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Our Delusional Economy Is Poised To Slam Into The Brick Wall Of Reality

September 29, 2018

dailyhaha

Our Delusional Economy Is Poised To Slam Into The Brick Wall Of Reality

Will you thrive, merely survive, or fail?

While life has always been uncertain, today our choices matter more than ever. The decisions each of us make today will determine if we thrive, merely survive, or fail during the future time of upheaval ahead.

The window of opportunity to change course for humanity is all but closed. There’s simpply no more time to hope that somehow, magically, the world’s entire energy complex will suddently evolve to a bountiful and sustainable new plane — whether by market forces, by maverick billionaires like Elon Musk, or by happy accident.

As we hammer home constantly here at Peak Prosperity, energy is everything. Without it, our society simply can’t function.

And it’s critical to appreciate that it takes an investment of energy to migrate from energy solution to another.

Imagine you heat your house with wood, but want to switch to a forced air gas furnace. Is there energy involved in doing so? You bet there is. Besides the obvious new need for natural gas, there’s a huge amount of embodied energy in the manufacture and installation of your new furnace, all the duct work, and the delivery lines that will bring the gas to the furnace. Further, there will be electricity required to force the air from the furnace, through the ducts, and into your house.

The same is true when making transitions at the national level. What’s involved in the much larger projects of switching industrial agriculture away from the fossil fuel driven process of plowing, planting, fertilizing, irrigating, harvesting, drying or cooling, and then transporting food from the field to your table?

At each stage there’s an enormous amount of energy infrastructure that needs to be rebuilt and reconfigured to run on “something else.” Let’s examine the current dream that we’ll switchover to powering all of our farming needs with electricity.

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

The Stock Market Just Crashed In Italy, And Argentina Has Panic-Raised Interest Rates To 65 Percent

September 28, 2018

The Stock Market Just Crashed In Italy, And Argentina Has Panic-Raised Interest Rates To 65 Percent

In the 9th largest economy in the world, the financial markets are crashing, and in the 21st largest economy in the world the central bank just raised interest rates to 65 percent to support a currency that is completely imploding. While the mainstream media in the United States continues to be obsessed with all things Kavanaugh, an international financial crisis threatens to spiral out of control. Stock prices are falling and currencies are collapsing all over the planet, but because the U.S. has been largely unaffected so far the mainstream media is mostly choosing to ignore what is happening. But the truth is that this is serious. The financial crisis in Italy threatens to literally tear the EU apart, and South America has become an economic horror show. The situation in Brazil continues to get worse, the central bank of Argentina has just raised interest rates to 65 percent, and in Venezuela starving people are literally eating cats and dogs in order to survive. How bad do things have to get before people will start paying attention?

On Friday, Italian stocks had their worst day in more than two years, and it was the big financial stocks that were on the cutting edge of the carnage…

Shares in Italian banks .FTIT8300, whose big sovereign bond portfolios makes them sensitive to political risk, bore the brunt of selling pressure, sinking 7.3 percent as government bonds sold off and the focus turned to rating agencies.

Along with the main Italian stock index .FTMIB, the banks had their worst day since the June 2016 Brexit vote triggered a selloff across markets.

Italian bonds got hit extremely hard too. The following comes from Business Insider…

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

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

September 4, 2018

Oil Prices Have Been Rising And $4 A Gallon Gasoline Would Put Enormous Stress On The U.S. Economy

Thanks to increasing demand and upcoming U.S. sanctions against Iran, oil prices have been rising and some analysts are forecasting that they will surge even higher in the months ahead. Unfortunately, that would be very bad news for the U.S. economy at a time when concerns about a major economic downturn have already been percolating. In recent years, extremely low gasoline prices have been one of the factors that have contributed to a period of relative economic stability in the United States. Because our country is so spread out, we import such a high percentage of our goods, and we are so dependent on foreign oil, our economy is particularly vulnerable to gasoline price shocks. Anyone that lived in the U.S. during the early 1970s can attest to that. If the average price of gasoline rises to $4 a gallon by the end of 2018 that will be really bad news, and if the average price of gasoline were to hit $5 a gallon that would be catastrophic for the economy.

Very early on Tuesday, the price of U.S. oil surged past $70 a barrel in anticipation of the approaching hurricane along the Gulf Coast. The following comes from Fox Business…

U.S. oil prices rose on Tuesday, breaking past $70 per barrel, after two Gulf of Mexico oil platforms were evacuated in preparation for a hurricane.

U.S. West Texas Intermediate (WTI) crude futures were at $70.05 per barrel at 0353 GMT, up 25 cents, or 0.4 percent from their last settlement.

If we stay at about $70 a gallon, that isn’t going to be much of a problem.

But some analysts are now speaking of “an impending supply crunch”, and that is a very troubling sign. For example, just check out what Stephen Brennock is saying…

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

The Whole System Is Rigged

September 1, 2018

The Whole System Is Rigged

From elections to media to the markets, it’s all controlled

As the dog days of summer wind down, it’s hard not to notice how the climate is suffering brutally right now across many areas of the globe.

Crop failures have hit hard across Europe. Australia is under an intense drought. Warm water representing ‘archived heat’ has penetrated deep into the arctic. Coral reefs are dying through mass bleachings. The stocks of ocean fisheries are in deep trouble. Insect and bird populations remain in a state of collapse.

It couldn’t be any more clear that our society’s demands for ever-more “growth” are taking an increasingly dangerous toll. “Growth” is now the enemy of life on the planet; yet there are precious few leaders willing to admit as much.

What we need is less pressure on vital ecological systems and precious remaining resources. But good luck finding a politician willing to admit that.

Though a refreshing exception is French environmental minister Nicolas Hulot who dramatically resigned his position last week, on live television, declaring “I don’t want to lie to myself anymore.” His view is that the government is not addressing the major environmental issues properly and he didn’t want his presence to give the false appearance that it was. Kudos to Nicolas, though I’m not sure that losing such a rare principled person in government is a step in the right direction.

Operating On Blind Faith

Most politicians appear to think that there are no big issues out there ecologically-speaking. Of course, very few of them spend any time outside or understand where their food even comes from. Most subsist on the blind faith that our planet will somehow always bounce back from the abuses we inflict on it, despite reams of mounting evidence that it’s hitting a mulitplying number of breaking and tipping points.

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

David Stockman: The World Economy Is At An Epochal Pivot

August 14, 2018

Shutterstock

David Stockman: The World Economy Is At An Epochal Pivot

A ‘Great Reset’ approaches

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.

And Stockman thinks the top for the current asset price bubble era is in — specificially, he thinks it hit its apex in January 2018. As this “Everything Bubble” prepares to burst, Stockman estimates the risk of economic crisis is as great, if not greater than, the 2008 Great Financial Crisis because of the radical and unsustainable monetary policy expansion the central banks have pursued over the past decade.

This has caused the prices of stocks, bonds, real estate and most other assets to appreciate at rates that have no basis in the ongoing income/cash flow of the global economy. In short, they are wildly overvalued.

A key condition that Stockman has been waiting to see, that serves as a signal the bubble’s bursting is nigh, is the concentration of speculative capital into fewer and fewer stocks as the “good” options for investors shrink. We now clearly see this in the FAANG complex (a topic covered in detail in our recent report The FAANG-nary In The Coal Mine)

Stockman’s main warning is that there’s no bid underneath this market — that when perception shifts from greed to fear, the bottom is much farther down than most investors realize. In his words, it’s “rigged for implosion”.

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

Why The Coming Oil Crunch Will Shock The World

July 7, 2018

Anton Balazh/Shutterstock

Why The Coming Oil Crunch Will Shock The World

And why we need a new energy strategy — fast.

My years working in corporate strategy taught me that every strategic framework, no matter how complex (some I worked on were hundreds of pages long), boils down to just two things:

Where do you want to go? (Vision)
How are you going to get there? (Resources)

Vision is the easier one by far. You just dream up a grand idea about where you want the company to be at some target future date, Yes, there’s work in assuring that everybody on the management team truly shares and believes in the vision, but that’s a pretty stratightforward sales job for the CEO.

By the way, this same process applies at the individual level, too, for anyone who wants to achieve a major goal by some point in the future. The easy part of the strategy is deciding you want to be thinner, healthier, richer, or more famous.

But the much harder part, for companies and individuals alike, is figuring out ‘How to get there’. There are always fewer resources than one would prefer.

Corporate strategists always wish for more employees to implement the vision, with better training with better skills. Budgets and useful data are always scarcer than desired, as well.

Similar constraints apply to us individuals. Who couldn’t use more motivation, time and money to pursue their goals?

Put together, the right Vision coupled to a reasonably mapped set of Resources can deliver amazing results. Think of the Apollo Moon missions. You have to know where you’re going and how you’re going to get there to succeed. That’s pretty straightforward, right?

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

Time To Choose

May 12, 2018

kienyke.com

Time To Choose

Will you be an agent of depletion or regeneration?

There’s a vast revolution underway. And it’s time to pick sides.

Your choice couldn’t be more critically important. Quite possibly, the entire fate of the human species hangs in the balance.

It’s time to decide: Will you be an agent of depletion or regeneration?

Bad Choices = Bad Outcomes

For many centuries, humans have consumed the natural resources around them at a rate far faster than the planet can replenish. Until recently this didn’t pose an existential problem, as fresh deposits could be tapped through the discovery of new continents or development of new technologies.

But those days of living beyond our means are now over. No sizeable unexplored territories remain on the globe. Technology is only helping us burn faster through the increasingly dilute deposits that are left. The planet’s population and its demand on key resources is ballooning, causing the natural systems we depend on for life to falter.

Yes, the situation is dire. But it doesn’t have to be this way.

A better future is possible. It’s up to us to make it happen.

There’s plenty of evidence of working real-world models that show exactly how we can improve the planet for future generations. I’ll focus on a few in a moment.

But first, it’s critical to understand that working against adoption of these better practices is our society’s entrenched system of extraction, otherwise known as the Business As Usual (BAU) crowd. This includes every person and entity busy protecting or promoting (usually from a position of profound ignorance) the concept of exponential economic growth as a necessary and good thing.

Complicit are all major parties of our political systems, the mainstream media (MSM), and of course the entire financial system — especially all the world’s central banks and their main clients.

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

The Future Ain’t What It Used To Be

March 31, 2018

The Future Ain’t What It Used To Be

Looks like we’re in for a much rockier ride than many expect

This marks our our 10th year of doing this. And by “this”, we mean using data, logic and reason to support the very basic conclusion that infinite growth on a finite planet is impossible.

Surprisingly, this simple, rational idea — despite its huge and fast-growing pile of corroborating evidence — still encounters tremendous pushback from society. Why? Because it runs afoul of most people’s deep-seated belief systems.

Our decade of experience delivering this message has hammered home what behavioral scientists have been telling us for years — that, with rare exceptions, we humans are not rational. We’re rationalizers. We try to force our perception of reality to fit our beliefs; rather than the other way around.

Which is why the vast amount of grief, angst and encroaching dread that most people feel in western cultures today is likely due to the fact that, deep down, whether we’re willing to admit it to ourselves or not, everybody already knows the truth: Our way of life is unsustainable.

In our hearts, we fear that someday, possibly soon, our comfy way of life will be ripped away; like a warm blanket snatched off of our sleeping bodies on a cold night.

The simple reality is that society’s hopes for a “modern consumer-class lifestyle for all” are incompatible with the accelerating imbalance between the (still growing) human population and the (increasingly depleting) planet’s natural resources. Basic math and physics tell us that the Earth’s ecosystems can’t handle the load for much longer.

The only remaining question concerns how fast the adjustment happens. Will the future be defined by a “slow burn”, one that steadily degrades our living standards over generations? Or will we experience a sudden series of sharp shocks that plunge the world into chaos and conflict?

It’s hard to say. As Yogi Berra famously quipped, “It’s tough to make predictions, especially about the future.” So, it’s left to us to remain open-minded and flexible as we draw up our plans for how we’ll personally persevere through the coming years of change.

But even while the specifics about the future elude us today, “predicting” the macro trends most likely to influence the coming decades is very doable:

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

Daniel Nevins: Economics for Independent Thinkers

March 1, 2018

Daniel Nevins: Economics for Independent Thinkers

It’s time we stop trusting the ‘experts’

Economists are supposed to monitor and analyze the economy, warn us if risks are getting out of hand, and advise us on how to make things runs more effectively — right?

Well, even though that’s what most people expect from economists, it’s not at all how they see their role, warns CFA and and behavioral economist Daniel Nevins.

Economists, he cautions, are modelers. They pursue academic lines of thought in order to make their models more perfect. They live in a universe of equations and presumptions about equilibrium states and other chimerical mathematical perfections that don’t exist in real life.

In short, they are the wrong people to advise us, Nevins claims, as they have no clue how the imperfect world we live in actually works.

In his book Economics For Independent Thinkers, he argues that we need a new, more accurate and useful way of studying the economy:

However far you go back, you can find economists who had a more realistic approach to how humans actually behave, than the way that mainstreamers assume they behave in the models that the Fed uses to pick winners and losers.

You mentioned credit cycles, business environment, and behavioral economics. What I’ve done is to say, “Okay. We know that the modeling approach, the systems of equations approach doesn’t work. But instead of starting completely from scratch, what can we find in the economics literature that is maybe more realistic?”

And the interesting thing is that if you look at the work that was done, the state of the profession before the 1930s, before Keynesianism took hold, you can find a lot of work that was quite sensible.

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

Gail Tverberg: The Coming Energy Depression

January 8, 2018

Gail Tverberg: The Coming Energy Depression

The math is straightforward, but cruel

As most PeakProsperity.com readers know, we fully agree with the statement: Energy is THE master resource.

Without it, nothing can get done.

Energy analyst and professional actuary Gail Tverberg returns to the podcast this week to revisit the global energy outlook. And fair warning, Gail warns it’s quite grim.

To her, it’s a simple math problem. We have too many people placing too much demand on the world’s depleting energy resources. The cost of energy is rising, which we are compensating for in the short term by using financial gimmicks to make “affordable” — when all we’re really doing is creating future promises that cannot possibly be repaid.

The increasing cost of energy is manifesting in higher prices (for everything, not just fuels) and lower real wages, a divergence she sees only worsening from here. This path leads to another Great Depression-style crisis from which she does not see a clear path out of:

What we really live on is what we pull out of the ground each year, in terms of oil or coal or natural gas or whatever. So what we have is just what we pull out.

Now, you accurately point out that we’re making too many claims on the future using debt. We’re actually doing this via a couple of different ways, which are pretty much equivalent. One of them is by issuing equity. This has the equivalent effect as using debt because what you’re saying is I’ll pay you dividends, and you’re going to get a higher price in the future. This is simply different kind of claim on the future. Another way to borrow from the future is through government promises.

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

The Inescapable Reason Why the Financial System Will Fail

December 30, 2017

girardatlarge.com

The Inescapable Reason Why the Financial System Will Fail

Credit cannot expand faster than fundamentals forever

Modern finance has many complex moving parts, and this complexity masks its inner simplicity.

Let’s break down the core dynamics of the current financial system.

The Core Dynamic of the “Recovery” and Asset Bubbles: Credit

Credit is the foundation of the current financial system, for credit enables consumers to bring consumption forward, that is, buy more stuff today than they could buy with the cash they have on hand, in exchange for promising to pay principal and interest with their future income.

Credit also enables speculators to buy more assets than they otherwise could were they limited to cash on hand.

Buying goods, services and assets with credit appears to be a good thing: consumers get to enjoy more stuff without having to scrimp and save up income, and investors/speculators can reap more income from owning more assets.

But all goods/services and assets are not equal, and all credit is not equal.

There is an opportunity cost to any loan (i.e. credit), as the income that will be devoted to paying principal and interest in the future could have been devoted to some other use or investment.

So borrowing money to purchase a product or an asset now means foregoing some future purchase.

While all products have some sort of payoff, the payoffs are not equal. If I buy five bottles of $100/bottle champagne and throw a party, the payoff is in the heady moments of celebration. If I buy a table saw for $500, that tool has the potential to help me make additional income for years or even decades to come.

If I’m making money with the table saw, I can pay the debt service out of my new earnings.

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

2017 Year In Review

December 27, 2017

Tortoon/Shutterstock

2017 Year In Review

Markets fiddle while Rome burns

Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam

Introduction

“He is funnier than you are.”

~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review

Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition—the likes of Dave Barry on one extreme¹ and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime.² (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup).³ I rely on quotes to let others do the intellectual heavy lifting.

“Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.”

~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review

“Just the facts, ma’am.”

~Joe Friday

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

How Economics Failed the Economy

November 11, 2017

How Economics Failed the Economy

The Difficult Art of Reckoning With the Human Good

When, in the 1930s, the great economist Simon Kuznets created GDP, he deliberately left two industries out of this then novel, revolutionary idea of a “national income”: finance and advertising. Don’t worry, this essay isn’t going to be a jeremiad against them, that would be too easy, and too shallow, but that is where the story of how modern economics failed the economy — and how to understand how to undo it — should begin. Kuznets’ logic was simple, and it was not mere opinion, but analytical fact: finance and advertising don’t create new value, they only allocate, or distribute existing value — in the same way that a loan to buy a television isn’t the television, or an ad for healthcare isn’t healthcare. They are only means to goods, not goods themselves.

Now we come to two tragedies of history. What happened next is that Congress laughed, as Congresses do, ignored Kuznets, and included advertising and finance anyways for political reasons — after all, bigger, to the politicians’ mind, has always been better, and therefore, a bigger national income must have been better. Right? Let’s think about it.

Today, something very curious has taken place. If we do what Kuznets originally suggested, and subtract finance and advertising from GDP, what does that picture — a picture of the economy as it actually is — reveal? Well, since the lion’s share of growth, more than 50% every year, comes from finance and advertising — whether via Facebook or Google or Wall St and hedge funds and so on — we would immediately see that the economic “growth” that the US has chased so desperately, so furiously, never actually existed at all.

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

What Does the QE Experience Say About Rates in a Shrinking Fed Balance Sheet World?

September 14, 2017

What Does the QE Experience Say About Rates in a Shrinking Fed Balance Sheet World?

The Federal Reserve is likely to decide next week to begin letting assets roll of its balance sheet as bonds mature, instead of reinvesting the proceeds. This means that the balance sheet will begin to shrink in size and other market participants will be forced to absorb the supply of new issuance of treasury and mortgage backed securities. Conventional analysis of supply and demand dynamics might suggest the exiting of a large marginal buyer of these securities would cause yields to rise to some higher equilibrium level, but the QE experience suggests something else entirely. When the Fed was engaged in asset purchases and the rate of change in the Fed’s balance sheet was rising (late 2010, mid 2012 through early 2013) long-term treasury yields rose on the back of juiced growth and inflation expectations produced by the stimulus. When the rate of change in the Fed’s balance sheet would flat line or fall (most of 2010, most of 2013 through 2014) treasury yields fell on the back of subdued growth and inflation expectations. Importantly, it was both real rates (TIPS) and breakeven inflation that followed this pattern, which is indicative of the level of economic stimulus produced by QE. Chart 1 below shows 10-year nominal rates (red line, right axis) overlaid on the three month difference in the Fed’s balance sheet (blue line, left axis). Chart 2 below shows 10-year real rates (red line, right axis) overlaid on the three month difference in the Fed’s balance sheet (blue line, left axis). Chart 3 below shows 10-year implied breakeven inflation expectations (red line, right axis) overlaid on the three month difference in the Fed’s balance sheet (blue line, left axis).

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

James Howard Kunstler: It’s Time To Be Honest With Ourselves

August 28, 2017

James Howard Kunstler: It’s Time To Be Honest With Ourselves

The major systems our society relies on are failing

The ever-eloquent James Howard Kunstler returns to our podcast this week to discuss the dangers of the ‘comprehensive dishonesty’ he observes in our culture today.

We occupy ourselves with distractions (e.g., the fear du jour that our media continually manufactures) and diversions (e.g., our empty social media addiction), while ignoring the erosion of the essential systems around us. Making matters worse, the leaders we assume are focusing on these issues aren’t or are woefully out of their depth.

It’s time for society to take a hard look in the mirror and be honest about the shortcoming it sees. Identifying them then opens the door to deciding what to do about them.

Without the courage to be honest, we condemn ourselves to a failing status quo that likely has little remaining time left:

What we’re seeing is the result of behavior of people who have no idea what they’re doing. Most of the major systems that we rely on are entering a state of failure of one kind or another. And, of course, the larger problem is that they’re interlinked, and that their failures will be mutual and self-amplifying.

These systems include the energy system that has powered industrial civilization, the oil and gas industries which you’ve talked about a lot and I think that our listeners understand pretty well — although the finer points of it, like the ‘energy return on investment’, is something that’s certainly not understood by the general public, or most of the officers in our government, and certainly not in the New York Times, Washington Post or other major media outlets. They just don’t get that.

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

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