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Image | Get Ready For Strange Days
Get Ready For Strange Days
 PREVIEW
by JHK

Executive Summary

  • The case for a regional fracturing of the US
  • Why the balance of power will shift from the Federal government to local seats
  • How each US region will likely fare during this transition, given their idiosyncrasies
  • Why chaos will trump order moving forward

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

The last time the USA faced a comparable political convulsion was the decade leading into the Civil War, but this time it will be more complex and confusing and it will have a different ending.

A Preview of What's to Come?

In the 1850s, the dominant Whig party choked to death on its own internal contradictions — mainly its failure to take a coherent position on slavery — and morphed into the Republican Party. The original Democratic Party broke apart into southern and northern factions. All of the doctrinal and legal debates of the day — states’ rights, property rights, et cet. — could not overcome the growing moral revulsion against human bondage. When Lincoln was elected in 1860, seven southern slave states seceded from the Union before his inauguration. The ferocity of the ensuing Civil War — the world’s first industrial-strength slaughterfest — came as a great shock to many who had expected little more than a few symbolic romantic skirmishes on horseback preceding a negotiated settlement.

I believe we are headed now into a breakup of the nation into smaller units, but this time there will be no reconstituting the original USA as in 1865. I realize this is a severe view, but the circumstances we face are more severe than the public seems to imagine. To some degree the coming political rearrangement would appear to be the unfinished business of the 1860s. The old animosities remain, mainly in cultural rather than economic terms. But the real driving force of schism will be catabolic economic collapse expressing itself in scale reduction of all our support systems: food production, energy production, transportation, finance, commerce, and governance. Everything is going to have to get smaller, get more local, and be run differently. Just as political rhetoric failed to contain the revulsion against slavery, all the debates of the Left and Right in our time will not overcome the geophysical limits of energy resource scarcity and its affect on the other major systems of everyday life. Environmental degradation (including climate change) will amplify the journey downward in the viable scale of human operations…

Get Ready For Strange Days
 PREVIEW by JHK

Executive Summary

  • The case for a regional fracturing of the US
  • Why the balance of power will shift from the Federal government to local seats
  • How each US region will likely fare during this transition, given their idiosyncrasies
  • Why chaos will trump order moving forward

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

The last time the USA faced a comparable political convulsion was the decade leading into the Civil War, but this time it will be more complex and confusing and it will have a different ending.

A Preview of What's to Come?

In the 1850s, the dominant Whig party choked to death on its own internal contradictions — mainly its failure to take a coherent position on slavery — and morphed into the Republican Party. The original Democratic Party broke apart into southern and northern factions. All of the doctrinal and legal debates of the day — states’ rights, property rights, et cet. — could not overcome the growing moral revulsion against human bondage. When Lincoln was elected in 1860, seven southern slave states seceded from the Union before his inauguration. The ferocity of the ensuing Civil War — the world’s first industrial-strength slaughterfest — came as a great shock to many who had expected little more than a few symbolic romantic skirmishes on horseback preceding a negotiated settlement.

I believe we are headed now into a breakup of the nation into smaller units, but this time there will be no reconstituting the original USA as in 1865. I realize this is a severe view, but the circumstances we face are more severe than the public seems to imagine. To some degree the coming political rearrangement would appear to be the unfinished business of the 1860s. The old animosities remain, mainly in cultural rather than economic terms. But the real driving force of schism will be catabolic economic collapse expressing itself in scale reduction of all our support systems: food production, energy production, transportation, finance, commerce, and governance. Everything is going to have to get smaller, get more local, and be run differently. Just as political rhetoric failed to contain the revulsion against slavery, all the debates of the Left and Right in our time will not overcome the geophysical limits of energy resource scarcity and its affect on the other major systems of everyday life. Environmental degradation (including climate change) will amplify the journey downward in the viable scale of human operations…

Image | Here We Go (Again)
Here We Go (Again)
 PREVIEW
by Chris Martenson

One of the things I am fond of pointing out is that it seems like nobody in high finance or the central banks learned anything from the great crisis of 2008.  The very same excesses that created the prior crises are being committed again.

I know…maybe this time it will turn out differently.
Here We Go (Again)
 PREVIEW by Chris Martenson

One of the things I am fond of pointing out is that it seems like nobody in high finance or the central banks learned anything from the great crisis of 2008.  The very same excesses that created the prior crises are being committed again.

I know…maybe this time it will turn out differently.
Image | Outcomes to Bet On in 2014
Outcomes to Bet On in 2014
 PREVIEW
by charleshughsmith

Executive Summary

  • The productive class will increasingly look for ways to protect its income and wealth from State hands
  • Geographic redistribution of classes will increase, favoring lower-cost locales
  • Expect tax revolts to start breaking out
  • Diminishing returns and increased fragility of the status quo will result in a resurgence of volatility

If you have not yet read Part I of The Trends to Watch For in 2014, available free to all readers, please click here to read it first.

In Part I, I listed eight more trends to watch in 2014, in addition to the eight that are still in play from 2013.  Following last year’s format, here are some of the consequences to look for in 2014-15:

Outcomes

1. Opting out will become increasingly attractive for the productive class.  Since the Status Quo suppresses political resistance (in official eyes, the line between protest and domestic terrorism is awfully thin) while it loads on higher costs of friction, complexity, junk fees, taxes, etc. on the still-productive, opting out—retiring, quitting, cutting back, selling out—becomes a compelling option for those who can afford to do so.

Many have opted out simply because they have no other choice.  Those who are close to retirement age and unable to find employment that pays more than Social Security benefits opt to retire and take the benefits early.  The Social Security Administration has professed surprise that Baby Boomers are retiring early in larger numbers than the SSA projected.  (File under “Duh!”)  Millions of others have managed to qualify for Social Security disability (SSI), another form of opting out.

The Affordable Care Act (Obamacare) is one of many forces incentivizing opting out. The perverse incentives of the ACA make it “smart” to not enroll and not pay the penalty, either, as the IRS has already said that it won’t enforce the penalty for some time.

The ACA also heavily incentivizes managing your income to levels that qualify the household for subsidies. Higher-income households have a big incentive to lower their incomes to avoid paying sky-high premiums.  Those with salaries cannot easily adjust their incomes, but households with self-employed or contract workers can opt to work less and thus earn less…

Outcomes to Bet On in 2014
 PREVIEW by charleshughsmith

Executive Summary

  • The productive class will increasingly look for ways to protect its income and wealth from State hands
  • Geographic redistribution of classes will increase, favoring lower-cost locales
  • Expect tax revolts to start breaking out
  • Diminishing returns and increased fragility of the status quo will result in a resurgence of volatility

If you have not yet read Part I of The Trends to Watch For in 2014, available free to all readers, please click here to read it first.

In Part I, I listed eight more trends to watch in 2014, in addition to the eight that are still in play from 2013.  Following last year’s format, here are some of the consequences to look for in 2014-15:

Outcomes

1. Opting out will become increasingly attractive for the productive class.  Since the Status Quo suppresses political resistance (in official eyes, the line between protest and domestic terrorism is awfully thin) while it loads on higher costs of friction, complexity, junk fees, taxes, etc. on the still-productive, opting out—retiring, quitting, cutting back, selling out—becomes a compelling option for those who can afford to do so.

Many have opted out simply because they have no other choice.  Those who are close to retirement age and unable to find employment that pays more than Social Security benefits opt to retire and take the benefits early.  The Social Security Administration has professed surprise that Baby Boomers are retiring early in larger numbers than the SSA projected.  (File under “Duh!”)  Millions of others have managed to qualify for Social Security disability (SSI), another form of opting out.

The Affordable Care Act (Obamacare) is one of many forces incentivizing opting out. The perverse incentives of the ACA make it “smart” to not enroll and not pay the penalty, either, as the IRS has already said that it won’t enforce the penalty for some time.

The ACA also heavily incentivizes managing your income to levels that qualify the household for subsidies. Higher-income households have a big incentive to lower their incomes to avoid paying sky-high premiums.  Those with salaries cannot easily adjust their incomes, but households with self-employed or contract workers can opt to work less and thus earn less…

Image | The Case for Cash
The Case for Cash
 PREVIEW
by charleshughsmith

Executive Summary

  • Why the next stock market decline could be in excess of 50%
  • What historic indicators of coming decline are telling us
  • The case for holding cash now
  • If the market does roll over substantially in early 2014, how long may the decline last?

If you have not yet read The Case for a Crash, available free to all readers, please click here to read it first.

In Part I, we attempted to answer the question, Which forecast is more likely to be accurate: that the Bull market in stocks will continue for years to come, or the market will swan-dive in yet another multi-year crash?

We concluded that there was little historical evidence to support the claim that the S&P 500 will extend higher for an additional three to five years.

Here in Part II, we’ll look for clues about the possible amplitude and timing of the decline that the five-year cycle of the “new normal” suggests is likely.

(A reminder on gold: I detailed a forecast on gold earlier this year based on price action around key support/resistance levels, and nothing in recent price action has caused me to amend that forecast.  I have also noted that gold does not correlate well with either stocks or the U.S. dollar; i.e., its dynamics are largely independent of stocks and the USD. To the degree that gold is viewed as a “risk-off” safe-haven asset, it should do well if “risk-on” assets such as stocks crater.)

Forecasting the Amplitude of the Next Decline

A number of technical analysts have noted this megaphone pattern in the stock market, a pattern formed by alternating higher highs and lower lows.  This is one basis of forecasts for the SPX to drop to the 500-600 level in the next downdraft, potentially retracing the entire Bull advance from 1995. 

While this megaphone may not play out, it establishes a potential target for a crushing drop from current highs…

The Case for Cash
 PREVIEW by charleshughsmith

Executive Summary

  • Why the next stock market decline could be in excess of 50%
  • What historic indicators of coming decline are telling us
  • The case for holding cash now
  • If the market does roll over substantially in early 2014, how long may the decline last?

If you have not yet read The Case for a Crash, available free to all readers, please click here to read it first.

In Part I, we attempted to answer the question, Which forecast is more likely to be accurate: that the Bull market in stocks will continue for years to come, or the market will swan-dive in yet another multi-year crash?

We concluded that there was little historical evidence to support the claim that the S&P 500 will extend higher for an additional three to five years.

Here in Part II, we’ll look for clues about the possible amplitude and timing of the decline that the five-year cycle of the “new normal” suggests is likely.

(A reminder on gold: I detailed a forecast on gold earlier this year based on price action around key support/resistance levels, and nothing in recent price action has caused me to amend that forecast.  I have also noted that gold does not correlate well with either stocks or the U.S. dollar; i.e., its dynamics are largely independent of stocks and the USD. To the degree that gold is viewed as a “risk-off” safe-haven asset, it should do well if “risk-on” assets such as stocks crater.)

Forecasting the Amplitude of the Next Decline

A number of technical analysts have noted this megaphone pattern in the stock market, a pattern formed by alternating higher highs and lower lows.  This is one basis of forecasts for the SPX to drop to the 500-600 level in the next downdraft, potentially retracing the entire Bull advance from 1995. 

While this megaphone may not play out, it establishes a potential target for a crushing drop from current highs…

Image | Anything Goes, Inc.
Anything Goes, Inc.
 PREVIEW
by Chris Martenson

It turns out that corporations are like people.  When they feel threatened, they'll do anything to get back at their perceived nemeses. The instinct to survive can bring out the worst in people – and, it seems, corporations, too.
Anything Goes, Inc.
 PREVIEW by Chris Martenson

It turns out that corporations are like people.  When they feel threatened, they'll do anything to get back at their perceived nemeses. The instinct to survive can bring out the worst in people – and, it seems, corporations, too.
Image | The Very Real Danger of a Failure in the Gold Market
The Very Real Danger of a Failure in the Gold Market
 PREVIEW
by Alasdair Macleod

Executive Summary

  • Central planning are colluding – but failing – to diminish world demand for bullion
  • The BRICS are planning a future of less dependence on the West, and gold will play a role
  • The East sees gold as "on sale" at today's prices
  • Analysis shows they're right; gold is much cheaper than it should be compared to pre-QE levels

If you have not yet read There Is Too Little Gold in the West, available free to all readers, please click here to read it first.

In Part I, I went through the history of Asian demand for gold, starting with the Arabs’ need to find a home for increasing quantities of petrodollars from the late 1960s onwards. My conclusion was that there is very little bullion in private ownership left in the West, there is an unmanageable short position in the unallocated gold accounts held with the bullion banks, and the bulk of accessible monetary gold controlled by central banks is already leased and has been sold into the market to satisfy Asian demand.

The result is that merely suppressing the gold price to enhance credibility of the dollar as a reserve currency is no longer the problem. The problem is now one of crisis management. Western central banks have done everything they can, even persuading the Reserve Bank of India to suppress India’s gold imports. We know this is most probably the case because the Indian authorities have already learned the lesson that gold imports could not be controlled, which is why the Gold Control Act was abolished in 1990. Furthermore, the newly-appointed RBI Governor, Raghuram Rajan is an ex-IMF chief economist, has spent a significant part of his career in the U.S., and is therefore likely to be fully sympathetic with Western central bank objectives. He appears to be the West’s place-man.

Other than the question of Indian demand, there are two possible reasons for the flows of gold from West to East: geo-political, whereby one or more Asian nations are deliberately creating a potential crisis for the West, and different valuation criteria. Both are true and…

The Very Real Danger of a Failure in the Gold Market
 PREVIEW by Alasdair Macleod

Executive Summary

  • Central planning are colluding – but failing – to diminish world demand for bullion
  • The BRICS are planning a future of less dependence on the West, and gold will play a role
  • The East sees gold as "on sale" at today's prices
  • Analysis shows they're right; gold is much cheaper than it should be compared to pre-QE levels

If you have not yet read There Is Too Little Gold in the West, available free to all readers, please click here to read it first.

In Part I, I went through the history of Asian demand for gold, starting with the Arabs’ need to find a home for increasing quantities of petrodollars from the late 1960s onwards. My conclusion was that there is very little bullion in private ownership left in the West, there is an unmanageable short position in the unallocated gold accounts held with the bullion banks, and the bulk of accessible monetary gold controlled by central banks is already leased and has been sold into the market to satisfy Asian demand.

The result is that merely suppressing the gold price to enhance credibility of the dollar as a reserve currency is no longer the problem. The problem is now one of crisis management. Western central banks have done everything they can, even persuading the Reserve Bank of India to suppress India’s gold imports. We know this is most probably the case because the Indian authorities have already learned the lesson that gold imports could not be controlled, which is why the Gold Control Act was abolished in 1990. Furthermore, the newly-appointed RBI Governor, Raghuram Rajan is an ex-IMF chief economist, has spent a significant part of his career in the U.S., and is therefore likely to be fully sympathetic with Western central bank objectives. He appears to be the West’s place-man.

Other than the question of Indian demand, there are two possible reasons for the flows of gold from West to East: geo-political, whereby one or more Asian nations are deliberately creating a potential crisis for the West, and different valuation criteria. Both are true and…

Image | None of This Makes Any Sense
None of This Makes Any Sense
 PREVIEW
by Chris Martenson

I have to confess, these are trying times for those of us trying to make sense of the markets from a fundamentals standpoint.  We are back in serious bubble territory, and during the heights of bubbles, all sorts of newly-minted rationalizations are bandied about as the new wisdom or a 'new normal'.

I am simply amazed that we are in yet another massive bubble, so soon after the last ones, and that so few remember the lessons from those events.
None of This Makes Any Sense
 PREVIEW by Chris Martenson

I have to confess, these are trying times for those of us trying to make sense of the markets from a fundamentals standpoint.  We are back in serious bubble territory, and during the heights of bubbles, all sorts of newly-minted rationalizations are bandied about as the new wisdom or a 'new normal'.

I am simply amazed that we are in yet another massive bubble, so soon after the last ones, and that so few remember the lessons from those events.
Image | A Better Human Habitat for the Next Economy
A Better Human Habitat for the Next Economy
 PREVIEW
by JHK

Executive Summary

  • 'Smaller' will be the major theme in future development
  • The general principles for resilient human settlement
  • How redesigning our towns & cities offers liberation from the soul-sucking models we live in today
  • What we can leverage from the New Urbanist movement

If you have not yet read (Un)Paving Our Way To Nirvana, available free to all readers, please click here to read it first.

Before I review some of the basic rules and principles for assembling a human habitat worth living in and with some prospects of enduring, a few words about demographic change. The failing suburbs will not drive everybody in them to move to the cities. The big cities of America face equal difficulties with resource and capital scarcity, failing infrastructure that won’t be replaced, and problems as yet off the radar screen such as water safety, public health, food shortages, and social turmoil. The big cities will have to get a lot smaller and that process will take decades to resolve.

I’m convinced that the action in this country will move to the existing smaller cities and small towns, especially places that have a meaningful relationship with food production because there ought to be no question that agri-business will fail, and with it the entire food production and distribution process as we currently know it. One implication of this is that we will restore a visible edge between what is urban and what is rural, and what these places are for. As that occurs people will redevelop an appreciation for the distinction. The human settlement will no longer endeavor to be a cartoon of the rural countryside. And rural places will be organized and inhabited differently.

Therefore, a first general principle is…

A Better Human Habitat for the Next Economy
 PREVIEW by JHK

Executive Summary

  • 'Smaller' will be the major theme in future development
  • The general principles for resilient human settlement
  • How redesigning our towns & cities offers liberation from the soul-sucking models we live in today
  • What we can leverage from the New Urbanist movement

If you have not yet read (Un)Paving Our Way To Nirvana, available free to all readers, please click here to read it first.

Before I review some of the basic rules and principles for assembling a human habitat worth living in and with some prospects of enduring, a few words about demographic change. The failing suburbs will not drive everybody in them to move to the cities. The big cities of America face equal difficulties with resource and capital scarcity, failing infrastructure that won’t be replaced, and problems as yet off the radar screen such as water safety, public health, food shortages, and social turmoil. The big cities will have to get a lot smaller and that process will take decades to resolve.

I’m convinced that the action in this country will move to the existing smaller cities and small towns, especially places that have a meaningful relationship with food production because there ought to be no question that agri-business will fail, and with it the entire food production and distribution process as we currently know it. One implication of this is that we will restore a visible edge between what is urban and what is rural, and what these places are for. As that occurs people will redevelop an appreciation for the distinction. The human settlement will no longer endeavor to be a cartoon of the rural countryside. And rural places will be organized and inhabited differently.

Therefore, a first general principle is…

Image | Why Social & Environmental Imbalances Are Becoming the Biggest Risks
Why Social & Environmental Imbalances Are Becoming the Biggest Risks
 PREVIEW
by Gregor Macdonald

Executive Summary

  • The growing risk of disinflation
  • Why instability in the U.S. is accelerating
  • The danger of social rifts emerging in the near future between economic classes
  • Why environmental constraints and social instability may trump energy issues going forward

If you have not yet read What Happened to the Future?, available free to all readers, please click here to read it first.

If this is the case, it echoes the realization now dawning on economists in the U.S. that an acceleration in the economy, which many expected, is simply not going to arrive. As was discussed in previous essays, OECD GDP growth appears to be converging once again at a level below 2.00%. The U.S. is on track to achieve only 1.6% GDP growth this year. This is a primary reason why inflation, again – outside of natural resources – has still not broken out, or even appeared. Moreover, the U.S. and the OECD could once again be on the verge of disinflation.

One notable and important piece of the disinflation puzzle is the continued growth in inequality. As income growth narrows to a tiny vanishing point among workers, it’s become increasingly difficult to mount economic growth across many industries. Demand for goods from the 1% is robust. Demand from the rest of the populace continues to dwindle. It may be hard to believe, but policy makers, politicians, and – gasp! – even economists and financiers used to be deeply concerned about wealth inequality. Today, it’s as if enough time has passed for an entire generation to forget the destructive structural damage that long-term inequality can wreak on an economy.

For those of you who remember, one of the more severe cases of wealth inequality for many decades was the country of Brazil. Tellingly, it was not until Brazil elected a reformer, Lula, that the country left behind its days of boom-and-bust, debt crises, inflation, and general instability and embarked on its current path as a more balanced, sustainable economy. Coincidence? Not likely.

But what’s really scary is…

Why Social & Environmental Imbalances Are Becoming the Biggest Risks
 PREVIEW by Gregor Macdonald

Executive Summary

  • The growing risk of disinflation
  • Why instability in the U.S. is accelerating
  • The danger of social rifts emerging in the near future between economic classes
  • Why environmental constraints and social instability may trump energy issues going forward

If you have not yet read What Happened to the Future?, available free to all readers, please click here to read it first.

If this is the case, it echoes the realization now dawning on economists in the U.S. that an acceleration in the economy, which many expected, is simply not going to arrive. As was discussed in previous essays, OECD GDP growth appears to be converging once again at a level below 2.00%. The U.S. is on track to achieve only 1.6% GDP growth this year. This is a primary reason why inflation, again – outside of natural resources – has still not broken out, or even appeared. Moreover, the U.S. and the OECD could once again be on the verge of disinflation.

One notable and important piece of the disinflation puzzle is the continued growth in inequality. As income growth narrows to a tiny vanishing point among workers, it’s become increasingly difficult to mount economic growth across many industries. Demand for goods from the 1% is robust. Demand from the rest of the populace continues to dwindle. It may be hard to believe, but policy makers, politicians, and – gasp! – even economists and financiers used to be deeply concerned about wealth inequality. Today, it’s as if enough time has passed for an entire generation to forget the destructive structural damage that long-term inequality can wreak on an economy.

For those of you who remember, one of the more severe cases of wealth inequality for many decades was the country of Brazil. Tellingly, it was not until Brazil elected a reformer, Lula, that the country left behind its days of boom-and-bust, debt crises, inflation, and general instability and embarked on its current path as a more balanced, sustainable economy. Coincidence? Not likely.

But what’s really scary is…

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