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What? Default? Where? Dollar?

What? Default? Where? Dollar?

It won’t come as a surprise to anyone that the first half of 2020 has brought, among many other things, renewed calls for the demise of the US dollar. It’s been pretty much a non-stop call for over a decade now, and longer. But this time, like all previous ones, I’m thinking: I don’t see it. I guess my first question is always: please explain why the dollar would collapse before the euro does.

For one thing, the dollar would have to collapse/default against one or more “entities”. The dollar is not like one of those highrises that collapse upon themselves. It will have to default or collapse against something(s) else. Since it is the world reserve currency, that means there would have to be a replacement reserve currency. Yes, that could also be for example gold or SDR’s, or even a basket of currencies, and something like that may happen eventually, but it doesn’t appear in the cards in the short run.

There are really only two candidates for the role, and neither looks at all fit to play it. The euro may have some ambitions in that direction, but it has far too many problems still. The yuan/renminbi certainly has such ambitions, but the Communist party refuses to let it get on stage to show what it’s got. As I recently wrote:

The main sticking point for Beijing is a conundrum it cannot solve. The CCP wants to have BOTH a global currency AND total control over that currency. It will have to choose between the two, and cannot make up its mind. So it pretends it doesn’t have to choose.

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

2018 Chaos, 2019 Mayhem

Titian The rape of Europe 1560-62

It took me a while to decide which word(s) best define the past year and the next one, but I think this is pretty much it. 2018 was chaotic more than anything else, and that chaos will give rise to mayhem in 2019.

What I think is striking is that this is true across the board, in all walks of life so to speak. In finance, in politics, in energy markets, in ecological matters, and perhaps most of all in the ways all these topics are being covered by what once were trusted media.

I’m going to have to come back to all these topics separately, so it’s promising to be a very busy holiday season, but it’s also good to try and put them together in one place, if only to show how interconnected everything is. And how futile it is to look at the economy without seeing its connection to energy flows and ecosystems. And vice versa.

In finance and economics, we’ve seen an avalanche of falling numbers recently, in stock prices, bond prices, housing, across the globe, and obviously that evokes a lot of comments in the financial press. But that press, and bankers investors on their own, still talk about markets.

However, as I wrote in April 2018, if there is no price discovery, and there isn’t, there ARE NO markets, and it would be good and beneficial if many more people absorb that simple reality. Many more so-called traders and investors would be a start, but by no means enough. Lots more people who have nothing to do with the ‘markets’ should understand why there is no such thing anymore.

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

Mike Maloney: “One Hell Of A Crisis”

Mike Maloney: “One Hell Of A Crisis”

Crashing stocks, bonds, real estate & currency all at once?

Mike Maloney, monetary historian and founder of GoldSilver.com, has just released two new chapters of his excellent Hidden Secrets Of Money video series.

In producing the series, Maloney has reviewed several thousand years of monetary history and has observed that government intervention and mismanagement — such as is now rampant across the world — has alwaysresulted in the diminishment and eventual failure of currency systems.

As for the world’s current fiat currency regimes, Mike sees a reckoning approaching. One that will be preceded by massive losses rippling across nearly all asset classes, destroying the phantom wealth created during the latest central bank-induced Everything Bubble, and grinding the global economy to a halt:

Gold and silver are tremendously undervalued right now, and I dare you to try to find another asset that is tremendously undervalued. There just is not. By all measures, everything is just in these hyper-bubbles. OK, real estate is not quite a hyper-bubble; it’s not quite as big as 2005 and 2006, but by all measures, it’s back into a bubble. But now, we’ve got the bond bubble, the biggest debt bubble in the world. These are all going to pop.

We had a stock market crash in the year 2000, and then in 2008, we had a crash in stocks and real estate. The next crash is going to be in stocks, real estate and bonds — including a lot of sovereign debt, corporate bonds and a whole lot of other bonds that will be crashing at the same time. So, it will be all of the standard financial asset classes, including the traditional ‘safe haven’ of bonds that are going to be crashing at the same time that the world monetary system is falling apart.

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

Bad Money

Dreamstime

Bad Money

Our debt-based fiat money system poses an existential threat

We’re all going to have to be a lot more resilient in the future.

The “long emergency“, as James Howard Kunstler puts it, is now upon us.

If ever there was a wake-up call from Mother Nature, it’s been the weather events over the past 12 months.

Last year, the triplet Hurricanes Harvey, Maria, and Irma resulted in thousands of deaths (mainly in Puerto Rico) and tens of $billions in destruction.

This year has seen a rash of 120° F (50° C) summer days, droughts, current monster storms like Typhoon Mangkhut and Hurricane Florence — as well as numerous 100/500/1,000-year floods spread across the globe.

And that’s just so far.

It remains nearly impossible to connect climate change directly to any particular weather event. But taken together, it’s becoming increasingly difficult to dismiss the scientific claim that the quantity of heat trapped in the earth’s weather systems impacts the amount of water that now falls (or refuses to fall) from the sky and the high-temperature heat waves that now shatter records with such regularity that once-rare extreme conditions are now becoming routine.

Our “new normal” is quickly diverging from the natural conditions most of us have grown up with. Permafrost isn’t “permanent ” anymore — it melts. The Arctic now can be ice-free. In a growing number of regions in the US, you can leave a screenless window open on an August evening (with the lights on!), and remain unmolested by the swarms of insects that used to prowl the night.

All of these symptoms are connected by a root cause: our society’s relentless addiction to growth. And while we do our best here at PeakProsperity.com to continually raise awareness of this existential threat, the rest of the media completely ignores it.

meltdown? That’s splashed everwhere…

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

We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History

We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History

And how do things usually work out for the rat?

There are ample warning signs that another serious financial crisis is on the way.

These warning signs are being soundly ignored by the majority, though. Perhaps understandably so.

After 10 years of near-constant central bank interventions to prop up markets and make stocks, bonds and real estate rise in price — while also simultaneously hammering commodities to mask the inflationary impact of their money printing from the masses — it’s difficult to imagine that “they” will allow markets to ever fall again.

This is known as the “central bank put”: whenever the markets begin to teeter, the central banks will step in to prop/nudge/cajole the markets back towards the “correct” direction, which is always: Up!

It’s easy in retrospect to see how the central banks have become caught in this trap of their own making, where they’re now responsible for supporting all the markets all the time.

The 2008 crisis really spooked them. Hence their massive money printing spree to “rescue” the system.

But instead of admitting that Great Financial Crisis was the logical result of flawed policies implemented after the 2000 Dot-Com crash (which, in turn, was the result of flawed policies pursued in the 1990’s), the central banks decided after 2008 to double down on their bets — implementing even worse policies.

The Largest-Ever Monetary Experiment In Human History

It’s not hyperbole to say that the monetary experiment conducted over the past ten years by the world’s leading central banks (and its resulting social and political ramifications) is the largest-ever in human history:

(Source)

This global flood of freshly-printed ‘thin air’ money has no parallel in the historical records. All around the world, each of us is part of a grand experiment being conducted without the benefits of either prior experience or controls. Its outcome will be binary: either super-great or spectacularly awful.

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

Gold Yuan Crypto

George Caleb Bingham The verdict of the people 1854
It’s been a while since we last heard from Dr. D, but here he’s back explaining why neither gold nor the yuan nor cryptocurrencies can or will replace the dollar as the reserve currency, but together they just might:

Dr. D: “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash

Over the last year or two there’s been discussion about the U.S. Federal spending moving beyond $4 TRILLION dollars, and whether a $1+ trillion dollar annual deficit, on top of a $20 Trillion national debt – Federal only – is sustainable. It isn’t.

“What can’t go on, doesn’t” is the famous quote of economist Herbert Stein. Since a spiraling deficit of $1 trillion deficit on a $20 trillion debt can’t go on, what will we replace it with when it very soon doesn’t? Historically gold. Whatever gold exists in the nation’s coffers, whether one coin or 8,000 tons, is used to as the national wealth, and fronted by paper to re-boot the currency. With some additions such as oil and real estate, this was the solution in Spain, France, Germany, and the Soviet Union among hundreds of fiat defaults. Why? Because at a time of broken promises — real goods, commodities that can be seen, touched, and used – are the tangible proof of wealth, requiring no trust, and from which the human trust system of paper and letters of credit can be rebuilt.

But in these complicated, digital times perhaps that’s too simplistic. Perhaps we have grown smarter than all our fathers and this time it will be different. Will it really be the same? Let’s look at how the system works now.

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

It’s Time To Care Again About Gold & Silver

DnD-Production.com/Shutterstock

It’s Time To Care Again About Gold & Silver

Fundamentals and TA are signaling extreme undervaluation

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:

  1. The probability of an upwards re-pricing of the precious metals is rising, and
  2. 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…

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

Even as “hedonic quality adjustments” perform miracles to repress surging new and used vehicle inflation.

Consumer price inflation, as measured by the Consumer Price Index, released this morning by the Bureau of Labor Statistics, jumped by 2.8% in May from a year ago, after having already jumped by 2.5% in April. It was the fastest year-over-year rise since February 2012:

Inflation is just a nice way of saying that the dollar is losing its purchasing power, and that income earned in dollars is buying less and less, an experience consumers go through when they buy stuff. The purchasing power of the dollar dropped 2.93% in May from a year ago, the fastest drop since November 2011. The chart below shows the index of the dollar’s swooning purchasing power:

The CPI without food and energy rose 2.24% from a year ago, after having already risen 2.14% in April.

These year-over-year percentage changes in the Consumer Price Index are slower than what consumers experience in terms of actual price increases. Here are two big examples of how this discrepancy is happening: prices of used vehicles and new vehicles.

The CPI for used cars and trucks fell 1.7% in May from a year ago (not seasonally adjusted), according to the BLS. This index has been falling much of the time during the last decade with exception of the “Cash for Clunkers” period and its consequences, which took a whole generation of often perfectly good older cars off the road, and thus actually raised prices on what was left (the spike in this chart from 2010-2012):

The chart below shows the actual index of used car- and truck-price inflation over the decades. Note that this CPI for used vehicles in May is at the same level as in 1994:

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

Ronald Stoeferle: Gold Is Dirt Cheap Right Now

And a new bull market for the metal is beginning
Fresh from releasing his exhaustive 230-page annual report titled In Gold We Trust, Ronald Stoerferle joins us to summarize his forecast for the yellow metal.

Stoerferle, an author of several books on Austrian economics and head of strategy and portfolio management at Incrementum AG, concludes that gold is extremely cheap right now in dollar terms. And he sees a new bull market beginning for the precious metal — one likely to quickly build momentum as the next (and long overdue) financial market correction arrives.

We’re at the beginning of a new stage of a bull market.

We’ve seen a massive correction with a big drawdown, but we’re now seeing the Commitment of Traders report suggesting that there’s been a washout. We’re seeing that sentiment is really negative. We’re seeing that nobody really cares about gold and mining stocks, and especially about silver. Silver is probably the biggest contrarian investment, though silver mining stocks are probably even more contrarian at the moment.

We all know that the herd behavior in the sector is getting more extreme. I think it has got to do with career risk in the financial industry, so nobody really wants to make a contrarian call. But once we go above this $1,360-$1,380 resistance, which is also the neckline of a large inverse head & shoulder formation, I think gold will hit $1,500, $1,600 pretty quickly.

The most important thing is: in comparison to all the monetary printing that we’ve seen in the last couple of years, gold got significantly cheaper. Gold, in monetary terms, is dirt cheap at the moment. We’re basically at the same levels like in 1971 when it comes to the gold backing of the US dollar. So gold is a bargain at this level.

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

Why A Dollar Collapse Is Inevitable

Why A Dollar Collapse Is Inevitable

We have been here before – twice. The first time was in the late 1920s, which led to the dollar’s devaluation in 1934. And the second was 1966-68, which led to the collapse of the Bretton Woods System. Even though gold is now officially excluded from the monetary system, it does not save the dollar from a third collapse and will still be its yardstick.

This article explains why another collapse is due for the dollar. It describes the errors that led to the two previous episodes, and the lessons from them relevant to understanding the position today. And just because gold is no longer officially money, it will not stop the collapse of the dollar, measured in gold, again.

General de Gaulle made himself very unpopular with the international monetary establishment by holding the press conference from which the opening quote was taken. Yet, his prophecy, that the gold exchange standard of Bretton Woods would end in tears unless its shortcomings were addressed by a return to a gold standard, turned out to be correct shortly after. What the establishment did not like was the bald implication that it was wrong, and that the correct thing to do was to reinstate the gold standard. Plus ça change, as he might say if he was still with us.

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

Red Screen At Morning, Investor Take Warning

Shutterstock

Red Screen At Morning, Investor Take Warning

It’s time for safety. And it’s beginning to pay better, too

Growing up as I did in coastal New England, this old rhyme was drilled into us as children:

Red sky at night, sailor’s delight;

Red sky at morning, sailor take warning.

Because many of the people in town still made their living on the sea, the safety of person and property depended on being able to recognize the signs of approaching danger.

A notably red sky at morning is usually due to sunrise reflection off of moisture-bearing clouds, signifying an arriving a storm system bringing rain, wind and rough seas. Those who ignored a red sky warning often did so at their peril.

Red Sky In The Markets

I’m reminded of that childhood rhyme because the markets are giving us a clear “red sky” warning right now. One that comes after (too) many years of uninterrupted fair winds and smooth sailing.

The markets have plunged nearly 8% over just a single week. And the losses are across the board. Nearly every asset class from stocks to bonds to commodities to real estate are participating in the pain. Market displays are a sea of red.

We’ve written so often and recently of the dangerous level of over-valuation in asset prices (caused by years of central bank intervention) that to re-hash the premise again feels unnecessary.

But the chart below is worth our attention now, as it really drives home just how dangerously over-extended the markets have become. It’s a 20-year chart of the S&P 500, showing how it has traded vs its 50-month moving average (the thin green line).

Importantly, the chart also plots the Bollinger bands for this moving average. These are the thin red (upper) and purple (lower) lines above and below the green one.

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

A Modest Plan


Rembrandt van Rijn The Storm on the Sea of Galilee 1633
On March 18, 1990, the painting was stolen by thieves disguised as police officers. They broke into the Isabella Stewart Gardener Museum in Boston, MA, and stole this painting, along with 12 other works. The paintings have never been recovered, and it is considered the biggest art theft in history. The empty frames still hang in their original location.
This is an article written by Dr. D, who last month wrote a series at the Automatic Earth entitled Bitcoin Doesn’t Exist.

It shouldn’t surprise you that bitcoin plays a cameo in his Modest -but actually quite grand- Plan as well.

Dr. D: With all the talk about the bubble market, people are once again saying Donald Trump is a fool, he should never have taken credit for a Dow that’s about to collapse. In addition, how does he think he can get away with claiming we have a great economy made greater? He said in the election the economy was terrible and the Dow was a bubble, that’s why he won.

But hold on: you have to remember, they’re politicians; they may be dishonest but they’re not stupid. Let’s try a scenario to see what they’re thinking:

We have a situation in the U.S. where 100 million people are out of the workforce, the real economy is on life-support, debt is crushing, and monetary velocity is at an all-time low. The Fed’s every effort at market-rigging, lowering rates and pumping in money, bailing out the banks and giving unearned interest for Fed deposits have run up both the housing market and the stock market, neither of which is their legal mandate. If either one goes higher, they’ll pop as workers, particularly millennials, have no income to buy houses, and stocks are levitating on just 5 insider-paid FAANG stocks.

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

The Curious Case of Missing the Market Boom


Rembrandt Old man with a beard 1630
“The Cost of Missing the Market Boom is Skyrocketing”, says a Bloomberg headline today. That must be the scariest headline I’ve seen in quite a while. For starters, it’s misleading, because people who ‘missed’ the boom haven’t lost anything other than virtual wealth, which is also the only thing those who haven’t ‘missed’ it, have acquired.

Well, sure, unless they sell their stocks. But a large majority of them won’t, because then they would ‘miss’ out on the market boom… Some aspects of psychology don’t require years of study. Is that what behavioral economics is all about?

And it’s not just the headline, the entire article is scary as all hell. It reads way more like a piece of pure and undiluted stockbroker propaganda that it does resemble actual objective journalism, which Bloomberg would like to tell you it delivers. And it makes its point using some pretty dubious claims to boot:

The Cost of Missing the Market Boom Is Skyrocketing

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high.

If equity markets in places like Greece and Ukraine, ravaged by -in that order- financial and/or actual warfare, are booming, you don’t need to fire too many neurons to understand something’s amiss. Some of their companies may be doing okay, but not their entire economies. Their boom must be a warning sign, not some bullish signal. That makes no sense. Stocks in Aleppo may be thriving too, but…

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

The Cardinal Sin Of Investing: Permanent Impairment Of Capital

Victor Moussa/Shutterstock

The Cardinal Sin Of Investing: Permanent Impairment Of Capital

How to avoid making it
Last week we presented a parade of indicators published by Grant Williams and Lance Roberts that warned of an approaching market correction as well as a coming economic recession.

The key message was: When smart analysts independently find the same patterns in the data, it’s time to take notice.

Well, many of you did, by participating in this week’s Dangerous Markets webinar, which featured Grant and Lance.

In it, both went much deeper into the structural fragility of today’s financial markets and the many reasons why economic growth will remain constrained for years to come.

The excessive build-up of debt in the system — and the absolute dependence on its continued expansion to keep the economy from imploding — is, of course, seen as the prime risk to future growth.

As Lance demonstrates here with several of his excellent charts, so much leverage has been taken on that its servicing is increasingly stealing capital that would otherwise go to savings, consumption and productive investment. Going forward, the demands of the debt service will simply result in less and less capital available left over to grow the economy:

As financial assets are (supposed to be) valued on future growth prospects, lower forecasted growth demands lower valuations. Grant calculates that, should the US see another decade of 2% average annual GDP growth (and it has averaged less than that over the past decade), stock prices should be roughly half of what they are today to be considered fairly valued:

And Lance builds further on this, explaining how this moribund growth, coupled with America’s aging demographic trend, will simply savage the nation’s (already troublesomely underfunded) pension and entitlement systems:

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

The Federal Reserve Is Destroying America

The Federal Reserve Is Destroying America

And wait until you hear what they’re getting away with now

Perhaps I should start with a disclaimer of sorts. Yes, I realize that the people working at the Federal Reserve, as well as the other central banks around the world, are just people.  Like the rest of us, they have egos, fears, worries, hopes, and dreams. I’m sure pretty much all of them go home each night believing they are basically good and caring individuals, doing important work.

But they’re destroying America.  They might have good intentions, but they are working with bad models. Ones that lead to truly horrible outcomes.

One of the chief failings of central banks is that they are slaves to an impossible idea; the notion that humans are free to pursue perpetual exponential economic growth on a finite planet.  To be more specific: central banks are actually in the business of promoting perpetual exponential growth of debt.

But since growth in credit drives growth in consumption, the two are concepts are so intimately linked as to be indistinguishable from each other.  They both rest upon an impossibility.  Central banks are in the business of sustaining the unsustainable which is, of course, an impossible job.

I can only guess at the amount of emotional energy required to maintain the integrity of the edifice of self-delusion necessary to go home from a central banking job feeling OK about oneself and one’s role in the world.  It must be immense.

I rather imagine it’s not unlike the key positions of leadership at Easter Island around the time the last trees were being felled and the last stone heads were being erected.  “This is what we do,” they probably said to each other and their followers.  “This is what we’ve always done.  Pay no attention to those few crackpot haters who warn that in pursuing our way of life we’re instead destroying it.”

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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