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by Chris Martenson

How This Will All End

Wednesday, January 12, 2011

Executive Summary

  • The inevitable market correction will be triggered by a forcing event, and which one is most likely
  • The US has too much debt
  • State bailouts signaled by Fed’s denials?
  • “Not enough oil to repay the debt”
  • Why the cost of debt service will drown us, even if interest rates remain low
  • Bond market will lead the way
  • The key signs to watch for that will signal the endgame is playing out
  • Recommended investment classes for preserving wealth 

Part I

If you have not yet read Part I of this report, please click here to read it first.

Part II – How This Will All End

In Part I of this report, I laid out my reasoning for why the game has managed to continue on as long as it has. Where a massive financial dislocation should have happened by now, in practice the impacts have been relatively minor compared to what many people had expected to happen. 

But we cannot escape the fact that entirely too many debts and liabilities exist to pay off in current dollars. Either those debts will have to be defaulted upon, or they will have to be inflated away.

Even more important than the question of which one it will be is the question of when. That’s what we will explore here.

How This Will All End
PREVIEW by Chris Martenson

How This Will All End

Wednesday, January 12, 2011

Executive Summary

  • The inevitable market correction will be triggered by a forcing event, and which one is most likely
  • The US has too much debt
  • State bailouts signaled by Fed’s denials?
  • “Not enough oil to repay the debt”
  • Why the cost of debt service will drown us, even if interest rates remain low
  • Bond market will lead the way
  • The key signs to watch for that will signal the endgame is playing out
  • Recommended investment classes for preserving wealth 

Part I

If you have not yet read Part I of this report, please click here to read it first.

Part II – How This Will All End

In Part I of this report, I laid out my reasoning for why the game has managed to continue on as long as it has. Where a massive financial dislocation should have happened by now, in practice the impacts have been relatively minor compared to what many people had expected to happen. 

But we cannot escape the fact that entirely too many debts and liabilities exist to pay off in current dollars. Either those debts will have to be defaulted upon, or they will have to be inflated away.

Even more important than the question of which one it will be is the question of when. That’s what we will explore here.

by Chris Martenson

Prediction: Things Will Unravel Faster Than You Think

Friday, October 1, 2010

Executive Summary

  • We do not live in a linear world
  • Complex systems are inherently unpredictable (sort of)
  • Accepting “what is”
  • Banking on perception
  • The dawning of awareness of Peak Oil, sovereign insolvency, & currency debasement
  • Hope alone is a terrible strategy
  • What you should do

Part I

If you have not yet read Part I of this report, please click here to read it first.

Part II

Banking On Perception

When it comes to markets riding on a flawed fundamental premise, perception is everything.  

Consider that in December of 2007, the world had plenty of food, but by February of 2008, we saw food riots and the international perception of food scarcity.  Almost nothing had changed with respect to the fundamental quantities of food stocks between December and February, and that’s the point.

Or consider that one month Iceland was in fine shape and the next month desperately broke.  Ditto for Greece.  Again, there was nothing that had fundamentally changed from one month to the next, in terms of cash flows or debt levels, that would justify the size of the adjustments, but they happened nonetheless, and they happened quickly. 

Prediction: Things Will Unravel Faster Than You Think
PREVIEW by Chris Martenson

Prediction: Things Will Unravel Faster Than You Think

Friday, October 1, 2010

Executive Summary

  • We do not live in a linear world
  • Complex systems are inherently unpredictable (sort of)
  • Accepting “what is”
  • Banking on perception
  • The dawning of awareness of Peak Oil, sovereign insolvency, & currency debasement
  • Hope alone is a terrible strategy
  • What you should do

Part I

If you have not yet read Part I of this report, please click here to read it first.

Part II

Banking On Perception

When it comes to markets riding on a flawed fundamental premise, perception is everything.  

Consider that in December of 2007, the world had plenty of food, but by February of 2008, we saw food riots and the international perception of food scarcity.  Almost nothing had changed with respect to the fundamental quantities of food stocks between December and February, and that’s the point.

Or consider that one month Iceland was in fine shape and the next month desperately broke.  Ditto for Greece.  Again, there was nothing that had fundamentally changed from one month to the next, in terms of cash flows or debt levels, that would justify the size of the adjustments, but they happened nonetheless, and they happened quickly. 

by Chris Martenson

I’ve been struggling lately with balancing my role as a responsible information scout and commentator on the current economic situation with this sinking feeling that I’ve been carrying for awhile.  There have been a couple of times in the past where I’ve had a similar sense of apprehension.

One was in the Fall of 2008, when I sent out an Alert advising people to take cash out of the bank due to my fears of an imminent banking holiday.  A bank holiday never happened, but a year after my Alert, we learned from Hank Paulson and Mervyn King that we were literally hours away from a full blown banking melt-down at the exact time I sent out the Alert.

The mechanism by which my ‘spidey-senses’ get triggered is largely based on data and evidence, but there’s also a component to it that I cannot fully describe.  Mainly I am watching the news with incredible attention, trying to note both what is being said and what is being left out.  Looking for the ‘negative space’ takes a lot of attention, experience, and good old-fashioned thinking.  And I am glued to the markets, looking for changes in old patterns, trying to see the first signs of stress before they become common knowledge.

Based on widening credit spreads, a still-unexplained market glitch, a blow-out eco-disaster in the Gulf of Mexico, an already-failed trillion-dollar euro bailout that really wasn’t (vaporware, as Machinehead puts it), and the inexorable rise in gold, I come to the simple conclusion that these data points reveal a loss of faith in both our markets and our economic prospects.

Well, if you are running a Ponzi system, there is nothing more important than faith.  Which is why I spend so much time trying to gauge the winds of confidence as they swirl and eddy about.

I’m about as worried as I’ve ever been.

I’ve got that sinking feeling…
PREVIEW by Chris Martenson

I’ve been struggling lately with balancing my role as a responsible information scout and commentator on the current economic situation with this sinking feeling that I’ve been carrying for awhile.  There have been a couple of times in the past where I’ve had a similar sense of apprehension.

One was in the Fall of 2008, when I sent out an Alert advising people to take cash out of the bank due to my fears of an imminent banking holiday.  A bank holiday never happened, but a year after my Alert, we learned from Hank Paulson and Mervyn King that we were literally hours away from a full blown banking melt-down at the exact time I sent out the Alert.

The mechanism by which my ‘spidey-senses’ get triggered is largely based on data and evidence, but there’s also a component to it that I cannot fully describe.  Mainly I am watching the news with incredible attention, trying to note both what is being said and what is being left out.  Looking for the ‘negative space’ takes a lot of attention, experience, and good old-fashioned thinking.  And I am glued to the markets, looking for changes in old patterns, trying to see the first signs of stress before they become common knowledge.

Based on widening credit spreads, a still-unexplained market glitch, a blow-out eco-disaster in the Gulf of Mexico, an already-failed trillion-dollar euro bailout that really wasn’t (vaporware, as Machinehead puts it), and the inexorable rise in gold, I come to the simple conclusion that these data points reveal a loss of faith in both our markets and our economic prospects.

Well, if you are running a Ponzi system, there is nothing more important than faith.  Which is why I spend so much time trying to gauge the winds of confidence as they swirl and eddy about.

I’m about as worried as I’ve ever been.

by Chris Martenson
Monday, November 30, 2009

Executive Summary 

  • US government borrowing has tilted heavily to short-term, adjustable-rate issues.
  • The very same people who missed the housing crisis have largely ignored or overlooked the current US predicament.
  • The US government lacks any sort of fiscal restraint.  And there’s never a good time to cut back.
  • It has been operating like a subprime, cash-poor borrower, electing to borrow more and more.
  • The short-term debt used to finance the Treasury Department must be “rolled over” when it comes due, imposing whatever the new interest rate happens to be at that time. 
  • This will trigger a debt spiral, which will cause the US government to go from insolvency (its current predicament) to bankruptcy (its future condition).
  • A bankrupt nation has few options, little hope, and a lot of regrets. 
  • To protect against the fallout, buy gold, silver, and productive assets that generate the things people need.

This is no way to run a nation.

The US government is operating no differently than a 2005 subprime borrower buying far more house than made sense, and is living beyond its means, happily racking up ever-larger debts by taking advantage of a teaser rate set by Bernanke and his fellow board members.

In early 2004, I was warning people as loudly as I could about a future housing crisis.  No, I am neither an economist nor an all-knowing seer of the future.  I am simply able to spot when something does not make sense and trust that things have a way of working themselves out over time.

It did not make sense to me that a hair stylist in Las Vegas should be able to amass a portfolio of 19 homes that were all being rented for less than their mortgage payments, if they were even being rented at all (this is a true anecdote).

Why was this an obviously broken story that had to end in tears?  Because it simply did not make any economic sense.  It even defied common sense.  After all, if it were possible for everyone to get rich through the miracle of rising asset prices with no value creation, then clever people in the Roman Empire would have figured it out 1500 years ago, and your native tongue would be Latin.

The economic mistake for the hairstylist was in overlooking the fact that cash flows in have to exceed cash flows out, or eventually bankruptcy results.  Clearly, things are a bit different for a government with a printing press over the short haul, but over the long haul, the story is the same.  It’s not possible to continually live beyond one’s means forever.

Adjustable-Rate Nation
PREVIEW by Chris Martenson
Monday, November 30, 2009

Executive Summary 

  • US government borrowing has tilted heavily to short-term, adjustable-rate issues.
  • The very same people who missed the housing crisis have largely ignored or overlooked the current US predicament.
  • The US government lacks any sort of fiscal restraint.  And there’s never a good time to cut back.
  • It has been operating like a subprime, cash-poor borrower, electing to borrow more and more.
  • The short-term debt used to finance the Treasury Department must be “rolled over” when it comes due, imposing whatever the new interest rate happens to be at that time. 
  • This will trigger a debt spiral, which will cause the US government to go from insolvency (its current predicament) to bankruptcy (its future condition).
  • A bankrupt nation has few options, little hope, and a lot of regrets. 
  • To protect against the fallout, buy gold, silver, and productive assets that generate the things people need.

This is no way to run a nation.

The US government is operating no differently than a 2005 subprime borrower buying far more house than made sense, and is living beyond its means, happily racking up ever-larger debts by taking advantage of a teaser rate set by Bernanke and his fellow board members.

In early 2004, I was warning people as loudly as I could about a future housing crisis.  No, I am neither an economist nor an all-knowing seer of the future.  I am simply able to spot when something does not make sense and trust that things have a way of working themselves out over time.

It did not make sense to me that a hair stylist in Las Vegas should be able to amass a portfolio of 19 homes that were all being rented for less than their mortgage payments, if they were even being rented at all (this is a true anecdote).

Why was this an obviously broken story that had to end in tears?  Because it simply did not make any economic sense.  It even defied common sense.  After all, if it were possible for everyone to get rich through the miracle of rising asset prices with no value creation, then clever people in the Roman Empire would have figured it out 1500 years ago, and your native tongue would be Latin.

The economic mistake for the hairstylist was in overlooking the fact that cash flows in have to exceed cash flows out, or eventually bankruptcy results.  Clearly, things are a bit different for a government with a printing press over the short haul, but over the long haul, the story is the same.  It’s not possible to continually live beyond one’s means forever.

by Chris Martenson
Tuesday, October 6, 2009

This week’s report is going to be largely free of data and news snippets and full of my opinions and broad strokes of logic.

As my long-time readers know, I consider my main occupations to be information scout, dot-connector, and analyst.  But as a side job, I also provide a decisive alternative to the mainstream economic propaganda machine, which is thoroughly dedicated to maintaining the status quo, regardless of cost.

I completely understand why our fiscal and monetary leaders would seek to hide the truth from us all.  We live in an economy that is based on growth and debt – which means it is a Ponzi scheme – and there’s nothing more important to such a system than faith and confidence.  So economic propaganda is not just a noxious by-product spewed from our economic tailpipe; it is viewed by those in power as a form of fuel, a necessity for our peculiar economic engine.  They may have a point.

For my new readers, I want to make it clear that I do not expect or wish you to believe me over anyone else.  Heck, trust neither me nor them, if that works for you; instead, trust yourself and your gut instinct about what is right.  I began trusting myself several years ago, and I am much better off as a consequence.

This week (ending 10/1/09), despite the massive run up in stock over the past few months, despite the outrageous amounts of bailout and stimulus money applied, despite every attempt to put a positive spin on things, jobs continued evaporating, auto sales slumped to multi-decade lows, bankruptcies soared 41% over the prior year, and tax receipts continued to slide.

States such as California are sliding into fiscal chaos, and some, like Michigan and Alabama, are already there.

We are about to enter another leg of the downturn, and this one will be even bumpier and more uncertain than the last. 

It’s Time To Prepare
PREVIEW by Chris Martenson
Tuesday, October 6, 2009

This week’s report is going to be largely free of data and news snippets and full of my opinions and broad strokes of logic.

As my long-time readers know, I consider my main occupations to be information scout, dot-connector, and analyst.  But as a side job, I also provide a decisive alternative to the mainstream economic propaganda machine, which is thoroughly dedicated to maintaining the status quo, regardless of cost.

I completely understand why our fiscal and monetary leaders would seek to hide the truth from us all.  We live in an economy that is based on growth and debt – which means it is a Ponzi scheme – and there’s nothing more important to such a system than faith and confidence.  So economic propaganda is not just a noxious by-product spewed from our economic tailpipe; it is viewed by those in power as a form of fuel, a necessity for our peculiar economic engine.  They may have a point.

For my new readers, I want to make it clear that I do not expect or wish you to believe me over anyone else.  Heck, trust neither me nor them, if that works for you; instead, trust yourself and your gut instinct about what is right.  I began trusting myself several years ago, and I am much better off as a consequence.

This week (ending 10/1/09), despite the massive run up in stock over the past few months, despite the outrageous amounts of bailout and stimulus money applied, despite every attempt to put a positive spin on things, jobs continued evaporating, auto sales slumped to multi-decade lows, bankruptcies soared 41% over the prior year, and tax receipts continued to slide.

States such as California are sliding into fiscal chaos, and some, like Michigan and Alabama, are already there.

We are about to enter another leg of the downturn, and this one will be even bumpier and more uncertain than the last. 

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