Thursday, November 14, 2019

You’re Just Not Prepared For What’s Coming

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by Chris Martenson, Peak Prosperity:

I hate to break it to you, but chances are you’re just not prepared for what’s coming. Not even close. 

Don’t take it personally. I’m simply playing the odds.

After spending more than a decade warning people all over the world about the futility of pursuing infinite exponential economic growth on a finite planet, I can tell you this: very few are even aware of the nature of our predicament.

An even smaller subset is either physically or financially ready for the sort of future barreling down on us. Even fewer are mentally prepared for it. 

And make no mistake: it’s the mental and emotional preparation that matters the most. If you can’t cope with adversity and uncertainty, you’re going to be toast in the coming years.

Those of us intending to persevere need to start by looking unflinchingly at the data, and then allowing time to let it sink in.  Change is coming – which isn’t a problem in and of itself. But it’s pace is likely to be. Rapid change is difficult for humans to process. 

Those frightened by today’s over-inflated asset prices fear how quickly the current bubbles throughout our financial markets will deflate/implode. Who knows when they’ll pop?  What will the eventual trigger(s) be? All we know for sure is that every bubble in history inevitably found its pin.

These bubbles – blown by central bankers serially addicted to creating them (and then riding to the rescue to fix them) – are the largest in all of history. That means they’re going to be the most destructive in history when they finally let go.

Millions of households will lose trillions of dollars in net worth. Jobs will evaporate, causing the tens of millions of families living paycheck to paycheck serious harm.

These are the kind of painful consequences central bank follies result in. They’re particularly regrettable because they could have been completely avoided if only we’d taken our medicine during the last crisis back in 2008.  But we didn’t. We let the Federal Reserve –the instiution largely responsible for creating the Great Financial Crisis — conspire with its brethern central banks to ‘paper over’ our problems.

So now we are at the apex of the most incredible nest of financial bubbles in all of human history.

One of my favorite charts is below, which shows that even the smartest minds among us (Sir Isaac Newton, in this case) can succumb to the mania of a bubble:

It’s enormously difficult to resist the social pressure to become involved.

But all bubbles burst — painfully of course. That’s their very nature.

Mathematically, it’s impossible for half or more of a bubble’s participants to close out their positions for a gain. But in reality, it’s even worse. Being generous, maybe 10% manage to get out in time.

That means the remaining 90% don’t. For these bagholders, the losses will range from ‘painful’ to ‘financially fatal’.

Which brings us to the conclusion that a similar proportion of people will be emotionally unprepared for the bursting of these bubbles.  Again, playing the odds, I’m talking about you.    

How Exponentials Work Against You

Bubbles are destructive in the same manner as ocean waves. Their force is not linear, but exponential. 

That means that a wave’s energy increases as the square of its height. A 4-foot wave has 16 times the force of a 1-foot wave; something any surfer knows from experience.  A 1-foot wave will nudge you.  A 4-foot wave will smash you, filling your bathing suit and various body orifices with sand and shells.  A 10-foot wave has 100 times more destructive power. It can kill you if it manages to pin you against something solid. 

A small, localized bubble — such as one only affecting tulip investors in Holland, or a relatively small number of speculators caught up in buying swampland in Florida — will have a small impact.  Consider those 1-foot waves.

A larger bubble inflating an entire nation’s real estate market will be far more destructive. Like the US in 2007. Or like Australia and Canada today.  Those bubbles were (or will be when they burst) 4-foot waves. 

The current nest of global bubbles in nearly every financial asset (stocks, bonds, real estate, fine art, collectibles, etc) is entirely without precedent. How big are these in wave terms? Are they a series of 8-foot waves? Or more like 12-footers? 

At this magnitude level, it doesn’t really matter. They’re going to be very, very destructive when they break.

Our focus now needs to be figuring out how to avoid getting pinned to the coral reef below when they do.

Understanding ‘Real’ Wealth

In order to fully understand this story, we have to start right at the beginning and ask “What is wealth?”

Most would answer this by saying “money”, and then maybe add “stocks and bonds”. But those aren’t actually wealth. 

All financial assets are just claims on real wealth, not actually wealth itself.  A pile of money has use and utility because you can buy stuff with it.  But real wealth is the “stuff” — food, clothes, land, oil, and so forth.  If you couldn’t buy anything with your money/stocks/bonds, their worth would revert to the value of the paper they’re printed on (if you’re lucky enough to hold an actual certificate). It’s that simple. 

Which means that keeping a tight relationship between ‘real wealth’ and the claims on it should be job #1 of any central bank. But not the Fed, apparently. It’s has increased the number of claims by a mind-boggling amount over the past several years. Same with the BoJ, the ECB, and the other major central banks around the world. They’ve embarked on a very different course, one that has disrupted the long-standing relationship between the markers of wealth and real wealth itself. 

They are aided and abetted by both the media and our educational institutions, which reinforce the idea that the claims on wealth are the same as real wealth itself.  It’s a handy system, of course, as long as everyone believes it. It has proved a great system for keeping the poor people poor and the rich people rich.

But trouble begins when the system gets seriously out of whack. People begin to question why their money has any value at all if the central banks can just print up as much as they want. Any time they want. And hand it out for free in unlimited quantities to the banks. Who have their own mechanism (i.e., fractional reserve banking) for creating even more money out of thin air.

Pretty slick, right?  Convince everyone that something you literally make in unlimited quantities out of thin air has value. So much so that, if you lack it, you end up living under a bridge, starving. 

Let’s express this visually.

Read More @ PeakProsperity.com

OPTIONS EXPIRY NOW OVER BUT NOT BEFORE THEY KNOCK GOLD DOWN $4.05 TO $1318.35 AND SILVER DOWN ANOTHER 11 CENTS TO $16.36

by Harvey Organ, Harvey Organ Blog:

NETANYAHU REPORTS THAT IRAN IS SECRETLY DEVELOPING NUCLEAR WEAPONS UNDER “PROJECT AMAD”/ISRAEL STRIKES TWO BASES INSIDE SYRIA LAST NIGHT/CHINA REFUSES TO CHANGE ITS STANCE ON RENEGOTIATING TRADE/ MORE SWAMP STORIES FOR YOU TONIGHT

If The Stock Market Is Falling This Much Already, What Is Going To Happen If There Is No Trade Deal With China By Friday?

by Michael Snyder, The Economic Collapse Blog:

If negotiations between the Trump administration and the Chinese government do not produce a trade deal by Friday, it is going to be absolutely catastrophic for Wall Street. On Tuesday, trade fears pushed the Dow Jones Industrial Average down 473 points. It was the second-worst trading day of 2019 so far, and at one point during the trading session the Dow had fallen as much as 648 points. But most of the experts are assuring investors that a trade deal with China will be finalized before Trump’s new tariffs go into effect on Friday. We are being told that the Chinese will almost certainly cave in on some of their most important demands and that Trump will get the favorable trade deal with China that he has been seeking.

UK-Based Multinational Department Store Debenhams Collapses, After 200 Years of Trading

by Wolf Richter, Wolf Street:

“The traditional private equity model should have no place in retail.”

Shares of UK-based multinational department store Debenhams — with 165 stores in the UK and Ireland and with 58 franchise stores in 19 other countries — were suspended today after the company and its creditors turned down two last ditch rescue offers from discount retail group Sports Direct, which owns close to 30% of Debenhams’ stock. Debenham’s shares have collapsed spectacularly since they were floated on the stock market in 2006 by its then-private equity owners, Texas Pacific Group, CVC, and Merrill Lynch Private Equity:

World Trade Skids for First Time Since Financial Crisis

by Wolf Richter, Wolf Street:

Exports by China, Japan, and Eurozone under pressure — in part because of globally weak demand for new vehicles, which transcends the trade war.

World trade volume – a measure of imports and exports of merchandise across the globe – declined in its zigzag manner in June to the lowest level since October 2017, according to the Merchandise World Trade Monitor by CPB Netherlands Bureau for Economic Policy Analysis. The index was down 1.4% from June 2018. This small year-over-year decline is the biggest year-over-year decline since the Financial Crisis, and it’s a reversal from the heady growth in 2017 and 2018 that had topped out at 6.7%.

The Fed Will Continue Tightening Until Everything Breaks

by Brandon Smith, Alt Market:

Around three years ago, in September 2015, I wrote an article titled ‘The Real Reasons Why The Fed Will Hike Interest Rates‘ in which I predicted that the Federal Reserve, in the face of criticism, would soon pursue a program of interest rate hikes into economic weakness. I argued that this plan would be somewhat similar to what the Fed did in the early 1930’s; an action that prolonged the Great Depression for many more years. So far, my prediction has proven to be correct.

Despite the fact that the Fed keeps raising rates as it tightens the noose around the supposed economic “recovery”, there are still many people out there who refuse to accept that the central bank would deliberately implode the fiscal bubble that it has spent the last ten years inflating. Even today, I still see arguments proclaiming that the Fed will be forced to pull back if stocks fall beyond 15% to 20%. I also see claims that Fed officials like Jerome Powell had “better start looking for another job” because Donald Trump won’t be happy with Fed policies that could cause a crash. This is pure delusion from people who do not understand how the Fed operates.

Russian Exodus From U.S. Treasury Market Continues

by Chris Marcus, Miles Franklin:

One month after Russia sold off half of its U.S. Treasury holdings, they just dumped virtually the rest.

So officially gone are the days of just speculating about an exodus out of the U.S. Treasury market. As one of the biggest customers has just left the auction.

Russia has sharply reduced its holdings of United States Treasury bonds, with Russian ownership recently moving to an 11-year low.

Russia’s ownership of US bonds declined from $96.1 billion in March to $48.7 billion in April and then to just $14.9 billion in May, according to the most recent data available, the Russian news website RT and the finance blog Wolf Street reported this week.

D-DAY PETRO YUAN FORMAT BEGAN LAST NIGHT AND IT WAS A CORKER: A KISS OF DEATH TO THE USA DOLLAR

by Harvey Organ, Harvey Organ Blog:

LIBOR RISES AGAIN FOR 34 TH CONSECUTIVE DAY/LIBOR-OIS BLOWS OUT AGAIN TO 58.75 POINTS SIGNIFYING BANK REFUSAL TO LOAN TO ONE ANOTHER AND A SHORTAGE OF DOLLARS IN EUROPE/GOLD UP $4.60 TO $1354.60/SILVER UP 11 CENTS TO $16.68/TRUMP EXPELS 60 RUSSIAN DIPLOMATS/THE UK HAS A NEW LAW ALLOWING THEM TO CONFISCATE RUSSIAN ASSETS OF DUBIOUS ORIGINS/TRUMP TO NEGATE THE IRAN DEAL ON MAY 12 AND THUS NEW SANCTIONS AGAINST THIS ROGUE NATION/MORE SWAMP STORIES FOR YOU TONIGHT

It Won’t Be A Repeat Of 2008

by Karl Denninger, Market Ticker:

It’s going to be far worse.

The “divide” has widened — a lot — in the last 10 years, the “official” start of the “bull” run.

Yes, salaries are up some on a median basis.  But debt is up much more, and what’s worse despite the “wonders” of zero interest for the rich and powerful, including corporations, the credit card interest rate is up since that time.

The percentage of people living “paycheck to paycheck” is higher now than then — by quite a lot.  You don’t have to go far to find someone making $60,000 a year who is functionally bankrupt, running on their credit cards and sitting on a crazy amount of debt — with less than $500 in the bank.

With Rat Infestation and Garbage Piled In Streets, LA Rejoins Race To The Bottom

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by Jim Hoft, The Gateway Pundit:

Realizing that San FranciscoPortland, and Seattle have undertaken them in the race to the bottom, Los Angeles comes storming down from the middle to retake the rear. Citing rat infestations at city hall and the police station, FBI investigations into corruption scandals, along with garbage piled all through the streets and a Typhus epidemic, LA is once again staking their claim to being the biggest s***hole city in the US.