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In the last issue we covered how Ecoinmetrics posited that the Bitcoin rally wasn’t being confirmed on-chain and that there was a chance of a 10% pullback in the month following his analysis, which was published November 22.

We did get a pullback, from $44K, which touched bottom around $40K before reversing, for a roughly 10% retracement.

If that was the pullback, it was kind of a snoozer, lasting all of 72 hours (although as I type this on Dec 17, it does look as if Bitcoin is weakening around the low-40’s – and could drop below 40K over the next few days).

If you are new to this sort of thing (this is your first Bitcoin cycle), you should be warned that there will be larger pullbacks, in the order of 25% or more. Or more.

Remember that – and remember our guidance to people experiencing fear, uncertainty or doubt during said pullbacks:

The number one attribute required to navigate a full Bitcoin cycle is conviction. The entire point of The Crypto Capitalist Manifesto was to provide the basis for that.

If anybody here got shaken out during this pullback (we have a lot of new readers to the list), my advice would be to close out your positions here and unsubscribe from this list.

What did happen on Dec 13th, was the Fed basically pivoted: they held the benchmark rate, again – then signalled that they were now looking toward cuts in 2024.

The dot plot moved immediately to reflect a 75bp cut over 2024:

With even unofficial Fed spox Nick Timiraos (“Nikileaks”) seemingly caught flat-footed:

“The Powell pivot begins.

Dec 1: “It would be premature to … speculate on when policy might ease.”

Dec 13: Rate cuts are something that “begins to come into view” and “clearly is a topic of discussion.”

…click on the above link to read the rest…

Another Nail In The Coffin Of Big Cities

January 9, 2021

Another Nail In The Coffin Of Big Cities

The riots, political turmoil, and other banana republic embarrassments seem to be ending – for now. So let’s get back to examining the real problems of this hyper-leveraged, dangerously-complex world. Like how big cities might soon be obsolete:

Pretend it’s 2019 and you’re living in a major US city. You, your spouse and two kids have a fairly nice (though admittedly very expensive) apartment in a relatively safe neighborhood, and life is pretty good. There’s a park nearby, dozens of great restaurants within walking distance, and plenty of interesting friends. And of course your high-paying jobs are right there.

Then comes 2020. A pandemic causes your mayor to panic and lock down the city. There go the park, friends, and restaurants. And before the horror of this new normal has a chance to sink in, civil unrest explodes and turns your once-iconic neighborhood into a Mad Maxian war zone of burned-out cars and boarded up storefronts.

If it was just you, you might stick it out. But with a family, this life is now untenable. So you look into moving, preferably to somewhere semi-rural where neither a lockdown nor riots will ever be a problem and the kids can actually play outside. Maybe it’s time to indulge your fantasy of working remotely from a homestead in a gorgeous place.

But you immediately hit a technological speed bump: Broadband Internet, which up to this point had seemed both ubiquitous and a basic human right, isn’t available on the homesteads you now covet. The only option out there is low-tech, unreliable, molasses-slow satellite Internet that, if the reviews are to be believed, is worse than nothing at all.

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

The $USD is Warning Us That Something Big is Coming

June 10, 2020

The $USD is Warning Us That Something Big is Coming

Things are beginning to get out of control in currency land.

The $USD is collapsing. Astute chart readers will note that the $USD has already experienced two sharp drops in the last few months (blue rectangles in the chart below). They occurred in late February before the COVID-19 shutdown and late March after the COVID-19 market meltdown subsided.

So why is this current drop (green rectangle in the chart above) so important?

Because this collapse is happening outside of a crisis.

The other two sharp drops were triggered by true Black Swan events (an economic shutdown and viral pandemic). This one is happening while things are actually returning to normal.

Put another way, the $USD is telling us that:

1) Either another Black Swan event is underway already.

2) The world is losing faith in the $USD based on the Fed’s’/ Federal Government’s money printing and stimulus.

For a better perspective on what I am talking about take a look at the next chart. The $USD is breaking its bull market trendline at a rapid clip. The only other time it did this was right before the COVID-19 black swan event.

Something BAD is brewing in the financial system. And it’s going to catch 99% of investors by surprise.

Why A Flu Outbreak In China Can Spook Global Markets

January 21, 2020

Why A Flu Outbreak In China Can Spook Global Markets

When people talk about empires of the past, they generally mean Rome and Britain. But the biggest and in some ways most interesting empire was built and run by the Mongols in the 13th and 14th centuries. At it’s peak it stretched from China to Eastern Europe, which is more territory than Rome ever controlled.

Across that expanse there was free trade and unrestricted movement of people via the original “Silk Road” network. For a while there was a single currency which was accepted everywhere.

Genghis Khan — think of him as the Mongols’ (gleefully bloodthirsty) George Washington — organized his army along what we today would call colorblind lines. Instead of units based on clans and tribes, he mixed and matched soldiers of varied backgrounds and trained them to be loyal to one another regardless of origin. He also ordered his men to marry women from conquered cities, and to integrate into local cultures.

And he loved technology, collecting engineers and other people with useful skills from conquered lands and putting them to work developing new weapons and better agricultural practices.

“Pax Mongolica,” in short, had all the makings of a nascent modern system, hundreds of years before the Industrial Revolution.

Then came the Black Death.

Free movement of people allowed the disease to move quickly and uncontrollably. Local populations panicked and closed themselves off, frequently slaughtering their Mongol governors in the process. Trade collapsed, the Silk Road went dark and the Mongol empire expired.

Now fast forward to today’s world, where virtually anyone can fly or drive to virtually any other country — and millions each year do so. Trade is a huge part of most major national economies. A handful of currencies are accepted pretty much everywhere, while locals mix with visitors in melting pot mega-cities of 20 million-plus inhabitants, all breathing the same air.

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

Negative Interest Rates Spread To Mortgage Bonds

May 25, 2019

Negative Interest Rates Spread To Mortgage Bonds

There are trillions of dollars of bonds in the world with negative yields – a fact with which future historians will find baffling.

Until now those negative yields have been limited to the safest types of bonds issued by governments and major corporations. But this week a new category of negative-yielding paper joined the party: mortgage-backed bonds.

Bankers Stunned as Negative Rates Sweep Across Danish Mortgages

(Investing.com) – At the biggest mortgage bank in the world’s largest covered-bond market, a banker took a few steps away from his desk this week to make sure his eyes weren’t deceiving him.

As mortgage-bond refinancing auctions came to a close in Denmark, it was clear that homeowners in the country were about to get negative interest rates on their loans for all maturities through to five years, representing multiple all-time lows for borrowing costs.

“During this week’s auctions, there were three times when I had to stand back a little from the screen and raise my eyebrows somewhat,” said Jeppe Borre, who analyzes the mortgage-bond market from a unit of the Nykredit group that dominates Denmark’s $450 billion home-loan industry.

For one-year adjustable-rate mortgage bonds, Nykredit’s refinancing auctions resulted in a negative rate of 0.23%. The three-year rate was minus 0.28%, while the five-year rate was minus 0.04%.

The record-low mortgage rates, which don’t take into account the fees that homeowners pay their banks, are the latest reflection of the global shift in the monetary environment as central banks delay plans to remove stimulus amid concerns about economic growth.

Denmark has had negative rates longer than any other country. The central bank in Copenhagen first pushed its main rate below zero in the middle of 2012, in an effort to defend the krone’s peg to the euro. The ultra-low rate environment has dragged down the entire Danish yield curve, with households in the country paying as little as 1% to borrow for 30 years. That’s considerably less than the U.S. government.

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

The Terrifying Truth About Negative Interest Rates

May 23, 2019

The Terrifying Truth About Negative Interest Rates

Pushing interest rates below zero is both an act of desperation and something that in theory should have a huge, immediate impact of the behavior of borrowers and savers. The fact that negative rates have become the new normal in big parts of the world but haven’t caused the expected behavior change should scare the hell out of everyone.

To understand why this is so, think of the rate of interest as the price of money. It’s what an individual or business has to pay to get credit with which to buy and invest. As with anything else, when the price of money is high, we tend to acquire less of it and when the price is low we acquire more. So making money not just cheap, not just free, but actually profitable to borrow, while making savings unprofitable to hold should, according to conventional Keynesian economics, create a scene in the credit markets reminiscent of those Black Friday Wal-Mart videos where fistfights break out over the last remaining Barbie Doll. Businesses in particular should be borrowing and investing like crazy, igniting an epic capital spending boom.

But that hasn’t happened. In Europe, for instance, negative rates have been in place for five years …

… and instead of a rip-roaring post-Great Recession recovery, the result has been the kind of anemic growth that conventional economics would predict for a tight-money environment. Business capital spending, the engine that in theory should be propelling Europe’s economy, looks like the opposite of a boom.

Europe capital spending negative interest rates

This translates into seriously boring GDP growth:

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

The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy

April 29, 2019

The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy

So the U.S. puts Republicans (the party of small government) in charge, and gets… trillion dollar deficits as far as the eye can see AND a revival of socialism among Democrats.

Scary as this may seem, the real (and even scarier) lesson is that it’s all inevitable: Beyond a certain level of indebtedness, even pro-business, sound money, small government leaders are powerless to stop the march to insolvency and currency crisis.

The latest example is Argentina, which a few years ago elected a free-market president, only to see its debt explode and its currency crash. From Friday’s Wall Street Journal:

Argentine President’s Prospects Dim With Those of His Country’s Economy

Argentina’s assets took a beating Thursday amid President Mauricio Macri’s continuing struggle to tame rising prices and revive a shrinking economy, raising prospects that his left-wing predecessor could make a comeback in this year’s presidential election.

The peso lost more than 5% of its value against the dollar in early trading Thursday, before regaining some ground in the afternoon. Argentina is now the world’s second-riskiest borrower after crisis-hit Venezuela as indicated by credit default swaps, which are derivatives that pay holders when a borrower defaults on a debt payment.

Mr. Macri, who was elected in 2015 on promises to undo the interventionist policies of President Cristina Kirchner, announced new price controls last week to try to get Argentina’s inflation under control. Mr. Macri has failed during his administration to contain inflation, which has risen to a 12-month pace of almost 55% in March from 25% at the start of 2018.

The move sparked criticism that the president was abandoning market-friendly policies for short-term electoral considerations as Argentines grow increasingly impatient with rising prices. It also underscored the possibility that Mr. Macri could lose October’s election, even if he faces the polarizing Mrs.

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

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

April 12, 2019

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

The past decade was a uniquely smooth stretch of financial highway. Pretty much every major asset class – stocks, bonds, real estate, fine art, you name it – did well, making it hard for conventional investors to lose money and easy for them to earn outsized returns.

So why then are US public sector pensions (which own a ton of the above assets) a looming disaster that could trigger the next great financial crisis? Several reasons, ranging from negligence and criminality.

Let’s start with the fact that Wall Street preys on the ignorance of pension fund managers to extract huge fees for little or no excess return. Here’s a video in which pension expert and “forensic lawyer” Ted Siedle lays it all out for Peak Prosperity’s Chris Martenson:

An even bigger problem is the tendency – understandable but still despicable – of state and local politicians to underfund pensions and then lie about it, pushing the eventual reckoning onto their successors.

As baby boomer teachers, police and firefighters retire, the required pension payouts are soaring. Combine this with inadequate contributions, and the liabilities of major U.S. public pensions are up 64% since 2007 while assets are up only 30%.

This math is simple enough for even a politician or fund trustee to grasp, but because there’s no immediate penalty for underfunding a pension system, it has become normal practice in a long list of places.

Another, related problem is also mathematical, but it’s harder to manage in a boom-and-bust world: When pension plans suffer a big loss, as they tend to do in bear markets, the next few years’ returns have to go towards making up that loss before plan assets can start growing again. The following chart, from a recent Wall Street Journal article, shows pension fund assets falling behind in the past two bear markets and having increasing trouble catching up with steadily-growing liabilities.

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

The Coming Wave Of High-Tech Authoritarianism

March 19, 2019

The Coming Wave Of High-Tech Authoritarianism

One of history’s hard lessons is that collapsing financial systems beget authoritarian politics.

Today’s world, alas, is following this script, as rising debts lead to wrenching political changes in nearly every country that holds free elections, while fascism and socialism are once again being taken seriously by people who in normal times would inhabit the political center.

But there’s one big difference this time around: the advanced state of social control technology. Past governments, when trying to tamp down dissent, were limited to blunt-instrument policies like curfews, phone taps and press shutdowns. Today’s would-be Big Brothers can do vastly more, and in many cases will use the coming financial/political emergency as an excuse to place Orwell’s proverbial boot on their citizens’ necks.

Some examples from a recent Wall Street Journal article titled The Autocrat’s New Tool Kit:

• Chinese authorities are now using the tools of big data to detect departures from “normal” behavior among Muslims in the country’s Xinjiang region—and then to identify each supposed deviant for further state attention.
• The Egyptian government plans to relocate from Cairo later this year to a still-unnamed new capital that will have, as the project’s spokesman put it, “cameras and sensors everywhere,” with “a command center to control the entire city.”
• Moscow already has some 5,000 cameras installed with facial-recognition technology, and it can match faces of interest to photos from passport databases, police files and social media.

But scary as these things sound, they’re crude compared to what’s coming. From the same WSJ article:

“Microtargeting” enables governments to build personality assessments of citizens and tailor propaganda for targets’ psychological weak spots. Russia’s Internet Research Agency reportedly harvested data from Facebook to craft specific messages for individual voters during the 2016 US presidential race. Private firms are developing artificial intelligence that can automate this customization for whole populations.

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

Central Banks Cave, Usher In The Crack-Up Boom

March 11, 2019

Central Banks Cave, Usher In The Crack-Up Boom

This was going to be the year when the other big central banks joined the Fed in “normalizing” interest rates and reversing the past decade’s QE experiment. Instead, the other central banks blinked and went back to aggressive ease, and the Fed is following them. This is a very big deal.

Let’s consider some before-and-after stories:

In September 2018, the European Central Bank began tightening:

European Central Bank to take next step in tapering stimulus

(AP) – The European Central Bank is expected to ratchet back its stimulus efforts again on Thursday as it gingerly phases out extraordinary support for the economy left over from the Great Recession and the euro currency union’s debt crisis.

The bank’s 25-member governing council is expected to cut its monthly bond-purchase stimulus to 15 billion euros ($17.4 billion) a month from 30 billion a month, on the way to ending the purchases at the end of the year.

Reinhard Cluse, chief European economist for UBS, said that after the June meeting “the ECB is now essentially on autopilot.” Cluse said that the ECB can phase out the bond purchases and then decide the exact timing of next year’s first rate increase in the summer or fall.

But before any actual tightening took place, the EU economy slowed and turmoil flared in Italy and France. This week:

European Central Bank announces major policy reversal

(WSWS) – The European Central Bank has reversed its policy of slight monetary tightening and announced a new stimulus package in the face of data which show a sharp downturn in growth in the euro zone. The unanimous decision was taken at the meeting of the ECB’s governing council held in Frankfurt yesterday.

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

Remember, The Fed Hasn’t Actually Done Anything Yet

March 1, 2019

Remember, The Fed Hasn’t Actually Done Anything Yet

When the financial markets got, um, choppy towards the end of 2018, the Fed caved almost instantly. But only rhetorically.

Fed chair Powell promised to stop raising interest rates and shrinking the money supply, and the financial markets, trained to salivate at the sound of Fed happy talk, immediately morphed from “risk-off” to “risk-on.” Stocks are now approaching last year’s all-time highs, bond prices are way up (which is to say long-term interest rates are way down) and the financial press is back to celebrating the “Goldilocks economy.”

But remember that as far as actual monetary policy goes, nothing has changed. Last year’s Fed Funds rate increases are still in place, while the Fed’s balance sheet remains diminished (which is to say the cash drained from the economy as the bonds in the Fed’s account were retired remains out of action). So the damage has not been undone, and it’s starting to bite. Some examples:

US retail sales are falling:

source: tradingeconomics.com

Housing, which a year ago was in a mini-bubble, is rolling over. Housing starts are down…

source: tradingeconomics.com

… while existing home sales have cratered:

source: tradingeconomics.com

US manufacturing orders missed big in the most recent reporting month:

Corporate earnings, meanwhile, are so weak that analysts are talking about an “earnings recession”:

From a February Zero Hedge article:

One week ago, when looking at the dramatic collapse in consensus Q1 EPS estimates, we noted that the “profit party” is over and the days of near record earnings growth are about to end with a bang as a result of the recent barrage in profit warnings and negative preannouncements, first and foremost starting with Apple, which issued a shocking guidance cut one month ago for the first time since 2001.

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

If You Could Design A Perfect World For Gold…

January 27, 2019

If You Could Design A Perfect World For Gold…

Are you sick of your gold just sitting there when it was supposed to have long since made you rich? Have you been fantasizing about a world in which your gold really does make you rich?

If so you’re in good – or at least numerous – company.

So let’s sketch out such a world.

Start by envisioning an America in which a handful of oligopolies have captured banking, media, healthcare and several other important industries, while a tiny group of super-rich neo-aristocrats control as much wealth as the 200 million least-rich citizens.

Toss in a US president who goes out of his way to pick fights which he then proceeds to lose, leading to both falling poll numbers and derisive headlines around the world.

That’s a good start but probably not enough to take gold to its rightful price of $10,000. So let’s add a US opposition party – which, given the above president’s declining popularity, has at least a 50-50 shot at taking power in the next election – that is skewing madly, unprecedentedly to the left. For more on the three most popular Democrats:

Elizabeth Warren proposes ‘wealth tax’ on Americans with more than $50 million in assets

Ocasio-Cortez buzz hits Davos with talk of 70% tax-rate plan

[Socialist frontrunner] Bernie Sanders set to announce 2020 presidential run

Meanwhile, imagine that that same opposition party recently gained control of the branch of Congress that can investigate the President, leading to an escalating battle between legislature and executive that adds an element of legal chaos to what would already have been a presidential campaign of off-the-charts vitriol.

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

Jay Taylor: Gold Is The Go-To Safe Haven Of 2019

January 8, 2019

Jay Taylor: Gold Is The Go-To Safe Haven Of 2019

2019 is looking like one of those either/or years, where growing financial instability leads to either a 2008-style financial crash or another round of asset inflation. In Jay Taylor’s latest newsletter, he concludes that both scenarios are good for gold:

Which Safe Haven Markets Will Dominate in 2019?

If we are, as I believe, on the precipice of a major decline in stocks, the question in my mind as we head into 2019 is to what extent U.S. Treasuries will continue to be the main go-to market in the risk-off trade and to what extent might a loss of confidence in the dollar as the world’s reserve currency lead to a rise in the price of gold?

The answer requires an examination of likely flows of money in 2019 and beyond, and those flows are very much determined by the point at which we exist in the current credit cycle.

We are in one of the longest credit cycles on record, with 2018 being the tenth year of expansion. GoldMoney’s Alasdair Macleod quite correctly points out that in the late stages of the credit cycle money flows out of the financial sector into the real economy and with the flow out of financial assets, interest rates begin to rise.

10-Year U.S. Treasury yields rose from 1.385% on July 5, 2016, to 3.227% on October 1, 2018. The 10-year rate has corrected to 2.652% as of this writing, but it is clear that with the real economy doing better, interest rates have risen, which in turn has put downward pressure on stocks. With increased volatility in U.S. equities, the recent decline in rates reflects the safe haven risk off attitude.

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

Three Things That Will Definitely Happen In 2019

January 4, 2019

Three Things That Will Definitely Happen In 2019

Much about 2019 is uncertain. But a few things are pretty much guaranteed, including the following:

Government debt will rise at an accelerating rate
Like a life-long dieter who finally gives up and decides to eat himself to death, the US is now committed to trillion-dollar deficits for as far as the eye can see. And that’s – get this – assuming no recession in the coming decade. During the next downturn that trillion will become two or more, but in 2019 another trillion-plus is guaranteed.

But the US debt binge is downright orderly compared to much of the rest of the world.

After Paris nearly burned to the ground last month, president Macron responded – surprise! – with massively higher spending:

Macron Bets Spending Binge Can Save His Plan to Transform France

(Bloomberg) – Emmanuel Macron is rolling the dice with France’s public finances to keep his grand plans for the economy alive after weeks of protests on the streets.

Macron’s government will set out a raft of measures to try to calm the so-called Yellow Vest protests on Thursday and they will almost certainly see France breach the European Union’s budget deficit ceiling next year.

The 40-year-old president is arguing the concessions are necessary to maintain public support for his efforts to make the economy more efficient.

“Macron is now facing an impossible trilemma,” said Bernhard Bartels, associate director at Frankfurt-based Scope Ratings. “You can’t have have popular support, ongoing structural reforms and fiscal consolidation all at the same time.”

Macron’s announcement Monday that he’ll raise the minimum wage, abolish taxes on overtime, and get rid of a controversial tax on pensions will send next year’s budget deficit to about 3.5 percent of output, up from a previous target of 2.9 percent, according to media reports. That’s well beyond the 3 percent limit imposed on members of the euro zone.

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

Yet Another Trillion-Dollar Unfunded Liability: WHY California Is Burning

December 9, 2018

Yet Another Trillion-Dollar Unfunded Liability: WHY California Is Burning

The apocalyptic fires that hit California last month have left observers scratching their heads and wondering how destruction on that scale could be possible – and how much it will cost in the future if the causes aren’t addressed immediately.

This morning’s Wall Street Journal concludes that 1) the problems aren’t being addressed and 2) this failure is going to cost a fortune that no government is prepared to cover (emphasis added below).

Why Californians Were Drawn Toward the Fire Zones

Building codes, state grants and low insurance rates have encouraged people to flee expensive cities for their dangerously fire-prone fringes.

A Nov. 15 view in Paradise, Calif., above, shows charred remains of houses among the trees after the Camp Fire burned down more than 11,000 homes. PHOTO: CAROLYN COLE/LOS ANGELES TIMES/GETTY IMAGES

The historically deadly wildfires that have roared through California this fall, and a string of similarly destructive ones over the past two years, are boosting calls to do more to slow climate change. But another underlying problem has contributed to the fires’ tragic damage: For decades, California, supposedly the greenest of states, has artificially lowered the cost of encroaching on nature by living in the woods.

Permissive building codes, low insurance rates and soaring taxpayer spending on firefighting and other services have provided an economic framework that has encouraged people to flee the state’s increasingly expensive cities for their leafy fringes. The forested exurbs, including places once thought too hilly or too dry to develop safely, have offered comparatively affordable living with jaw-dropping views.

The upshot: More houses have been packed into the fire-prone border between civilization and forest—known among planners as the “wildland-urban interface,” or WUI—in California than in any other state.

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

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