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The Market Ticker - Anatomy Of A Dislocation-In-Process

The Market Ticker - 10 October 2014 - 11:32pm

No, this is not a crash call.

It is, however, a warning - that you should beware of the conditions that have preceded severe market dislocations before, be aware of them, pay attention to them, and contemplate whether it is worth being involved in the market at this particular time.

Market dislocations come from many causes but have one common precursor -- over-extension of credit (margin debt) that must be rapidly unwound.  The are seeded in an environment that is generally volatile in the negative direction, thus exposing a greater percentage of those positions to margin calls.  They are usually accompanied by or associated with an expiration of one or more instruments that provide alleged "protection" against such volatility, where the cost of their replacement is high.  

The precise trigger for the event itself is usually analyzed in the wreckage that follows with all sorts of books and papers, yet the fact is that none of those are more than a guess.  In 2000 a little dog-crap public firm (that incidentally still exists!) was, to the best of my ability, the triggering event -- they announced a restatement at an inauspicious time.  2008 was of course blamed on Lehman, but in fact Lehman was a symptom, not the problem itself.

Every night someone wakes up in a cold sweat and pushes the flatten button.  Someone else wakes up with delusions of grandeur in their eyes and mashes the buy it all button.  

The dislocation itself happens when a lot of the first group show up at once and few or none of the latter do, and then the phone starts to ring on the desk (or in the hand, nowdays) of all the people who didn't mash that flatten button -- and they've got a big fat margin loan out that has now driven their account into negative equity. 

Cascade selling comes from people who are told they must sell because the margin clerk is on line #1 and he's just advised you that if you do not deliver good funds to him within the next hour you will be forcibly liquidated and, if you still have a debit balance, they will next lien all your assets, including in most states your house.

I will note that despite all the crying and screaming in the last two of three days, and the elation during one of them post Fed minutes, the conditions are not ripe, at this particular moment, for that to happen.  It doesn't mean it can't, just that it's not all that likely that today is the day.  I can no more see into people's bedrooms at 3:00 AM than can you.

But -- and this is the point to consider -- the fact that such events come not from a market that is "topping" but one that has started to decline and where volatility is rising means that the time to contemplate saying "That wisp of smoke may mean the curtains are on fire" is not the day before the event, believe it or not.

If you wait until then you're probably 10, maybe 20% off where you should have sold and gotten out.  You gave that up simply based on hope and hype, and the difficulty of selling in that environment when you're that far down from where the pretty number on your screen said you were (all fake money, by the way, until you sell) is well-understood. 

It's hard to bail on a position that's 10 or 20% down from where it was.  It's even harder to bail on an entire portfolio that's down 10 or 20%.  The simple fact is that it is a near-certainty that if you wait until that happens you probably won't bail at all and thus you'll take the entire ride down or far worse, sell at the bottom in the depths of panic.

And that's the best argument for doing it before that pattern -- and the decline from that top occurs, especially if you've got positions that are up 20, 50, or even 100% or more over the last couple of years.

Pigs get slaughtered.

Categories: Economics

The Market Ticker - Consequences For Thee, Not For Me

The Market Ticker - 10 October 2014 - 11:15pm

It's bad for your karma to wish for a tiny asteroid to hit someone on the head.  On the other hand, perhaps it would be worth it....

The failure in 2008 of American International Group Inc., the world’s biggest insurer, would have caused “mass panic on a global scale,” Timothy Geithner, the head of the Federal Reserve Bank of New York at the time, testified at a trial over the government bailout of the company.

Geithner, one of three architects of the U.S. response to the 2008 financial crisis, testified in response to claims by Maurice “Hank” Greenberg’s Starr International Co. that the government illegally took equity in AIG. Geithner was responsible for setting what a Starr lawyer called “an extortion rate” of 14 percent on an $85 billion loan to AIG.

Of course the real issue here is not on trial and never will be, because that would require putting both Paulson and Geithner (along with a whole lot of other people!) in the dock: AIG was a regulated company as were the banks; to the extent that they got in this degree of trouble there ought to be so-called regulators in prison for gross and intentional malfeasance of office.

This is nowhere more true than at IndyMac where it appears that the bank backdated deposits so as to make it appear more-solvent than it really was.  This was apparently countenanced by the same person within the regulatory apparatus that got caught doing the same thing during the S&L crisis!  Not only did that individual (and everyone above and around him who knew about it and did nothing) not go to prison he didn't even lose his job, as is evidenced by being able to do it again!

As for Greenberg's lawsuit I have to chuckle; the entire reason the "rescue" came about in the first place was that AIG wrote somewhere near a half-trillion in derivatives with essentially zero cash behind them.  That is, any deterioration in their position rendered the subsidiary involved instantly insolvent, and the question then became whether the parent company could be compelled to perform in the subsidiary's place.

If not then there was no reason to rescue anyone.  If so then the regulators didn't do their jobs and should be charged with that failure.  There's no way around this; one of those two has to be true.

You won't see that exposed in court or anywhere else -- but it's the real issue, at the core, and it remains today as an issue because until there is accountability there will not be reform.

Categories: Economics

Willits: WELL - 10th Anniversary Oct. 16 - The Willits News

Transition Towns in the media - 10 October 2014 - 3:18pm

Willits: WELL - 10th Anniversary Oct. 16
The Willits News
WELL became, in part, the model for the Transition Town movement that now has spread across the world. The idea is that localization – more self-sufficient communities – is the solution to the unsustainable globalized economy. In addition to its own ...

and more »
Categories: TT news

Obama’s new oil wars

Energy Bulletin - 10 October 2014 - 2:04pm

Washington is now the key country brandishing the oil weapon, using trade sanctions and other means to curb the exports of energy-producing states it categorizes as hostile. The Obama administration has taken this aggressive path even at the risk of curtailing global energy supplies.

Categories: Peak oil news

Peak oil notes - Oct 9

Energy Bulletin - 10 October 2014 - 2:00pm

Mid-Week Update. Energy prices continued to fall this week with New York futures trading below $87 a barrel on Wednesday and London oil falling to a close of $91.37.

Categories: Peak oil news

Dark Age America: The collapse of political complexity

Energy Bulletin - 10 October 2014 - 1:37pm

There is a lethal mismatch between the realities of power in an age of decline, and the institutional frameworks inherited from a previous age of ascent

Categories: Peak oil news

Why Peak Oil Predictions Haven't Come To Pass - OilPrice.com

Peak Oil - Google - 10 October 2014 - 11:13am

Why Peak Oil Predictions Haven't Come To Pass
On Monday, September 29, the Wall Street Journal (WSJ) published a story called “Why Peak Oil Predictions Haven't Come True.” The story is written as if there are only two possible outcomes: 1. The Peak Oil version of what to expect from oil limits is ...

3 Factors that Shape Every Gold Investment Strategy

The Daily Reckoning - 10 October 2014 - 8:45am

After falling from highs near $2,000 just a few years ago, gold has been languishing around the $1,200-mark for over a year, besides a few run-ups at $1,300 and $1,400.

Yet the monetary conditions — inflation, printing and stimulus — that spurred gold’s historic climb are still with us. What gives? It’s like gold has caught a bug and just can’t get well.

It’s not a mystery what ails it, however. Let’s look at three reasons why gold is trading in the $1,200 range, and how these are the clue to our gold investment strategy. The first is the value of the dollar.

Just as gold protects wealth when times are tough, the dollar fuels growth in periods of stability. The momentum of each medium tend to be counteracting, since investors have to choose between one or the other. It’s no surprise that during gold’s drop from $1,875 to $1,210, the dollar index climbed 70% during the same time.

In short, investors will go where their bread is buttered, and while interest rates are low and fiscal stimulus is pumping throughout the economy, it’s dollar-driven equities. Why hunker down wealth in gold holdings when stocks are soaring high?

Even if surging share prices could be grossly inflated. Herein lies edge of the precipice of the next gold price breakout. Are these dollar driven equities performing as well as their stock prices show? Or are they inflated by a dollar that is merely faring the best in the race to the bottom between global currencies?

My colleague, and fellow resource guru, Matt Insley recently summed up what has influenced the dollar index’s steep climb: “The U.S. dollar index is heavily influenced by the euro — at over 57% weighting of the currency basket used to calculate the dollar index. The index itself hinges on the fate of the euro and the euro is in trouble.” Forget China! The dollar’s biggest influence (and conversely, gold’s) is the European Union’s economy and monetary policy.

The second thing that determines the gold price is physical gold demand. As we just showed, demand for gold is inversely correlated to dollar demand, which is driven by both U.S. and foreign monetary policies. But who’s buying the gold? India, for one, but more importantly, China, the world’s largest holder of U.S. government debt.

With more than $1.317 trillion in their reserves, it’s safe to say the Chinese have a vested interest in a strong dollar, but China’s gold buying habits reveal a bearish sentiment toward the dollar.

As I’ve detailed before, the sleeping dragon has recently amassed as much as 7,000 tons of gold, and China is not the only country in the East staking their faith in gold. During a period of declining gold prices, India officially imported $2.04 billion worth in August 2014, nearly three times more than the $739 million imported in August 2013.

Gold is particularly sensitive to political and financial fear.

Remember gold is not consumed in the same sense as oil, gas, or corn. Once the precious metal has been extracted from the mine and sent into the open market it will always be there. Only a very small portion of the gold that has been mined vanishes in shipwrecks or natural disasters. The rest is still floating around, causing demand to be more of a determinant of the price of gold than supply.

The third element that drives the price of gold is fear. Real or imagined, fear influences the decision making of most investors. Gold is particularly sensitive to political and financial fear.

The markets are at heightened risk now that ISIS controls 60% of Syria’s oil production and threatens Iraq’s. And let’s not forget the actions of our good friend Putin. With the annexation of Crimea and parts of Eastern Ukraine, whatever trust the west once had in Russia is gone, and it’s added lots of risk to Europe’s energy supply chain.

Finally, fear that the market can’t keep rising, even though the Fed keeps signaling that interest rates will remain low in the short-term, is driving some investors from stocks to gold. They may be premature, but all this fear is baked into the price of gold like a leaven. All in all, I’m still not committed to the bearish outlook on gold.


Byron King
for The Daily Reckoning

Ed. Note: I didn’t mention the most crucial fear driver of the price of gold. It’s the No. 1 threat to America, in fact. Forget ISIS, terrorist attacks, a new war or anything like that. The real threat is an “economic Pearl Harbor”… an event that could wipe out millions of unprepared Americans. Unfortunately the information is too sensitive to reveal here, but I was able to relay it to the members of The Daily Reckoning email edition. If you’d like to get a chance at this report, click here now and sign up for The Daily Reckoning, completely FREE of charge.

Categories: Economics

How 2 Tech Giants Could Change the Course of Human History

The Daily Reckoning - 10 October 2014 - 6:41am

Ed. Note: On the seventh of every month (unless it falls on a weekend), the FREE Tomorrow in Review e-letter begins featuring its “7 Things You Need to Know” series, courtesy of scientific and financial journalist Stephen Petranek. The series is designed to show you the most exciting (and potentially profitable) breakthroughs in the science and technology sector. Today, Stephen brings you the final 2 things on his list. And if you missed the first 5 stories he detailed, you can read all about them here and here. Enjoy…

6. Even Google-ites Want to Live Forever

Google has a hand in just about every sort of transformational tech research you can think of. Last month alone, the company made headlines on drone delivery technology and progress on a quantum computer. Oh, and then there’s that bit about stopping us from aging.

NASA is putting the finishing touches on a manned spacecraft called Orion that could land a person on Mars…

Last year, Google spun off a company called Calico to pursue anti-aging strategies, including a dedication to early-stage research on cancer and neurodegenerative diseases. Now Calico has announced a venture with pharma giant AbbVie to build a state-of-the-art research facility in the San Francisco Bay Area. The two companies are serious — they intend to contribute as much as $1.5 billion to the effort.

7. Why NASA Will Be Last to Mars

Just in case you haven’t noticed, NASA is putting the finishing touches on a manned spacecraft called Orion that could land a person on Mars in the near future. Its willpower to do so, or at least its political power to do so, is unlikely to be great enough to get us to Mars in 20 years, but the technology is on the launchpad.

A number of years ago, when NASA finally decided the space shuttle was far too expensive (as much as $1.4 billion per mission) and far too dangerous to keep flying (an astronaut had about a 1 in 5 chance of dying on the job), it commissioned Lockheed Martin to build a replacement.

As if the space shuttle weren’t dated enough, Lockheed and NASA went totally retro and modeled the new Orion spacecraft as what is essentially a much larger version of the Apollo moonship from the 1960s. Boeing did the same thing with its new CST-100 spacecraft to shuttle astronauts to the International Space Station from Earth.

Orion will carry from two to six astronauts at a time, and initially may be used as a backup to ferry astronauts to the space station, a luxury for which the Russians charge us $70 million a trip. SpaceX’s Dragon spacecraft, recently approved by NASA to ferry astronauts to the space station, also looks very Apollo-like.

What really made the Apollo program work so well was Dr. Wernher von Braun’s brilliant heavy-lift rocket, the Saturn V. But President Richard M. Nixon put an end to that by favoring the idea of the space shuttle over a proposal by von Braun to use the Saturn V to get men to Mars in the mid-1980s.

We haven’t had a rocket like the Saturn V available anywhere in the world for decades, although the Russians made a stab at it. NASA is therefore building a new rocket to get Orion well away from Earth’s gravity. The U.S. space agency seems unable to come up with a reasonable name for it, so the rocket is so far dubbed the Space Launch System. It won’t be ready before 2018, and its cost per pound to orbit, around $8,500, may be so preposterous that it could be seen as obsolete before its first launch.

I’m betting Elon Musk’s SpaceX will get [to Mars] in the mid-2020s.

Orion should fly in December aboard a Delta IV Heavy rocket and get into low Earth orbit — without passengers — for some tests. NASA seems in no rush to develop Orion or its new rocket and is talking vaguely about using Orion to visit the moon again as well as an asteroid or two before it even contemplates the system’s true capabilities — getting a person to Mars. NASA’s estimates of when it will send up a manned Mars version of Orion vary from the 2030s to the 2040s. Meanwhile, I’m betting Elon Musk’s SpaceX will get there in the mid-2020s.


Stephen Petranek
for The Daily Reckoning

Ed. Note: Right now, there are a handful of people who are directly benefiting from Stephen’s in-depth research, and who could be making huge sums of money because of it. You see, Stephen writes a little newsletter called Breakthrough Technology Alert, which details the most exciting and innovative technologies about to come to market, and which offers its readers the greatest chances to profit because of them. The information divulges is too sensitive to relay here, but if you sign up for the Tomorrow in Review e-letter, for FREE, you’ll be sure to see several opportunities to get in on it for yourself. Don’t miss your chance to discover some of the world’s biggest gains in the tech and energy sectors. Click here now to sign up for Tomorrow in Review for FREE.

Categories: Economics

The Peak Oil Crisis: Cold Fusion – A New Report - Falls Church News Press

Peak Oil - Google - 10 October 2014 - 5:35am

The Peak Oil Crisis: Cold Fusion – A New Report
Falls Church News Press
The second independent report on the performance of Andrea Rossi's low energy nuclear reactor was just released. Even though the first round of tests were conducted by a group of respected European physicists, they received considerable criticism from ...

and more »

One Potential Ebola Treatment You’re Not Being Told About

The Daily Reckoning - 10 October 2014 - 4:48am

As you may know, “patient zero” Thomas Duncan passed away yesterday…

News broke last night that he would be cremated.

Also, we learned that Ebola screening will soon begin at these five U.S. airports:

John F. Kennedy International… Dulles International Airport… Newark Liberty International… O’Hare International in Chicago… and Hartsfield-Jackson Atlanta International.

These airports make up 94 percent of flights from Liberia, Sierra Leone and Guinea. The three countries getting hit the hardest.

And we’re pretty ecstatic about this: Our Baltimore Hq is surrounded by three of them. Yay.

But the airports, according to some officials, are only a sliver of our problem.

Proper preparation is extremely important. Especially if you’re living in a city.

U.S. Southern Command (SOUTHCOM) head, Gen. John F. Kelly, warned that an outbreak in Central America or the Caribbean could cause a mass migration to the United States.

In fact, according to Kelly, many West Africans are already using established trafficking routes through Central America to get into the United States illegally.

Situation sound helpless? Think there’s nothing you can do? Wrong.

There are things you can do to prepare. Strengthening your immune system is one of them. And if you live in a city, planning to “bug out” if more than 10 cases occur, as Stephen Petranek suggested, is another.

[We’ve put together our quick-and-dirty guide from last week for you to print out. I'll be sending the link around to my Laissez Faire Today readers tomorrow. Not already a member? No problem. You can sign up for FREE, right here..]

In today’s issue, you’ll learn about one potentially game-changing Ebola treatment. It was proven effective by the NIH over a decade ago.

We don’t think it’s getting its deserved attention in the race for a treatment.

First, though, and we can’t stress this enough: Proper preparation is extremely important. Especially if you’re living in a city.

To further illustrate this point, we invited another one of our in-house tech mavens to share his thoughts on the current situation.

The following is what he emailed back.

“Raising immune system capability is not a bad idea in principle,” Ray Blanco, editor of Technology Profits Confidential, writes from our tech desk, “and the single best non-prescription way to do so that I know of got pulled by the FDA.

“However, a working vaccine would be great. The problem is, even under the best circumstances, we can’t expect one to be in mass production until the end of Q1 2015 — that’s the best of circumstances.

“People following Ebola protocols… have still been getting infected.”

“And even a good vaccine is limited in what it can do for people with weakened immune systems.

“I’ve been writing about the Ebola crisis on and off for a few weeks in my newsletter,” Ray wrote.

“A few things on my mind, which you might want to consider:

“The governmental responses, not just here but also everywhere, have been woefully incompetent. And trust in government is at all-time lows. I think the danger and risk is greater than what our public officials have let on.

“People following Ebola protocols, wearing suits, decontaminating, etc. have still been getting infected.

“Back to stopping it: As I mentioned, vaccines might not be available in sufficient quantity in time to stop it if it breaks out. We don’t know.

“But we’ve been using quarantine at least as far back as the Old Testament because it is low-tech and it works. And if there are very many cases, we won’t have enough hospital beds or healthcare workers for those people.

“Imagine the outcry if that happens. People quarantined at home, dying in a pool of excrement and vomit, often alone. Or defying quarantine, weak and delirious, staggering out in the streets like zombies and dying on the streets like we’ve seen in Africa, with everyone avoiding them because contact means infection.

“It’s like The Walking Dead.”

Well… probably not exactly like it, but you get the picture…

“And here’s a suggestion: I haven’t seen much talk about economic impacts,” says Ray.

“I suspect just a few thousand infections could wreak havoc on the economy.

“Imagine the fear and hysteria. Schools shutting down. Parents not going to work. It might be a good refresher to look into what we did during the Spanish flu epidemic of nearly a century ago.

“Imagine stores closed and shelves empty. Public transportation and public spaces abandoned. Imagine what an infection cluster might do in a densely populated place where people are always brushing against each other that is also an important financial center, like NYC. What effect would that have on the markets?

“Could be huge.”

In other news, yesterday morning, we received a strange email from one of our Laissez Faire Today readers, Fred C., about a miracle “blue-green algae superfood [that] is light years beyond all others.”

“Every morning,” Fred wrote, “when my feet hit the floor I go eat it first EVERY day… and lo! In 2003, the NIH and NCI found that not only did it block HIV but — yes — EBOLA!”

The blue-green algae are called Aphanizomenon flos-aquae (AFA). And here’s the study Fred is referring to: Anti-HIV Protein From Blue-Green Algae Also Inhibits Ebola Function (NIH)

“CV-N is the first molecule known to inhibit Ebola infection by interfering with the virus’ ability to enter cells.”

The NIH team on this study isolated a specific protein from AFA — called cyanovirin-N (CV-N) — and found something pretty astonishing…

“Researchers have discovered,” the NIH website reads, “that a bacterial protein known to reduce the ability of the human immunodeficiency virus (HIV) to infect cells also inhibits infection by the Ebola virus.

“The antiviral protein, known as cyanovirin-N (CV-N), can extend the survival time of Ebola-infected mice, researchers from the National Cancer Institute’s Molecular Targets Discovery Program report in a study published in Antiviral Research.

“The study, done in collaboration with researchers from the U.S. Army Medical Research Institute of Infectious Diseases, the Centers for Disease Control and Prevention, and the National Institute of Diabetes and Digestive and Kidney Diseases, provides important insights into the process of Ebola infection.”

CV-N, according to the NIH, is a potent antiviral that “effectively inhibits HIV infection of cells grown in the laboratory.

“CV-N inhibits HIV infection by binding to the outside of the virus and physically blocking it from entering cells. The protein is known to attach to a particular sugar molecule on the virus surface, and because similar sugar molecules coat the Ebola virus, researchers hoped CV-N might have the same effect on Ebola that it does on HIV.

“Their hypothesis proved to be true when laboratory experiments revealed that CV-N does bind to the sugar molecules on the outside of the Ebola virus and inhibits its ability to infect cells, much as it does with HIV.”

Barry O’Keefe, PhD of NCI’s Center for Cancer Research, and one of the study’s authors, said this:

“CV-N is the first molecule known to inhibit Ebola infection by interfering with the virus’ ability to enter cells.”

If true, why didn’t they bring it to the market?

Come to find out, a drug for Ebola, using the CV-N protein, was on its way to the market…

The current consensus, of course, is that there’s no medical treatment or vaccine for Ebola.

“A treatment that appears effective, however, against Ebola, other hemorrhagic fevers and HIV/AIDS,” WND reported back in April, “has been in various stages of testing since 2001.

“The journey of Cyanovirin-N through the testing and approval process illustrates the difficulty of bringing promising treatments to the market.”

One man, a retired entrepreneur by the name of Jack Kneifl, told WND he received $5 million from an angel investor in March 2001 to start the process of developing the CV-N drug.

“Kneifl co-founded a pharmaceutical company with three other individuals called OmniViral Therapeutics LLC, located in Germantown, Maryland, near the National Institutes of Health.”

“Within a matter of months,” Kneifl said, “we negotiated the license and began the pre-clinical trials.”

Preliminary research on CV-N, Kneifl told WND, “showed at least 90% efficacy” against Ebola and other hemorrhagic fevers.

“The bottom line,” he said, “is Cyanovirin-N demonstrated potential applications to microbicide development.”

Microbicides are chemicals that strip viruses or bacteria of their infectious natures. Vaccines, on the other hand, use biological agents to improve the immunity of a particular disease.

Seeing the potential of CV-N, Kneifl began approaching investors to raise funds so he could develop a commercially viable treatment.

“By mid-2003,” he recalled, “and some $5.5 million later, OmniViral had completed the pre-clinical studies which demonstrated an extraordinary level of success.”

His chief scientific officer working with him, he told WND, told him that CV-N “had greater potential than any other drug he had ever tested.”

The next step? To complete Phase 1 and Phase 2 clinical studies. This would’ve cost $8.5 million.

“I went back to my angel investor requesting him to continue funding the operations,” said Kneifl. “He turned into a chicken and pulled his funding.”

He didn’t, Kneifl explained, “realize how expensive FDA drug testing is during development phases.”

“Due to lack of funding, OmniViral, for all practical purposes, was closed down at the end of 2004,” Kneifl said.

O’Keefe is still working on creating a drug with CV-N. Last word, it’s in the preclinical development stage and, after over a decade, has yet to be tested on humans.

Why isn’t CV-N one of the treatments on the fast track? Good question. We’re still looking into it.

But we did uncover yet another groundbreaking study about the effectiveness of CV-N.

“The placebo mice all died by day seven… A hundred percent of treated mice were still alive at that point…”

“Just purchased the full text of the groundbreaking study,” one colleague from our research team said this morning.

The name of the study is Cyanovirin-N binds to the viral surface glycoprotein, GP1,2 and inhibits infectivity of Ebola virus.

You can find it right here.

“Now we know,” my colleague said, “how much longer the mice lived when they got the treatment of this stuff.

“This is super important. The mice who got the treatment before they contracted Ebola lived the longest. So getting started with CV-N now is key.

“The graph is on Page eight. The placebo mice all died by day seven.

“A hundred percent of treated mice were still alive at that point, and it looks like roughly 80% of treated mice lived almost twice as long.”

In this study, just to be clear, the researchers isolated the CV-N protein from its plant source.

AFA and spirulina themselves — the two blue-green algae that contain small amounts of CV-N — probably won’t have the same effect…

But AFA as an immune-boosting supplement? We’re digging deeper, but it looks good so far.

Until tomorrow,

Chris Campbell
for The Daily Reckoning

Ed. Note: Chris Campbell and the Laissez Faire Today research team are currently putting together a comprehensive Ebola report. Inside, you’ll learn the best ways to prepare — and increase your chances of survival — in the event of an outbreak in the United States. But you’ll only receive access to this report as a FREE Laissez Faire Today member: Click here to sign up.

Categories: Economics

Now is the Time to Flip Your Dollars for Gold

The Daily Reckoning - 10 October 2014 - 3:16am

Back in May, I told you to ditch your gold for greenbacks.

At the time, gold was sinking below $1,260 for the first time in months. The dollar looked like it was poised for a major breakout toward its 2013 highs. And virtually no investors were remotely interested in these developments…

Of course, a lack of publicity didn’t stop the market forces that were already in play. Gold tripped another 5% and sank toward its lows. And the dollar exceeded all expectations, rocketing to levels not seen since 2010.

“Just a few weeks ago, many analysts were talking about a potential breakdown in the dollar,” I wrote on May 30th. “But things aren’t always as they first appear. Many times, the best trades are the ones you least expect.”

But hang on just a minute…

Gold is now enjoying its biggest three-day rally since June. And the dollar looks a little tired after its big move higher. That means it’s time to flip this trade.

More on this idea in just a minute. First, let’s check out the recent dollar rally. Here’s what I was seeing in the dollar index back in May:

And here’s how the move unfolded:

Trading gold for greenbacks was a stellar trade — and for now, it has run its course. The dollar will need to digest its parabolic move. And gold looks ripe for a quick comeback…

For the record, I think the dollar’s initial move will stick. The dollar index could very well end up higher six to eight months from now — but the road could get volatile. Also, while gold remains in a bear market, snapback rallies like the one you’re seeing right now can offer fantastic opportunities to score quick profits.


Greg Guenthner
for The Daily Reckoning

P.S. I’m not a gold bug. I follow trends. And right now, the trend is for a quick snapback in the gold price. Next week, that could change. And if it does, I’ll be there to tell you about the new trend you need to be watching. But if you want that info first — before it hits the Daily Reckoning website… before almost anyone… I’d be happy to send you a quick email alert letting you know what to look for in the trading day ahead. Just click here to sign up for my Rude Awakening e-letter, for FREE, and each morning, right around the opening bell, you’ll receive an email with my full analysis… including the trend to follow that day, 5 important numbers to watch and at least 3 specific chances at real, actionable stock picks. All completely FREE. Click here now to sign up.

Categories: Economics

The Market Ticker - If You Like Your Doctor, Get Ready For The Rectal Exam

The Market Ticker - 10 October 2014 - 3:15am

Heh heh heh....

More than a dozen states plan to cancel health care policies not in compliance with ObamaCare in the coming weeks, affecting thousands of people just before the midterm elections.

"It looks like several hundred thousand people across the country will receive notices in the coming days and weeks," said Jim Capretta of the Ethics and Public Policy Center.

The policies are being canceled because states that initially granted a reprieve at the request of President Obama are no longer willing to do so.

There's good news and bad news.

The good news is that if you were one of the idiots who bought into the "reporting" that claimed Americans "like" Obamacare, and are pleasantly surprised at the "improvement" or "lack of harm" it has done to them, you're about to get lots of stimulation of your prostate, and that may be a pleasant surprise.

For most, however,including the 50% of the population that doesn't have a prostate, I suspect you'll instead call it rape.

That, of course, is the bad news.

Categories: Economics

Bridport car boot fund collection - Bridport and Lyme Regis News

Transition Towns in the media - 10 October 2014 - 2:01am

Bridport and Lyme Regis News

Bridport car boot fund collection
Bridport and Lyme Regis News
Other groups that benefitted include Askerswell Village Hall, the Bridport and District Citizens Advice Bureau, The Bridport Area 50plus Forum, Dorset Blind Association, Loders Youth Club, Transition Town Bridport and the Wootten Fitzpaine Village Hall.

and more »
Categories: TT news

Cultural Capture and the Financial Crisis

The Baseline Scenario - 10 October 2014 - 1:27am

By James Kwak

A few years ago, while still in law school, I was invited to write a chapter for a Tobin Project book on regulatory capture. It was a bit intimidating, being part of a project that included luminaries like David Moss, Dan Carpenter, Luigi Zingales, Richard Posner, Tino Cuellar, and the deans of two of the best law schools in the country. I was asked to write something about an idea that I had slipped into 13 Bankersalmost in passing, about the cultural prestige of the financial industry and the political and regulatory benefits the industry derived from that prestige. My chapter turned into a discussion of the various mechanisms by which status and social networks can influence regulators, creating the equivalent of regulatory capture even without traditional materialist incentives (cash under the table, promises of future jobs, etc.).

Two weeks ago, an investigation by ProPublica and This American Life illustrated the culture of deference, risk aversion, and general sucking-upitude among New York Fed bank examiners that effectively resulted in the capture of regulators by the banks they were supposed to be regulating. As David Beim wrote in a confidential report about the New York Fed, the core problem was “what the culture expected of people and what the culture induced people to do.”

I wrote about the story for the Atlantic and referred to my book chapter, but at the time the chapter was not available for free on the Internet (at least not legally). The good people at the Tobin Project have since put it up on the book’s website, from which you can download it (legally!). Note that they are only allowed to put up one chapter at a time and they rotate them, so this is a limited-time offer.

Categories: Economics

Schools of Thought on Degrowth

Energy Bulletin - 10 October 2014 - 12:00am

The economy of the future is described by different groups with different words in different languages and they do not always exactly translate into an identical idea.

Categories: Peak oil news

The Market Ticker - Is This Criminal Fraud?

The Market Ticker - 9 October 2014 - 11:15pm

What is it if you come to this country intentionally knowing that (1) you might be about to come down with a serious disease, and (2) you have no money to pay for your treatment if you do?

Caring for Thomas Eric Duncan, the Dallas Ebola patient, may cost as much as half a million dollars, a bill that his hospital is unlikely to ever collect.

Duncan is in critical condition at Texas Health Presbyterian Hospital Dallas, where he has been isolated since Sept. 28. He’s on a ventilator, has been given an experimental medicine and is receiving kidney dialysis, a hospital spokeswoman said today. His treatment probably includes fluids replacement, blood transfusions and drugs to maintain blood pressure. There’s also the cost of security, disposing of Ebola-contaminated trash and equipment to protect caregivers.

Remember that Duncan, from published reports, lied about his exposure to ebola before coming to the US.  He also came here to the US knowing he had no means to pay any hospital bill he might incur, and he knew that if he got sick he would incur that care and said bill.

So.... is this set of actions, given those circumstances, criminal fraud?

Just askin', not that it matters at this point since he's dead...

Categories: Economics

The Market Ticker - But Oblomebama Would NEVER Do That!

The Market Ticker - 9 October 2014 - 10:15pm

No, they'd never delay reporting -- and "alter" (read: fraudulently falsify) reports into a Secret Service scandal -- right?

The lead investigator into the Secret Service prostitution scandal told Senate staffers that he was directed to delay the release of the report until after the 2012 election, according to a published report. 

According to The Washington Post, David Nieland also said that he was instructed by his superiors in the Department of Homeland Security (DHS) inspector general's office to "withhold and alter certain information in the report of investigation because it was potentially embarrassing to the administration."

So DHS isn't about protecting yousee.  It's about protecting the administration -- and not from physical threats either, but rather from embarrassing scandals that might cause them to lose elections!

It has long since ceased to be amusing drawing parallels between Hitler's Homeland nonsense and our own DHS.

But as long as you, the American public, will stick out your hand for your EBT and Section 8, well, it's perfectly ok to use the Department of Homeland Security to effectively rig an election by intentionally distorting the record as to prostitutes fucking members of the White House advance team.

Categories: Economics

What Shade of Green are You?

Energy Bulletin - 9 October 2014 - 7:00pm

A danger with any movement is its potential to fragment into factions once it reaches a certain size – with the various factions competing instead of collaborating – and the potential emergence of a dominant faction that drowns out competing worldviews, theories of change, and tactics.

Categories: Peak oil news

Dark Age America: The Collapse of Political Complexity

The Archdruid Report - 9 October 2014 - 11:10am
The senility that afflicts ruling elites in their last years, the theme of the previous post in this sequence, is far from the only factor leading the rich and influential members of a failing civilization to their eventual destiny as lamppost decorations or come close equivalent. Another factor, at least as important, is a lethal mismatch between the realities of power in an age of decline and the institutional frameworks inherited from a previous age of ascent.
That sounds very abstract, and appropriately so. Power in a mature civilization is very abstract, and the further you ascend the social ladder, the more abstract it becomes. Conspiracy theorists of a certain stripe have invested vast amounts of time and effort in quarrels over which specific group of people it is that runs everything in today’s America. All of it was wasted, because the nature of power in a mature civilization precludes the emergence of any one center of power that dominates all others.
Look at the world through the eyes of an elite class and it’s easy to see how this works. Members of an elite class compete against one another to increase their own wealth and influence, and form alliances to pool resources and counter the depredations of their rivals. The result, in every human society complex enough to have an elite class in the first place, is an elite composed of squabbling factions that jealously resist any attempt at further centralization of power. In times of crisis, that resistance can be overcome, but in less troubled times, any attempt by an individual or faction to seize control of the whole system faces the united opposition of the rest of the elite class.
One result of the constant defensive stance of elite factions against each other is that as a society matures, power tends to pass from individuals to institutions. Bureaucratic systems take over more and more of the management of political, economic, and cultural affairs, and the policies that guide the bureaucrats in their work slowly harden until they are no more subject to change than the law of gravity.  Among its other benefits to the existing order of society, this habit—we may as well call it policy mummification—limits the likelihood that an ambitious individual can parlay control over a single bureaucracy into a weapon against his rivals.
Our civilization is no exception to any of this.  In the modern industrial world, some bureaucracies are overtly part of the political sphere; others—we call them corporations—are supposedly apart from government, and still others like to call themselves “non-governmental organizations” as a form of protective camouflage. They are all part of the institutional structure of power, and thus function in practice as arms of government.  They have more in common than this; most of them have the same hierarchical structure and organizational culture; those that are large enough to matter have executives who went to the same schools, share the same values, and crave the same handouts from higher up the ladder. No matter how revolutionary their rhetoric, for that matter, upsetting the system that provides them with their status and its substantial benefits is the last thing any of them want to do.
All these arrangements make for a great deal of stability, which the elite classes of mature civilizations generally crave. The downside is that it’s not easy for a society that’s proceeded along this path to change its ways to respond to new circumstances. Getting an entrenched bureaucracy to set aside its mummified policies in the face of changing conditions is generally so difficult that it’s often easier to leave the old system in place while redirecting all its important functions to another, newly founded bureaucracy oriented toward the new policies. If conditions change again, the same procedure repeats, producing a layer cake of bureaucratic organizations that all supposedly exist to do the same thing.
Consider, as one example out of many, the shifting of responsibility for US foreign policy over the years. Officially, the State Department has charge of foreign affairs; in practice, its key responsibilities passed many decades ago to the staff of the National Security Council, and more recently have shifted again to coteries of advisers assigned to the Office of the President.  In each case, what drove the shift was the attachment of the older institution to a set of policies and procedures that stopped being relevant to the world of foreign policy—in the case of the State Department, the customary notions of old-fashioned diplomacy; in the case of the National Security Council, the bipolar power politics of the Cold War era—but could not be dislodged from the bureaucracy in question due to the immense inertia of policy mummification in institutional frameworks.
The layered systems that result are not without their practical advantages to the existing order. Many bureaucracies provide even more stability than a single bureaucracy, since it’s often necessary for the people who actually have day to day responsibility for this or that government function to get formal approval from the top officials of the agency or agencies that used to have that responsibility, Even when those officials no longer have any formal way to block a policy they don’t like, the personal and contextual nature of elite politics means that informal options usually exist. Furthermore, since the titular headship of some formerly important body such as the US State Department confers prestige but not power, it makes a good consolation prize to be handed out to also-rans in major political contests, a place to park well-connected incompetents, or what have you.
Those of my readers who recall the discussion of catabolic collapse three weeks ago will already have figured out one of the problems with the sort of system that results from the processes just sketched out:  the maintenance bill for so baroque a form of capital is not small. In a mature civilization, a large fraction of available resources and economic production end up being consumed by institutions that no longer have any real function beyond perpetuating their own existence and the salaries and prestige of their upper-level functionaries. It’s not unusual for the maintenance costs of unproductive capital of this kind to become so great a burden on society that the burden in itself forces a crisis—that was one of the major forces that brought the French Revolution, for instance. Still, I’d like to focus for a moment on a different issue, which is the effect that the institutionalization of power and the multiplication of bureaucracy has on the elites who allegedly run the system from which they so richly benefit.
France in the years leading up to the Revolution makes a superb example, one that John Kenneth Galbraith discussed with his trademark sardonic humor in his useful book The Culture of Contentment. The role of ruling elite in pre-1789 France was occupied by close equivalents of the people who fill that same position in America today: the “nobility of the sword,” the old feudal aristocracy, who had roughly the same role as the holders of inherited wealth in today’s America, and the “nobility of the robe,” who owed their position to education, political office, and a talent for social climbing, and thus had roughly the same role as successful Ivy League graduates do here and now. These two elite classes sparred constantly against each other, and just as constantly competed against their own peers for wealth, influence, and position.
One of the most notable features of both sides of the French elite in those days was just how little either group actually had to do with the day-to-day management of public affairs, or for that matter of their own considerable wealth. The great aristocratic estates of the time were bureaucratic societies in miniature, ruled by hierarchies of feudal servitors and middle-class managers, while the hot new financial innovation of the time, the stock market, allowed those who wanted their wealth in a less tradition-infested form to neglect every part of business ownership but the profits. Those members of the upper classes who held offices in government, the church, and the other venues of power presided decorously over institutions that were perfectly capable of functioning without them.
The elite classes of mature civilizations almost always seek to establish arrangements of this sort, and understandably so. It’s easy to recognize the attractiveness of a state of affairs in which the holders of wealth and influence get all the advantages of their positions and have to put up with as few as possible of the inconveniences thereof. That said, this attraction is also a death wish, because it rarely takes the people who actually do the work long to figure out that a ruling class in this situation has become entirely parasitic, and that society would continue to function perfectly well were something suitably terminal to happen to the titular holders of power.
This is why most of the revolutions in modern history have taken place in nations in which the ruling elite has followed its predilections and handed over all its duties to subordinates. In the case of the American revolution, the English nobility had been directly involved in colonial affairs in the first century or so after Jamestown. Once it left the colonists to manage their own affairs, the latter needed very little time to realize that the only thing they had to lose by seeking independence was the steady hemorrhage of wealth from the colonies to England. In the case of the French and Russian revolutions, much the same thing happened without the benefit of an ocean in the way: the middle classes who actually ran both societies recognized that the monarchy and aristocracy had become disposable, and promptly disposed of them once a crisis made it possible to do so.
The crisis just mentioned is a significant factor in the process. Under normal conditions, a society with a purely decorative ruling elite can keep on stumbling along indefinitely on sheer momentum. It usually takes a crisis—Britain’s military response to colonial protests in 1775, the effective bankruptcy of the French government in 1789, the total military failure of the Russian government in 1917, or what have you—to convince the people who actually handle the levers of power that their best interests no longer lie with their erstwhile masters. Once the crisis hits, the unraveling of the institutional structures of authority can happen with blinding speed, and the former ruling elite is rarely in a position to do anything about it. All they have ever had to do, and all they know how to do, is issue orders to deferential subordinates. When there are none of these latter to be found, or (as more often happens) when the people to whom the deferential subordinates are supposed to pass the orders are no longer interested in listening, the elite has no options left.
The key point to be grasped here is that power is always contextual. A powerful person is a person able to exert particular kinds of power, using particular means, on some particular group of other people, and someone thus can be immensely powerful in one setting and completely powerless in another. What renders the elite classes of a mature society vulnerable to a total collapse of power is that they almost always lose track of this unwelcome fact. Hereditary elites are particularly prone to fall into the trap of thinking of their position in society as an accurate measure of their own personal qualifications to rule, but it’s also quite common for those who are brought into the elite from the classes immediately below to think of their elevation as proof of their innate superiority. That kind of thinking is natural for elites, but once they embrace it, they’re doomed.
It’s dangerous enough for elites to lose track of the contextual and contingent nature of their power when the mechanisms through which power is enforced can be expected to remain in place—as it was in the American colonies in 1776, France in 1789, and Russia in 1917. It’s far more dangerous if the mechanisms of power themselves are in flux. That can happen for any number of reasons, but the one that’s of central importance to the theme of this series of posts is the catabolic collapse of a declining civilization, in which the existing mechanisms of power come apart because their maintenance costs can no longer be met.
That poses at least two challenges to the ruling elite, one obvious and the other less so. The obvious one is that any deterioration in the mechanisms of power limits the ability of the elite to keep the remaining mechanisms of power funded, since a great deal of power is always expended in paying the maintenance costs of power. Thus in the declining years of Rome, for example, the crucial problem the empire faced was precisely that the sprawling system of imperial political and military administration cost more than the imperial revenues could support, but the weakening of that system made it even harder to collect the revenues on which the rest of the system depended, and forced more of what money there was to go for crisis management. Year after year, as a result, roads, fortresses, and the rest of the infrastructure of Roman power sank under a burden of deferred maintenance and malign neglect, and the consequences of each collapse became more and more severe because there was less and less in the treasury to pay for rebuilding when the crisis was over.
That’s the obvious issue. More subtle is the change in the nature of power that accompanies the decay in the mechanisms by which it’s traditionally been used. Power in a mature civilization, as already noted, is very abstract, and the people who are responsible for administering it at the top of the social ladder rise to those positions precisely because of their ability to manage abstract power through the complex machinery that a mature civilization provides them. As the mechanisms collapse, though, power stops being abstract in a hurry, and the skills that allow the manipulation of abstract power have almost nothing in common with the skills that allow concrete power to be wielded.
Late imperial Rome, again, is a fine example. There, as in other mature civilizations, the ruling elite had a firm grip on the intricate mechanisms of social control at their uppermost and least tangible end. The inner circle of each imperial administration—which sometimes included the emperor himself, and sometimes treated him as a sock puppet—could rely on sprawling many-layered civil and military bureaucracies to put their orders into effect. They were by and large subtle, ruthless, well-educated men, schooled in the intricacies of imperial administration, oriented toward the big picture, and completely dependent on the obedience of their underlings and the survival of the Roman system itself.
The people who replaced them, once the empire actually fell, shared none of these characteristics except the ruthlessness. The barbarian warlords who carved up the corpse of Roman power had a completely different set of skills and characteristics: raw physical courage, a high degree of competence in the warrior’s trade, and the kind of charisma that attracts cooperation and obedience from those who have many other options. Their power was concrete, personal, and astonishingly independent of institutional forms. That’s why Odoacer, whose remarkable career was mentioned in an earlier post in this sequence, could turn up alone in a border province, patch together an army out of a random mix of barbarian warriors, and promptly lead them to the conquest of Italy.
There were a very few members of the late Roman elite who could exercise power in the same way as Odoacer and his equivalents, and they’re the exceptions that prove the rule. The greatest of them, Flavius Aetius, spent many years in youth as a hostage in the royal courts of the Visigoths and the Huns and got his practical education there, rather than in Roman schools. He was for all practical purposes a barbarian warlord who happened to be Roman by birth, and played the game as well as any of the other warlords of his age. His vulnerabilities were all on the Roman side of the frontier, where the institutions of Roman society still retained a fingernail grip on power, and so—having defeated the Visigoths, the Franks, the Burgundians, and the massed armies of Attila the Hun, all for the sake of Rome’s survival—he was assassinated by the emperor he served.
Fast forward close to two thousand years and it’s far from difficult to see how the same pattern of elite extinction through the collapse of political complexity will likely work out here in North America. The ruling elites of our society, like those of the late Roman Empire, are superbly skilled at manipulating and parasitizing a fantastically elaborate bureaucratic machine which includes governments, business firms, universities, and many other institutions among its components. That’s what they do, that’s what they know how to do, and that’s what all their training and experience has prepared them to do.  Thus their position is exactly equivalent to that of French aristocrats before 1789, but they’re facing the added difficulty that the vast mechanism on which their power depends has maintenance costs that their civilization can no longer meet. As the machine fails, so does their power.
Nor are they particularly well prepared to make the transition to a radically different way of exercising power. Imagine for a moment that one of the current US elite—an executive from a too-big-to-fail investment bank, a top bureaucrat from inside the DC beltway, a trust-fund multimillionaire with a pro forma job at the family corporation, or what have you—were to turn up in some chaotic failed state on the fringes of the industrial world, with no money, no resources, no help from abroad, and no ticket home. What’s the likelihood that, without anything other than whatever courage, charisma, and bare-knuckle fighting skills he might happen to have, some such person could equal Odoacer’s feat, win the loyalty and obedience of thousands of gang members and unemployed mercenaries, and lead them in a successful invasion of a neighboring country?
There are people in North America who could probably carry off a feat of that kind, but you won’t find them in the current ruling elite. That in itself defines part of the path to dark age America: the replacement of a ruling class that specializes in managing abstract power through institutions with a ruling class that specializes in expressing power up close and in person, using the business end of the nearest available weapon. The process by which the new elite emerges and elbows its predecessors out of the way, in turn, is among the most reliable dimensions of decline and fall; we’ll talk about it next week.
Categories: Peak oil news
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