What’s the more likely event at this point: a deflationary crash or runaway inflation?
For a long time, Peak Prosperity co-founder Adam Taggart and I have hewed to the “Ka-POOM!” theory, which states that a major deflation will scare the central banks so badly that they overreact and pour too much liquidity into the system, thereby destroying it.
To visualize how this will play out, think of what happened in Beirut this week. Customs officials there stored thousands of tons of ammonium nitrate fertilizer at their seaport, for years. The pile just sat there doing absolutely nothing.
After years of inaction, the port authorities became lulled into the erroneous conclusion that nothing would ever happen.
But then one day a spark came to life, starting a fire, and then all at once — POOM! — the entire thing blew up with devastating effect.
This analogy works pretty well here as we approach the Keynesian endgame facing the global economy. The pile of $trillions in bad debts issued over the past decades has been the fertilizer. Covid-19 was the spark. And now we’re simply waiting for the entire economic and financial system to explode.
The same process began in the US and has been unfolding across the world ever since after the gold standard was abandoned in 1971. Untethered from any restraint, all that was left to staunch the flow of red ink was self-restraint and a concern for the future, both of which were in short supply.
Not only has debt been growing far faster than income (GDP) at the national level, but debts have been growing exponentially (i.e., ‘compounding’) ever since 1971:
That debt growth is a nearly perfect exponential curve upon which the entire systems of politics, banking and the economy have come to rely.
Anything that threatens to cause that curve to flatten out, let alone reverse, would cause the entire structure of power and wealth to crumble. So clearly there are some very powerful forces afoot to assure that doesn’t happen.
But eventually the gimmicks and the subterfuge necessary to perpetuate the continuation of that system of exponential credit creation become too large and too obvious. Eventually they fail and when they do…Look out below!
Lies, Damned Lies & The Jobs Report
We’re surrounded by bad data these days, nearly all of it made so in service of a failing narrative. Take the US jobs report that just came out. Here’s the headline:
Sounds great right? 1.8 million jobs? That’s huge!
The only problem is it’s almost certainly complete rubbish.
The BLS has a long and storied history of bending to the political will of various presidents stretching back to before most people were born. Is there any chance that Trump has *not* applied pressure on the BLS during an election year to make things look better than they are? No, no chance of that; it’s happened.
Luckily for Trump, the BLS is more than happy to oblige and they have numerous tricks up their sleeve to adjust the report into appropriate submission. I won’t go into them all here as they are fairly well known, but perhaps just peek at the so-called “birth Death Model which the BLS uses to guesstimate the jobs created by the excess of newly created businesses over those that died.
For the latest job report, the model guessed that nearly a quarter million new jobs were created in July.
In fact, across the three months of May, June and July the BLS tossed in 841,000 jobs form the birth death model which, apparently, has not heard of Covid nor can be modified by the BLS to spit out more accurate numbers that would, these days, certainly be subtractive and not additive.
So forget what the BLS has modeled, sampled, tortured and adjusted. What emerges if we just decide to go with a non-sampled number that is simply added up which is the number of people receiving unemployment insurance claims?
When we do that, we see that between May and August 2020 between 30 and 32 million people have been consistently out of work and receiving unemployment claims.
The above chart is real numbers. Not modeled, not adjusted, not sampled. Just counted up.
They stand in stark contrast to the idea of 1.8 million jobs being created. How it is possible that all 1.8 million jobs were created and yet absolutely none of them went to the continuing claims folks? It defies any logic or sense. One of the numbers is badly wrong and it’s not the unemployment claims.
Why go through this example? Because it shows the level of craven, obvious lying that is underway. I am certain that the DC crowd is fine with it all because “exigent circumstances” call for bold actions. As usual, that means lying to fit a narrative. As well as to serve political careers, line Wall Street pockets and baffle the public.
I’m worried that even the earnings of mega US corporations are being falsified to fit a narrative. The pandemic has slammed all sorts of business units. With so many small and medium sized enterprises virtually shut down, and all the uncertainty over demand advertising revenues got absolutely dumped.
Here’s a typical example:
News Corp Posts Wider Loss as Coronavirus Pummels Advertising Revenue
News Corp posted a wider loss in its latest quarter as advertising revenue halved amid the coronavirus pandemic, more than offsetting profit growth at Wall Street Journal parent Dow Jones & Co. and at the company’s video-subscription unit.
News Corp’s advertising revenue was the most-heavily affected, dropping 52% to $332 million.
A -52% plunge in ad revenue. Makes sense and fits what I know about the economy.
As we also know, the narrative is heavily dependent on just 5 big ticket stocks that are mainly responsible for driving the stock market higher. In that sense you could say that these companies are of national significance.
One of them, Facebook, just reported its earnings and they were a complete blow-out to the upside:
Facebook reports 11% revenue growth even amid pandemic slowdown
Jul 30, 2020
In mid-June, activists launched a campaign urging brands to suspend their advertisements on Facebooks throughout July in protest of hate speech and misinformation on the site. Coca-Cola, Starbucks, and Volkswagen, are among the many participants. Facebook said that through the first three weeks of July, its year-over-year revenue growth was about 10%.
Would you look at that? Even with a raging pandemic, and with a major national boycott by big brands, Facebook (allegedly) turned in stellar results anyway. I am…suspicious. It just doesn’t make sense.
Nor does Apple reporting roughly the same Q/Q and Yr/Yr growth of ~11% all of its segments and across all regions. With factories and stores shut down during this period, how is a blow-out year even possible? I am…suspicious. It just doesn’t make sense.
Is it possible that in the interests of ‘national security’ or some such nonsense that these companies have been asked to report better sales and earnings than they actually achieved? Stranger things have already happened.
So Now What?
I could go on and on about the subversion of science by money and politics, the utter failure leadership across the board, but it serves little purpose. Instead we’ll just state the obvious; loss of faith in our major institutions is eroding. Quickly.
The endgame was always going to look like a looting operation disguised as virtue and covered up with distracting noise:
Record prices for US tech stocks and pretty close to record prices for the Dow and S&P 500.
Because bond yields move in opposition to bond prices, a nearly record amount of negative yielding debt means a near-record price for the world’s $16 trillion of bonds, too:
Such record-high bond prices have, naturally, led to an orgy of corporate borrowing as reflected in this small sampling of headlines:
Companies large and small are taking advantage of the Fed’s massive corporate give-away, as they should. The only problem? The Fed doesn’t have any similar program for the medium and small companies, putting them at a huge disadvantage to the mega corporations.
Maybe that’s part of the plan?
At the same time we have gold hitting all time record highs, too:
What are we to make of record highs in stocks, bonds and gold?
Well, to me this is like blowing past warning signs on a highway. Whoosh!
Right past record high stock prices. Whoosh!
Right past record high bond prices. Whoosh!
Right past record high gold prices. Whoosh!
All that’s left is for some sort of universal basic income (UBI), or mortgage relief, or whatever to finally get some of this massive pile of thin-air money into the hands of ordinary people and — Whoosh! I’ll be issuing an ALERT as I run (not walk) on my way to converting the rest of my paper dollars into hard assets and other reasonable inflation hedges.
Hottest Year On Record
Even as all the covid-19 and Federal Reserve ””market”” drama is playing out, the world is heating up.
As I’ve previously stated, this is going to be the hottest year on record, coupled with the most arctic ice loss.
The reason is because of the lack of planes in the sky. Maybe you’ve noticed? Looked up and seen the clear skies devoid of anywhere near the usual number of planes?
As we learned in the two weeks after 9/11 when scientists recorded a huge burst in ground-level heating, the contrails of jets create a reflective layer that, once gone, allows the sun’s rays to hit the ground instead of bouncing back into space. The technical term is ‘albedo’ which is a measure of reflectivity.
Well, this time it’s not just the planes in the US that are grounded. And not just for a couple of weeks. This time it is an enormous fraction of the entire world’s jets that are grounded and for many months on end. Far less atmospheric albedo = more of the sun’s rays hitting the surface of the earth.
My prediction was that this would allow a lot of ground heating and ice loss to occur. Indeed, that’s what we’re seeing:
Arctic Sea Ice Shrank to Record Lows in July
Aug 6, 2020
Ice covering the Arctic Ocean reached the lowest level since at least 1979 for July as temperatures spiked in the region, leaving large stretches of Russia’s Siberian coast mostly ice-free.
Sea ice extent in the Arctic last month was 27% below the average set between 1981 and 2020, the lowest level ever recorded, with the previous July low set in 2012, according to a monthly report by Europe’s Copernicus agency.
The Arctic, which is warming more than twice as fast as the rest of the planet, has endured a heatwave through spring and summer that saw record-high temperatures, an early start of the fire season and the opening up of usually frozen sea routes to shipping companies.
To me this was all perfectly predictable by the loss of air travel. I know it’s more complicated than that, but all that extra heat reaching the ground had to go somewhere and the trends of late have been towards the arctic.
The actual temperature anomaly maps are truly scary. There are enormous swaths of open water in the arctic that are more than 5 degrees Celsius above normal!(!!) [orange boxes]
Because a main repository for the excess heat is the oceans, which can translate into larger and more frequent storms. Experts are now predicting a ‘very busy’ Atlantic hurricane season, something to consider for everyone who lives in the path of such storms.
2020 Atlantic Hurricane Season Now Expected To Be ‘Extremely Busy’
Aug 6, 2020
The National Oceanic and Atmospheric Administration upped the forecast number of storms for the 2020 season to 25, on Thursday the first time on record the agency has called for so many in one season.
NOAA lead forecaster Gerry Bell said the increase in the midseason adjustment was prompted by a busy start to the season along with ripening conditions. A busier monsoon season off the West African coast — where many hurricanes are born — along with steamy ocean temperatures, low wind shear and a developing La Nina weather pattern in the Pacific all foreshadow more storms, he said.
My specific location has power, but just to the south there are areas that will be without power for 1 – 2 weeks due to a light blow from a Tropical Depression this week. Heaven help us if a proper hurricane ever comes along.
My main point here is that the Environment “E” of the Crash Course is still there, still flashing its warning signs, and still awaiting a proper response by us humans. Given the ongoing controversy in the US around wearing face masks, which is a dead simple argument to make resulting in a very easy task, I am not at all hopeful that the far more complicated and difficult responses that Climate Change will require have any chance at all.
Here’s the mask logic:
Does wearing a mask help me? Yes.
Does wearing a mask help others? Yes.
Can wearing a mask harm me? No.
Okay then…how is any of that controversial? It shouldn’t be, and yet it is.
Climate change will require us to use less energy and that will encompass a whole lot of “losses” for people. Favorite jobs and past times may not be possible under a limited fossil fuel policy. So they will be fought tooth and nail, spurred on by think tanks and “scientists” paid for by shadowy corporations, many of them flush with cheap cash courtesy of the Federal Reserve.
The trends are clear. More money printing, wider wealth gaps, a hotter climate, a loss of faith in our major institutions and organizations and you’ve got a recipe for massive change.
One response to all of that is to become as resilient as you can. It’s not perfect, of course, because what happens if the rains stop falling on our farmlands or the government decides to punish the prudent even more violently than they already are, perhaps by confiscating one’s stored hard asset wealth?
But we have to do what we can while we can. Along the way perhaps we rediscover what’s really important. I have a growing sense of gratitude for each day and the people around me. I tend to my soil and revel in its increasing health and depth.
More and more people are waking up each day. They are voting with the feet and their dollars by moving out of cities and planting gardens.
As you know I’m among those people. I’ve been voting by swapping my dollars for real assets. I like productive, rural land. I like rich soils. I prefer to have back-ups for all critical tools and systems. I’m spending time building my social capital, and I’m busy making investments in my local community under the idea that it will become more and more crowded as the cities empty out.
I’m currently on the fence about whether one too many signs has whooshed! past on the highway. Is it time to admit that we’re heading straight into the POOM phase without ever passing through a proper Ka- phase? Maybe. I just don’t yet know.
But once I do know for sure, you premium Peak Prosperity subscribers will be the very first to be alerted.
Because it’s never a black and white thing but rather a weighting of probabilities, I’ve been tipping my wealth distribution towards ‘real things’ and away from ‘paper currency.’
Luckily I have a big project that helps to justify those expenditures. But if I didn’t, I’d be sliding more and more towards gold and silver, productive real estate, business that generate inflation-adjusting income, and other tangible forms of wealth.