by
JW
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Economy
Economy
by
charleshughsmith
Executive Summary
- A rising dollar would negatively impact stock market profits and valuations
- Interest rates ultimately will rise, and that will be a game-changer
- Investors will eventually realize that "risk-free" assets (e.g., U.S. Treasurys) are NOT safe havens
- Why there will be few places for financial capital to find shelter in 2013
If you have not yet read Part I: The Structural Endgame of the Fiscal Cliff, available free to all readers, please click here to read it first.
In Part I, we covered the basics of wealth and political power in the U.S. and found that the Fiscal Cliff is only a symptom of a structural endgame in which the imbalance between what has been promised and what can be collected in taxes will continue growing until it triggers a financially driven political crisis that I believe will inevitably become a full-blown Constitutional crisis.
Though there are many facets of this long-term political crisis that are worthy of further exploration, we will to start with three financial aspects that could start impacting households in 2013: a rise in interest rates and a resultant destruction of bond valuations, a rise in the U.S. dollar that negatively impacts U.S. corporate profits and thus stock market valuations, and a reduction in upper-income households’ spending as a result of higher taxes that depress discretionary consumer spending.
A Rising Dollar Negatively Impacts Stock Market Profits and Valuations
Let’s start with a topic that I have covered in depth over the past year, the structural reasons behind the rise of the U.S. dollar (USD). The recurring fantasy that Europe’s fiscal and debt crises are “fixed” and the Federal Reserve’s money-printing/Treasury bond purchases have recently depressed the USD, but in the longer term, the USD has been tracing out an unmistakably bullish pattern of higher highs and higher lows since May 2011…
What Will Happen When We Hit the Cliff
PREVIEW by charleshughsmithExecutive Summary
- A rising dollar would negatively impact stock market profits and valuations
- Interest rates ultimately will rise, and that will be a game-changer
- Investors will eventually realize that "risk-free" assets (e.g., U.S. Treasurys) are NOT safe havens
- Why there will be few places for financial capital to find shelter in 2013
If you have not yet read Part I: The Structural Endgame of the Fiscal Cliff, available free to all readers, please click here to read it first.
In Part I, we covered the basics of wealth and political power in the U.S. and found that the Fiscal Cliff is only a symptom of a structural endgame in which the imbalance between what has been promised and what can be collected in taxes will continue growing until it triggers a financially driven political crisis that I believe will inevitably become a full-blown Constitutional crisis.
Though there are many facets of this long-term political crisis that are worthy of further exploration, we will to start with three financial aspects that could start impacting households in 2013: a rise in interest rates and a resultant destruction of bond valuations, a rise in the U.S. dollar that negatively impacts U.S. corporate profits and thus stock market valuations, and a reduction in upper-income households’ spending as a result of higher taxes that depress discretionary consumer spending.
A Rising Dollar Negatively Impacts Stock Market Profits and Valuations
Let’s start with a topic that I have covered in depth over the past year, the structural reasons behind the rise of the U.S. dollar (USD). The recurring fantasy that Europe’s fiscal and debt crises are “fixed” and the Federal Reserve’s money-printing/Treasury bond purchases have recently depressed the USD, but in the longer term, the USD has been tracing out an unmistakably bullish pattern of higher highs and higher lows since May 2011…
by
David Collum
Background
I was just trying to figure it all out.
~ Michael Burry, hedge fund manager
Every December, I write a Year in Review that has now found a home at Chris Martenson’s website PeakProsperity.com.1,2,3 What started as a simple summary intended for a couple dozen people morphed over time into a much more detailed account that accrued over 25,000 clicks last year.4 'Year in Review' is a bit of a misnomer in that it is both a collage of what happened, plus a smattering of issues that are on my radar right now. As to why people care what an organic chemist thinks about investing, economics, monetary policy, and societal moods I can only offer a few thoughts.
For starters, in 33 years of investing with a decidedly undiversified portfolio, I had only one year in which my total wealth decreased in nominal dollars. For the 13 years beginning 01/01/00—the 13 toughest investing years of the new millennium!—I have been able to compound my personal wealth at an 11% annualized rate. This holds up well against the pros. I am also fairly good at distilling complexity down to simplicity and seem to be a congenital contrarian. I also have been a devout follower of Austrian business cycle theory—i.e., free market economics—since the late 1990s.4
Each review begins with a highly personalized analysis of my efforts to get through another year of investing followed by a more holistic overview of what is now a 33-year quest for a ramen-soup-free retirement. These details may be instructive for those interested in my approach to investing. The bulk of the review, however, describes thoughts and observations—the year’s events told as a narrative. The links are copious, albeit not comprehensive. Some are flagged with enthusiasm. Everything can be found here.5
2012 Year in Review
by David CollumBackground
I was just trying to figure it all out.
~ Michael Burry, hedge fund manager
Every December, I write a Year in Review that has now found a home at Chris Martenson’s website PeakProsperity.com.1,2,3 What started as a simple summary intended for a couple dozen people morphed over time into a much more detailed account that accrued over 25,000 clicks last year.4 'Year in Review' is a bit of a misnomer in that it is both a collage of what happened, plus a smattering of issues that are on my radar right now. As to why people care what an organic chemist thinks about investing, economics, monetary policy, and societal moods I can only offer a few thoughts.
For starters, in 33 years of investing with a decidedly undiversified portfolio, I had only one year in which my total wealth decreased in nominal dollars. For the 13 years beginning 01/01/00—the 13 toughest investing years of the new millennium!—I have been able to compound my personal wealth at an 11% annualized rate. This holds up well against the pros. I am also fairly good at distilling complexity down to simplicity and seem to be a congenital contrarian. I also have been a devout follower of Austrian business cycle theory—i.e., free market economics—since the late 1990s.4
Each review begins with a highly personalized analysis of my efforts to get through another year of investing followed by a more holistic overview of what is now a 33-year quest for a ramen-soup-free retirement. These details may be instructive for those interested in my approach to investing. The bulk of the review, however, describes thoughts and observations—the year’s events told as a narrative. The links are copious, albeit not comprehensive. Some are flagged with enthusiasm. Everything can be found here.5
by
Adam Taggart
by
Gregor Macdonald
It was the best of times; it was the worst of times for the American public over the past month, as it was treated to two high-profile, but deeply conflicting, economic forecasts.
Despite declaring in 2008 that the age of cheap oil was over, the International Energy Agency (IEA) surprisingly announced last week that the United States would become the largest oil producer in the world by 2020. Hooray! This superlative declaration titillated U.S. media organizations, who understand quite well that Americans love to secure a #1 ranking in just about any category (save for prison incarceration, divorce rates, and obesity). As I explained to the Keiser Report, however, the IEA has done little more than produce an attention grabbing headline here. Simply ranking the 'top oil producer' in 2020 may mean much less than the public currently understands.
A Tale of Two Forecasts
by Gregor MacdonaldIt was the best of times; it was the worst of times for the American public over the past month, as it was treated to two high-profile, but deeply conflicting, economic forecasts.
Despite declaring in 2008 that the age of cheap oil was over, the International Energy Agency (IEA) surprisingly announced last week that the United States would become the largest oil producer in the world by 2020. Hooray! This superlative declaration titillated U.S. media organizations, who understand quite well that Americans love to secure a #1 ranking in just about any category (save for prison incarceration, divorce rates, and obesity). As I explained to the Keiser Report, however, the IEA has done little more than produce an attention grabbing headline here. Simply ranking the 'top oil producer' in 2020 may mean much less than the public currently understands.
by
Adam Taggart
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 MartensonExecutive 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…
by
JW
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