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Ben Hunt: Inflation Ahead!

Ben Hunt — highly respected fund manager, author, and former professor/entrepreneur/venture capitalist — says that to be successful in managing your wealth, there’s only one question that matters:

Are we entering a deflationary future, or an inflationary one?

The strategies and appropriate investment targets for each are extremely different, so you’d better answer correctly.

Though Hunt says as long as you identify the trend “roughly” right, you should do fine. You don’t have to be brilliant with the exact investments you put your capital into. As long as they benefit from the secular trend, its massive scale and momentum will do the heavy lifting.

So which kind of future are we entering?

Hunt thinks we’re at a very important inflection point. That after decades of deflation (e.g., chronically declining interest rates), we’re now transitioning into an era of secular inflation.

The $trillions in monetary and fiscal stimulus so far, and the near-certainty of much more to come, are certainly a big step in that direction.

And with asset prices completely distorted from reality, a struggling global economy, and an inflationary outlook, Hunt thinks the coming years will be extremely rocky for investors. Lots of cross-currents, with the only guarantee being that the majority of investment predicts will be foiled — as there remain very few active investors alive who have any experience managing capital in an inflationary environment.

Which is why Hunt is emphatic that now, more than ever, is the time to partner with a financial advisor who understands the risks in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

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

California Begins Cutting Power To 361,000 Customers As Fire Risk Surges

Facing bone-crushing dryness and the strongest winds of the wildfire season, California’s largest utility company, Pacific Gas and Electric (PG&E) which filed for historic bankruptcy due to its role in previous infernos sweeping across the state has “de-energized certain electrical lines” in Northern California, which may result in what could be the largest mass blackout of the year.

PG&E released a statement Sunday morning, informing customers that 361,000 homes and or businesses were part of the blackout, affecting 36 counties, mainly in Northern California, starting at 10:00 PST. Listed below are the counties affected by the planned blackouts:

PG&E’s initial projection of homes and businesses that would lose power on Sunday is down 105k from Friday’s 466k estimate. The power company’s primary reason to de-energize some of its power lines is that high winds are expected on Sunday, increasing the risk for trees and or limbs to fly into powerlines and potentially ignite fires in regions of low humidity and dry vegetation.

“This event looks particularly dangerous due to a combination of factors that we continue to track,” said Scott Strenfel, PG&E’s head of meteorology and fire science, who was quoted by Bloomberg. Strong winds and low humidity were expected throughout the day on Sunday, he said.

The next round of blackouts, expected imminently, will be a devastating blow for the state, already battered by extreme weather this fire season, scorching more than 4 million acres so far. PG&E has preemptively cut power four times this season.

High wind gusts are expected for some regions in Northern California through Monday, tweeted The National Weather Service (NWS) Sacramento.

NWS Sacramento outlines a “dangerous” fire risk for Northern California through Sunday.

“Dangerous Critical to Extremely Critical fire weather conditions are expected across portions of northern California today, as strong offshore winds occur over critically dry fuels. Strongest winds are expected tonight into early Monday morning.”

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

World leaders are planning new lock downs to introduce “The World Debt Reset Program” which includes universal basic income and vaccination requirements

Image: World leaders are planning new lock downs to introduce “The World Debt Reset Program” which includes universal basic income and vaccination requirements

(Natural News) World leaders are preparing for a second and third wave of covid-19 cases and are fine-tuning their lock down strategies which will be implemented late in 2020 and into 2021. Their planning involves the development of a new world economy, one that introduces medical fascism as a permanent way of life.

A Canadian whistle blower came forward with the plans. The whistle-blower is on the Liberal Party of Canada’s Strategic Planning Committee, which operates under the direction of Canada’s Office of the Prime Minister (PMO).

The historic lock downs have engineered mass poverty and will continue to weaken people’s financial and food security, making them more vulnerable and eventually making them more desperate to accept the new world economy and its bodily requirements.

New world economy includes universal basic income and vaccination requirements

The new world economy includes the introduction of a digital currency, a universal basic income, vaccine requirements for travel, and “The World Debt Reset Program.” A continuous cycle of lock downs into 2021 will eventually lead to an international economic collapse. Governments worldwide will offer citizens an alluring way out by promising to eliminate all personal debts (mortgages, loans, credit cards, etc.)

In the U.S. this idea has already been implemented in 2020 through the Paycheck Protection Program (PPP) – a guaranteed loan program that forgives the debt if the borrower follows specific instructions. Under an impending economic collapse, any and all loans will be forgiven if the citizen agrees to participate in the “World Debt Reset Program, funded by the International Monetary Fund (IMF). In order to get all debts forgiven, citizens will have to forfeit ownership of any and all private property, accept a universal basic income, and enroll in the covid-19 and covid-21 vaccination schedule.

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

Why We’re Doomed: Our Delusional Faith in Incremental Change

Why We’re Doomed: Our Delusional Faith in Incremental Change

Better not to risk any radical evolution that might fail, and so failure is thus assured.

When times are good, modest reforms are all that’s needed to maintain the ship’s course. By “good times,” I mean eras of rising prosperity which generate bigger budgets, profits, tax revenues, paychecks, etc., eras characterized by high levels of stability and predictability.

Since stability has been the norm for 75 years, institutions and conventional thinking have both been optimized for incremental change. This is an analog of natural selection in Nature: when the organism’s environment is stable, there’s little pressure to favor random mutations, as these can be risky.

Why risk big changes when everything’s working fine as is?

Absent any big changes in their environment, organisms’ genetic programming remains stable. Unlike natural selection’s process of generating random mutations and testing their efficacy and advantages over the existing programming, human organizations quickly habituate to stable eras by institutionalizing incremental changes as the only available process for reform / change.

Radical reforms are not just frowned on as 1) unneccesary and 2) needlessly risky, there is no institutionalized process to propose, test and adopt radical changes because there is no need for such a process.

Nature has such a process: punctuated equilibrium. When faced with a rapidly changing environment, organisms face intense evolutionary pressure to adapt or die. Mutations which confer a significant advantage in the new environment become part of the species’ genetic programming as those with the adaptation bear offspring who carry the advantageous adaptation. Those without the advantageous adaptation die and those with the adaptation thrive and multiply.

Once the environment stabilizes in “the new normal,” the evolutionary pressure lets up and the species returns to the stability of relatively few changes in its genetic programming.

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

“Prolonged Period of Risk to Institutional and Retail Investors of Further – Possibly Significant – Market Corrections”

“Prolonged Period of Risk to Institutional and Retail Investors of Further – Possibly Significant – Market Corrections”

European Market Regulator flags big issues, including the “decoupling of financial market performance and underlying economic activity.”

The European Securities and Markets Authority (ESMA) warned of a “prolonged period of risk to institutional and retail investors of further – possibly significant – market corrections and very high risks” across its jurisdiction.

“Of particular concern” is the sustainability of the recent market rebound and the potential impact of another broad market sell-off on EU corporates and their credit quality, as well as on credit institutions.

The “decoupling of financial market performance and underlying economic activity” — the worst economic crisis in a lifetime — is raising serious questions about “the sustainability of the market rebound,” ESMA says in its Trends, Risks and Vulnerabilities Report of 2020.

Beyond the immediate risks posed by a second wave of infections, other external events, such as Brexit or trade tensions between the US and China, could further destabilize fragile market conditions in the near term.

From a long-term perspective, the crisis is likely to affect economic activity permanently, “owing to lasting unemployment or structural changes, which might have an impact on future earnings.” The increase in private and public sector debt could also give rise to solvency and sustainability issues.

In corporate bond markets, spreads have narrowed but they remain well above pre-crisis levels, owing to heightened credit risk and underlying vulnerabilities related to high corporate leverage. There was also a wide divergence across sectors and asset classes in April and May. Across non-financials, the automotive sector suffered the largest decline, followed by the energy sector.

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

Is the pandemic causing an exodus from big cities?

Is the pandemic causing an exodus from big cities?

Thomas Homer-Dixon, the Canadian student of complex systems and author of The Upside of Down, wrote in his 2006 book that “September 11 and Katrina won’t be the last time we walk out of our cities.”

Today, many big-city dwellers appear to be seeking refuge in less crowded towns and rural landscapes. The wealthy, at least, are seeking “bugout” homes away from major cities as places to ride out the pandemic, the economic downturn and the civil unrest that are gripping the world. Beyond news reports, I’ve heard from friends that homes are being snapped up in eastern Washington state and New York’s Hudson Valley by coastal city dwellers looking for a refuge in turbulent times.

It’s not just residents who are leaving. The New York Times reports that retail restaurant and merchandise chains are exiting Manhattan because it is “unsustainable.” New York City no longer teams with tourists, and its office towers are largely empty. That makes for empty streets with few customers for the city’s many retail establishments. This story is being repeated in other major cities including AtlantaChicagoDenverHoustonLos AngelesSeattle, and St. Louis.

In an op-ed appearing in The Globe and Mail, Homer-Dixon explained the underlying structural problems that have opened our global society to increasing risk:

The relatively new science of complex systems shows that such tipping events are made more likely by the unprecedented connectivity in the networks that humanity has laid down in a dense web across Earth’s surface – air traffic, financial, energy, manufacturing, food distribution, shipping and communication networks, to name just a few.

This science also shows that until we manage this connectivity better – which could mean, among other changes, reducing our international travel, simplifying global supply chains and bringing some production processes closer to home – we’re likely to experience more frequent tipping events of ever-higher destructive force.

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

Wet’suwet’en Fear Contaminated Soil Cleanup Is Creating New Risks

Wet’suwet’en Fear Contaminated Soil Cleanup Is Creating New Risks

Waste from diesel spills by Coastal GasLink and RCMP is being dumped in local landfill.

RCMPTarpCover.jpg
Tarp covering spill site at RCMP’s Community-Industry Safety Office, which was set up last year to patrol protests where Coastal GasLink is building a pipeline to transport natural gas. Photo: submitted.

Efforts to clean up diesel spills by the RCMP and Coastal GasLink in Wet’suwet’en territory risk spreading the contamination, the First Nation has warned.

Mike Ridsdale, environmental assessment co-ordinator for the Office of the Wet’suwet’en, the central office for the nation, said the waste is being moved to a nearby landfill where it will still pose a threat.

“We’ve had two spills where the contaminants were knowingly moved into another watershed and are now threatening our water,” Ridsdale said. “This is unacceptable to the Wet’suwet’en, and our yintah (territory) should not suffer from this poorly designed remediation.”

Government officials are defending the transfer of 2,351 tonnes of contaminated soil and gravel to a nearby landfill instead of a site farther away that’s designed to take hazardous waste.

The materials came from two separate spills, one at a Coastal GasLink work camp and the other at the RCMP Community-Industry Safety Office, both south of Houston on the Morice West Forest Service Road.

Police established the remote detachment to monitor potential conflicts over the building of Coastal GasLink’s natural gas pipeline, which is opposed by Wet’suwet’en hereditary chiefs.

Each spill is estimated at about 500 litres. The spill at the RCMP detachment occurred about 100 metres from the Morice River.

The contaminated soil is being taken to the Knockholt Landfill east of Houston, which is within a kilometre of the Bulkley River. According to the Regional District of Bulkley-Nechako’s website, the landfill is suitable for residential, commercial and institutional waste, including food, wood, animal carcasses and scrap metal. Industrial waste is not accepted.

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

Big Banks Win, You Lose (Volume 32,836)

Big Banks Win, You Lose (Volume 32,836)

bank risk

Part of the 2010 Dodd-Frank Act, the “Volcker Rule” was intended to prevent big banks from taking irresponsible risks.

It’s named after a former Fed Chair, the late Paul Volcker, who used this concept to curb out-of-control inflation in the 1980s.

But in spite of an already-uncertain economy, regulators are now proposing to ease these rules. According to CNBC:

The Volcker Rule was designed to prevent banks from acting like hedge funds. The general principle is that they are allowed to facilitate trades for clients, but not allowed to strap on risk for big proprietary bets.

The amount of risk a big bank can take on is about to change, thanks to the easing of these regulations.

The same CNBC article points out: “The change, which was floated earlier this year, will allow banks to invest more of their own capital in venture capital funds that invest in start-ups and small businesses alongside clients.”

So basically, the money you deposit into your bank account can be used by your bank for riskier investments that have greater potential of backfiring.

According to a ThinkAdvisor article, one of the reasons these changes were proposed in the first place was the difficulty in deciding which investments did or did not pass the Volcker Rule:

FDIC Chairwoman Jelena McWilliams argued when the final changes passed that simplifying the post-crisis Volcker Rule, ushered in by the Dodd-Frank Act in 2010, was needed, as Volcker has been “the most challenging to implement” for regulators and the industry. “Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult,” she said.

Now that the changes are finalized, an estimated $40 billion could be freed up. It gives the impression of a “backdoor bank bailout” being given to banks, which were feeling financial pressure thanks to COVID-19 lockdowns.

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

Fed Warns of High Downside Risks

Fed Warns of High Downside Risks

In its semiannual monetary report to the Senate Finance Committee the Fed warns of six downside risks.

The risks are not spread evenly. Low wage earners and small businesses are particularly vulnerable.

Please consider the Fed’s Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs and to the House Committee on Financial Services.

The report is 66 pages long and is full of interesting charts and comments. 

Let’s start with Powell’s statement on risk: “Despite aggressive fiscal and monetary policy actions, risks abroad are skewed to the downside.”

Six Downside Risks 

  1. The future progression of the pandemic remains highly uncertain.
  2. The collapse in demand may ultimately bankrupt many businesses.
  3. Unlike past recessions, services activity has dropped more sharply than manufacturing—with restrictions on movement severely curtailing expenditures on travel, tourism, restaurants, and recreation and social-distancing requirements and attitudes may further weigh on the recovery in these sectors. 
  4. Disruptions to global trade may result in a costly reconfiguration of global supply chains. 
  5. Persistently weak consumer and firm demand may push medium- and longer-term inflation expectations well below central bank targets.
  6. Additional expansionary fiscal policies— possibly in response to future large-scale outbreaks of COVID-19—could significantly increase government debt and add to sovereign risk.

Labor Market

The severe economic repercussions of the pandemic have been especially visible in the labor market. Since February, employers have shed nearly 20 million jobs from payrolls, reversing almost 10 years of job gains. The unemployment rate jumped from a 50-year low of 3.5 percent in February to a post–World War II high of 14.7 percent in April .

Unemployment Rate by Race 

Unemployment Rate by Race - Monetary Policy Report

Labor Force Participation Rate

Labor Force Participation Rate - Monetary Policy Report

Employment Declines by Wage Group 

Employment Declines - Monetary Policy

Low Wage Earner Employment

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

The Oil Crisis Puts The Entire U.S. Economy At Risk

The Oil Crisis Puts The Entire U.S. Economy At Risk

Job losses, well shut-ins, and bankruptcies have replaced the praise surrounding the shale oil boom that greatly enhanced America’s energy independence and gave President Trump a reason to tout energy dominance. Now, the federal government is mulling over ways to help the industry curb its losses amid historically low prices and little chances of their improvement anytime soon.  And the crisis will have much wider repercussions.

The trough of the oil industry cycle always harms the broader economy, usually on a regional level. During the last crisis, for example, once-thriving towns in Texas and New Mexico shrunk as mass layoffs dealt a blow to the local economies. This is bound to repeat again and already is: the Wall Street Journal reports state economies from Wyoming to Alaska, Oklahoma, and North Dakota are taking a hit from the oil industry’s crisis.

According to the American Petroleum Institute, the oil and gas industry in the United States supports as many as 10.3 million jobs and generates close to 8 percent of gross domestic product. This is, of course, nowhere near the over 50 percent that oil makes up in the Saudi GDP, but it is a portion sizeable enough to suggest that a crisis in the oil industry could have a ripple effect on the national economy. The question is, how strong this ripple effect would be.

According to a Goldman Sachs analyst, it has the potential to be quite strong. “Typically, oil price fluctuations have a small aggregate impact on U.S. growth, with roughly offsetting effects from the energy capex and consumption channels,” Paul Choi wrote in a note cited by Axios. “However, the sharp rise in the likelihood of bankruptcies in the energy sector and spending constraints due to the virus suggest that the decline in oil prices might be a larger drag on growth this time.”

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

Backwards into the Future

Backwards into the Future

Joseph-Désiré Court Le Masque 1843

No, I’m still not over the fact that they all initially missed the virus when they should have seen it most of all. The reasons why must be evaluated in every single location, in governments, CDC equivalents and obviously the WHO. A main reason is that they were all focusing on their economy, not the virus, -at least somewhat- ironically damaging their economies in the process.

I’m just afraid that you’re not going to prevent the next time, the next huge and deadly miss, as long as elections are popularity contests ultimately controlled by special interests. But at the same time, we’re past that first moment, which was somewhere in November or December (31st at the latest), and the next major threats loom.

After the Big Miss came the lockdowns, and as I said in Little Managers, that’s the one thing all these politicians may actually be somewhat good at. They stink at initial detection and reaction time, they stink at forward vision, but they can get people to stay home for a bit, and sell them that in the media.

They even get praised for it. Which is understandable, since their role is to set old ladies’ minds at ease, and most people, whatever age they are, have such minds, understandable but unfortunate, because 1) we’re about to leave the lockdowns phase as well and 2) they’re sure to screw up this one as royally as the first detection moment.

It would be good if everyone by now understood why lockdowns become inevitable after, but only after, initial detection has failed and the virus has been allowed to enter a society, if you face a highly contagious and deadly -to humans- virus that you don’t know anything about, but there are plenty people today who claim the lockdowns are what does the damage.

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

Banks Will Not Bail Out The Economy

Banks Will Not Bail Out The Economy

These days, we hear a lot that banks were the problem in the 2008 crisis and now they are the part of the solution. 

Banking was not the main problem of the 2008 crisis, but one of the symptoms that indicated a more serious disease, the excess risk taken by public and private economic agents after massive interest rate cuts and direct incentives to take more debt coming from legislation as well as local and supranational regulation. Lehman Brothers was not a cause, it was a consequence of years of legislation and monetary policies that encouraged risk-taking.

The second part of the sentence, “now banks are the solution,” is dangerous. It starts from a wrong premise, that banks are stronger than ever and can bail out the global economy. Banking may be part of the solution, but we cannot place, as the eurozone is doing, the entire burden of the crisis on the banks’ balance sheet. I will explain why.

When economists in Europe talk endlessly about the differences in growth and success of monetary and fiscal policy between the United States and Europe, many ignore two key factors. In the United States, according to the St Louis Federal Reserve, less than 15% of the real economy is financed through the banking channel, in the European Union, it is almost 80%. In addition, in the United States, there is an open, diversified, more efficient and faster mechanism to clean non-performing loans and recapitalize the economy that adds to its high diversification in private non-bank financing channels. 

It is, therefore, essential that in periods of crisis countries, particularly in Europe, do not relax risk analysis mechanisms, because the economic recovery may be slowed down by ongoing problems in the financial sector and even lead to a banking crisis in the midterm. The worst measure that countries can take in a crisis is to force incentives to take a disproportionate risk.

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

COVID 19 and Our Food Supply

COVID 19 and Our Food Supply

Though food is still plentiful, with only temporary and localized shortages, the threat of the COVID 19 crisis to the food supply is considerable. There is no evidence thus far that the disease can be transmitted via food or packaging (though the virus apparently remains viable on plastic for 2 to 4 days). The real danger is that chains of supply will be undermined by both sickness and the pre-cautionary measure we take. Already we are seeing a contraction of food imports from abroad. But the danger extends to even our own local supply.

The safety of shoppers and workers at supermarkets is the first worry that public officials and the general public have expressed. But the food at market comes from somewhere; and that “somewhere” is peopled by a vast array of workers, starting with farmers and farm workers. Will we continue to have the workforce necessary to produce our food, and will they be able to do it in conditions of health and safety for themselves?

We don’t know, but there are troubling concerns. Take fresh produce, for example. Already pressed by acute labor shortages, farms large and small in places like the Central Coast of California have scrambled to provide job security to their workers. But they also depend during crucial harvest periods on temporary labor, and as the border tightened under the Trump administration the H2-A visa system has become important. Florida, Georgia, Washington, and California all depend upon a sizeable workforce from Mexico and the Caribbean under the system. But the virus has meant the closing of consulates in Mexico and elsewhere that process these visas. The labor crunch will come soon for producers of lettuce and strawberries on the Central Coast.

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

Margin Call: You Were Warned Of The Risk

Margin Call: You Were Warned Of The Risk

I have been slammed with emails over the last couple of days asking the following questions:

“What just happened to my bonds?”

“What happened to my gold position, shouldn’t it be going up?”

“Why are all my stocks being flushed at the same time?”

As noted by Zerohedge:

“Stocks down, Bonds down, credit down, gold down, oil down, copper down, crypto down, global systemically important banks down, and liquidity down

Today was the worst day for a combined equity/bond portfolio… ever…”

This Is What A “Margin Call,” Looks Like.

In December 2018, we warned of the risk. At that time, the market was dropping sharply, and Mark Hulbert wrote an article dismissing the risk of margin debt. To wit:

“Plunging margin debt may not doom the bull market after all, reports to the contrary notwithstanding.

According to research conducted in the 1970s by Norman Fosback, then the president of the Institute for Econometric Research, there is an 85% probability that a bull market is in progress when margin debt is above its 12-month moving average, in contrast to just a 41% probability when it’s below.

Why, then, do I suggest not becoming overly pessimistic? For several reasons:

1) The margin debt indicator issues many false signals

2) There is insufficient data

3) Margin debt is a strong coincident indicator.”

I disagreed with Mark on several points at the time. But fortunately the Federal Reserve’s reversal on monetary policy kept the stock market from sinking to levels that would trigger “margin calls.”

As I noted then, margin debt is not a technical indicator that can be used to trade markets. Margin debt is the “gasoline,” which drives markets higher as the leverage provides for the additional purchasing power of assets. However, that “leverage” also works in reverse as it provides the accelerant for larger declines as lenders “force” the sale of assets to cover credit lines without regard to the borrower’s position.

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

Supply Chain Disruptions Impact on Global Growth

Supply Chain Disruptions Impact on Global Growth

In a previous post, we mentioned that stagflation is a risk that central planners are ignoring. However, this risk is not just an isolated challenge focused on economies like Mexico, India or Argentina. Even in countries like Germany and Japan the trend of inflation, particularly in non-replicable goods, is diverging from economic growth. Inflation is picking up, while growth is slowing down.

Central banks continue to pump liquidity to disguise the rising risks to the global economy, but the coronavirus epidemic is showing to investors three important lessons:

Containment of the epidemic is taking significantly more time than what many market participants estimated. Calls fro a rapid recovery that would not only offset the first-quarter impact but improve it, are disproved.

The impact on supply chains is significantly larger than most analysts expected. China is now 17% of the global economy and provinces that count for 89% of the country’s exports remain in lockdown.

Global excess capacity is a mitigating factor on rising inflation only for replicable and highly competitive goods. There is clearly ample capacity to offset supply chain disruptions in energy commodities, metals, and industrial goods but there are severe problems surfacing in sectors that are very dependent on Chinese supply, particularly auto parts and technology components. 

Market participants started to realize last week that the coronavirus effect was not going to be a two-month issue that would be followed by strong growth. In a recent PriceWaterhouse Coopers report, it showed that the global impact could reach at least 0.7% of GDP. This estimate uses Eric Toner´s infected and casualty estimates (John Hopkins Center for Health Security) and the economic impact using McKibbins & Lee methodology (the ones that estimated the SARS impact).

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

Olduvai IV: Courage
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Olduvai II: Exodus
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