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Wolf Richter: Making Sense Of The Recent Market Gyrations
Wolf Richter: Making Sense Of The Recent Market Gyrations
Every week at PeakProsperity.com, we record a podcast exclusive for our premium subscribers titled Off The Cuff, where Chris and a weekly expert discuss the notable developments of the week. Every once in a while, we’ll share one of these episodes with the general public, which we’re doing this week. Here’s Chris Martenson in discussion with Wolf Richter, evaluating the causes and repercussions of last week’s violent drop across the stock and bond markets.
Recorded last week as the market was in full melt-down mode, Chris and Wolf Richter decode the underlying drivers of the sudden reversal, and peer into the future to predict what is most likely to happen next. Both agree that, whether stocks are briefly ‘rescued’ in the ensuing days, the long-awaited downward re-pricing of the ‘Everything Bubble’ is nigh.
As Wolf puts it:
The emerging market stock index is down 22% from January. So they have gotten hit pretty hard. There’s this trend from the outside toward the core. So when something deteriorates, it starts at the outside and moves toward the core, the core being the higher quality US financial instruments. So that’s probably a dynamic that has already started. And I agree with you. The central banks removing liquidity is a big thing, and it has a big impact.
And people have said, for years, well, QE didn’t cause stocks to go up. So when that goes away, it’s not going to cause stocks to go down. But that’s just not true. The purpose of QE, as Bernanke himself explained it in a Washington Post editorial in 2010, is to create the wealth effect, to bring asset prices up so that the wealthy feel wealthier and spend more money and then this someone trickles down.
…click on the above link to read the rest of the article…
Think You’re Prepared For The Next Crisis? Think Again.
Think You’re Prepared For The Next Crisis? Think Again.
No plan of operations extends with any certainty beyond the first contact with the main hostile force.
~ Helmuth von Moltke the Elder
Everybody has a plan until they get punched in the mouth.
~ Mike Tyson
Scottish poet Robert Burns aptly penned the famous phrase: “The best laid schemes o’ mice an’ men/Gang aft a-gley.” (commonly adapted as “The best laid plans of mice and men often go awry.”)
How right he was.
History has shown time and time again that the only 100% predictable outcome to any given strategy is that, when implemented, things will not go 100% according to plan.
The Titanic’s maiden voyage. Napolean’s invasion of Russia. The Soviet’s 1980 Olympic hockey dream team. The list of unexpected outcomes is legion.
Dwight D. Eisenhower, the Supreme Commander of the Allied Expeditionary Forces in Europe during WW2, went as far as to say: “In preparing for battle, I’ve always found that plans are useless but planning is indispensable.”
This wisdom very much applies to anyone seeking safety from disaster. Whether preparing for a natural calamity, a financial market crash, an unexpected job loss, or the “long emergency” of resource depletion — you need to take prudent planful steps now, in advance of crisis; BUT you also need to be mentally prepared for some elements of your preparation to unexpectedly fail when you need them most.
Here are two recent events that drive that point home.
Lessons From Hurricane Florence
A family member of mine lives in Wilmington, NC, which received a direct hit last month from Hurricane Florence.
…click on the above link to read the rest of the article…
Joe Saluzzi: The Markets Are Still Way Too Vulnerable To A Sudden Liquidity Disappearance
Joe Saluzzi: The Markets Are Still Way Too Vulnerable To A Sudden Liquidity Disappearance
Joe Saluzzi, co-founder of Themis Trading LLC, outspoken exchange expert, and author of the excellent exposé Broken Markets, returns to give us an update on the state of high frequence trading — otherwise known as HFT.
In the past, Saluzzi has been a vocal critic of the dominant and parasitic role HFT algorithims play in today’s financial markets, siphoning off profits at the expense of the “dumb money” (i.e. retail investors) while undermining the integrity and stability of exchanges. Front running, spoofing, flash crashes — HFTs are the culprits behind them.
Saluzzi actually has some positive developments to note: namely that the obscene profits the HFTs used to make (i.e., steal) are moderating as the arms race in the industry has escalated and the players are increasingly competing with each other. Also, the SEC appears to be moving much faster now towards putting some material constraints in place.
But the unfair advantages that HFTs enjoy, as well as their threat to market stability, are still very real. If we don’t continue to fight to bring them under control, we risk a vicious downdraft during the next big market crisis should the algos instantly exit in a panic:
If the HFT algos get spooked and stop trading, then you got a major problem.
In times like this when there’s no storm out there, it’s time to fix the house now to make sure that when the storm comes the house doesn’t get knocked down. So how do you fix the house? By getting rid of the conflicts of interest, maybe adding more obligations for market makers, looking at those off-exchange venues which are considered ‘dark pools’ and learning what’s going on there, looking at all different types of the issues that continue to haunt us — most of which don’t become visible until they don’t pop up at the end.
…click on the above link to read the rest of the article…
What Comes Next
What Comes Next
All things have a beginning, a middle and and end.
And now, more than 3,480 days into the current bull market, the longest in history, we can say with high confidence we are very close to its end.
Why?
For manifold reasons that are multiplying fast. So many, in fact, that each of the key speakers at the recent Peak Prosperity/Contra Corner Summit in New York City had difficulty finding enough time to enumerate them all during the six-hour event.
David Stockman, President Reagan’s budget head and former US Congressman, focused his warnings on the overconcentration of financialized (i.e., phony) profits in the world economy, which mask the steep decline in the production of tangible (i.e., real) value.
Among his long litany of examples of the sclerosis and fraud within today’s economy, he explained how so much of today’s euphoric stock prices are an artifact of the cheap credit made possible by the world’s central banking cartel — enabling a massive LBO of our corporate industry.
Long story short: artificially low rates have been allowing corporate executives, for years, to buy back a huge percentage of their company’s shares, enriching shareholders (most notably the execs themselves) in the immediate term, while saddling the underlying companies under tremendous leverage (1m:13s):
(Purchase the full replay video)
As long as stock prices stay high and rates stay low, no one cares; they’re making too much money. But as rates rise and prices fall, these corporations will become crippled by their debt service requirements, be forced to lay off large swaths of their workforces, and quite possibly go out of business. Failures will ripple across the corporate landscape, sinking the US into prolonged recession.
As a society we’ll be the poorer for it. And suffer the full brunt of the pain this collapse of malinvestment will bring.
…click on the above link to read the rest of the article…
Dave Murphy: Will Monsanto’s Loss Result In Less Poison In Our Food?
rganicconsumers.org/
Dave Murphy: Will Monsanto’s Loss Result In Less Poison In Our Food?
In November 2016, a very concerning report — Glyphosate: Unsafe On Any Plate — was released by The Detox Project and Food Democracy Now!, raising the alarm of the high levels of glyphosate in the US food supply and the (deliberate?) low levels of awareness of its associated health risks.
Soon after its release, we brought Dave Murphy, executive director of Food Democracy Now!, on the podcast to explain the explosive findings within this report on the world’s most-used herbicide (more commonly known by its retail brand: Roundup). We asked: Are we being poisoned in the pursuit of profit?
As happened in past decades with the alcohol and tobacco industries, the glyphosate report added compelling evidence that profits have indeed taken a priority over consumer safety in our food production system — and as public health concerns mounted, Big Ag started circling its wagons and attacking the questioners rather than embracing open scrutiny.
But last month, the tables turned. In a landmark upset ruling, Monsanto’s Roundup weedkiller was ruled to be carcinogenic, and the company’s attempt to hide this fact from consumers made it guilty of acting “with malice or oppression”. Monsanto’s new parent company Bayer was ordered to pay the plaintiff, a former school groundskeeper now dying of non-Hodgkin’s lymphoma, $289 million in damages.
Will this court ruling restrict the use of glyphosate going forward? Or will it be de-fanged upon appeal? What else has been learned about the health impacts of glyphosate in our food since the 2016 report? What is the latest science telling us?
To address these important questions and more, we welcome Dave Murphy back on the program.
…click on the above link to read the rest of the article…
The End Of Cheap Debt: The Fall & Rise Of Interest Rates
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The End Of Cheap Debt: The Fall & Rise Of Interest Rates
Total debt (public + private) in America is currently at a staggering $67 trillion.
That number has been rising fast over the past 47 years, following the US dollar’s transformation into a fully-fiat currency in August of 1971.
Perhaps this wouldn’t be such a big concern were America’s income, measured by GDP, growing at a similar rate. But it’s not.
Growth in debt has far outpaced GDP, as evidenced by this chart:
In 1971, the US debt-to-GDP ratio was 1.48x. That’s roughly the same multiple it had averaged over the prior century.
But today? That ratio has spiked to to 3.47x, more than doubling over just 4 decades.
There are many troubling conclusions to draw from this, but here’s a simple way to look at it: It’s taking more and more debt to eke out a unit of GDP growth.
Put in other words: the US economic engine is seizing up, requiring increasingly more effort to function.
At some point — quite possibly some point soon — the economy will no longer be able to grow because all of its output must be used to service the ballooning debt load rather than future investment.
Accelerating this point of reckoning are two major recent trends: rising interest rates and the end of global QE.
Why? Because much of the recent explosion in debt has been fueled by central bank policy:
- Interest rates have been on a steady decline since the 1980s, making debt increasingly cheaper to issue and to service.
- Since 2008, central banks have been voracious buyers of debt. Countries/companies have been able to borrow $trillions, enabled (both directly and indirectly) by these “buyers of last resort”.
But both of those trends are ending, fast.
…click on the above link to read the rest of the article…
What If There Isn’t Enough Energy Going Forward?
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What If There Isn’t Enough Energy Going Forward?
Currently the media is breathlessly cheering the record amounts of US oil production. Stories like this one get top billing on major news websites:
Texas Gulf Coast exports more oil than it imports for the first time (CNN)
It’s a big achievement that highlights a surge in US oil exports, and that shows how the shale boom can make America less reliant on foreign oil.
“It’s a definite milestone. Nobody saw this coming 10 years ago,” said Bob McNally, president of consulting firm Rapidan Energy Group and a former energy official under President George W. Bush. “It’s an unambiguously good thing. It diversifies our dependence from the volatile Middle East.”
Texas is the epicenter of the shale revolution, with soaring production in the oil-rich Permian Basin leading the United States to record output. Rapid technological advances in fracking, the process of unlocking oil and gas deep underground, have dramatically reduced the cost to drill oil in the Permian Basin.
Texas is now on track to produce more oil than either Iran or Iraq. That would make Texas No. 3 in the world if it were a country.
Sounds pretty wonderful, right? Technology advances in the fracking process have enabled the “shale miracle”, resulting in the US producing over 10 million barrels per day for the first time since the 1970s. Think of all the incremental GDP growth that excess oil will power!
If these trends continue, CNN goes on to tell us, the US will become an net energy exporter soon:
US on track to become net energy exporter
The United States still relies on foreign oil — but not as much.
…click on the above link to read the rest of the article…
David Stockman: The World Economy Is At An Epochal Pivot
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David Stockman: The World Economy Is At An Epochal Pivot
David Stockman warns that the global economy has reached an “epochal pivot”, a moment when the false prosperity created from $trillions in printed money by the world’s central banks lurches violently into reverse.
There are few people alive who understand the global economy and its (mis)management better than David Stockman — former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier — which is why his perspective is not to be dismissed lightly. He knows intimately how how our political and financial systems work, as well as what their vulnerabilities are.
…click on the above link to read the rest of the article…
Joel Salatin: The Rise Of Rogue Food
Joel Salatin: The Rise Of Rogue Food
This week, we welcome back Joel Salatin to the podcast. Labeled by The Washington Post as “the most famous farmer in America”, Joel has spent his career advocating for sustainable farming practices and pioneering models that show how food can be grown and raised in ways that are regenerative to our topsoils, more humane to livestock, produce much healthier & tastier food, and contribute profitably to the local economy.
Who wouldn’t want that?
Well, the government and Big Ag for starters. Joel refers to himself as a ‘lunatic farmer’ because so many of the changes he thinks our food system needs are either illegal under the current law or mightily resisted by the deep-pocketed corporations controlling production and distribution.
And this anti-competitive restriction and stifling of small sustainable food producers is only getting worse. While dismayed at this, Salatin finds hope in the burgeoning rebellion of the “rogue food” resistence breaking out:
I’m not optimistic at all about where the government and all its bureaucracy is headed. It is getting more and more stifling. The Food Safety Modernization Act (FSMA) that Obama put through, it’s absolutely stifling. It’s size prejudicial. It’s putting an inordinate price pressure on smaller producers. That’s a fact all the way across the board. And the cost of compliance is escalating — the amount of paperwork, the amount of licensing, the amount of testing and procedural stuff that’s happening on farms — is through the roof.
So on the federal level, I think it’s getting worse. Now, I think what’s happening on the local level, the other thing that’s a pushback that’s happened, is what’s now known as the food sovereignty movement.
…click on the above link to read the rest of the article…
It’s Time To Care Again About Gold & Silver
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It’s Time To Care Again About Gold & Silver
It’s been a while since I’ve covered the precious metals in an article. They’ve been range-bound for much of the past year, with few notable sector developments to report.
But I feel compelled to write about them today for two reasons:
- The probability of an upwards re-pricing of the precious metals is rising, and
- Both gold & silver are quite over-sold right now, technically-speaking.
With technical and fundamental indicators flashing green simultaneously like this, now is an advantageous time to consider increasing your PM exposure (I did so myself yesterday).
The Human Factor
Before I go into further detail on the current conditions of the PM market, here’s a recent personal experience that underscores how few people have any real familiarity with gold & silver as an asset class, let alone own any (beyond, perhaps, a bit of jewelry).
A good friend moved and needed help transporting some bullion from his old town to his new one. Most of it was silver, several thousand ounces worth.
That much silver is pretty friggin’ heavy.
So we huffed and strained, hauling that load out of one bank vault, into his car, and from there into the vault at his new bank. While we did our best to be as discrete as possible, our sweaty, grunting 2-man production was hard for the bank staff to ignore.
Managers at both banks figured out what was going on, as it was pretty obvious. And both separately asked us out of genuine curiosity, “Is that real silver?”.
My friend briefly handed over a 100-oz bar so they could see for themselves, sparking conversations about the merits of owning physical bullion.
…click on the above link to read the rest of the article…
Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start
Collectively, the world’s major central banks have pumped $1.1 trillion into the markets over the past year.
The result of all this money printing is now well known: massively inflated real estate, stock and bond asset price bubbles, as well as extraordinary wealth and income gaps across society.
Some day all of this insanity will end. But how? Will it unwind in an orderly and polite way, as the world’s central planners hope? Or will be disorderly, resulting in painful portfolio losses and mass layoffs?
Michael Pento, fund manager and author of The Coming Bond Bubble Collapse returns to the podcast this week to offer his prediction that events will most likely take the latter route. In fact, he sees the developing inversion of the yield curve as a dependable precursor to the US economy entering recession as soon as this Fall:
The Fed is now raising rates. They raised rates from 0% up to 2%. They’re supposed to do it again in September/October. And again in December. That will be four hikes this year.
They are also selling assets, aka ‘draining their balance sheet’. I say ‘selling’ because that’s exactly what they have to do. Let’s say the Fed is holding a 10-year note that’s due: if they want to destroy that money, they say “OK, Treasury, give me the principal”. The Treasury doesn’t have any money so it has to go the public and raise money. Well, the Treasury will have to do that to the tune of $50 billion per month come October. Right now it’s $30, it has to go in July to $40 billion a month then it goes to $50 billion. That’s $600 billion a year added to the public supply of Treasurys they have to actually finance at a market rate. That’s on top of the $1.2 trillion debt we’re going to have in fiscal 2019.
…click on the above link to read the rest of the article…
A Hard Rain’s a-Gonna Fall
A Hard Rain’s a-Gonna Fall
Après moi, le déluge
~ King Louis XV of France
A hard rain’s a-gonna fall
~ Bob Dylan (the first)
As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.
“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”
He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.
Nine years later we see that Tepper was right, likely even more so than he realized at the time.
The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.
It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:
In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.
And everyone learned to love the ‘Fed put’ and stop worrying.
…click on the above link to read the rest of the article…
Feeling Isolated?
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Feeling Isolated?
Does anyone else in your life share your concerns for the future?
Is there someone you talk with regularly about the unsustainability of our current economic and ecological trajectories?
Do you have friends and/or family members who support your efforts to develop a more resilient lifestyle?
If you answered “no” to these questions, you’re not an outlier. In fact, the #1 most commonly-reported complaint we hear from Peak Prosperity readers is that they feel alone and isolated when it comes to the warnings delivered in The Crash Course.
The end of economic growth. Declining net energy. Accelerating resource depletion. These are MASSIVE existential threats to our way of life — to our species’ survival, even. Most PPers can’t comprehend why *everyone* isn’t obessively talking about these dangers.
But very few people are. Truthfully, most don’t want to; for a wide variety of reasons.
So that leaves us, the conscientious critical thinkers, alone by ourselves to worry and plan.
Does this sound like you? If so, read on…
Wired For Connection
Humans are biologically wired for social connection.
Until just recently, historically-speaking, humans typically existed in small tribal groups of 30-60 people, where the degree of unity and cohesiveness of the group directly determined its odds of survival. Facing constant adversity from the weather, predators, other tribes, etc — every member of the group had a role and a duty to perform.
We’ve delved into this topic deeply in the past, particularly in our podcast with Peabody Award-winning author Sebastian Junger.
In his book Tribe, Junger observes how far modern life is from the conditions our distant ancestors evolved from. We are so dis-connected from each other now that the lack of community is manifesting in alarming ways in today’s society.
…click on the above link to read the rest of the article…
