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Democratic Party hopeful, Bernie Sanders, recently outlined what it means for him to be a “democratic socialist.” The problem is that the same label might be applied to most of the other candidates running in both the Democratic and Republican parties running to be the nominee for presidency of the United States.

One November 19, 2015, Bernie Sanders delivered a speech in which he outlined what he means when he calls himself a “democratic socialist.” He assured his listeners that he did not advocate government ownership of the means of production.

He said that he supported “private companies that thrive and invest and grow in America instead of shipping and jobs overseas.” And that “innovation, entrepreneurship, and success should be rewarded. But greed for the sake of greed is not something that public policy should support.”

He insisted that he “merely” wanted the wealthy billionaires, the “one-percenters,” to pay their “fair share,” with the belief that if they were taxed sufficiently high then it would be able to finance all the other good things that he would like to see every American have.

FDR and His Economic “Bill of Rights”

So besides a clear desire for a form of regulatory socialism that would see to it that private businesses did not “ship” jobs and profits overseas, and a fiscal socialism that would use the tax code to redistribute wealth from that supposed “one-percent,” what does Bernie Sanders mean by “democratic socialism”?

His playbook, it turns out, is Franklin D. Roosevelt’s New Deal of the 1930s and FDR’s 1944 call for an “economic Bill of Rights.” In the 1930s, Franklin Roosevelt pushed through Social Security legislation, introduced the first federal minimum wage law and tax-funded unemployment insurance, and implemented federal job programs.

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

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

December 8, 2015

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

On Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s. As I write this article, the price of U.S. oil is sitting at $37.65. For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy. Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date. The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.

The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday. Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…

One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…

“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.

“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”

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

Has The Market Trend Shifted From Bull To Bear?

October 23, 2015

Has The Market Trend Shifted From Bull To Bear?

Why the recent volatility may mark a secular shift

Emotions are running high for the investment community in the wake of recent market volatility. Up until August, we had been in the third longest period in market history without a 10% correction. Since then, stock indices sold off hard, only to bounce once again over the past two weeks of trading.

As you’d guess, the generic punditry has been out in full force. A good number of very well respected technicians are not mincing words: We’ve entered a bear market. No equivocation.

On the other side of the equation are plenty proclaiming a successful retest of the lows has been made, and now away we go. Earnings will be better next year. No recession in sight. Just another dip to be bought, right?

And certainly the truth is….No one knows. Especially in today’s world where global central banks can concoct further QE/monetary schemes at the drop of a hat. Let’s face it, at this point the global central banks are all in. In fact, beyond all in. Without question, the US Fed knows that if equities fall, they lose the high end consumer. (Wal-Mart shoppers have already long been lost)

I thought in this discussion I’d run through a number of indicators I’ve been watching that will hopefully help answer the key question – was the recent market turbulence a sign of a short-term correction, or something larger? We know there’s no single Holy Grail metric in this wonderful world, but I tend to think of indicators as mosaic pieces. If we can get enough pieces in the right place, we have a good shot at actually deciphering the “picture” of what is to come. And for that, we can only really rely on historical experience.

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

The Big Bad Bear Case

July 26, 2015

The Big Bad Bear Case

My aim with this article is to outline, with facts, large global structural issues that I believe everyone, bulls and bears alike, should be fully aware of. While some of this discussion may rattle the cage a bit you will hopefully find this article well researched and informative.

Recently I’ve outlined why we switched our trading stance from buy mode (Door Shut) to sell mode (Inversion) on stocks. This week I’ve also outlined the aggregate technical factors that have us very cautious on stocks in general (Totality) while not precluding the possibility of new highs.

This article, however, will focus on much larger structural issues that have been building for years, decades indeed. And no this article is not so much about central banks, debt issues, Greece, China, deficits, etc. While all these are important as part of the overall picture, they are mere current symptoms of a much larger issue that is at the core of all that is already in play and will only deepen in our societies in the decades to come: Institutionalized poverty with an ever widening divide between the haves and the have nots which will result in an eventual drastic revaluation of asset classes across the board.

And before you think I’m off on a hyperbolic rant let me assure you my reasoning will be very much fact based and I have reason to believe the US Fed and Janet Yellen are very much aware of it all, but have no solution to prevent it from happening. In fact it is mathematically unavoidable.

A few weeks ago in The Greek Butterfly I discussed the concept of a global math construct that needs to maintain its integrity to make global debt serviceable. To that end I concluded that they would not let Greece default.

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

Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space

July 25, 2015

Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space

Why Stock Markets Are Not an Indicator of the Economy

In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Maduro Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.

Photo credit: Prensa Presidencial

Under the assumption that such a free market money system would be largely non-inflationary, this mixture of “historical record” and expectations would primarily be expressed by the relative prices of shares. The bulk of the returns achieved by investors would come from dividend payments, as a general inflation of “the market” would be nigh impossible.

And yet, although the stock market as a whole would barely appreciate in price in nominal terms, the gains achieved in real terms as well as real economic growth, would be far stronger than they are under our current, centrally planned system of constant inflation. Moreover, economic progress would be far more equitable as well, as the reverse redistribution of wealth caused by inflationary policy wouldn’t exist.

This is why a rising stock market tells us absolutely nothing about the state of the underlying economy in the present inflationary system. In fact, we once again have a real life example providing ample empirical confirmation of this assertion. Venezuela’s economy is in free-fall. Its desperate socialist government, in an attempt to satisfy the masses of voters who have voted for it in order to receive handouts, is resorting to ever more repressive economic policy and money printing on a truly gargantuan scale to at least keep up theappearance that bread and circuses will continue.

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

12 Ways The Economy Is Already In Worse Shape Than It Was During The Depths Of The Last Recession

July 22, 2015

12 Ways The Economy Is Already In Worse Shape Than It Was During The Depths Of The Last Recession

Did you know that the percentage of children in the United States that are living in poverty is actually significantly higher than it was back in 2008? When I write about an “economic collapse”, most people think of a collapse of the financial markets. And without a doubt, one is coming very shortly, but let us not neglect the long-term economic collapse that is already happening all around us. In this article, I am going to share with you a bunch of charts and statistics that show that economic conditions are already substantially worse than they were during the last financial crisis in a whole bunch of different ways. Unfortunately, in our 48 hour news cycle world, a slow and steady decline does not produce many “sexy headlines”. Those of us that are news junkies (myself included) are always looking for things that will shock us. But if you stand back and take a broader view of things, what has been happening to the U.S. economy truly is quite shocking. The following are 12 ways that the U.S. economy is already in worse shape than it was during the depths of the last recession…

#1 Back in 2008, 18 percent of all Americans kids were living in poverty. This week, we learned that number has now risen to 22 percent…

There are nearly three million more children living in poverty today than during the recession, shocking new figures have revealed.

Nearly a quarter of youngsters in the US (22 percent) or around 16.1 million individuals, were classed as living below the poverty line in 2013.

This has soared from just 18 percent in 2008 – during the height of the economic crisis, the Casey Foundation’s 2015 Kids Count Data Book reported.

#2 In early 2008, the homeownership rate in the U.S. was hovering around 68 percent. Today, it has plunged below 64 percent. Incredibly, it has not been this low in more than 20 years. Just look at this chart – the homeownership rate has continued to plummet throughout Obama’s “economic recovery”…

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

Why Greece Is The Precursor To The Next Global Debt Crisis

July 11, 2015

Why Greece Is The Precursor To The Next Global Debt Crisis

The Eurozone fantasy will be one of the early casualties

The one undeniable truth about the debt drama in Greece is that each of the conventional narratives—financial, political and historical—has some claim of legitimacy.

For example, spendthrift Greeks shunned fiscal discipline: here’s an account from 2011 that lays out the gory details: The Big Fat Greek Gravy Train: A special investigation into the EU-funded culture of greed, tax evasion and scandalous waste.

Or how about: Greek reformers want to fix the core structural problems but are being stymied by tyrannical European Union/Troika leaders: The Greek Debt Crisis and Crashing Markets.

Rather than get entangled in the arguments over which of the conventional narratives is the core narrative—a hopeless misadventure, given that each narrative has some validity—let’s start with the facts that are supported by data or public records.

The Greek Economy Is Small and Imbalanced

Here are the basics of Greece’s economy, via the CIA’s World Factbook:

Greece’s population is 10.8 million and its GDP (gross domestic product) is about $200 billion (This sourcestates the GDP is 182 billion euros or about $200 billion). Note that the euro fell sharply from $1.40 in 2014 to $1.10 currently, so any Eurozone GDP data stated in dollars has to be downsized accordingly. Many sources state Greek GDP was $240 billion in 2013; adjusted for the 20% decline in the euro, this is about $200 billion at today’s exchange rate.

Los Angeles County, with slightly more than 10 million residents, has a GDP of $554 billion, more than double that of Greece.

The European Union has over 500 million residents. Greece’s population represents 2.2% of the EU populace.

External debt (public and private debt owed to lenders outside Greece):

$568.7 billion (30 September 2013 est.)

National debt:

339 billion euros, $375 billion

Central Government Budget:

revenues: $119.5 billion

expenditures: $127.9 billion (2014 est.)

Budget surplus (+) or deficit (-):

-3.4% of GDP (2014 est.)

Public debt:

174.5% of GDP (2014 est.)

Labor force:

3.91 million (2013 est.)

GDP – per capita (Purchasing Power Parity):

$25,800 (2014 est.)

Unemployment rate:

26.8% (2014 est.)

Exports:

$35.8 billion (2014 est.)

Imports:

$62.8 billion (2014 est.)

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

There’s Something Wrong With The World Today and It’s 1995

June 25, 2015

There’s Something Wrong With The World Today and It’s 1995

There weren’t any surprises in the “final” GDP update for Q1. Going back to -0.2%, the same interpretations still apply, especially and including the inventory contribution. Economists and policymakers want to talk particularly about how Q1 is prone to “residual seasonality” but that is missing the bigger part of the problem. Whether Q1 was -0.2% or +2% doesn’t really matter, as what truly makes this a dangerous economic situation is that Q1 and all the prior quarters were not a steady +4%.

To listen to economists today is to suggest that such an expectation amounts to wishful thinking, and that such “normal” growth is no longer. That sentiment may apply, but only to the narrow manner in which orthodox economics can integrate real world factors. In other words, “they” accept that there is something wrong but cannot answer the relevant and primary question as to what that might be.

This problem is obvious in every economic account, including GDP. Using year-over-year figures to harmonize among other economic systems, the lack of growth is striking post-crisis – made all the more so by the size of the huge hole left in the wake of the Great Recession itself. That means, even by this count, the opportunity cost of this non-recovery is severely understated.

I picked 1995 as a starting point for a reason, which I’ll get back to below. Suffice to say, in isolating only the growth periods of each economic cycle the current version is by comparison about half that of the late 1990’s. The middle cycle, the housing bubble age, shows what is plainly a transition from the first to the third. The primary opportunity cost is not simply the difference between them, but rather far more importantly the compounding nature of time. In other words, the longer these deficiencies drag the more costly in very real economic distortions that cannot be measured.

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

The Money is Just Sleeping … Let us Wake it Up!

June 24, 2015

The Money is Just Sleeping … Let us Wake it Up!

J.C. Juncker Sets Out to “Wake Up Liquidity”

In a recent article on the never-ending Greek Kabuki theater, we have come across parts of an interview EU budget commissioner Kristalina Georgieva has given to AFP, in which she explains J.C. Juncker’s cunning plans to “kick-start” the European economy by pumping €300 billion he doesn’t have into infrastructure projects and other assorted white elephants (we have previously discussed this Stalinesque plan, as well as what usually happens when even some of the “best stewards of EU funding” are “investing in in infrastructure” – see The EU’s Ghost Airports for the ghastly details). The interview contained the following gem:

“The Juncker plan is to wake up the liquidity sleeping in our financial system, to give courage to our money, to pump investment into the real economy,” Georgieva said.

Liquidity
The always open spigot, spitting out what is apparently valiumed money.

So the idea is that the enormous mountain of money created by the ECB and depicted below is somehow “just sleeping” and if only someone – ideally JC Juncker – manages to wake it up and give it the necessary courageto get wasted on projects no-one needs or wants, the economy will magically improve. Prosperity is practically around the corner! Riiiiight.

Europe’s huge pile of ECB confetti – just sleeping! The total is the red line, the annualized rate of change the blue line. Yes, that red line is going parabolic, via ECB, click to enlarge.

Apart from the problems with this plan we have already discussed, which consist mainly of the fact that governments cannot sensibly invest, because rational economic calculation is situated somewhere between totally alien and utterly impossible for them, there is another problem with this idea Juncker (and many others) apparently don’t understand.

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

Jim Rogers: Turmoil Is Coming

June 21, 2015

Jim Rogers: Turmoil Is Coming

Predictions on the markets, gold, Greece & more

Two years since his last interview with us, investor Jim Rogers returns and notes that the risks he warned of last time have only gotten worse. In this week’s podcast, Jim shares his rational for predicting:

increased wealth confiscation by the central planners
a pending major financial market collapse
gold’s return as the preferred safe haven investment
more oil price weakness, followed by a trend reversal
Russia’s rebound
a China bubble reckoning
agriculture’s long-term value

I suspect in the next year or two we will see some kind of major, major problems in the world financial markets.

I would suspect when we have this correction, it’s going to cause central banks to panic. There’s going to come a time when there is not much the central banks can do when they have lost all credibility. When governments have lost all credibility. They will print and spend and borrow, but there comes a time when people are just going to say We don’t want to play this game anymore. And at that point, the world has serious, serious problems because there’s nothing to rescue us.

I suspect the next economic/financial collapse will be the one they can’t deal with. But, if somehow they are miracle workers, be very, very careful. I would be worried about 2022 – 2023 then. The game will definitely be up if it’s not up this time around.

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

How Venture Capitalists Came to Rule the World

June 19, 2015

How Venture Capitalists Came to Rule the World

Jobless Growth and the Lottery Economy

Before the gale-force hurricane of Reaganomics swept through the United States in the 1980s, America very briefly entertained the adoption of a deliberate industrial policy. As in South Korea and certain European nations, the U.S. government would pick economic winners and losers and direct funds accordingly.

This was no utopian idea. After World War II, a number of European governments invested heavily in key sectors — electricity, steel — toclose the technology gap with the United States. Similarly, the South Korean government built up a shipbuilding industry in the 1970s from nothing into the largest and more successful in the world. To a certain extent, the Pentagon accomplished something similar with the Internet (though no American would dare call such a thing “socialism”).

Industrial policy has never really gone away. Many governments, including China and the United States, have focused funds on the clean energy sector (wind turbines, solar cells). But the prevailing economic orthodoxy since the creative destruction unleashed by Reaganomics has been that the invisible hand of the market, not the state, should determine winners and losers.

It turns out, however, that the market’s hand is very often not invisible at all. Actual people, with very visible hands, are picking the winners and losers in the marketplace. Consider the impact of venture capitalists.

Although they’re responsible for only 0.3 percent of U.S. GDP, the influence of these elite investors is disproportionate. Their decisions determine how you communicate, how you shop, how you organize your life. Venture capital has been instrumental in launching companies that today make up over 20 percent of America’s GDP.

Are we prepared to change to prevent climate change?

June 10, 2015

Are we prepared to change to prevent climate change?

What is needed to get us out of our comfort zone and fight for our children’s future?

If you ask, let’s say, a seven year old, it’s all pretty clear. If it’s the way we live, consume and produce that causes climate change, why don’t we simply stop it and start doing things differently? And if there are millions of people too poor even to meet their basic needs, why don’t we tell the rich to share a bit of their overflow so that there is enough for all?

We may consider this cute and naïve, we may laugh and say, “Look, it’s not all that easy, there are too many complexities and interdependencies and lock-ins and path-dependencies. It’s OK, when you’re older you’ll understand. Our economy needs to grow for us to keep up the good life. It needs to grow to get more people out of poverty, to secure return on investments, and to create jobs in place of those that fell away due to rationalization. We cannot simply stop the machine for something abstract like climate change: this would lead to recession, social unrest and chaos. We have to keep up our economic system to secure social stability, pension schemes and state budgets”—as if social instability, unemployment and wars on resources were not already well on their way.

Questioning the underlying system logic

These are all robust arguments hardly ever questioned—following the logic of homo economicus that individual profit and competition are the best means to achieve the higher common good. But what if this system logic itself was the root cause of our environmental and social crises—climate change above all—and needed to be replaced by something new to secure our survival on this planet?

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

As Goes The Credit Market, So Goes The World

June 6, 2015

As Goes The Credit Market, So Goes The World

When confidence cracks, we’ll see it there first

During the prior economic cycle of 2003-2007, one question I asked again and again was: Is the US running on a business cycle or a credit cycle?

That question was prompted by a series of data I have tracked for decades; data that tells a very important story about the character of the US economy. Specifically, that data series is the relationship of total US Credit Market Debt relative to US GDP.

Let’s put this in simple English. What is total US Credit Market Debt? It’s an approximation for total debt in the US economy at any point in time. It’s the sum total of US Government debt, corporate debt, household debt, state and local municipal debt, financial sector and non-corporate business debt outstanding. It’s a good representation of the dollar amount of leverage in the economy.

GDP is simply the sum total of the goods and services we produce as a nation.

So the relationship I like to look at is how financial leverage in the economy changes over time relative to the growth of the actual economy itself. Doing so reveals an important long-term trend. From the official inception of this series in the early 1950’s until the early 1980’s, growth in this representation of systemic leverage in the US grew at a moderate pace point to point. But things blasted off in the early 1980’s as the baby boom generation came of age. I find two important demographic developments help explain this change.

First, there’s an old saying on Wall Street: People don’t repeat the mistakes of their parents. Instead, they repeat the mistakes of their grandparents. From the early 1950’s through the early 1980’s, the generation that lived through the Great Depression was largely alive and well, and able to “tell” their stories.

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

In Denial: We Pursue Endless Growth At Our Peril

May 29, 2015

James Steidl/Shutterstock

In Denial: We Pursue Endless Growth At Our Peril

A requiem for planet Earth

As we’ve been discussing of late here at PeakProsperity.com, humans desperately need a new story to live by. The old one is increasingly dysfunctional and rather obviously headed for either a quite dismal or possibly disastrous future. One of the chief impediments to recognizing the dysfunction of the old story and adopting a new one is the most powerful of all human emotional states: Denial.

I used to think that Desire was the most powerful human emotion because people are prone to risking everything in their lives – careers, marriages, relationships with their family and close friends – pursuing lust or accumulating 10,000 times more money and possessions than they need in their desire for “more.”

Perhaps it was my own blind spot(s) that prevented me from really appreciating just how powerful human denial really is. But here we are, 40 years after the Club of Rome and 7 years after the Great Financial Accident of 2008, collectively pretending that neither was a sign warning of the dangers we face — as a global society — if we continue our unsustainable policies and practices that assume perpetual growth.

Economic Denial

In the realm of economics, the level of collective denial gripping the earth’s power centers is extraordinary. Perhaps that should be of little surprise, as we’re now at the height of the largest set of nested financial bubbles ever blown in world history.

The bigger the bubble(s) the bigger the levels of denial required to sustain their expansion. These bubbles are doozies, and that explains the massive and ongoing efforts to prevent any sort of reality from creeping into the national and global dialog.

To understand this pattern of avoidance of unpleasant realities, consider the behavior of cities — even entire nations — which cannot bring themselves to talk openly about their state of insolvency, let alone do something about it.

War Threat Rises As Economy Declines

May 12, 2015

War Threat Rises As Economy Declines

Paul Craig Roberts, Keynote Address to the Annual Conference of the Financial West Group, New Orleans, May 7, 2015

The defining events of our time are the collapse of the Soviet Union, 9/11, jobs offshoring, and financial deregulation. In these events we find the basis of our foreign policy problems and our economic problems.

The United States has always had a good opinion of itself, but with the Soviet collapse self-satisfaction reached new heights. We became the exceptional people, the indispensable people, the country chosen by history to exercise hegemony over the world. This neoconservative doctrine releases the US government from constraints of international law and allows Washington to use coercion against sovereign states in order to remake the world in its own image.

To protect Washington’s unique Uni-power status that resulted from the Soviet collapse, Paul Wolfowitz in 1992 penned what is known as the Wolfowitz Doctrine. This doctrine is the basis for Washington’s foreign policy. The doctrine states:

“Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”

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

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