Financial Markets Update 25/07/2015

At this stage we are set for a stock market crash in the US for the fourth quarter of 2015. As per our previous warnings our Business Cycle Analysis suggests M2 NSA quarterly average money supply growth is collapsing, undercutting the existing capital-consumption structure of the US economy. M2 NSA has fallen to 1.5% from its March 2015 peak of 8.25%. Furthermore we now have a series of lower highs and lower lows occurring since 2011 implying a long term weakening of the capital-consumption structure.

US Stock Markets
Translating that into stock market prices we at Emerging Events suggest the potential for one last high on the DJIA and S&P500 is still present. The DJIA has the potential to rally to 18351-18500 (S&P 2134-2150). A fall below DJIA 17465 (S&P 2044) would see this invalidated and a confirmation that the top is already in. Substantial falls are directly ahead. Our short term downside target once the top has been confirmed remains below DJIA 15855 (S&P 2061).

Gold
Sentiment in gold has reached extremely pessimistic levels. Whilst the potential for marginally new lows can occur the next major move will be a move to above US$1307 before the resumption of the long term downtrend from its 2011 highs. The move above US$1307 should be a very fast move.

US Interest Rates
Long interest rates appear to be completing a consolidation phase – basing before moving substantially higher. Thus the trap will be closing to trigger “The Great Sovereign Debt Crisis of the 21st Century”. In the short term however there is potential for interest rates to continue to base prior to the commencement of this upward move on rates. Expect 30 Year US Treasuries to work into the 2.75-2.85% before moving higher with the potential to spend more time basing. When the up move gets underway we see the 4.5-5.0% for 30 year Treasuries as the next interim target. Expect global interest rates to follow accordingly.

US$
The US$ has strengthened since our last financial markets update. This is in keeping with our view that money will continue to be sucked from the periphery to the centre. We anticipate the US$ to continue to strengthen sucking money from the third world, Asia and Europe with frequent rallies along the way. Expect the Euro to test its recent low around 1.04 and potentially 1.00. The $Yen will move above 125 – 130. Aus$ to test 70 cents.

Australian Stock Market
The nature of the stock market has since the 2009 lows has been a corrective recovery to date. It has failed to make new highs whilst other world stock markets have done so. This reflects the major restructuring needed in the Australian economy. We anticipate the Australian stock market to continue its down trend and look for further acceleration downwards as the rest of the world starts to catch up later this year. Significant falls lie ahead and initially we are looking for a test of the 2009 lows.

Oil & Gas
We see oil & gas continuing to consolidate its falls of early 2015. At the moment they are probing towards the lows. We see those lows holding up and eventually oil prices moving to test the US$67-68 per barrel level for crude before a resumption of the long term downtrend and our long term target of US$12 per bbl.

 

Warning: use extreme caution

US money supply growth (M2 NSA quarterly average) has fallen consistently since early February to present. From a high at 7.88% money supply is now at 3.16%. This means that the stock of new money coming in to support the existing capital-consumption structure of the US economy is being undermined. The analogy is ‘as if the amount of gas flowing into your stove has been cut by half’. It means you have less fuel in which to continue cooking your meal at the same temperature. The economy needs new money (gas) to be sustained if it is to continue to grow.

Whilst there is still a lot of cash sloshing around the US economy, the fall in the rate of growth of money supply implies the capital-consumption structure of the US economy is being undermined and now subject to rebalancing or correction. Whilst there is a possibility of stock markets kicking back to make new highs, probability is now moving towards extended falls in line with prior forecasts.

Already we see US stock markets off their all time highs. We have written about this previously, warning there was significant downside to stock markets based on the potential for money supply growth to collapse. Using money supply growth to track investments and economic activity is an aspect of Austrian Business Cycle Theory which depicts economic booms and busts as the consequence of money growth and decline.

U.S. Continuous Average Temperature Index – Discontinued

US Weather Cooling

The National U.S. Historical Climatology Network (USHCN) monthly temperature updates have been discontinued. The official CONUS temperature record is now based upon nClimDiv. USHCN data for January 1895 to August 2014 will remain available for historical comparison. However, one must wonder if the data, which was demonstrating a cooling period rather than global warming, was conflicting with political agendas to raise taxes based upon false information.

Editor’s Note: Never let facts stand in the way of a government in trouble when it comes to raising tax revenue. Will be interesting to see if the new data series taking over reflects the pro-climate change global warming argument. If it goes true to form the new nClimDiv data set will be revised at some stage in the next year or two.

Source: http://armstrongeconomics.com/archives/33511

ABCT Modelling shows US economy vulnerable at present to shocks

Our Austrian Business Cycle Theory (ABCT) model indicates potential trouble ahead.

It appears the capital-consumption structure of the US economy is vulnerable to potential shocks with the risk of economic activity failing. For existing capital-consumption structures to be maintained, our modelling shows M2 non-seasonally adjusted money supply growth which is currently running at around 7.3% p.a. needs to be running at 10 – 10.5%. The massive M2 growth over the last 8 years may well have a created a trap for central bankers who have engaged in money printing activity to support the economy. To bend the analogy used to describe the effects of money printing, there is not enough “punch” coming to the party and whilst the party staggers on , the participants are at risk of getting a hangover.

We can conclude therefore that unless there is an increase in M2 NSA money supply growth, a high risk exists for capital structures to fall. Interest rate markets are moving in anticipation of US Federal Reserve interest rate policy adjustments later this year. This will impact stock markets and real estate markets affecting near term direction. Whether this is the start of a bigger cyclical downturn remains to be seen.

Elon Musk makes the case that Tesla is a battery company first, and a carmaker second

tesla-musk-batteryNo wheels on this Tesla.(AP Photo/Ringo H.W. Chiu)

Tesla has started selling batteries that don’t have an expensive car attached. And CEO Elon Musk—the billionaire entrepreneur often compared to a superhero or a Bond villain—described a scenario in which they could potentially power much of the world.

Tesla’s new offering is called the Powerwall, a rechargeable lithium-ion battery that is designed to be mounted in a garage or on the side of a house. The device, the size of a small refrigerator, will be available in three to four months, at a price starting at $3,000 for 7 kilowatt hours (kWh). The Powerwall can store power from a home’s solar panels, or connect to the electrical grid, storing up electricity when rates are low and providing backup electricity supply in case of a blackout.

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Coming to a garage near you?(AP Photo/Ringo H.W. Chiu)

The sun is “this handy fusion reactor in the sky—you don’t have to do anything, it just works,” Musk said in a presentation. “The obvious problem with solar power is the sun does not shine at night.” (Musk, in addition to running Tesla and a rocket company, is also the chairman of Solar City, a solar panel installation business.)

Tesla is also taking aim at a bigger customers, selling 100 kWh batteries called Powerpacks to utilities and electricity-hungry companies like Amazon. Musk said Tesla is capable of “infinitely scaling” the units into a gigawatt hour-class installation, which could power a mid-sized town of about 100,000 people, or even build larger configurations.

The company’s consumer- and business-focused batteries will eventually be manufactured at the massive Gigafactory that Tesla is building in Nevada, where Tesla car batteries will also be made.

The truly grandiose scale of Musk’s ambition was revealed at the end of his presentation, when he described how many gigawatt hour class Powerpacks it would take to fulfill all of the world’s transport, electricity, and heating needs: about 2 billion.

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“Two…*billion*….Powerpacks.”

“I’m very tempted to do the billion thing,” joked Musk, who has often poked fun at his Dr. Evil-esque public image. “Let me restrain my hand.” (see the GIF, left.)

But Musk wasn’t joking when he said this: “Our goal here is to change the way the world uses energy at an extreme scale … This is something within the power of humanity to do. We have done these things before.”

Many are dubious that Tesla’s ambitions are achievable. As Quartz has reported, many of the company’s recent announcements seem to be designed to drive up its volatile stock, and Tesla’s path to profitability—it is currently targeting 2020—is a bumpy one if it cannot raise more capital from investors.

But grandiose ambitions have always been part of the Tesla pitch, and there is the chance that Musk’s bets could pay off.

“The goal is to change the world, starting with the automotive industry and closely followed by the power sector and then energy in general,” Bernstein analysts wrote shortly before the new battery business was announced. “Is that a realistic goal? Clearly it is not. But it is useful to remember that Elon Musk’s other business involves flying to Mars.”

Source: http://qz.com/395907/elon-musk-makes-the-case-that-tesla-is-a-battery-company-first-and-a-carmaker-second/

Financial Markets Updates

Updating and revising our financial markets forecasts (here and on our Financial Markets Predictions page):

US Stock Markets

As per our 3/23 update, US stocks peaked just 5 days later and has since entered a series of lower lows punctuated with short rallies. Its still to early to determine if a major top is in place but we wait and watch.

The downward move targets DJIA 17,721 (already achieved), 17460, 17,037 to potentially test the mid October lows at 15,855. (S&P500 2061 (already achieved), 2045, 1980 & the October lows at 1820).

Gold

It appears gold will bottom at or around the previous 11/07/15 low at US$1131 this coming week. If confirmed we can anticipate a resumption of the counter rally from the September 2011 highs at US$1920. Our target of US$1430-1440 remains in place.

US Dollar

The US dollar has rallied strongly in the last few months. The US$ may already peaked and begun a consolidation phase lasting many months. Specifically:

– US$/Yen: We are anticipating one more high to 124.50+/- before beginning a consolidation phase lasting months.

– Eur/USD: From here or slightly new lows (1.02-1.0495) we view the market has completed its move down and anticipate a major bounce. We anticipate a test of the 1.60 Eur/USD level.

– Aud/USD: anticipating marginal new lows below 0.7560 before a move back towards 0.9500.

Crude Oil

Oil is continuing its consolidation phase before resuming its down move to our US$12/barrel target we first determined in 2011. Short term we view the market making equal lows (US$43.58) to slightly new lows before rallying back to continue its consolidation phase. Our upside focus is US$68.00 with an extreme case push to US$75.54.

Interest rates

US interest rates have the potential to also spike sharply in the near future. Using futures as our proxy a move on 10 year notes to 110 -115 in 2015 is very doable.

The potential for some markets to rally (gold, silver, oil, Euro, Au$ (US$ weakening) suggests inflationary pressures emerging in 2015 in the US. This is in line with our money supply analysis and Austrian Business Cycle Theory. Alternatively, a crisis in the next 6 months may cause markets to spike in response to some international political event. Several scenarios are potential: a Greek default and/or Grexit in the summer months, Ukraine/Russia troubles and China.

US Stock Market Alert 02/23/15

High probability alert for US stock markets at current or slightly higher levels to begin a moderately significant downward move targeting DJIA 17,721, 17460, 17,037 to potentially test the mid October lows at 15,855. (S&P500 2061, 2045, 1980 & the October lows at 1820).

Once again the nature of the decline and its subsequent recovery will determine the longer term view for US stocks. We hold to our primary short term view that inflation is likely to break out strongly in the US with significant moves in stocks upwards in  late 2015 and beyond.

 

At $200 Trillion The World’s Debt Cup Overfloweth

by Bloomberg Business

The world economy is still built on debt.

That’s the warning today from McKinsey & Co.’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product, while the use of other financial services that allow business to do trading with the use of gartley patterns strategies for this.

While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain

McKinsey sees little reason to think the trajectory of rising leverage will change any time soon.

Source: McKinsey

 Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure

Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

 Source: McKinsey

2. Households in some nations are still boosting debts

Eighty percent of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

Source: McKinsey

 3. China’s debt is rising rapidly

Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282 percent of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Source: McKinsey

via A World Overflowing With Debt – Bloomberg Business.

Source: http://davidstockmanscontracorner.com/at-200-trillion-the-worlds-debt-cup-overfloweth/

 

 

Era of Transparency & Accountability Beginning for Politicians

An era of transparency & accountability is beginning for politicians.

Very shortly the U.S. Congress will shortly vote to make Economic Impact Assessments (EIAs) a mandatory part of every executive rule or regulation passed with an annual economic impact of $100 million or more (REINS Act SR226 & HR 47).

Elsewhere the rise of right wing politics in the EU and UK is forcing scrutiny on politicians and bringing them to account. In many democracies it may become mandatory to attach economic impact assessment statements to each piece of legislation  If this trend reaches an extreme we will see calls to have politicians and government unable to raise any debt. given their track record however, maybe this is not such a bad thing.

The Australian state of Queensland election is also forcing the incumbent Premier Newman to adopt transparency and accountability principles. We anticipate transparency and accountability will become the new fashion for liberal democratic governments over the next 3-5 years.

The ‘political hubris bubble’ is finally beginning to burst. Social mood is swinging into action and voters are acting on their long held distrust of politicians. Firstly they exercised their democratic privilege to put several governments into ‘hung parliament’ balances (UK, USA Australia) and now they are beginning to hold them accountable. The days where politicians can promise, over-commit and overspend is coming to an end.

End of the Long Game 2009 – 2018: Part II: The Bear Argument

Part II: the Bear Argument
We also point out our alternative scenario which, if, going to happen, is starting now. This scenario suggests stock market prices are peaking in what was a false move to the upside over 2009-2014. This implies that the stock market correction which began in 2000 is still underway and has many years left to unfold. It also implies that stock markets are about to undergo a rapid and relentless decline to their 2009 low points and most probably lower. Falling oil, gold, metal and bond prices over the last few months support this scenario which suggests economies are still undergoing this huge consolidation.

The current divergence between stock markets and commodities indicate a major topping process is underway. In addition Austrian Business Cycle Theory suggests a massive divergence between the amounts of new money coming into the system on a year on year basis is diverging with capital goods prices such as stocks and real estate. This implies the system cannot support asset prices at their current high levels. Even if the US Fed were to begin another round of quantitative easing it would not be enough to sustain asset values – especially stocks at current levels. If this scenario emerges over the next six months we can predict this will give rise to an economic depression lasting 8 to 13 years before an economic recovery gets underway. See the chart below to get a sense of the disparity between M2 Money Supply growth – non seasonally adjusted compared to the weekly DJIA close.

DJIA - M2 NSAThe alternative view suggests it is the resumption of the bear phase of an ongoing correction since 2000. The massive money supply pumping had created the sub-prime bubble that should have been left to sort itself out in the 2008-2009 phase. Since then we have seen bubbles in commodities, education, shares and real estate. The divergence seen in the above M2 NSA Money Supply – DJIA graph illustrates how much worse the situation has grown with stock prices occupying high levels and the amount of new money coming into the system remaining static. This is untenable.

Summary of expectations – short term bull market scenario
• Expect stock markets to correct more deeply over 2015 (14720, 15340 (DJIA) and 1738, 1814 (SP500)) against a growing bullish optimism before beginning an upward exponential surge in stock, commodity and real estate prices. Anticipate any decline of stock markets or economic data to be met by central banks restarting their QE programs. 14720, 15340 (DJIA) and 1738, 1814 (SP500)
• The collapse of oil prices in the last quarter of 2014 creates a potential game changer for most economies as cheaper energy prices flow through to Main Street. It is likely Crude Oil prices will be capped for the next few years at around US$80 per barrel. This takes the pressure off consumer prices but once again translates into higher share and real estate prices.
• Anticipate consumer price inflation to remain low in the US, UK, EU and Japan. At the same time higher than normal unemployment and the potential for continuing stagnant economic activity will prevail. At this time we anticipate seeing US consumer inflation increase dramatically with the potential to see 4-6% very quickly. The only thing really holding CPI figures down at present, is falling oil prices in late 2014.
• Interest rates will start to rise in 2015 as central banks try to normalize credit markets.
• • Expect credit markets to re-price themselves if inflation does kick up creating a liquidity trap for central banks.
• Anticipate the US, Japan, UK and German stock markets to benefit at the expense of emerging markets as cash gets sucked from the periphery to the centre. Similarly the US dollar will continue to strengthen as money floods back to the centre from the periphery.
• Expect a collapse in stock and commodity prices followed by economic contraction where both inflation and high unemployment are experienced at the same time after this spike in stock and commodity markets prices. This may not happen for another 3 years as the ‘Roaring Teens” finishes up.
• Anticipate social and political dislocation in many countries including the US to continue to escalate.

Summary of expectations – short term bear market scenario
• Expect stock markets to begin a relentless stair step down punctuated with savage counter rallies. The nature of the decline will tell us if this is a correction in a broader ongoing bull market or the beginning of the bear market. One clue would be if the correction points mentioned here are taken out in one continuous uninterrupted decline (14720, 15340 (DJIA) and 1738, 1814 (SP500)). Anticipate any decline of stock markets or economic data to be met by central banks escalating their QE programs. 14720, 15340 (DJIA) and 1738, 1814 (SP500)
• We might also anticipate inflation to break out in an unprecedented way especially in the US, UK and Japan and central banks will be unable to contain it. At the same time higher than normal unemployment and continuing stagnant economic activity will prevail. Interest rates may rally sharply on rising inflation and start to rise as central banks try to normalize credit markets in 2015 before plunging as evidence of the growing bear market gathers.
• The coming phase will be difficult to read as markets enter their final death throws and competing bullish and bearish forces play out.
• The coming depression that unfolds will last 8 to 13 years.
• Anticipate increasing social and political dislocation in many countries including the US.

Conclusion & End Game
Whether we have a few more months or years of twilight before the beginning of a new “Dark Age”, suffice to say, that from now onwards we can expect increasingly tough times punctuated by phases of optimism. And of course the coming generation of correction will not merely be confined to asset prices and the vagaries of fiat money and bad economics, but also to societies and politics, both domestic and geo-political. Generations of people will learn about long forgotten natural laws and how it applies to human behavior. Social mood will have become dark and this will also express itself through every aspect of society, both culturally and economically. Music, the arts, fashion, crime, politics, social mood and drama will all reflect the new paradigm. The growing social political and economic tensions we have witnessed a harbinger of what is to come. This phase will reset the stage for a new beginning for people from which a new and sustained social and economic recovery will slowly begin. By the time that point has arrived however, the nature of our societies and the way we relate with people and between nations will have changed. The wrangling about why it had to happen will be well underway.

Oil Price Predictions

In 2011 we forecast that crude oil prices would in the long term move towards US$12.00 per barrel. Oil prices just touched US$50.00 per barrel, well on our way towards our target.

Whilst oil has considerable potential for a counter rally we believe this rally will only relieve the oversold nature of the market.

Implications for the oil price collapse are profound with business and consumers benefiting from the lower prices. This may stimulate low consumer price inflation, strong stock markets and real estate prices as consumers take advantage of increased disposable income. Our Bull Market Argument outlines how this phase reflects the 1921 – 1929 period in US economic history, also known as the “Roaring 20’s”.

Debt based on high oil prices will suffer of course and could trigger banking issues. If perceived by markets as a negative phenomenon, the impact is highly deflationary and could pull the world into a global deflationary spiral and depression. This is in line with our Bear Market Argument.

We anticipate oil prices to consolidate between US$40.00 to US$80.00 for the rest of 2015 and potentially into 2016 before the long term downtrend carries prices down towards our target. (More specific consolidation targets to be posted later).

The End of the Long Game 2009-2018

Updated as at 24th December 2014

Just when we thought the climate had cleared the scenario ahead, once again it has polarised, again presenting two clearly different scenarios. The question is whether we are, like the Titanic, about to experience the final plunge or will our economic boat remain afloat for a few more months or years to come? This article does not attempt to make trading or investment recommendations. Let’s look at both scenarios in two parts ….. Continue reading

Stock Market Update

Most stock appear set to kick off in 2015 with some decent falls. Its too early to tell if this is the beginning of a broad secular bear market or the beginnings of a healthy correction that will last 3-9 months before stocks continue their advance.

Our broad scenario update “The End of the Long Game 2009-2018” will be released over the next three days outlining the bull and bear cases and provide context for what emerges in 2015.

Peak Babies, Not Oil

Patrick Cox writing for Tech Digest:

Much of my career has been spent refuting this or that doomsday scenario. From peak oil to overpopulation, I’ve been on the other side of the hysteria and often vilified for it. In the last few days, however, a Wall Street Journal headline told us that “Oil Prices Tumble Amid Global Supply Glut.” Also, a LiveScience story told us that “US Birth Rate Hits All-Time Low.”

Neither one of these headlines should surprise anybody. The math behind both of these stories has been clear for a very long time. Neither peak oil nor overpopulation fears were based on actual science. This, of course, raises questions about our species’ susceptibility to periodic Chicken Little hysteria. I have no explanation for this innate tendency, but it’s been evident for thousands of years.

In the modern cautionary tale, first published in the Anglosphere in the mid-1800s, it’s a chicken that cries that the sky is falling. Ancient Buddhists from India and Tibet told the same basic story, but the central character was an alarmist rabbit. That version was spread into Africa and then via the slave trade into America where the oral version was recorded by Joel Chandler Harris in his Uncle Remus books. What sets it apart from the older versions is that Brother Rabbit starts the panic but never actually falls for it himself. I’m reminded of some current global warming activists who fly in private jets and live in estates with carbon footprints bigger than small towns.

This isn’t to say, however, that we have nothing to worry about. In the immortal words of Henry Saint Clair Fredericks (stage name Taj Mahal), “If you ain’t scared, you ain’t right.”

So I’m not exactly scared, but there are things that concern me. The oil glut isn’t one of them, but historically low birthrates do have enormous implications for investors. The last available data, compiled in 2013 by the CDC, show 62.5 births per 1,000 women aged 15 to 44 in the US. That’s down 10 percent from 2007, which was already below replacement rate. In 2008, the US birthrate was 2.08 births per woman, below the 2.1 level needed to replace the population. Today, we are seeing the lowest recorded American birthrate since government started keeping track in 1909. New Zealand, Australia, and Canada are even significantly lower.

In and of itself, a sub-replacement birthrate isn’t necessarily a problem. The problem is that our ruling elite seem totally unaware that it’s happening. Routinely, in fact, we hear from certain politicians that overpopulation remains a pressing problem even as populations throughout the West are shrinking. The same trends, by the way, are already obvious in Asia and Africa where populations continue to increase primarily because people are living longer. Real demographers know that the world population is on track to contracting, and perhaps quite dramatically.

Once again, I recognize that there are upsides to reduced populations. The problem, however, is that so many government policies are still based on the assumption that every generation will be larger than the last. Growing populations are great in many ways. First of all, more young people entering the work force creates demand for all kinds of goods and services. It grows GDP and therefore tax revenues. The simplest way to achieve economic growth is, in fact, to grow the population.

While this is glaringly obvious, it’s remarkable how many economists miss this elephant in the room when talking about countries such as Japan, where economic problems have mirrored the country’s falling population. Last year, the Japanese population shrank by about a quarter million people.

Japan has the highest life expectancy and oldest population in the world, and the older Japanese people expect that the promises made in the past to help support the aged will be honored. It’s not at all clear to me that those promises can be kept, at least as things now stand.

As I’ve written many times, there were about 17 workers per retired person in the United States when I was born in the middle of the last century. Today, the ratio is less than three to one, and getting worse. Already, 30 cents out of every tax dollar collected in America flows to the aged, but much of that money is being borrowed. In effect, the bill for caring for the aged is being sent to future taxpayers, despite the fact that there will be fewer young workers and more aged people to support. This arrangement is not only unsustainable, it’s unethical. In my opinion, the older, wealthier population should help the younger, less wealthy part of the population, the reverse of the current situation.

Every time I’ve written this over the last 30 years or so, I’ve been attacked by people who claim that I’m a fearmonger and that we have plenty of money to support the aged. Today, however, we’re $17 trillion in debt and still borrowing. The current administration doesn’t even acknowledge that the problem exists, so it’s getting harder and harder to make that case.

We need to face the fact that things are going to get worse before they get better. I have little doubt, however, that we will eventually adjust to the new reality. We’ll see policymakers wake up to the new demographics, as they are in Japan, sooner than most of us think. Other countries are also facing facts and are devising solutions. I particularly like the spirit that some Danes are showing in their efforts to counter the country’s low fertility rate. Japan, however, is leading the way in terms of enabling technological solutions through regulatory reform.

The Japanese government understands that the old model is doomed and is actively looking for ways to increase the national work force. There are two obvious ways to do that. One is to bring more women, who have not traditionally worked to the same extent as Japanese men, into the work force. More working women means economic growth and more funds to support an aging population. The other, more long-term solution is to increase birthrates to grow the national work force.

The problem is that the two strategies counteract one another. Japanese women who work have lower birthrates than those who do not. Therefore, the only remaining solution is to extend health spans and working careers, increasing incomes and tax revenues while reducing medical expenses.

There are several ways that the Japanese are working to do this. The most important is the recently accomplished elimination of phase 2 and phase 3 clinical trials for stem cell therapies. The second is in the field of dietary supplements and nutraceuticals.

Japanese regulators exercise less direct control over the market but provide more solid, peer-reviewed information for consumers and healthcare providers. Recently, for example, the Japanese government issued a patent to Terra Biological for oxaloacetate (trade name benaGene) for use in “life extension.” Oxaloacetate is one of the NAD+ precursors that I take based on recent research. I also take the NAD+ precursor, nicotinamide riboside (trade name Niagen).

In general, Japan is leading the way in efforts to encourage new anti-aging therapies. In the next few years, I anticipate that Japan will continue to lower regulatory barriers for new biotechnologies. This is very unlike America’s FDA, which doesn’t yet recognize anti-aging or life extension as a legitimate therapeutic target.

The current regulatory environment in the US will change, however, because it has to. The only question is how soon it happens.

Fortunately, there is a growing chorus of rational voices in the US. I would recommend that everybody download and read Why Population Aging Matters: A Global Perspective. This relatively brief presentation was written by the National Institute on Aging (NIA), part of the National Institutes of Health. On its website, the NIA states bluntly:

The world is on the brink of a demographic milestone. Since the beginning of recorded history, young children have outnumbered their elders. In about five years’ time, however, the number of people aged 65 or older will outnumber children under age 5. Driven by falling fertility rates and remarkable increases in life expectancy, population aging will continue, even accelerate. The number of people aged 65 or older is projected to grow from an estimated 524 million in 2010 to nearly 1.5 billion in 2050, with most of the increase in developing countries.

The interesting thing about that quote is that it was written in 2007, which means that this historic change has already come to pass. Back then, the authors warned:

Some governments have begun to plan for the long term, but most have not. The window of opportunity for reform is closing fast as the pace of population aging accelerates. While Europe currently has four people of working age for every older person, it will have only two workers per older person by 2050. In some countries the share of gross domestic product devoted to social insurance for older people is expected to more than double in upcoming years. Countries therefore have only a few years to intensify efforts before demographic effects come to bear.

More than a few years have passed since this report was written and nothing has really changed politically in the US, though the rate of demographic change and the pace of scientific progress, which is pushing out lifespans, have accelerated. Things will, therefore, get worse. The dynamics behind crippling governmental debt internationally are growing.

There are upsides to this totally predictable situation though. One is that we can anticipate many of the outcomes and devise ways of profiting from them. This is why I focus on disruptive biotechnologies that can significantly lower healthcare costs while extending health spans and careers. These biotechnologies provide the only real solution for the demographic transformation, except for the Danish solution mentioned above. I find it fascinating, by the way, that the revolution in biotechnology is happening exactly at the point in history when it’s needed.

Another significant benefit that will accrue from this convergence of forces is that many of us will be able to take advantage of these breakthrough discoveries. I’m incredibly excited about the emergence of growth hormone-releasing hormone (GHRH) vaccine which has been used widely in animals, where it seemingly rejuvenates and extends lives. Endothelial precursor therapy has similarly been shown in animals to rejuvenate cardiovascular systems. Hopefully soon, we’ll see brown adipose tissue transplantation curing obesity, diabetes and cholesterol problems. There are, however, significant benefits from recently discovered over-the-counter products.

Whenever I talk to el jefe, señor Mauldin, these days, it seems most of our conversations center on our workouts. Both of us work out and lift weights, as we have for much of our lives. Both of us, however, are making gains that we’ve never seen before. One of the Mauldin Economics executives told me recently that he’d never seen John look so good before, that his arms and shoulders are bigger than they’ve ever been.

I probably shouldn’t claim that I look good, but I can say that I’ve also put on a surprising amount of muscle in the last year. That’s not how it’s supposed to work. Both John and I are in our 60s. I work out less than I did than in my 30s, but I’m suddenly lifting much more weight and have more muscle mass than ever. John’s experience is the same.

My only explanation is biotechnology. The NAD⁺ precursors that I mentioned above have been shown in animals to rejuvenate muscle tissue so I’m not surprised to see the effects in humans. I also credit anatabine citrate, though it is at least temporarily unavailable. I’m expecting word on that front soon.

Also, I’m a devoted user of the AVAcore thermogenic device. Recently, a major research organization presented evidence that it may be able to prevent the damage caused by overheating in athletes, but one of the investigating scientists mentioned, as an aside, that it also accelerates training results dramatically. Neither I nor Mauldin Economics have any interest in this privately held company, but I’m evangelical about the benefits, especially to older people. The stronger you are, the lower your risk of disease and mortality.

I realize that the current price of the device is high for many people, but I understand that the company is going to do some sort of crowd-sourcing project in the near future, probably Indiegogo, to fund a much more affordable product. I’ll let you know about the project when I have more information.

One of the reasons that I love the AVAcore device so much is that it perfectly demonstrates the unexpected and dramatic nature of emerging biotechnologies. The notion that exercise capacity and recovery could be dramatically improved by normalizing core body temperature is so unexpected, I’m still in awe over the science and the impact on my health.

It is, however, only the tip of the iceberg. As Japan is demonstrating, an aging population not only wants but demands access to the scientific breakthroughs that can significantly extend health spans. Just as Japan’s regulatory system is bending to the will of its aging population, America’s regulators will be forced to come around.

John and I talk a lot about assisting in that process, and I’ll have more information about that in the future. If you’d like to help in this effort, I suspect there are ways to do so. As it stands, our portfolio contains technologies that I believe will have dramatic impacts on some of the greatest threats to health and longer lives, including Alzheimer’s, cancers, fibrosis, diabetes, and other major diseases. A reformed regulatory system would accelerate therapies to market, which will improve and save lives. It will also allow more of us to live and invest longer.

From the TransTech Digest Research Team:

As Patrick explains above, new biotechnologies will not only extend and improve lives, they will also save the global economy from the implications of a shrinking population. Workers able to stay healthy and remain active in their careers will, quite simply, reduce overall medical spending and lead to an expansion of tax revenues over time.

Today’s transformational technologies—more than perhaps any set of advances the world has ever seen—hold the potential to increase the wealth and the health of all persons in all countries, regardless of their age. Where only a few decades ago many observers saw science fiction, breakthrough research today is working to create previously unfathomable new realities.

You can participate in this process of science fiction becoming science fact in the pages of Patrick’s Transformational Technology Alert. Each month, Patrick profiles a new publicly traded company and shows you the part it plays in the technology revolution ahead. Click here to start a risk-free trial subscription to Transformational Technology Alert today.Sincerely,
Patrick Cox
Patrick Cox
Editor, Transformational Technology Alert

Mauldin Economics

Source: http://www.mauldineconomics.com/tech/tech-digest/peak-babies-not-oil

Consumer Inflation Verging on Breaking Out in the US

The October Producer Price Index in the US released yesterday showed a 0.2% increase over the previous month. This increase comes despite a massive decline in energy prices over the last 2 months. Most indices contained within the PPI moved higher showing broad increases.

Examining the energy markets we see in the improvement in oil prospects for the US has caused OPEC nations such as Saudia Arabia to hold high production levels hence causing oil prices to soften. At between US$65- $80 per barrel oil and gas fracking becomes unprofitable and we see new equilibrium prices occurring around this US$70-80 level occurring in the near term. Longer term pricing remains dependent on global economic activity. we remain wary of the potential for slowing global economic growth. Continue reading

Barclays Has The Best Explanation Yet Of How Solar Will Destroy America’s Electric Utilities

Silver lake coal plant

It’s been a good few decades for America’s electric utilities: As regulated monopolies, they face almost no competition and enjoy access to cheap credit.

In a new note, a Barclays team led by Y.C. Koh says the industry is finally be facing its day of reckoning, from a source many have long dismissed as an unviable pipedream: solar. Specifically, the threat is residential solar, people creating their own electricity.

To prove that the threat is real this time, Barclays is downgrading its Electric sector rating to Underweight from Market Weight “…The regulatory responses to the growing competitive threat from solar + storage may prove inadequate to address potential strains to the credit profiles of issuers in these states,” they write.

There are main two reasons why solar is finally for real, the group says. For more info about solar energy check out sources like NRG Upgrade. The first is that for more than a decade, there’s been a huge push from governments around the world, and at every level, to subsidise renewables. Bloomberg New Energy Finance (BNEF) estimates that the annual output of PV modules increased almost 30x in the past decade, from 1,000MW per year in 2005 to more than 30,000MW in 2013, Barclays notes. With that scale has come cheaper prices for panels.

Here’s what the cost curve looks like:

Solar cost curve

The second reason is the advent of cheap storage. For the past few years, homeowners have addressed renewables’ intermittency problem — the wind isn’t always blowing, the sun doesn’t always shine — by making a deal with her utility: she’ll continue to buy their electric power, but she gets to keep her solar panels running when she’s not home, and sell any excess power they generate back onto the grid. This is called net metering.

Net metering has been a boon for incentivising rooftop solar adoption. But what if you could truly power up your home through a solar-charged battery, and only have to buy utility electricity in an emergency?

As recently as 2009, the all-in costs for such batteries would been as much as $US17,000. But with the expansion of electric vehicles, Barclays says the cost of storage has been falling rapidly, and now stands at about $US3,700. And it just so happens that the power required to operate an electric vehicle can power the average home for up to three days, Barclays notes, “potentially opening a new use in residential distributed generation systems.” Battery costs could come down even further if Elon Musk’s gigafactory launches, they add. Yesterday we discussed this idea in detail. Here’s the price decline chart:

Barclays battery costs

Barclays sees the solar + storage wave has the potential to spread beyond its roots in California and Arizona. Here is their timeline for when solar costs could reach parity in all 50 states:

Barclays solar

Cheap solar panels, combined with cheap storage, will spark a grid “defection spiral” that will pry away utilities’ grip on the power monopoly. In this scenario, early adopters begin leaving the grid, incrementally increasing utilities’ power costs rise — which further exacerbate the shift into solar and storage, and so on.We are already seeing evidence of step 1, as utilities have begun complaining that solar customers are causing electricity prices for non-solar users to go up.

This is maybe the most vivid description in the note of what solar will do to utilities:

we envision an electricity market where demand for grid power falls, peak hours shift (perhaps dramatically), and regulatory mechanisms need to be adjusted or overhauled to accommodate some utilities becoming the electricity generators of last resort. We expect the net effect to be higher grid power costs (thereby exacerbating the consumer shift to solar + storage), lower average credit quality for regulated utilities and unregulated power producers, and increased recognition of the long-term threat to grid power.

Whatever roadblocks utilities try to toss up — and there’s already been plenty of tossing in the states most vulnerable to solar, further evidence of the pressures they’re facing — it’s already too late, Barclays says:

We fully expect utilities and regulators to make a good faith effort to preserve the status quo “regulatory compact,” whereby the monopoly utility provides a safe and reliable service and regulators allow it to earn a reasonable low-risk return. However, we also expect them to be playing a constant game of catch-up as solar develops. The costs of solar and storage technologies are falling quickly and may fall even faster as higher demand builds additional scale. But the cost of distribution grids and thermally generated power are more likely to rise than to fall, in our view. As a result, regulators and utilities will be constantly trying to respond to a moving target, which is precisely the environment where slow-moving incumbents can fall behind.

It’s been a good run.

If you are looking for a complete turn-key solution to generate solar energy, contact Enlyten Energy today.

 

Source: http://www.businessinsider.com.au/barclays-downgrades-utilities-on-solar-threat-2014-5

Which Global Hegemon Is on Shifting Sands?

Charles Hugh Smith writing for OfTwoMinds

Given that all the leading candidates for Global Hegemon are hastening down paths of self-destruction, perhaps there will be no global hegemon dominating the 21st century.

Which nation with aspirations of global dominance (i.e. hegemony) has these attributes?

1. The nation’s recent prosperity is based on a vast expansion of credit.

2. The nation has 100+ million obese/diabetic citizens.

3. The citizens have little say over central government policies that favor cronies.

4. The nation faces demographic headwinds as the number of people in the workforce declines and the number of retirees balloons.

5. Large regions of the nation suffer from chronic water shortages.

So, which Global Hegemon Is on shifting sands? Hmm, sounds like the U.S. is a match so far…. Let’s add a few more attributes:

6. The nation’s credit expansion has relied on a largely unregulated shadow banking system.

7. The nation is in the midst of an unprecedented housing bubble.

This could still be the U.S., but America’s unprecedented housing bubble popped in 2006–the current bubble is a mere echo bubble. Let’s add a few more attributes:

8. The nation is beset with unprecedented “external” environmental costs as a result of rapid and largely unregulated industrialization.

9. The nation suffers from large-scale desertification.

10. Over half the nation’s monied Elites have either left the nation or plan to leave and transfer their financial wealth overseas.

The only nation with aspirations of global hegemony that fits all these attributes is China. The conventional China Story holds that the 21st century will be China’s century, much like the 20th century was America’s.

But this story overlooks the vast demographic, health, environmental and financial problems built into China’s land, people, and Central-Planning systems of finance and governance.

Consider two charts drawn from John Hampson’s recent overview of Problems in China:

China’s shadow banking system, which provided the majority of the credit that fueled the current expansion, is imploding:

Not coincidentally, China’s unprecedented housing bubble is also imploding:

China’s system allows only a limited number of options for savings and investment; other than bank accounts that have lost money when real inflation is accounted for, the primary option available to households is real estate. As a consequence, an enormous percentage of the nation’s household wealth has been sunk into empty apartments which act as “savings.”

But a physical flat in a high-rise building is not a financial asset like a savings account: it is a physical object that degrades with time and whose value is set by supply, demand and the availability and cost of credit.

If the building is not maintained properly, elevators break down, pipes start leaking and fixtures corrode, and the value of an unmaintained building drops to zero in terms of habitability within a decade or so.

100 million apartments become an enormous mal-investment of one-time wealth as they slowly become uninhabitable due to poor construction and/or maintenance.

China has been building infrastructure at a break-neck pace for 30 years, and this has created the mindset that almost every structure will be torn down and replaced with something grander every 20 years or so.

As a result of this mindset, very few structures are maintained. Why bother if it will be torn down and replaced a few years down the road?

But tens of millions of apartments cannot replaced every decade or two.

In effect, China has squandered its one-time wealth generated by rapid industrialization, and absorbed the still-uncounted environmental and health costs of this industrialization that must be paid in shortened lives, higher healthcare costs and environmental cleanups for decades to come.

Few promoters of the China Hegemony-in-the-21st-century Story mention the estimated 114 million people in China with diabetes–over one third the population of the U.S.– or the roughly 500 million people in China with elevated blood-sugar levels that put them at risk of developing diabetes or related lifestyle diseases. China ‘Catastrophe’ Hits 114 Million as Diabetes Spreads.

How much of the nation’s surplus wealth will be devoted to fixing the environmental and health costs that are already visible? How much of the wealth is actually phantom wealth that will vanish as the housing bubble based on an unprecedented credit bubble pops?

The China Story based on demographics, health, environmental damage and financial Central Planning is a quite different one from the China will be the global hegemon in the 21st century story. Given that all the leading candidates for Global Hegemon are hastening down paths of self-destruction, perhaps there will be no global hegemon dominating the 21st century.

Source: http://www.oftwominds.com/blogsept14/empire-of-sand9-14.html

The U.S. Government Is Borrowing About 8 Trillion Dollars A Year

By Michael Snyder for The Economic Collapse
National Debt - Public Domain

I know that headline sounds completely outrageous.  But it is actually true.  The U.S. government is borrowing about 8 trillion dollars a year, and you are about to see the hard numbers that prove this.  When discussing the national debt, most people tend to only focus on the amount that it increases each 12 months.  And as I wrote about recently, the U.S. national debt has increased by more than a trillion dollars in fiscal year 2014.  But that does not count the huge amounts of U.S. Treasury securities that the federal government must redeem each year.  When these debt instruments hit their maturity date, the U.S. government must pay them off.  This is done by borrowing more money to pay off the previous debts.  In fiscal year 2013, redemptions of U.S. Treasury securities totaled $7,546,726,000,000 and new debt totaling $8,323,949,000,000 was issued.  The final numbers for fiscal year 2014 are likely to be significantly higher than that.So why does so much government debt come due each year?

Well, in recent years government officials figured out that they could save a lot of money on interest payments by borrowing over shorter time frames.  For example, it costs the government far more to borrow money for 10 years than it does for 1 year.  So a strategy was hatched to borrow money for very short periods of time and to keep “rolling it over” again and again and again.

This strategy has indeed saved the federal government hundreds of billions of dollars in interest payments, but it has also created a situation where the federal government must borrow about 8 trillion dollars a year just to keep up with the game.

So what happens when the rest of the world decides that it does not want to loan us 8 trillion dollars a year at ultra-low interest rates?

Well, the game will be over and we will be in a massive amount of trouble.

I am about to share with you some numbers that were originally reported by CNS News.  As you can see, far more debt is being redeemed and issued today than back during the middle part of the last decade…

2013

Redeemed: $7,546,726,000,000

Issued: $8,323,949,000,000

Increase: $777,223,000,000

2012

Redeemed: $6,804,956,000,000

Issued: $7,924,651,000,000

Increase: $1,119,695,000,000

2011

Redeemed: $7,026,617,000,000

Issued: $8,078,266,000,000

Increase: $1,051,649,000,000

2010

Redeemed: $7,206,965,000,000

Issued: $8,649,171,000,000

Increase: $1,442,206,000,000

2009

Redeemed: $7,306,512,000,000

Issued: $9,027,399,000,000

Increase: $1,720,887,000,000

2008

Redeemed: $4,898,607,000,000

Issued: $5,580,644,000,000

Increase: $682,037,000,000

2007

Redeemed: $4,402,395,000,000

Issued: $4,532,698,000,000

Increase: $130,303,000,000

2006

Redeemed: $4,297,869,000,000

Issued: $4,459,341,000,000

Increase: $161,472,000,000

The only way that this game can continue is if the U.S. government can continue to borrow gigantic piles of money at ridiculously low interest rates.

And our current standard of living greatly depends on the continuation of this game.

If something comes along and rattles this Ponzi scheme, life in America could change radically almost overnight.

In the United States today, we have a heavily socialized system that hands out checks to nearly half the population.  In fact, 49 percent of all Americans live in a home that gets direct monetary benefits from the federal government each month according to the U.S. Census Bureau.  And it is hard to believe, but Americans received more than 2 trillion dollars in benefits from the federal government last year alone.  At this point, the primary function of the federal government is taking money from some people and giving it to others.  In fact, more than 70 percent of all federal spending goes to “dependence-creating programs”, and the government runs approximately 80 different “means-tested welfare programs” right now.  But the big problem is that the government is giving out far more money than it is taking in, so it has to borrow the difference.  As long as we can continue to borrow at super low interest rates, the status quo can continue.

But a Ponzi scheme like this can only last for so long.

It has been said that when the checks stop coming in, chaos will begin in the streets of America.

The looting that took place when a technical glitch caused the EBT system to go down for a short time in some areas last year and the rioting in the streets of Ferguson, Missouri this year were both small previews of what we will see in the future.

And there is no way that we will be able to “grow” our way out of this problem.

As the Baby Boomers continue to retire, the amount of money that the federal government is handing out each year is projected to absolutely skyrocket.  Just consider the following numbers…

Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, more than 70 million Americans are on Medicaid, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

When Medicare was first established, we were told that it would cost about $12 billion a year by the time 1990 rolled around.  Instead, the federal government ended up spending $110 billion on the program in 1990, and the federal government spent approximately $600 billion on the program in 2013.

It is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for every single household in the United States.

In 1945, there were 42 workers for every retiree receiving Social Security benefits.  Today, that number has fallen to 2.5 workers, and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.

Right now, there are approximately 63 million Americans collecting Social Security benefits.  By 2035, that number is projected to soar to an astounding 91 million.

Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

The U.S. government is facing a total of 222 trillion dollars in unfunded liabilities during the years ahead.  Social Security and Medicare make up the bulk of that.

Yes, things seem somewhat stable for the moment in America today.

But the same thing could have been said about 2007.  The stock market was soaring, the economy seemed like it was rolling right along and people were generally optimistic about the future.

Then the financial crisis of 2008 erupted and it seemed like the world was going to end.

Well, the truth is that another great crisis is rapidly approaching, and we are in far worse shape financially than we were back in 2008.

Don’t get blindsided by what is ahead.  Evidence of the coming catastrophe is all around you.

Source: http://theeconomiccollapseblog.com/archives/the-u-s-government-is-borrowing-about-8-trillion-dollars-a-year

 

US Stockmarket Correction Update

Further to our US stock market post of the 9th June 2014 (US Stock Market Correction Now Due) we see the stock market having entered that correction and anticipate it lasting 4-8 months into early 2015.

So repeating:

DJIA to pullback but NOT below 12875 with a likely low point around 14750.

S&P500 to pullback but NOT below 1600 with likely lows around 1737. Continue reading