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Syria is one of the greatest disasters of recent times. Here, I argue that the origins of the Syrian collapse are to be found in the economic downturn generated by the gradual depletion of the Syrian oil reserves. Crude oil had created modern Syria, crude oil has destroyed it. This phenomenon can be termed the “Syrian Sickness” and the question is: “which country will be affected next?”

Crude oil is a great source of wealth for the countries that possess it. But it is also a wealth that comes as a cycle. Normally, the cycle spans several decades, even more than a century, so that those who live through it may completely miss the fact that they are heading to the end of their wealth. The cycle is especially visible in those areas where the amount of oil is modest; then, the cycle goes faster; wealth and misery appear one after the other in a dramatic series of events.

One of these rapid cycles of growth and decline is that of Syria. It is a country that never became a major world producer, less than 1% of the world’s total production when it peaked, around 1995. (graph below, from Gail Tverberg’s blog). For the small Syrian economy, however, even this limited amount was important

The Syruan oil production went through its unavoidable cycle over a span of little more than three decade. Depletion generated progressively higher production costs and that led to a scarcity of capital investments to keep production increasing. The result was the “bell shaped” production curve that is often called the “Hubbert curve”. Eventually, around 2011, the internal consumption curve crossed the production curve and that transformed the country from an oil exporter to an oil importer. The cross-over point corresponded to the start of the civil war.

…click on the above link to read the rest of the article…

Can We Afford the Future?

November 19, 2015

Can We Afford the Future?

Broken road image via shutterstock. Reproduced at Resilience.org with permission.

As a child of the 1950s I grew up immersed in a near-universal expectation of progress. Everybody expected a shiny new future; the only thing that might have prevented us from having it was nuclear war, and thankfully that hasn’t happened (so far). But, in the intervening decades, progress has begun to lose its luster. Official agencies still project economic growth as far as the eye can see, but those forecasts of a better future now ring hollow.

Why? It’s simple. We can’t afford it.

To understand why, it’s helpful to recall how the present got to be so much grander (in terms of economic activity) than the past. Much of that story has to do with fossil fuels. Everything we do requires energy, and coal, natural gas, and oil provided energy that was cheap, abundant, concentrated, and easily stored and transported. Once we figured out how to get these fuels out of the ground and use them, we went on history’s biggest joy ride.

But fossil fuels are depleting non-renewable resources, and are therefore subject to declining resource quality. Oil is the most economically important of the fossil fuels, and depletion is already eating away at expectations of further petroleum-fed progress. During the past decade, production rates for conventional oil—the stuff that fueled the economic extravaganza of the 20th century—have stalled out and are set to drop (according to the IEA’s latest forecast). Between 2004 and 2014, the oil industry’s costs for exploration and production rose at almost 11 percent per year. The main bright spot in the oil world has been growing production of unconventional oil—specifically tight oil in North America associated with the fracking boom. But now that boom is going bust.

…click on the above link to read the rest of the article…

The Commodity Roller Coaster

November 19, 2015

The Commodity Roller Coaster

CAMBRIDGE – The global commodity super-cycle is hardly a new phenomenon. Though the details vary, primary commodity exporters tend to act out the same story, and economic outcomes tend to follow recognizable patterns. But the element of predictability in the path of the commodity-price cycle, like that in the course of a roller coaster, does not make its twists and turns any easier to stomach.

Since the late eighteenth century, there have been seven or eight booms in non-oil commodity prices, relative to the price of manufactured goods. (The exact number depends on how peaks and troughs are defined.) The booms typically lasted 7-8 years, though the one that began in 1933 spanned almost two decades. That exception was sustained first by World War II and then by the post-war reconstruction of Europe and Japan, as well as rapid economic growth in the United States. The most recent boom, which began in 2004 and ended in 2011, better fits the norm.

Commodity-price busts – with peak-to-trough declines of more than 30% – have a similar duration, lasting about seven years, on average. The current bust is now in its fourth year, with non-oil commodity prices (relative to the export prices of manufactures) having so far fallen about 25%.

Commodity-price booms are usually associated with rising incomes, stronger fiscal positions, appreciating currencies, declining borrowing costs, and capital inflows. During downturns, these trends are reversed. Indeed, since the current slump began four years ago, economic activity for many commodity exporters has slowed markedly; their currencies have slid, after nearly a decade of relative stability; interest-rate spreads have widened; and capital inflows have dried up.

Just how painful the downturn turns out to be depends largely on how governments and individuals behave during the bonanza.

…click on the above link to read the rest of the article…

The Krugman Con

October 29, 2015

The Krugman Con

Gold’s biggest enemy is a brilliant Nobel Prize winning economist, university professor and columnist for the New York Times. Sadly, he is also a con man.

Last week Paul Krugman wrote a column for the New York Times in which he called Republican Paul Ryan, a “con man.” The Republican chairman of the House Ways and Means Committee’s sins, Krugman, a Nobel prize winning economist and a professor at City University of New York, argues, stem from a lack of detail in his budget plans, regarding proposed spending cuts and closed tax loopholes.

Calling a politician a con man is a bit like telling a pig farmer that he stinks. It’s practically part of the job description.

The claim is particularly rich, coming from Krugman, who in recent years has emerged as the de facto leader of a group of mainstream economists, whose advocacy of near unlimited government spending, borrowing and, most recently, money printing, will go down as one of history’s greatest cons.

Understanding how, what I call the “Krugman Con,” has been unfolding is crucial for precious metals advocates, because one of its core elements was the attempted elimination of the vital role played by gold. Indeed, the gold’s recent resurgence on the world stage is an indication that the con, is nearing its closing stages

Tax and spend. Borrow and spend. Print and spend.

Krugman’s sins, which relate to his advocacy of distortions of policies suggested by John Maynard Keynes, are arguably far worse than Ryan’s. As a university professor, Krugman has an obligation to be bound by a modicum of intellectual and academic rigor, rigor which is sadly absent in the advice he gives.

In his landmark work “The General Theory of Employment, Interest and Money,” Keynes recommended that governments, through their spending, ought to play a stabilizing role in the economy.

…click on the above link to read the rest of the article…

Yes, a new crisis is coming – and here’s why

October 27, 2015

Yes, a new crisis is coming – and here’s why

Shortening economic cycle means more frequent crises
‘Great Divergence’ model saw China assuming the US’ leadership role
We have likely reached the limits of adjusting monetary policy
States have compromised a return to growth due to debt

Occupy Wall Street

Occupy Wall Street may been been a popular response to the financial crisis, but Wall Street was never actually occupied and business largely continued as usual. Photo: iStock

The oracles predicting an impending new global crisis are countless. Over the last two decades, economic cycles have been shortened due to deregulation, the financialisation of the economy, trade globalisation, and the acceleration of innovation cycles. During the last 25 years, the US economy has experienced three recessions: in 1991, 2001 and 2009. The outbreak of a new crisis in the coming years is inevitable. To forecast it amounts to acknowledging that capitalism now moves in cycles shorter than 10 years. There is no glory in that.

Here are four macroeconomic scenarios for 2016:

Until recently, the consensus assumed a strengthening of the global economy in 2016. Various downward revisions of growth forecasts by major international organisations, however, confirm that this assumption is becoming less and less likely.

Gross domestic product growth momentum, particularly in the US, is still the main driver of global growth. It is also weaker than it used to be during the previous recoveries, as shown by potential GDP growth which has been reduced to 2% for the 2015-2015 period, compared to 3% for 2000-2007.

The weakness of this recovery can be seen in the substantial slowdown of international trade growth. The increase of global imports in volume is significantly lower compared to the years from 1992 to 2008. The adverse effects of the subprime crisis still influence global dynamics.

The prospect of a new crisis brought the Great Divergence theory back to life. However, this circumstance has failed to materialise. In 2008, this model was steadily evoked but didn’t happen because it is based on the illusion that Asia, and particularly China, will prove able to take over from the US.

…click on the above link to read the rest of the article…

The Peak in Government? A Low in Interest Rates?

September 30, 2015

The Peak in Government? A Low in Interest Rates?

We have warned that capital is in a flight to quality, therefore creating the bubble in government paper. We also warned that the bond market on the long-term peaked in April/May and that we should expect a further rally in the short-end. This significant move has unfolded right before our eyes. The fact that the bonds have peaked in advance, yet we have the short-end rising into this period, reflects the stark reality that capital does not trust government long-term.

The Fed has been warning that they must raise rates to reestablish “normalcy” to the yield curve. No one in their right mind should be buying long-term paper at these rates. The capital has been heading into an even shorter investment cycle, and this presents a highly dangerous potential on the horizon.

FEDFOR-M 9-28-2015

What is the concern? With capital consolidating into short maturities, this means that any change in rates will have a far more immediate impact upon the sovereign debts of all nations. The typical dollar bears say, “Oh, well China sold a huge amount of bonds!” and they twist this into somehow being bearish for the dollar. China is following the trend: sell long-term and move short-term.

We can see that volatility beginning to rise from October moving forward. We are looking at a panic cycle that appears in the U.S. Fed funds by February, followed by another next August.

This is confirming the change in trend that we see with 2015.75. It is not a monumental crash in stocks, nor is it the end of the world with the blood moon. This is the peak in government. As time begins to move forward, you will look back at this turning point as rather significant. It may be more than an announcement that there is water on Mars. We have had so many things happen this week, right down to a meeting between Obama and Putin at the United Nations.

So grab a drink. You might need one as we start to move forward away from the change in trend — 2015.75.

Bubble Bubble Where is the Bubble

September 23, 2015

Bubble Bubble Where is the Bubble

It is fascinating that when I warn of anything using the word “CRASH” newspapers immediate report it as I am forecasting a crash in the stock market. This demonstrates that there is no consideration that government can also crash and burn – the perfect example of 100% confidence. Yes, if this week simply closes on the Dow below 16280, then we can be looking at that slingshot move I have warned about where in one year, we have a crash and a swing to the upside to new highs. These type of events are the ultimate mind game, but that is how they destroy the majority. As for those who write asking which investment will be safe – the answer is NONE.

While those who distort the events of the Great Depression to sell gold or whatever, keep in mind that commodities peaked in 1919 and bottomed WITHstocks in 1932. Real Estate peaked in 1927 followed by bonds when the Fed cut rates to try to help Europe, then everything reversed and stocks soared in 1929 and then crashed and burned into 1932 bottoming with commodities.

There was NO SINGLE INVESTMENT left standing – ABSOLUTELY NOTHING. So why the charlatans are trying to sell you newsletter with promises of if you just bought this letter you will make 20,000%, keep in mind this is a period of survival we are entering – not wild speculation. If you do not understand the nature of the beast, the beast will have you for lunch.

…click on the above link to read the rest of the article…

How Could the Fed Protect Us from Economic Waves?

June 11, 2015

How Could the Fed Protect Us from Economic Waves?

Making Waves

Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.

Fed_Reserve Newspapers report on the adoption of the Federal Reserve Act. It was erroneously held that it was going to be “a constructive Act to aid business”. Ominously, even more such acts were promised.

Prior to the global financial crisis of 2008, a popular term described the supposed benefits created by the Fed. The Great Moderation referred to the reduced volatility of the business cycle. For example, I have written beforeabout economist Marvin Goodfriend, who asserted that the Fed does better than the gold standard.

toon (Credit: Greg Ziegerson and Keith Weiner)

An Orwellian Mandate for the Provision of Miracles

This belief is inherent in the Fed’s very mandate from Congress. The Fed states its three statutory objectives as, “maximum employment, stable prices, and moderate long-term interest rates.” These terms are Orwellian.

Maximum employment means five percent of able-bodied adults can’t find work. Stable prices are actually rising relentlessly, at two percent per year. The meaning of moderate long-term interest rates must be changing, because rates have been falling for a third of a century.

That aside, the basic idea is that the Fed has both the power and the knowledge to somehow deliver an economic miracle. However, we know that central planning never works, even for simple things such as wheat production. Communist states have invariably failed to produce the food to keep their people alive. Stalin, Mao, and other communist dictators have deliberately starved off segments of their populations that they couldn’t feed.

…click on the above link to read the rest of the article…

For Heaven’s Sake: Hedge!

May 1, 2015

For Heaven’s Sake: Hedge!

If you’re not positioned defensively by now, you’re nuts

Q: How do you make a small fortune on Wall Street?

A: Start with a large fortune.

~ old investing adage

Last fall, I wrote an article titled Defying Gravity that warned of the absurd price levels that stocks and bonds had risen to.

The piece first looked at the unbroken multi-year march upward in prices through the myriad money-printing cycles of the world’s central banks, as well as the near-extinction of bearish investors on Wall Street — which it then contrasted with the vast gap between valuations and the underlying weak economic data, deteriorating chart technicals, and evidence that the “smart money” was exiting the market. The takeaway? Prudence strongly recommended moving to cash and hedging one’s open market positions.

Less than a month later, the stock market abruptly dropped by 7%. Those who didn’t seek safety in advance were left licking their wounds, panicked not knowing if the painful down-draft was over.

Fortunately for them, the Federal Reserve jawboned it’s willingness to step in further if needed, the ECB announced a trillion-Euro stimulus program, the Bank of Japan waded into domestic and foreign markets as a buyer of last resort, and China’s central bank continued its staggering balance sheet expansion. Collectively, this put a floor on the markets, which soon climbed back to record highs.

Where We Are Now

So here we are roughly six months later, and the same warning bells are ringing — just louder this time.

Yes, stocks recovered from their brief October swoon, and yes, they are at — or very close to — their all-time highs. Indeed, everything is so awesome that investor sentiment has never been more positive. If you worry that having too many people on the same side of the boat is a sign of complacency and over-confidence, the following chart should frighten you:

…click on the above link to read the rest of the article…

Three Reasons Why US Shale Isn’t Going Anywhere

March 5, 2015

Three Reasons Why US Shale Isn’t Going Anywhere

Have you ever noticed that during extreme economic cycles, when trends are roaring on the upside, or conversely crashing back down to earth, there often appears an air of extremism in news headlines? Take America’s most recent shale oil boom, and bust, for example. On the way up, you may have seen – Why OPEC Could Be Dead in 10 Years. Conversely, now you may have read, Why It Might Be ‘Game Over For The Fracking Boom’.

In the end, the answer lies somewhere in-between. OPEC, although often plagued with internal discord, will still remain the global defacto 900-pound gorilla of crude, and US producers will continue to find ways to crack shale rock cheaper and more efficiently, immunizing themselves to nail-biting commodity roller coaster dips like what was just experienced. And in 2008 (-55%). And in 2001 (-32%). And in 1998 (-38%)….

BP, in its recently-released “Energy Outlook 2035”, predicts OPEC’s market share will return to approximately 40 percent of global demand within 15 years, up from 33 percent today, which is what all this fuss is about anyway.

Here are 3 reasons why America’s shale will continue to produce going forward:

1. Oil companies, both large and small, have seen what is possible.

In 2004, Texas oilman George Mitchell made hydraulic fracture stimulation commercially viable by unlocking the right combination of water pressure and lubricants to allow oil and gas to predictably flow from dense shale to the wellbore. A decade ago, producers believed shale held vast oil and gas resources, but to what extent they could be developed had not been determined. Until now.

…click on the above link to read the rest of the article…

Exter’s Pyramid “In Play” (And Is Martin Armstrong Right?)

January 18, 2015

Exter’s Pyramid “in play” (and is Martin Armstrong right?)

In a global debt bubble, it concerns us when the benchmark debt security still looks good value, albeit on a relative basis.

In spite of this, the consensus is (once again) calling for higher US yields and FOMC “lift off.” The two-year Treasury yield has been pricing in the latter…

…but the question is what is the long end of the Treasury curve pricing in?

Slower growth and lower inflation, most likely. Risk of global contagion, possibly. That the FOMC makes a mistake (in raising rates)…maybe that too.

The Fed might be desperate to raise rates ahead of the next downturn (how embarrassing not to) but this analyst would be surprised to see more than 1 or 2 token 0.25% increases – and that’s if things are rosy.

As we know, the narrative from central banks can change at the slightest hint of trouble, e.g. Ballard’s QE4 comment during last October’s selloff. Watch the spin as the Fed portrays lower energy prices as “transitory” and no reason to alter its desire to tighten, while the ECB’s desire to ease only grows, even though neither is achieving its mandate on prices.

Do what thou wilt shall be the whole of the law?

The key point is that you can’t normalise rates in the “Winter” phase of a long wave (Kondratieff) cycle. There is just too much debt. It’s debt that drives these cycles and eventually brings them to an end.

This is the fourth cycle since the Industrial Revolution and the longest by far. The lack of a gold standard has allowed the central banks to extend it through unprecedented credit creation.

Here is our timing of these cycles:

…click on the above link to read the rest of the article…

Deflation v Inflation – Comprehending What Will Come | Armstrong Economics

December 5, 2014

Deflation v Inflation – Comprehending What Will Come | Armstrong Economics.

QUESTION: Martin,

While I clearly understand your reasoning for deflation in the US allied to a very strong dollar; does the opposite apply to those countries, like the UK and European economies where their currencies are likely going into freefall?

Keep up the brilliant work. Is the movie coming to the UK?

ANSWER: Yes. Britain abandoned the Gold Standard first during the Great Depression and its economy end the deflation and was the first to recover. This was one of the very arguing point of George Warren to devalue the dollar to Roosevelt to reinflate the economy. Germany has imposed deflation on everyone really tearing the European economy apart because they do not understand why they even went into hyperinflation.

The rise in the dollar in the US as other other economies were defaulting pushed the USA into a deflationary depression. This then set in motion protectionism as they failed to understand the mechanism unfolding.

…click on the above link to read the rest of the article…

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