollar. In Part 2, we’ll cover the dynamics that could push the value of the USD vis-à-vis other currencies much higher in the years ahead.
Interest Rates, Bonds and Carry Trades
To understand the price of any currency—measured in other currencies, gold, oil, etc.—we look at a currency as a special kind of commodity, one that greases transactional trade of goods and services and also serves as a store of value. Like any commodity, its price relative to other commodities is determined by supply and demand.
If demand is strong and supply is tight, the value will increase. This is the same for dollars, gold, oil, grain, bat guano, etc. The reverse is equally true: if demand slackens and supply balloons, the value will decline.
To understand the supply and demand for currencies, we need to understand the role of interest rates, sovereign bonds and carry trades.
The connection between interest rates and demand is self-explanatory: if interest rates paid at home are near-zero, and another nation’s bonds are paying a higher yield, it makes sense to sell (or borrow) one’s own currency and buy a bond denominated in another currency.
This is the foundation of currency carry trades. PP.com’s own Davefairtex recently offered an excellent explanation of how carry trades work on the Gold & Silver Group forum:
I believe that QE causes inflation in other countries by dropping rates to 0% which encourages carry trades, whereby traders borrow USD for extremely low rates here in the US, and then send it overseas to find a yield. Cheap money in the US causes money to flow elsewhere, where rates are higher.
Carry Trade For Dummies:
Step 1) Borrow $1 billion US at LIBOR-1M rate; cost 0.16%.
Step 2) Trade $1 billion US for 1.075 billion AUD.
Step 3) Buy 1.075 billion 2-year AUD govt bonds; yield 2.52%
Step 4) Collect $23 million USD/year for doing no work at all.
Carry trades work in both directions for the dollar…
Why the Dollar Could Strengthen – A Lot – From Here
PREVIEW by charleshughsmithExecutive Summary
- The critical role of interest rates and carry trades
- How capital flows across borders
- The growth in supply of dollars is slowing
- The rationale for the dollar strengthening from here by 50-100%
If you have not yet read Is Part 1: The Dollar May Remain Strong For Longer Than We Think available free to all readers, please click here to read it first.
In Part 1, we reviewed the key concepts that drive supply/demand (and thus the price/relative value) of the U.S. dollar. In Part 2, we’ll cover the dynamics that could push the value of the USD vis-à-vis other currencies much higher in the years ahead.
Interest Rates, Bonds and Carry Trades
To understand the price of any currency—measured in other currencies, gold, oil, etc.—we look at a currency as a special kind of commodity, one that greases transactional trade of goods and services and also serves as a store of value. Like any commodity, its price relative to other commodities is determined by supply and demand.
If demand is strong and supply is tight, the value will increase. This is the same for dollars, gold, oil, grain, bat guano, etc. The reverse is equally true: if demand slackens and supply balloons, the value will decline.
To understand the supply and demand for currencies, we need to understand the role of interest rates, sovereign bonds and carry trades.
The connection between interest rates and demand is self-explanatory: if interest rates paid at home are near-zero, and another nation’s bonds are paying a higher yield, it makes sense to sell (or borrow) one’s own currency and buy a bond denominated in another currency.
This is the foundation of currency carry trades. PP.com’s own Davefairtex recently offered an excellent explanation of how carry trades work on the Gold & Silver Group forum:
I believe that QE causes inflation in other countries by dropping rates to 0% which encourages carry trades, whereby traders borrow USD for extremely low rates here in the US, and then send it overseas to find a yield. Cheap money in the US causes money to flow elsewhere, where rates are higher.
Carry Trade For Dummies:
Step 1) Borrow $1 billion US at LIBOR-1M rate; cost 0.16%.
Step 2) Trade $1 billion US for 1.075 billion AUD.
Step 3) Buy 1.075 billion 2-year AUD govt bonds; yield 2.52%
Step 4) Collect $23 million USD/year for doing no work at all.
Carry trades work in both directions for the dollar…
by
Adam Taggart
Executive Summary
- What you need to know about hedging with
- Stops
- Inverse and leveraged ETFs
- Shorts
- Options
- Futures
- Deciding which hedging instruments are appropriate for your portfolio
If you have not yet read Part 1: Defying Gravity available free to all readers, please click here to read it first.
OK – hedging sounds prudent. But how do you do it?
Our focus here in Part 2 of this report is to cover the most common vehicles used in hedging strategies. Each one merits its own dedicated report (a series we’ll likely create in the future) to truly understand how and when to best deploy, so this report will focus on providing you with a good introduction to each, with guidance on how to further explore the ones that strike you as appropriate for your needs and personal risk tolerance.
Before continuing further though, let me make a few things absolutely clear. This is NOT personal financial advice. This material is for educational purposes only, and as an aid for you to discuss these options more intelligently with your professional financial adviser(s) before taking any action. (If you do not have a financial adviser or do not feel comfortable with your current adviser’s expertise with these hedging vehicles, we’ll be happy to refer you to our endorsed adviser)
Suffice it to say, everything discussed in this report (even the % cash component mentioned in Part 1) should be reviewed with your financial adviser before taking any action. Am I being excessively repetitive here in order to drive this point home? Good…
How to Hedge Against A Market Correction
PREVIEW by Adam TaggartExecutive Summary
- What you need to know about hedging with
- Stops
- Inverse and leveraged ETFs
- Shorts
- Options
- Futures
- Deciding which hedging instruments are appropriate for your portfolio
If you have not yet read Part 1: Defying Gravity available free to all readers, please click here to read it first.
OK – hedging sounds prudent. But how do you do it?
Our focus here in Part 2 of this report is to cover the most common vehicles used in hedging strategies. Each one merits its own dedicated report (a series we’ll likely create in the future) to truly understand how and when to best deploy, so this report will focus on providing you with a good introduction to each, with guidance on how to further explore the ones that strike you as appropriate for your needs and personal risk tolerance.
Before continuing further though, let me make a few things absolutely clear. This is NOT personal financial advice. This material is for educational purposes only, and as an aid for you to discuss these options more intelligently with your professional financial adviser(s) before taking any action. (If you do not have a financial adviser or do not feel comfortable with your current adviser’s expertise with these hedging vehicles, we’ll be happy to refer you to our endorsed adviser)
Suffice it to say, everything discussed in this report (even the % cash component mentioned in Part 1) should be reviewed with your financial adviser before taking any action. Am I being excessively repetitive here in order to drive this point home? Good…
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