Peak Insiders

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Three Key Indicators to Watch

In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.

Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Triggers That Will Spark ‘Hot’ Inflation

Arthur Lewis was an economist from the small, Caribbean island of St. Lucia who went on to win a Nobel Prize in 1979. His work identified the process by which very cheap labor is brought from the countryside to urban areas during phases of industrialization in developing countries. At a certain point, this supply of cheap labor went into decline and wage pressures began to mount.

Now referred to as the Lewis Turning Point, such a phase marks the end of a kind of deflationary boom, in which input costs fall during a phase of hyper-strong growth, and the beginning of inflationary restraints, in which profit margins stop growing. This is exactly what’s happening in China today.

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Why a Near-Term Market Rollover is Probable

In Part I, we summarized the global financial meltdown of 2008 as recognition that the collateral beneath an enormous inverted pyramid of leveraged debt had vanished, while all the monetary and fiscal tricks of central banks and governments failed to sustain the illusion of sufficient collateral.

Once again we find that massive, sustained intervention in global financial markets is being touted as successful – everything has been “fixed,” markets have been “stabilized,” and a global “recovery” is well underway,

If we believe this, we might be exposed to a dramatic downside should 2012 turn out to be another 2008, when markets realized that intervention did not create collateral, but instead a temporary illusion of sufficient collateral.