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Chris Martenson

Image | A Dollar Crisis in the Making
A Dollar Crisis in the Making

In this post, I respond to the recent flurry of activity in print and in blogs about the dollar, US indebtedness, and the risks associated with both.

Mish recently posted a mixed grab-bag entitled Countdown To Dollar Implosion Madness, in which he (very rightly, in my view) took to task various bloggers and other Internet sources that have been peddling rumors of bank holidays and setting specific dates for a dollar implosion.

I don’t like trading in unsourced rumors, either by the mainstream media or by bloggers (as they are very nearly always proven wrong), and I am especially leery of setting dates for future market events.  So kudos to Mish for his efforts to hold bloggers to a higher standard.

However, I took exception to a snippet from a WSJ article by Andrew Batson, entitled Households Start to Rival the Chinese in Treasury Market (originally blogged about by Michael Pettis here), that offered the comforting impression that domestic savings are growing and are possibly sufficient to fund the US government deficit.

A Dollar Crisis in the Making

In this post, I respond to the recent flurry of activity in print and in blogs about the dollar, US indebtedness, and the risks associated with both.

Mish recently posted a mixed grab-bag entitled Countdown To Dollar Implosion Madness, in which he (very rightly, in my view) took to task various bloggers and other Internet sources that have been peddling rumors of bank holidays and setting specific dates for a dollar implosion.

I don’t like trading in unsourced rumors, either by the mainstream media or by bloggers (as they are very nearly always proven wrong), and I am especially leery of setting dates for future market events.  So kudos to Mish for his efforts to hold bloggers to a higher standard.

However, I took exception to a snippet from a WSJ article by Andrew Batson, entitled Households Start to Rival the Chinese in Treasury Market (originally blogged about by Michael Pettis here), that offered the comforting impression that domestic savings are growing and are possibly sufficient to fund the US government deficit.

Image | Natural Gas Prices in Free-Fall
Natural Gas Prices in Free-Fall
 PREVIEW

As you know from the oil reports I put out a while back, I am concerned that our broken paper markets are having real-world impacts that might prove to be regrettable.  One of those areas is in the realm of NG pricing and production.

I am convinced that we are in the midst of a price/supply/demand whipsaw that will leave us poorly prepared for a resurgence in energy demand that is sure to come.

Gas Reserves Hit New High, Forcing Prices Downhill

Natural Gas Prices in Free-Fall
 PREVIEW

As you know from the oil reports I put out a while back, I am concerned that our broken paper markets are having real-world impacts that might prove to be regrettable.  One of those areas is in the realm of NG pricing and production.

I am convinced that we are in the midst of a price/supply/demand whipsaw that will leave us poorly prepared for a resurgence in energy demand that is sure to come.

Gas Reserves Hit New High, Forcing Prices Downhill

Image | How This All Ends
How This All Ends
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Monday, August 31, 2009

Executive Summary

  • A funding crisis is in store for the US government and citizens.
  • The “Fourth Horseman,” represented by the dollar going down while interest rates go up, will signal the start of the funding crisis.
  • The Federal Reserve Custody Account has been growing faster than the Trade Deficit, a historical oddity.
  • The custody account represents a grotesque imbalance with risks of its own. 
  • The US will eventually face a funding crisis. For now, that crisis has been forestalled by willing foreign central banks.
  • This end begins with the widespread recognition that the US is insolvent and that propping it up is a lost cause.
  • It all ends with a vastly lowered standard of living.

In this report, I write about how the US debt machine will most likely meet its end and how we’ll know that this end is approaching.

In The Five Horsemen, I made the case that we have already seen the arrival of three out of the five signposts that will signal the end of US economic dominance and overconsumption. Those signposts are:

  • The First Horseman (arrived):  New credit growth falls below interest payments.
  • The Second Horseman (arrived):  The Fed monetizes debt.
  • The Third Horseman (arrived):  Government deficit spending exceeds 10% of GDP.
  • The Fourth Horseman (not yet):  The dollar goes down, while interest rates go up.
  • The Fifth Horseman (not yet):  US debt becomes denominated in foreign currencies.

I want to examine the Fourth Horseman more carefully, because I believe it will arrive next and will trigger the subsequent arrival of the Fifth Horseman.

How This All Ends
 PREVIEW
Monday, August 31, 2009

Executive Summary

  • A funding crisis is in store for the US government and citizens.
  • The “Fourth Horseman,” represented by the dollar going down while interest rates go up, will signal the start of the funding crisis.
  • The Federal Reserve Custody Account has been growing faster than the Trade Deficit, a historical oddity.
  • The custody account represents a grotesque imbalance with risks of its own. 
  • The US will eventually face a funding crisis. For now, that crisis has been forestalled by willing foreign central banks.
  • This end begins with the widespread recognition that the US is insolvent and that propping it up is a lost cause.
  • It all ends with a vastly lowered standard of living.

In this report, I write about how the US debt machine will most likely meet its end and how we’ll know that this end is approaching.

In The Five Horsemen, I made the case that we have already seen the arrival of three out of the five signposts that will signal the end of US economic dominance and overconsumption. Those signposts are:

  • The First Horseman (arrived):  New credit growth falls below interest payments.
  • The Second Horseman (arrived):  The Fed monetizes debt.
  • The Third Horseman (arrived):  Government deficit spending exceeds 10% of GDP.
  • The Fourth Horseman (not yet):  The dollar goes down, while interest rates go up.
  • The Fifth Horseman (not yet):  US debt becomes denominated in foreign currencies.

I want to examine the Fourth Horseman more carefully, because I believe it will arrive next and will trigger the subsequent arrival of the Fifth Horseman.

Image | Scarcity and Shortages – It’s Getting Loud Out There
Scarcity and Shortages – It’s Getting Loud Out There
 PREVIEW

There are a bevy of news articles beginning to appear, all centered on one of the central themes of the Crash Course – scarcity.

Below we see three examples. While there are more than a few who use the term “Malthusian” as though it were in irrefutable intellectual negation of an argument, more and more nation states and wealthy individuals are acting as if resource scarcity were a very real condition.

I truly believe that as net energy declines, the impact on resources, especially those requiring a lot of energy to extract and refine, will be multiplied.

I will be writing more on this at a later date. Here are the articles.
Scarcity and Shortages – It’s Getting Loud Out There
 PREVIEW

There are a bevy of news articles beginning to appear, all centered on one of the central themes of the Crash Course – scarcity.

Below we see three examples. While there are more than a few who use the term “Malthusian” as though it were in irrefutable intellectual negation of an argument, more and more nation states and wealthy individuals are acting as if resource scarcity were a very real condition.

I truly believe that as net energy declines, the impact on resources, especially those requiring a lot of energy to extract and refine, will be multiplied.

I will be writing more on this at a later date. Here are the articles.
Image | A Stimulating Train Wreck
A Stimulating Train Wreck
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One of my favorite outfits is Sprott Asset Management, located in Toronto Canada, because their analyses tend to be quite data-rich and “reality-based” as well.

In this excellent, short-and-sweet report, the case is made that a 3.5% boost to GDP from government stimulus spending alone will hit in the third quarter of 2009.

This means that whatever reading is turned in, you should mentally subtract 3.5% from it, because “growth” resulting from government deficit spending is not real growth at all, it is merely consumption borrowed from the future.
A Stimulating Train Wreck
 PREVIEW

One of my favorite outfits is Sprott Asset Management, located in Toronto Canada, because their analyses tend to be quite data-rich and “reality-based” as well.

In this excellent, short-and-sweet report, the case is made that a 3.5% boost to GDP from government stimulus spending alone will hit in the third quarter of 2009.

This means that whatever reading is turned in, you should mentally subtract 3.5% from it, because “growth” resulting from government deficit spending is not real growth at all, it is merely consumption borrowed from the future.
Image | Concentrated Risk – CRE loans and Bank Holding Companies
Concentrated Risk – CRE loans and Bank Holding Companies
 PREVIEW

Over at The Big Picture, Barry Ritholtz’ excellent blog, he’s got a list of the top bank holding companies, sorted by their Commercial Real Estate (CRE) loans.

There are a couple of shocking things on that list. The first is the level of concentration of holdings by those at the top of the list. Wells Fargo, for instance, at the top of the list, holds some $88 billion in CRE loans, or 50% more than the next bank on the list.

Next is the degree to which most banks aggressively expanded their CRE loans over the past year by 10%, 20%, even 40% and more. Wait, what? Does that seem a prudent thing to do over this past year?

At any rate, here’s the list:

Concentrated Risk – CRE loans and Bank Holding Companies
 PREVIEW

Over at The Big Picture, Barry Ritholtz’ excellent blog, he’s got a list of the top bank holding companies, sorted by their Commercial Real Estate (CRE) loans.

There are a couple of shocking things on that list. The first is the level of concentration of holdings by those at the top of the list. Wells Fargo, for instance, at the top of the list, holds some $88 billion in CRE loans, or 50% more than the next bank on the list.

Next is the degree to which most banks aggressively expanded their CRE loans over the past year by 10%, 20%, even 40% and more. Wait, what? Does that seem a prudent thing to do over this past year?

At any rate, here’s the list:

Image | Housing Woes – Charts of the Day
Housing Woes – Charts of the Day
 PREVIEW

These next two charts, showing that prime mortgages are now the key source of new foreclosures, are shockers. Taken together, they say that prime mortgages are just now beginning to act like subprime mortgages did back in 2007.

Note that prime fixed-rate mortgage foreclosures (red arrow) are now leading subprime adjustable-rate mortgages as the main source of new foreclosure activity.

Housing Woes – Charts of the Day
 PREVIEW

These next two charts, showing that prime mortgages are now the key source of new foreclosures, are shockers. Taken together, they say that prime mortgages are just now beginning to act like subprime mortgages did back in 2007.

Note that prime fixed-rate mortgage foreclosures (red arrow) are now leading subprime adjustable-rate mortgages as the main source of new foreclosure activity.

Image | Bank Failures – Peak Stress Not Yet Reached
Bank Failures – Peak Stress Not Yet Reached
 PREVIEW
Monday, August 24, 2009

Executive Summary

  • Guaranty Bank failed on Friday and was sold to a foreign bank.
  • Bank assets are undeniably under stress and are deteriorating.
  • Given the current trajectories, as many as two thousand more banks may fail.
  • The FDIC absolutely must remain well capitalized with liquid cash, or confidence-destroying bank runs will result.
  • It was premature of Bernanke to declare victory.
  • Choose your bank wisely.

One to two thousand bank failures are on the way. Peak stress has not yet been reached. Nearly every major source of bank loan stress continues to worsen. We’ve not seen any signs of a bottom yet in the most important measures.
 
The key risk here that a gap could develop between the FDIC’s ability to make good on depositor accounts and demand for funds from those accounts.
 
While this stress was significant enough last fall to cause me to issue warnings about keeping some money out of the bank and seeking to move funds from less to more sound institutions, I held back those recommendations once I judged that the risk had passed.
 
But now that risk has returned.

Bank Failures – Peak Stress Not Yet Reached
 PREVIEW
Monday, August 24, 2009

Executive Summary

  • Guaranty Bank failed on Friday and was sold to a foreign bank.
  • Bank assets are undeniably under stress and are deteriorating.
  • Given the current trajectories, as many as two thousand more banks may fail.
  • The FDIC absolutely must remain well capitalized with liquid cash, or confidence-destroying bank runs will result.
  • It was premature of Bernanke to declare victory.
  • Choose your bank wisely.

One to two thousand bank failures are on the way. Peak stress has not yet been reached. Nearly every major source of bank loan stress continues to worsen. We’ve not seen any signs of a bottom yet in the most important measures.
 
The key risk here that a gap could develop between the FDIC’s ability to make good on depositor accounts and demand for funds from those accounts.
 
While this stress was significant enough last fall to cause me to issue warnings about keeping some money out of the bank and seeking to move funds from less to more sound institutions, I held back those recommendations once I judged that the risk had passed.
 
But now that risk has returned.

Image | House Sales and Mortgage Applications – Something Doesn’t Add Up
House Sales and Mortgage Applications – Something Doesn’t Add Up

I was not a good father today.

Instead, I engaged in laboriously hand-entering data to satisfy a question that has been bothering me for a while.

The issue that was worrying at me was the apparent discrepancy I’d mentally noted between the happy-happy increase in existing home sales, as reported by the NAR last week, and what I remembered from the MBS mortgage application releases.

But who could be sure?

Perceptions can be tricked and need to be tested and subjected to fact-based inquiry.
House Sales and Mortgage Applications – Something Doesn’t Add Up

I was not a good father today.

Instead, I engaged in laboriously hand-entering data to satisfy a question that has been bothering me for a while.

The issue that was worrying at me was the apparent discrepancy I’d mentally noted between the happy-happy increase in existing home sales, as reported by the NAR last week, and what I remembered from the MBS mortgage application releases.

But who could be sure?

Perceptions can be tricked and need to be tested and subjected to fact-based inquiry.
Image | House Sales and Mortgage Applications – Something Doesn’t Add Up.
House Sales and Mortgage Applications – Something Doesn’t Add Up.
 PREVIEW

I was not a good father today.

Instead, I engaged in laboriously hand-entering data to satisfy a question that has been bothering me for a while.

The issue that was worrying at me was the apparent discrepancy I’d mentally noted between the happy-happy increase in existing home sales, as reported by the NAR last week, and what I remembered from the MBS mortgage application releases.

But who could be sure?

Perceptions can be tricked and need to be tested and subjected to fact-based inquiry.
House Sales and Mortgage Applications – Something Doesn’t Add Up.
 PREVIEW

I was not a good father today.

Instead, I engaged in laboriously hand-entering data to satisfy a question that has been bothering me for a while.

The issue that was worrying at me was the apparent discrepancy I’d mentally noted between the happy-happy increase in existing home sales, as reported by the NAR last week, and what I remembered from the MBS mortgage application releases.

But who could be sure?

Perceptions can be tricked and need to be tested and subjected to fact-based inquiry.
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