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Image | Off the Cuff: Negative Numbers
Off the Cuff: Negative Numbers
 PREVIEW
by Chris Martenson

 

In this week's Off the Cuff podcast, Chris and Mish discuss:

  • The GDP Surprise
    • Is the economy stalling?
  • Housing
    • Is there reason for optimism?

Chris and Mish weigh in on the surprising negative GDP growth seen in Q4. Lots of noise in that data – as we've been animatedly discussing here.

Off the Cuff: Negative Numbers
 PREVIEW by Chris Martenson

 

In this week's Off the Cuff podcast, Chris and Mish discuss:

  • The GDP Surprise
    • Is the economy stalling?
  • Housing
    • Is there reason for optimism?

Chris and Mish weigh in on the surprising negative GDP growth seen in Q4. Lots of noise in that data – as we've been animatedly discussing here.

Image | The Trends to Watch in 2013
The Trends to Watch in 2013
by charleshughsmith

 

Rather than attempt to predict the unpredictable – that is, specific events and price levels – let’s look instead for key dynamics that will play out over the next two to three years. Though the specific timelines of crises are inherently unpredictable, it is still useful to understand the eventual consequences of influential trends.

In other words: policies that appear to have been successful for the past four years may continue to appear successful for a year or two longer. But that very success comes at a steep, and as yet unpaid, price in suppressed systemic risk, cost, and consequence.
The Trends to Watch in 2013
 by charleshughsmith

 

Rather than attempt to predict the unpredictable – that is, specific events and price levels – let’s look instead for key dynamics that will play out over the next two to three years. Though the specific timelines of crises are inherently unpredictable, it is still useful to understand the eventual consequences of influential trends.

In other words: policies that appear to have been successful for the past four years may continue to appear successful for a year or two longer. But that very success comes at a steep, and as yet unpaid, price in suppressed systemic risk, cost, and consequence.
Image | Mixed Messages
Mixed Messages
 PREVIEW
by Chris Martenson

We are surrounded by mixed messages.  Is the economy recovering or stumbling?  Are we are at the edge of a new energy bonanza or not?

One of the particular difficulties about trying to make sense of things these days is the shameless amount of statistical manipulation (i.e., official lying) for political purposes and for shaping market reactions — as well as the amount of paid PR material that is masquerading as real news from unbiased sources.

The level of sophistication in controlling messages is really something to admire, as long as one is unconcerned with the damage such spins and distortions are dong to our collective futures…
Mixed Messages
 PREVIEW by Chris Martenson

We are surrounded by mixed messages.  Is the economy recovering or stumbling?  Are we are at the edge of a new energy bonanza or not?

One of the particular difficulties about trying to make sense of things these days is the shameless amount of statistical manipulation (i.e., official lying) for political purposes and for shaping market reactions — as well as the amount of paid PR material that is masquerading as real news from unbiased sources.

The level of sophistication in controlling messages is really something to admire, as long as one is unconcerned with the damage such spins and distortions are dong to our collective futures…
Image | The March to $200+ Oil
The March to $200+ Oil
 PREVIEW
by Gregor Macdonald

Executive Summary

  • Why pressures to the downside have less impact when the global economy is weak
  • Why oil's new floor is $80
  • The 'upside risk' story for oil prices
  • Why prices will march up to the $150-175 range over the next 2-4 years (with increasing sensitivity to spikes of over $200+ per barrel)

If you have not yet read Part I: The Repricing of Oil, available free to all readers, please click here to read it first.

I encourage others to read the entire recent paper on Nominal GDP (NGDP) Targeting by Michael Woodford (recently delivered at Jackson Hole) or to simply read its coverage, either by Joe Weisenthal at Business Insider or Paul Krugman at the New York Times. In short, I take the appearance of the Woodford paper (link opens to PDF) as the inevitable next-step solution to the problem of unpayable debt and scarce resources. By loudly and flagrantly voicing a policy pursuit of inflation, Nominal GDP Targeting (which has been discussed for some time in economic circles) would be the next iteration of behavioral prodding in Western economies.

More importantly, the growing acceptance of NGDP targeting in policy circles simplifies the battle that began a decade ago: the struggle to counter emerging scarcity of natural resources with the provision of greater and greater amounts of cheap credit. Within the contours of this battle lies the answer as to whether oil’s next major move is downward, in a deflationary collapse, as global demand vanishes in a new economic crisis; or whether oil’s next major move is higher, as the five billion people in the developing world pull the OECD along in a new expansion.

Modeling the next move in oil prices is, of course, a very different task than it was ten years ago…

The March to $200+ Oil
 PREVIEW by Gregor Macdonald

Executive Summary

  • Why pressures to the downside have less impact when the global economy is weak
  • Why oil's new floor is $80
  • The 'upside risk' story for oil prices
  • Why prices will march up to the $150-175 range over the next 2-4 years (with increasing sensitivity to spikes of over $200+ per barrel)

If you have not yet read Part I: The Repricing of Oil, available free to all readers, please click here to read it first.

I encourage others to read the entire recent paper on Nominal GDP (NGDP) Targeting by Michael Woodford (recently delivered at Jackson Hole) or to simply read its coverage, either by Joe Weisenthal at Business Insider or Paul Krugman at the New York Times. In short, I take the appearance of the Woodford paper (link opens to PDF) as the inevitable next-step solution to the problem of unpayable debt and scarce resources. By loudly and flagrantly voicing a policy pursuit of inflation, Nominal GDP Targeting (which has been discussed for some time in economic circles) would be the next iteration of behavioral prodding in Western economies.

More importantly, the growing acceptance of NGDP targeting in policy circles simplifies the battle that began a decade ago: the struggle to counter emerging scarcity of natural resources with the provision of greater and greater amounts of cheap credit. Within the contours of this battle lies the answer as to whether oil’s next major move is downward, in a deflationary collapse, as global demand vanishes in a new economic crisis; or whether oil’s next major move is higher, as the five billion people in the developing world pull the OECD along in a new expansion.

Modeling the next move in oil prices is, of course, a very different task than it was ten years ago…

Image | The U.S. Drought Is Hitting Harder Than Most Realize
The U.S. Drought Is Hitting Harder Than Most Realize
by Chris Martenson

This is an important update on the U.S. drought of 2012, the combined record-setting July land temperatures, and their impact on food prices, water availability, energy, and even U.S. GDP. 

Even though the mainstream media seems to have lost some interest in the drought, we should keep it front and center in our minds, as it has already led to sharply higher grain prices, increased gasoline costs (via the pass-through of higher ethanol costs), impeded oil and gas drilling activity in some areas (due to a lack of water), caused the shutdown of a few operating electricity plants, temporarily reduced red meat prices (but will also make them climb sharply later) as cattle are dumped on feed- and pasture-management concerns, and blocked and/or reduced shipping on the Mississippi River.  All this and there's also a strong chance that today's drought will negatively impact next year's winter wheat harvest, unless a lot of rain starts falling soon.
The U.S. Drought Is Hitting Harder Than Most Realize
 by Chris Martenson

This is an important update on the U.S. drought of 2012, the combined record-setting July land temperatures, and their impact on food prices, water availability, energy, and even U.S. GDP. 

Even though the mainstream media seems to have lost some interest in the drought, we should keep it front and center in our minds, as it has already led to sharply higher grain prices, increased gasoline costs (via the pass-through of higher ethanol costs), impeded oil and gas drilling activity in some areas (due to a lack of water), caused the shutdown of a few operating electricity plants, temporarily reduced red meat prices (but will also make them climb sharply later) as cattle are dumped on feed- and pasture-management concerns, and blocked and/or reduced shipping on the Mississippi River.  All this and there's also a strong chance that today's drought will negatively impact next year's winter wheat harvest, unless a lot of rain starts falling soon.
Image | When Quantitative Easing Finally Fails
When Quantitative Easing Finally Fails
by Gregor Macdonald

While markets await details on the next round of quantitative easing (QE) — whether refreshed bond buying from the Fed or sovereign debt buying from the European Central Bank (ECB) — it's important to ask, What can we expect from further heroic attempts to reflate the OECD economies?

The 2009 and 2010 QE programs from the Fed, and the 2011 operations from the ECB, were intended as shock treatment to hopefully set economies on a more typical, post-recession, recovery pathway. Here in 2012, QE was supposed to be well behind us. Instead, parts of Southern Europe are in outright depression, the United Kingdom is in double-dip recession, and the US is sweltering through its weakest “recovery” since the Great Depression.

It wasn’t supposed to be this way.

Recently-released data from all these regions now confirm that previous QE, at best, merely bought time against even more grueling outcomes.
When Quantitative Easing Finally Fails
 by Gregor Macdonald

While markets await details on the next round of quantitative easing (QE) — whether refreshed bond buying from the Fed or sovereign debt buying from the European Central Bank (ECB) — it's important to ask, What can we expect from further heroic attempts to reflate the OECD economies?

The 2009 and 2010 QE programs from the Fed, and the 2011 operations from the ECB, were intended as shock treatment to hopefully set economies on a more typical, post-recession, recovery pathway. Here in 2012, QE was supposed to be well behind us. Instead, parts of Southern Europe are in outright depression, the United Kingdom is in double-dip recession, and the US is sweltering through its weakest “recovery” since the Great Depression.

It wasn’t supposed to be this way.

Recently-released data from all these regions now confirm that previous QE, at best, merely bought time against even more grueling outcomes.
Image | Japan Is Struggling
Japan Is Struggling
 PREVIEW
by Chris Martenson

In a prior piece this year, I proclaimed Japan to be my favored candidate to be the black swan of 2012. By this I mean that a financial accident in Japan that would create massive havoc in the world markets seems even more likely to me than something originating in Europe.

The reason is precisely because all eyes (and efforts) are focused on Europe, leaving Japan out of focus and unattended, so to speak. This is practically a requirement for a crisis spot; crises never seem to arise in the place everybody is already watching. Japan is nicely out of focus and therefore a good place for us to keep our eyes trained upon.

In the most recent podcast with Mish, we discussed the fact that Japan had recently posted its largest first half trade deficit in history. Then Mish asked if Japan's current account had slipped into negative territory yet, as that event will accelerate the pace at which Japan's looming structural insolvency will arrive.

While discussing the current account, a normally obscure economic term, seems a bit wonkish, it is really quite important. So let's start there, with a definition as a refresher for myself and perhaps an introduction for others.
Japan Is Struggling
 PREVIEW by Chris Martenson

In a prior piece this year, I proclaimed Japan to be my favored candidate to be the black swan of 2012. By this I mean that a financial accident in Japan that would create massive havoc in the world markets seems even more likely to me than something originating in Europe.

The reason is precisely because all eyes (and efforts) are focused on Europe, leaving Japan out of focus and unattended, so to speak. This is practically a requirement for a crisis spot; crises never seem to arise in the place everybody is already watching. Japan is nicely out of focus and therefore a good place for us to keep our eyes trained upon.

In the most recent podcast with Mish, we discussed the fact that Japan had recently posted its largest first half trade deficit in history. Then Mish asked if Japan's current account had slipped into negative territory yet, as that event will accelerate the pace at which Japan's looming structural insolvency will arrive.

While discussing the current account, a normally obscure economic term, seems a bit wonkish, it is really quite important. So let's start there, with a definition as a refresher for myself and perhaps an introduction for others.
Image | California: The Bellwether for the Rest of America
California: The Bellwether for the Rest of America
 PREVIEW
by Gregor Macdonald

Executive Summary

  • Escalating energy costs (direct and indirect) create a vicious cycle in the economy that further hinders growth/recovery
  • Overspending and other poor capital allocation decisions by state governments are compounding the problem
  • California spends $1 on public transit vs. $10 on automobile-related investment, a gap that energy costs will soon painfully reverse
  • Solutions are hard to come by and harder to fund, but without investment, alternative systems won't ever achieve scale
  • California's future is increasingly easy to predict; individuals and other state governments better take notes or suffer the same fate

If you have not yet read Part I: Dawn of the Great California Energy Crash, available free to all readers, please click here to read it first.

A key feature in the post-war industrial success of countries like South Korea and Japan, given that they had virtually no domestic energy supplies, was the ability to turn a profit from manufacturing powered by imported energy. This favorable equation relied on three key factors:

  • That imported energy remained a cheap input cost compared to the high margin value of exported goods
  • That energy producing countries had cheap energy to export
  • That purchasers of the exported goods were growing, and were running their own economies on cheap energy

These are the exact same assumptions still being made — and extrapolated into infinity — about California's economy.

Are we really to believe that California's GDP can forever deindustrialize, requiring fewer and fewer energy inputs, while growing in profitability, thus providing the capital to access/import energy — at any price?

California: The Bellwether for the Rest of America
 PREVIEW by Gregor Macdonald

Executive Summary

  • Escalating energy costs (direct and indirect) create a vicious cycle in the economy that further hinders growth/recovery
  • Overspending and other poor capital allocation decisions by state governments are compounding the problem
  • California spends $1 on public transit vs. $10 on automobile-related investment, a gap that energy costs will soon painfully reverse
  • Solutions are hard to come by and harder to fund, but without investment, alternative systems won't ever achieve scale
  • California's future is increasingly easy to predict; individuals and other state governments better take notes or suffer the same fate

If you have not yet read Part I: Dawn of the Great California Energy Crash, available free to all readers, please click here to read it first.

A key feature in the post-war industrial success of countries like South Korea and Japan, given that they had virtually no domestic energy supplies, was the ability to turn a profit from manufacturing powered by imported energy. This favorable equation relied on three key factors:

  • That imported energy remained a cheap input cost compared to the high margin value of exported goods
  • That energy producing countries had cheap energy to export
  • That purchasers of the exported goods were growing, and were running their own economies on cheap energy

These are the exact same assumptions still being made — and extrapolated into infinity — about California's economy.

Are we really to believe that California's GDP can forever deindustrialize, requiring fewer and fewer energy inputs, while growing in profitability, thus providing the capital to access/import energy — at any price?

Image | Middle Class? Here’s What’s Destroying Your Future
Middle Class? Here’s What’s Destroying Your Future
by charleshughsmith

According to the conventional account, the Great American Middle Class has been eroded by rising energy costs, globalization, and the declining purchasing power of the U.S. dollar in the four decades since 1973. While these trends have certainly undermined middle-class wealth and income, there are five other less politically acceptable dynamics at work:

  1. The divergence of State/private vested interests and the interests of the middle class
  2. The emergence of financialization as the key driver of profits and political power
  3. The neofeudal “colonization” of the “home market” by ascendant financial Elites
  4. The increasing burden of indirect “taxes” as productive enterprises and people involuntarily subsidize unproductive, parasitic, corrupt, but politically dominant vested interests
  5. The emergence of crony capitalism as the lowest-risk, highest-profit business model in the U.S. economy
Middle Class? Here’s What’s Destroying Your Future
 by charleshughsmith

According to the conventional account, the Great American Middle Class has been eroded by rising energy costs, globalization, and the declining purchasing power of the U.S. dollar in the four decades since 1973. While these trends have certainly undermined middle-class wealth and income, there are five other less politically acceptable dynamics at work:

  1. The divergence of State/private vested interests and the interests of the middle class
  2. The emergence of financialization as the key driver of profits and political power
  3. The neofeudal “colonization” of the “home market” by ascendant financial Elites
  4. The increasing burden of indirect “taxes” as productive enterprises and people involuntarily subsidize unproductive, parasitic, corrupt, but politically dominant vested interests
  5. The emergence of crony capitalism as the lowest-risk, highest-profit business model in the U.S. economy
Image | What Data Can We Trust?
What Data Can We Trust?
by charleshughsmith

Modern investing offers the promise that investors who "do their homework" and use data more intelligently than the herd can gain a valuable edge. But what if the underlying data available to the investing public is fundamentally flawed? 

The federal government agencies that issue headline data and the mainstream media that reprints the data without skeptical analysis would have us believe that these indicators — the unemployment rate and the consumer price index (CPI), for example — accurately reflect economic realities.

The other indicator that is implicitly or explicitly assumed to reflect the economy’s health is, of course, the stock market, generally represented by the S&P 500 index.

That the government indicators and the stock market are both suspect is now a given.

 
What Data Can We Trust?
 by charleshughsmith

Modern investing offers the promise that investors who "do their homework" and use data more intelligently than the herd can gain a valuable edge. But what if the underlying data available to the investing public is fundamentally flawed? 

The federal government agencies that issue headline data and the mainstream media that reprints the data without skeptical analysis would have us believe that these indicators — the unemployment rate and the consumer price index (CPI), for example — accurately reflect economic realities.

The other indicator that is implicitly or explicitly assumed to reflect the economy’s health is, of course, the stock market, generally represented by the S&P 500 index.

That the government indicators and the stock market are both suspect is now a given.

 
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