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Chris Martenson

Image | How the Market Failure Will Happen
How the Market Failure Will Happen
 PREVIEW
by Chris Martenson

Executive Summary

  • The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
  • HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
  • Persistently high gasoline prices are choking economic growth
  • A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
  • Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
  • Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
  • Why you don't want to be long in this market when that happens

If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.

Hey, Where's My Cheap Gasoline?

Expensive energy is a serious drag on economic growth.  It always has been and always will be, for obvious reasons.

The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.  

Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should.  But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices: 

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How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?

The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price – with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year…

How the Market Failure Will Happen
 PREVIEW by Chris Martenson

Executive Summary

  • The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
  • HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
  • Persistently high gasoline prices are choking economic growth
  • A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
  • Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
  • Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
  • Why you don't want to be long in this market when that happens

If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.

Hey, Where's My Cheap Gasoline?

Expensive energy is a serious drag on economic growth.  It always has been and always will be, for obvious reasons.

The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.  

Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should.  But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices: 

src=

How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?

The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price – with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year…

Image | Why You Really, Really Need to Care About the Implications of QE
Why You Really, Really Need to Care About the Implications of QE
 PREVIEW
by Chris Martenson

Executive Summary

  • The Fed's money-printing actions are simply creating new unsustainable bubbles in certain assets, like stocks
  • QE-created huge excess reserves on banks' balance sheets are the rocket fuel that can –and like will – trigger explosive inflation
  • The Fed is extremely unlikely to be able to unwind its QE efforts in a controlled way
  • Things WILL correct, and when they do, the lack of an exit strategy will result in a massive financial dislocation
  • The fundamental case for owning gold

If you have not yet read QE for Dummies, available free to all readers, please click here to read it first.

The Risks of Money Printing & 'Excess Reserves'

The first is that the recipients of all this thin-air money could just sit on it and do nothing.  No loans would be made, which means no new deposits would be made, which means the 'miracle' of fractional reserve money multiplication would not happen, which means the economy would not get juiced.

Indeed, that's exactly what has happened.  We can detect this in the form of what are called 'excess reserves,' which are dollars that banks now hold that are in excess of what they need to have on hand to satisfy reserve requirements.

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There must be a lot of disappointment at the Fed that all of these funds are just piling up there and not doing anything (yet) to supercharge the economy, and so you might wonder why the Fed persists in 'quadrupling down' on a strategy that is not working as intended.

Unfortunately, I don't have a satisfying answer for that, as it mystifies me, too.  The only thing that makes sense is that the Fed is essentially just gunning for higher stock and bond prices in the hopes that asset inflation will bolster confidence and insulate large financial institutions from potential losses.

But this brings us to the second risk…

Why You Really, Really Need to Care About the Implications of QE
 PREVIEW by Chris Martenson

Executive Summary

  • The Fed's money-printing actions are simply creating new unsustainable bubbles in certain assets, like stocks
  • QE-created huge excess reserves on banks' balance sheets are the rocket fuel that can –and like will – trigger explosive inflation
  • The Fed is extremely unlikely to be able to unwind its QE efforts in a controlled way
  • Things WILL correct, and when they do, the lack of an exit strategy will result in a massive financial dislocation
  • The fundamental case for owning gold

If you have not yet read QE for Dummies, available free to all readers, please click here to read it first.

The Risks of Money Printing & 'Excess Reserves'

The first is that the recipients of all this thin-air money could just sit on it and do nothing.  No loans would be made, which means no new deposits would be made, which means the 'miracle' of fractional reserve money multiplication would not happen, which means the economy would not get juiced.

Indeed, that's exactly what has happened.  We can detect this in the form of what are called 'excess reserves,' which are dollars that banks now hold that are in excess of what they need to have on hand to satisfy reserve requirements.

src=

There must be a lot of disappointment at the Fed that all of these funds are just piling up there and not doing anything (yet) to supercharge the economy, and so you might wonder why the Fed persists in 'quadrupling down' on a strategy that is not working as intended.

Unfortunately, I don't have a satisfying answer for that, as it mystifies me, too.  The only thing that makes sense is that the Fed is essentially just gunning for higher stock and bond prices in the hopes that asset inflation will bolster confidence and insulate large financial institutions from potential losses.

But this brings us to the second risk…

Image | QE for Dummies
QE for Dummies
by Chris Martenson

A PeakProsperity.com reader recently lamented:

I have been trying to get my head around the mechanism of QE. Not being an economist or experienced investor I don't really understand a lot of the jargon. The usual simple definition of QE as "thin air money printing" does not satisfy my need for understanding either. Have hunted for a description of QE for dummies that leaves me feeling like I get it, but with no luck. My difficulty is in understanding how thin air money gets into circulation.

So I'm going to do my best to answer this plea in as intuitive and straightforward a manner as I can. I, too, share the need to understand the mechanism of a process in order to feel like I have a grasp of it.  And I think it's critically important to understand QE (also known by its full name, "quantitative easing") and what it really represents. Because it is, without a doubt, one of the largest market-shaping forces of our times.
QE for Dummies
 by Chris Martenson

A PeakProsperity.com reader recently lamented:

I have been trying to get my head around the mechanism of QE. Not being an economist or experienced investor I don't really understand a lot of the jargon. The usual simple definition of QE as "thin air money printing" does not satisfy my need for understanding either. Have hunted for a description of QE for dummies that leaves me feeling like I get it, but with no luck. My difficulty is in understanding how thin air money gets into circulation.

So I'm going to do my best to answer this plea in as intuitive and straightforward a manner as I can. I, too, share the need to understand the mechanism of a process in order to feel like I have a grasp of it.  And I think it's critically important to understand QE (also known by its full name, "quantitative easing") and what it really represents. Because it is, without a doubt, one of the largest market-shaping forces of our times.
Image | How Energy Woes Will Trigger Financial Crisis
How Energy Woes Will Trigger Financial Crisis
 PREVIEW
by Chris Martenson

Executive Summary

  • Petroleum is bumping along its global maximum plateau
  • Global demand (led by Asia) will soon far outstrip supply
  • Why oil is getting scarcer, but cheap oil is already non-existent
  • How insufficient net energy will be the mortal pin that pops our unsustainable financial system

If you have not yet read The Really, Really Big Picture, available free to all readers, please click here to read it first.

Global Supply

Where the U.S. shale plays have been getting an undue allotment of press compared to their current and projected flow rates, the major story remains that oil companies are spending more and more as oil becomes more difficult to find and challenging to produce.

What's interesting is that so many people hold the opposite view, perhaps shaped by the breathless manner in which new finds are announced, but rarely with an appropriate level of context or caution so that we can judge how significant or likely these finds actually are.

Here's a relatively recent example that captures this dynamic rather well.  Back in 2010, a very exciting discovery was splashed all across the news with some very heady claims:

McMoRan Exploration announced a potentially major natural gas discovery in its operated Davy Jones ultra-deep prospect drilled in the shallow waters of the Gulf of Mexico (commonly referred to as the "shelf"), just 10 miles off the Louisiana coast. 

Positive drilling results could be a huge boom for the company. McMoRan Exploration had proved oil and gas reserves at year-end 2009 totaling 271.9 Bcfe (billion cubic feet of natural gas equivalents), compared with 344.8 Bcfe in 2008.

Estimates of the size of the discovery range from 2 trillion to 6 trillion cubic feet of natural gas, rivaling the largest gas finds ever made in the Gulf. 

(Source)

This is the nature of such press releases, as I now think of them.  Yes, it's exciting that billions of barrels could be discovered and that these finds might produce as much as 15 billion barrels of oil.  Unfortunately, a short euphoric sound bite like that is all of the story that every really gets transmitted to the casual reader.  I combat these perceptions constantly in my live Q&A sessions after speeches.

The full reality is contained within the context-free but vitally important statement that tapping this field requires drilling down to more than 28,000 feet (!).

Fast forward to 2012 and here's the reality of that find…

How Energy Woes Will Trigger Financial Crisis
 PREVIEW by Chris Martenson

Executive Summary

  • Petroleum is bumping along its global maximum plateau
  • Global demand (led by Asia) will soon far outstrip supply
  • Why oil is getting scarcer, but cheap oil is already non-existent
  • How insufficient net energy will be the mortal pin that pops our unsustainable financial system

If you have not yet read The Really, Really Big Picture, available free to all readers, please click here to read it first.

Global Supply

Where the U.S. shale plays have been getting an undue allotment of press compared to their current and projected flow rates, the major story remains that oil companies are spending more and more as oil becomes more difficult to find and challenging to produce.

What's interesting is that so many people hold the opposite view, perhaps shaped by the breathless manner in which new finds are announced, but rarely with an appropriate level of context or caution so that we can judge how significant or likely these finds actually are.

Here's a relatively recent example that captures this dynamic rather well.  Back in 2010, a very exciting discovery was splashed all across the news with some very heady claims:

McMoRan Exploration announced a potentially major natural gas discovery in its operated Davy Jones ultra-deep prospect drilled in the shallow waters of the Gulf of Mexico (commonly referred to as the "shelf"), just 10 miles off the Louisiana coast. 

Positive drilling results could be a huge boom for the company. McMoRan Exploration had proved oil and gas reserves at year-end 2009 totaling 271.9 Bcfe (billion cubic feet of natural gas equivalents), compared with 344.8 Bcfe in 2008.

Estimates of the size of the discovery range from 2 trillion to 6 trillion cubic feet of natural gas, rivaling the largest gas finds ever made in the Gulf. 

(Source)

This is the nature of such press releases, as I now think of them.  Yes, it's exciting that billions of barrels could be discovered and that these finds might produce as much as 15 billion barrels of oil.  Unfortunately, a short euphoric sound bite like that is all of the story that every really gets transmitted to the casual reader.  I combat these perceptions constantly in my live Q&A sessions after speeches.

The full reality is contained within the context-free but vitally important statement that tapping this field requires drilling down to more than 28,000 feet (!).

Fast forward to 2012 and here's the reality of that find…

Image | The Really, Really Big Picture
The Really, Really Big Picture
by Chris Martenson

[Many longtime followers of the Crash Course have asked Chris to update his forecasts for Peak Oil in light of the production increases in shale oil and gas over recent years. What started out as a modest effort at clarification morphed into a much more massive 3-report treatise as Chris sifted through mountains of new data that ultimately left him more convinced than ever we are facing a global net energy crisis – despite misguided media efforts intended to convince us otherwise. His reports are being released in series over the next several weeks; the first installment is below.]

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

The Really, Really Big Picture
 by Chris Martenson

[Many longtime followers of the Crash Course have asked Chris to update his forecasts for Peak Oil in light of the production increases in shale oil and gas over recent years. What started out as a modest effort at clarification morphed into a much more massive 3-report treatise as Chris sifted through mountains of new data that ultimately left him more convinced than ever we are facing a global net energy crisis – despite misguided media efforts intended to convince us otherwise. His reports are being released in series over the next several weeks; the first installment is below.]

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

Image | They’re Not Even Trying to Hide It Anymore
They’re Not Even Trying to Hide It Anymore
 PREVIEW
by Chris Martenson

When asked why I think that the price of gold is manipulated to keep its price within an acceptable band to central planners, I will respond with the quip 'because they can.'

It's really very simple.  If we know that the Fed is extremely concerned about the health of the financial markets and maintaining confidence in them and the major institutions, and it has already stepped way over the line by targeting the price of money, bonds, and equities, it's pretty much a guarantee that the Fed has got its eyes on and hands in everything.
They’re Not Even Trying to Hide It Anymore
 PREVIEW by Chris Martenson

When asked why I think that the price of gold is manipulated to keep its price within an acceptable band to central planners, I will respond with the quip 'because they can.'

It's really very simple.  If we know that the Fed is extremely concerned about the health of the financial markets and maintaining confidence in them and the major institutions, and it has already stepped way over the line by targeting the price of money, bonds, and equities, it's pretty much a guarantee that the Fed has got its eyes on and hands in everything.
Image | The Price of Everything and the Value of Nothing
The Price of Everything and the Value of Nothing
 PREVIEW
by Chris Martenson

The title of this piece is The Price of Everything and the Value of Nothing.  The subtitle is Why Your Bread Is Going to Cost More.  I connect these two in reflecting on my recent podcast with David Collum, in which he stated that our money has no value and that this fact is distorting everything.

What he meant was, if you take your money to the bank to deposit it, the bank offers no interest on that money, implying that money has no value to them.  If they valued it or had a legitimate use for it, they would offer you something for its use.  Obviously, money doesn't have zero value to the banks; they can place it on deposit with the Fed for 0.25% yearly interest.  But by any historical measure, money has no value right now.

That's just what happens when any commodity – which money happens to be – becomes too abundant.  It drops in price.  What 0% rates on money tell us is that there's just an enormous amount of it sloshing around – and that, my dear friends, distorts everything else.

As I have said many times, when you misprice money itself, everything else becomes mispriced, too. 

The Price of Everything and the Value of Nothing
 PREVIEW by Chris Martenson

The title of this piece is The Price of Everything and the Value of Nothing.  The subtitle is Why Your Bread Is Going to Cost More.  I connect these two in reflecting on my recent podcast with David Collum, in which he stated that our money has no value and that this fact is distorting everything.

What he meant was, if you take your money to the bank to deposit it, the bank offers no interest on that money, implying that money has no value to them.  If they valued it or had a legitimate use for it, they would offer you something for its use.  Obviously, money doesn't have zero value to the banks; they can place it on deposit with the Fed for 0.25% yearly interest.  But by any historical measure, money has no value right now.

That's just what happens when any commodity – which money happens to be – becomes too abundant.  It drops in price.  What 0% rates on money tell us is that there's just an enormous amount of it sloshing around – and that, my dear friends, distorts everything else.

As I have said many times, when you misprice money itself, everything else becomes mispriced, too. 

Image | The Fiscal Cliff Fiasco
The Fiscal Cliff Fiasco
 PREVIEW
by Chris Martenson

Well, as expected, some sort of a last minute, sausage-like deal was struck at the eleventh hour.  Well, actually, the twelfth hour, given that only the tax side of the equation was "solved," leaving $109 billion in immediate spending cuts still on the table.

Actually, it's even murkier than that.  The deal that was struck was a Senate deal and the House could do more, less, or even just scuttle the whole thing.  So let's call it a first step on the path to a deal.
The Fiscal Cliff Fiasco
 PREVIEW by Chris Martenson

Well, as expected, some sort of a last minute, sausage-like deal was struck at the eleventh hour.  Well, actually, the twelfth hour, given that only the tax side of the equation was "solved," leaving $109 billion in immediate spending cuts still on the table.

Actually, it's even murkier than that.  The deal that was struck was a Senate deal and the House could do more, less, or even just scuttle the whole thing.  So let's call it a first step on the path to a deal.
Image | It’s Better to Be a Year Early Than a Day Late
It’s Better to Be a Year Early Than a Day Late
 PREVIEW
by Chris Martenson

Executive Summary

  • Don't bet against gold, especially right now
  • Collective thinking and shifting baselines are putting us in great danger of a surprise we're not prepared for
  • When the next disruptive event happens, it will happen faster than the system can react
  • Where I recommend allocating capital right now

If you have not yet read QE 4: Folks This Ain't Normal, available free to all readers, please click here to read it first.

My Thoughts on Gold

Bluntly, anybody selling their gold here does not understand what is happening.  These are the most extraordinary and unique times that anybody has witnessed because the entire world is engaged in an attempt to print our way to prosperity.

Maybe that will come to pass, but the odds very much do not favor that outcome.  It's never worked before, and I really have not yet seen any articulate description of why it might work this time.  From a betting perspective, it's like facing a roulette wheel where every slot is black except for that solitary green bin.  People selling gold here are placing their chips on green.

But I don't really think that gold's current market price or recent behaviors have anything useful to do with gold's value here.  As I noted in a recent Insider, in the run up to the QE4 announcement and then in the days right after, some entity has been selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.  Again, there is no other legitimate explanation for this activity of which I am aware besides having an intent of pushing the price down.

Whether there is some motivation for this activity besides 'making money,' I remain convinced that the gold market, like many others, is no longer sending useful price signals. Instead it is telling us that some entity has found it useful to sell thousands of gold contracts all at once.

The interesting part of this story is that this has been the most sustained, intensive, and yet ineffective gold-selling that I have yet seen.  In the past, such bear raids, as they are called, would have resulted in a sharply lower gold price.  Right now, that has not yet really happened. 

I am wondering if a big up move is not right around the corner for gold.  I can tell you that if even one fourth of the recent QE effort was announced five years ago, markets would have exploded and gold would have absolutely launched…

It’s Better to Be a Year Early Than a Day Late
 PREVIEW by Chris Martenson

Executive Summary

  • Don't bet against gold, especially right now
  • Collective thinking and shifting baselines are putting us in great danger of a surprise we're not prepared for
  • When the next disruptive event happens, it will happen faster than the system can react
  • Where I recommend allocating capital right now

If you have not yet read QE 4: Folks This Ain't Normal, available free to all readers, please click here to read it first.

My Thoughts on Gold

Bluntly, anybody selling their gold here does not understand what is happening.  These are the most extraordinary and unique times that anybody has witnessed because the entire world is engaged in an attempt to print our way to prosperity.

Maybe that will come to pass, but the odds very much do not favor that outcome.  It's never worked before, and I really have not yet seen any articulate description of why it might work this time.  From a betting perspective, it's like facing a roulette wheel where every slot is black except for that solitary green bin.  People selling gold here are placing their chips on green.

But I don't really think that gold's current market price or recent behaviors have anything useful to do with gold's value here.  As I noted in a recent Insider, in the run up to the QE4 announcement and then in the days right after, some entity has been selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.  Again, there is no other legitimate explanation for this activity of which I am aware besides having an intent of pushing the price down.

Whether there is some motivation for this activity besides 'making money,' I remain convinced that the gold market, like many others, is no longer sending useful price signals. Instead it is telling us that some entity has found it useful to sell thousands of gold contracts all at once.

The interesting part of this story is that this has been the most sustained, intensive, and yet ineffective gold-selling that I have yet seen.  In the past, such bear raids, as they are called, would have resulted in a sharply lower gold price.  Right now, that has not yet really happened. 

I am wondering if a big up move is not right around the corner for gold.  I can tell you that if even one fourth of the recent QE effort was announced five years ago, markets would have exploded and gold would have absolutely launched…

Image | QE 4: Folks, This Ain’t Normal
QE 4: Folks, This Ain’t Normal
by Chris Martenson

Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.

To borrow a phrase from Joel Salatin: Folks, this ain't normal.  To this I will add …and it will end badly.
QE 4: Folks, This Ain’t Normal
 by Chris Martenson

Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.

To borrow a phrase from Joel Salatin: Folks, this ain't normal.  To this I will add …and it will end badly.
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