by
Brian Pretti
Premium Archives
by
Chris Martenson
Executive Summary
- What is 'deflation?'
- Why do central banks fear it so much?
- What falling prices really mean.
- Commodities are telling us that a global slowdown is already here.
- China's economic miracle is over.
- What happens next (please keep your preparations on track!)
If you have not yet read Oil And The Global Slowdown available free to all readers, please click here to read it first.
The title of this part says it all. So let's begin with an important definition. What is 'deflation'?
To hear the media and central banks tell it, it is something fearful and that must be avoided at all costs. Confusingly they then point to falling prices as evidence of the horror of which they speak.
The only problem is that you and I like falling prices. If my health insurance cost 10% less next year I’d be thrilled. But the central banks would be horrified.
The difference between these two positions lies in the definition of deflation. While the media always blindly regurgitates the central bank line that falling prices are an indication of deflation they really shouldn't.
The Central Banks Have Lost
PREVIEW by Chris MartensonExecutive Summary
- What is 'deflation?'
- Why do central banks fear it so much?
- What falling prices really mean.
- Commodities are telling us that a global slowdown is already here.
- China's economic miracle is over.
- What happens next (please keep your preparations on track!)
If you have not yet read Oil And The Global Slowdown available free to all readers, please click here to read it first.
The title of this part says it all. So let's begin with an important definition. What is 'deflation'?
To hear the media and central banks tell it, it is something fearful and that must be avoided at all costs. Confusingly they then point to falling prices as evidence of the horror of which they speak.
The only problem is that you and I like falling prices. If my health insurance cost 10% less next year I’d be thrilled. But the central banks would be horrified.
The difference between these two positions lies in the definition of deflation. While the media always blindly regurgitates the central bank line that falling prices are an indication of deflation they really shouldn't.
by
charleshughsmith
Executive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
PREVIEW by charleshughsmithExecutive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
by
Chris Martenson
The second part of our interview with John Hussman is available here for Peak Prosperity's enrolled members.
If you've not yet listened to Part 1, click here to do so.
In Part 2 of the interview, John provides more specificity around his valuation methodology, and how he sees things playing out from here in the financial markets.
To access Part 2 of this podcast, simply click the yellow button to enroll.
John Hussman Podcast – Part 2
PREVIEW by Chris MartensonThe second part of our interview with John Hussman is available here for Peak Prosperity's enrolled members.
If you've not yet listened to Part 1, click here to do so.
In Part 2 of the interview, John provides more specificity around his valuation methodology, and how he sees things playing out from here in the financial markets.
To access Part 2 of this podcast, simply click the yellow button to enroll.
by
Chris Martenson
Executive Summary
- Why prices under $100 per barrel just aren’t cash flow positive for shale oil producers
- VIDEO: all you need to know about the shale oil industry
- Why the Boom/Bust cycle is swinging to ‘Bust’ for shale companies
- Why a prolonged ‘Bust’ in oil prices will create massive economic shockwaves
If you have not yet read Part 1: About That Shale ‘Miracle’… available free to all readers, please click here to read it first.
The Shale Reality
Now, let me build on the case that not only are shale companies not profitable at $50 per barrel oil, but they are often not profitable at prices nearly 100% higher than that.
I’m not about to make the case that all shale operators are unprofitable or about to go bust on the plays, but I am going to make the case that any sweeping statements like “technology will bring us Shale 2.0” are utterly adrift from the evidence at our disposal.
Let’s go back to September 2014, before any oil price weakness had crept into the picture. At that point in time, according the WSJ author, the shale operators should have been swimming in cash.
Well, that’s just not the case. And some of them were losing their shirts:
Sumitomo’s US shale oil foray turns sour
Sept 29, 2014
Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings.
On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalisation, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015.
(Source)
Hmmmm. I guess Sumitomo just failed to use enough smart technology or something, because otherwise how is it possible to lose $1.6 billion at a time when oil was solidly priced in the $100 range?
Sarcasm aside, the truth is that it’s all too easy to lose money in the shale plays, something I believe is already completely indicated by the negative free cash flows of the industry.
In fact, that negative free cash flow evidence tells me that…
The Hard Facts About Shale Oil
PREVIEW by Chris MartensonExecutive Summary
- Why prices under $100 per barrel just aren’t cash flow positive for shale oil producers
- VIDEO: all you need to know about the shale oil industry
- Why the Boom/Bust cycle is swinging to ‘Bust’ for shale companies
- Why a prolonged ‘Bust’ in oil prices will create massive economic shockwaves
If you have not yet read Part 1: About That Shale ‘Miracle’… available free to all readers, please click here to read it first.
The Shale Reality
Now, let me build on the case that not only are shale companies not profitable at $50 per barrel oil, but they are often not profitable at prices nearly 100% higher than that.
I’m not about to make the case that all shale operators are unprofitable or about to go bust on the plays, but I am going to make the case that any sweeping statements like “technology will bring us Shale 2.0” are utterly adrift from the evidence at our disposal.
Let’s go back to September 2014, before any oil price weakness had crept into the picture. At that point in time, according the WSJ author, the shale operators should have been swimming in cash.
Well, that’s just not the case. And some of them were losing their shirts:
Sumitomo’s US shale oil foray turns sour
Sept 29, 2014
Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings.
On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalisation, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015.
(Source)
Hmmmm. I guess Sumitomo just failed to use enough smart technology or something, because otherwise how is it possible to lose $1.6 billion at a time when oil was solidly priced in the $100 range?
Sarcasm aside, the truth is that it’s all too easy to lose money in the shale plays, something I believe is already completely indicated by the negative free cash flows of the industry.
In fact, that negative free cash flow evidence tells me that…
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