Worse Than 1860

Submitted by James Howard Kunstler  –  www.kunstler.com

The lost story-line amid the food-fights and boasting contests that the “debates” have turned into is the destruction being wreaked on the two major parties themselves. I don’t see how either the Republicans or Democrats get out of this thing alive. The primary season now upon us is the event horizon that sucks these two purposeless clubs into the bottomless hole of historical bad memories. Both parties have failed so fundamentally to represent or even apprehend the interests of the nation that they are now merely obstacles to any sort of plausible future, two infernal machines blocking the road, shaking themselves to death.

The Republican Party may be closer to outright blowup since the rank and file will never accept Donald Trump as their legitimate candidate, and Trump has nothing but contempt for the rank and file. If Trump manages to win enough primaries and collect a big mass of delegate votes, the July convention in Cleveland will be the site of a mass political suicide. The party brass, including governors, congressmen, senators and their donor cronies will find some device to deprive Trump of his prize, and the Trump groundlings will revolt against that move, and the whole nomination process will be turned over to the courts, and the result will be a broken organization. The Federal Election Commission may then have to appeal to Capital Hill to postpone the general election. The obvious further result will be a constitutional crisis. Political legitimacy is shattered. Enter, some Pentagon general on a white horse.

Parallel events could rock the Democratic side. I expect Hillary to exit the race one way or another before April. She comes off the shelf like a defective product that never should have made it through quality control. Nobody really likes her. Nobody trusts her. Nobody besides Debbie Wasserman Schultz and Huma Abedin believe that it’s her turn to run the country. Factions at the FBI who have had a good look at her old State Department emails want to see her indicted for using the office to gin up global grift for the Clinton Foundation. These FBI personnel may be setting up another constitutional crisis by forcing Attorney General Loretta Lynch either to begin proceedings against Clinton or resign. Rumors about her health (complications from a concussion suffered in a fall ) won’t go away. And finally, of course, Senator Bernie Sanders is embarrassing her badly at the polls. Continue reading

Cleanup Already Begun

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

If top level sales are not to ever become what economists projected, as retail sales left little doubt in December, then what is left is to no longer hold the line as best as possible on resources and inputs. With inventory already massive, production must be brought down to equalize sales at each level plus already accumulated(ing) inventory. With the Empire State Fed regional manufacturing survey crashing in December, it was a clear indication that the next phase of the adjustment may have already begun.

In November, US industrial production turned negative for the first time in the “cycle”; ominously being reported by the Federal Reserve on the same day that the central bank’s policymaking body attempted to suggest an opposite economic condition. At -1.2% (revised now to -1.3%), it left little doubt as to the overall economic implication; only three times in the 136 months (not counting Nov. 2015) going back to 1950 had IP been lower than -1% without immediate proximity to recession (and all three of those months were back in the 1950’s). December’s IP estimate leaves even less doubt, figured at -1.8% currently. Only 114 times (not counting Dec. 2015) has IP been less than -1.7% and every single one of those months is associated with full economic recession. There just aren’t any false positives – which is one reason the NBER looks to IPin dating cycle peaks.

ABOOK Jan 2016 US IP

Continue reading

This Is Not 2008: It’s Actually Worse

Submitted by Michael Pento – Pento Portfolio Strategies

The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the Dot.Com Bubble that caused the NASDAQ to plummet 78% and the S&P 500 to shed 35% of its value. In fact, they claim the current turmoil in China is not even comparable to the 1997 Asian Debt Crisis: when dollar-denominated debt loads couldn’t be repaid and the Thai baht lost half its value, and the stock market dropped 75%.

Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don’t expect them to warn of the impending global recession and market mayhem. But a recession has occurred in the U.S. about every five years on average since the end of WWII; and it has been seven years since the last one—we are overdue. Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37%. That would take the S&P 500 down to about 1,300; if this next recession were to be just of the average variety.

But this one will be worse.

A major contributor for this imminent recession is the fallout from a faltering Chinese economy. The megalomaniac communist government has increased debt 28 times since the year 2000. Taking that total north of 300% of GDP in a very short period of time for the primary purpose of building a massive unproductive fixed asset bubble. Now that this debt bubble is unwinding, growth in China is going offline. The renminbi’s falling value, cascading Shanghai equity prices (down 40% since June 2014) and plummeting rail freight volumes (down 10.5% y/y), all clearly illustrate that China is not growing at the promulgated 7%, but rather isn’t growing at all. The problem is China accounted for 34% of global growth, and the nation’s multiplier effect on emerging markets takes that number to over 50%. Therefore, expect more stress on multinational corporate earnings as global growth continues to slow. Continue reading

The Warmongers’ Brawl – How The GOP Is Deserting Free Markets, Sound Money And Fiscal Rectitude

According to Dante’s Divine Comedy the inscription on the gates to hell says, “Abandon hope all ye who enter here”.

That phrase should have been emblazoned on the entrance to the North Charleston Coliseum Thursday night, as well. In their lust for war, the GOP candidates to a man forgot why the Republican party even exists.

In remonstrating noisily for even more of Washington’s imperial overreach abroad, rather than attacking its bloated and intrusive aspect at home, they forced the American people to abandon any hope for the restoration of fiscal rectitude, sound money and free markets.

It started with Senator Cruz who ignored the first question entirely and launched off into an utterly gratuitous exercise in rank demagoguery about the US sailors held for 16 hours by Iran. Said the candidate who is supposed to be talking about the Fed’s brutal war on savers and Washington’s burial of the nation’s taxpayers in public debt:

“Today, many of us picked up our newspapers, and we were horrified to see the sight of 10 American sailors on their knees, with their hands on their heads,” Cruz said. “I give you my word, if I am elected President, no serviceman or servicewoman will be forced to be on their knees, and any nation that captures our fighting men will feel the full force and fury of the United States of America.”

Oh, c’mon, Senator. This incident happened because two US riverine patrol boats, which specialize in coastal landings, wandered into Iranian territorial waters and at the very worst place imaginable. That is, about 1.5 miles from Farsi Island, which is a major base of the Iranian Revolutionary Guard Corps (IRGC)—-the very reactionary force in Iranian politics that wants to sabotage the nuke deal and stop normalization of relations with the US no less than do Washington’s neocons.

So if someone needed to be called on the carpet by the GOP debaters, it should have been General Joseph Dunford, Chairman of the Joint Chiefs of Staff. The lapse of command and control in the instance was inexcusable. Continue reading

2016: Surprises & Scenarios

“The expected rarely occurs and never in the expected manner.”

– Vernon A. Walters

“The fundamental nature of exploration is that we don’t know what’s there. We can guess and hope and aim to find out certain things, but we have to expect surprises.”

– Charles H. Townes

I see it every December and January: in the flurry of economic and political forecasts, someone says we ought to “expect a surprise.”

Phrases like this drive the writer part of me crazy. A surprise, by definition, is something you don’t expect, so telling us to expect one makes no sense. They might as well say, “Expect the warm water to be cold.” The words don’t go together that way.

The analyst part of me, though, knows what they really mean: not that we should expect a particular unforeseeable event, but that we should recognize the probability that we will be surprised in some way, at some point.

In fact, that prediction is almost always realized. I can guarantee you’ll get surprised this year. I can’t guarantee what specific events will surprise you, but I can make some educated guesses, as I did last week in “Economicus Terra Incognita.” Today we’ll go a step further and look at some of the “surprises” others are seeing in their crystal balls.

We can acknowledge the difficulty of making forecasts while also learning from informed speculation. How to do this? Pay attention to people who know their limitations. The most useful forecasts come from well-informed analysts who understand the very real boundaries that guide speculation about the future. One of my favorite Clint Eastwood lines, which I often quote to my children and friends, is the familiar, “A man has to know his limitations.”

Last week we discussed the limitations of forecasting. Condensed into one paragraph, my forecast said that world GDP will continue to decline, while the US will have slow growth – closer to 1% than 2% – but we shouldn’t plunge into recession without a shot across the bow to the US economic system from overseas. I speculated that such a shock might come from the collapse of Europe, a true crisis in China (beyond falling to 3–4% growth), or an uncharacteristically severe bear market in stocks. In the past, bear markets have not caused recessions – the causality is the other way around. But in the past, the US economy was not sputtering along at stall speed, so I don’t think we can rule out causation running the other way. All my other forecasts follow from those basic thoughts, which you can readif you like.

So today we’ll look at 2016 forecasts from some professionals I trust. I know most of them personally and have been friends with some of them for years. I know they aren’t just “talking their book.” They may turn out to be wrong, but if so, it will be for the right reasons. After we review the forecasts, we’ll look at some common threads among them, as well as important differences. Continue reading

“Time Is Coming Again” for Gold Bullion

Submitted by Mark O’Byrne  –  GoldCore

“It had a great first week. Bullish chatter was starting to be heard. Then it stuttered.
So have we seen the low? Are we in a new bull market?”



“But gold’s time is coming again. New gold narratives will soon emerge.
And two or three years from now, you might be mighty glad you own some.”

Money Week‘s Dominic Frisby considers the outlook for gold bullion and gives his prognosis for the year ahead here

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Asian Shares Drop To 2011 Levels As Oil Slump Intensifies (Reuters)
• Oil Slides To Lowest Since 2003 As Iran Sanctions Are Lifted (Reuters)
• Hedge Funds Are Betting The Commodities Collapse Isn’t Over Yet (BBG)
• Gulf Stock Crash Wipes $38.5 Billion Off Markets As Iran Enters Oil War (Tel.)
• Richest 1% Now Wealthier Than The Rest Of Humanity Combined (BBG)
• Stock Market Crash Could Burst UK Property Bubble (Express)
• It’s Not Time For Britain To Be ‘Intensely Relaxed’ Over Household Debt (Ind.)
• China’s Securities Czar Casts Wide Blame for Market Turmoil (WSJ)
• China To Clean-up ‘Zombie’ Companies By 2020 (Reuters)
• The Problem With Getting Money Out Of China (China Law Blog)
• Gloom Gathers Over The Challenges That Germany Faces (FT)
• “Everything Has Come to a Standstill”: Politics Hits Business in Spain (WS)
• Canadian Officials Under Pressure to Stimulate Economy (WSJ)
• Shock Figures To Reveal Deadly Toll Of Global Air Pollution (Observer)
• False Emissions Reporting Undermines China’s Pollution Fight (Reuters)
• Weak EU Tests For Diesel Emissions Are ‘Illegal’ (Guardian)
• 66 Institutional Investors To Sue Volkswagen In Germany (FT)
• Obama Declares Emergency In Flint, But Not Disaster (DFP)
• When Peace Breaks Out With Iran… (Ron Paul)
• Syria 4 Years On: Shocking Images Of A Post-US-Intervention Nation (ZH)
• The Economics Of The Refugee Crisis Lay Bare Our Moral Bankruptcy (Guardian)