Political Risk 2 – Reflections

We reported (04/06/2017) prior to the UK General Election 2017:

There is a minor risk of a hung parliament where, like 2010, the new government may have to collaborate to hold office. This would make managing the Brexit process untenable. The loss of political and economic confidence that would ensue would bring chaos to the UK. Should there be an outright victory to Labor, we would see a reversion to the 1950/70’s style politics that would also be a disaster.

Little did we realize how close to the mark we would be. PM May’s electoral disaster has profound repercussions for the UK. Firstly Brexit becomes a challenge at the negotiation table because of the weakened hand PM May presents to the EU. Secondly, Jeremy Corbyn’s success at the polls will force the Conservatives to move to the centre-left of UK politics to capture Corbyn’s new found friends – the 18-34 year demographic that has recently discovered politics and utopian self-interest.

This is a disaster for the UK and will not end well. May’s leadership will be under constant challenge for the next 5 years. One of her few chances of success depends on being able to negotiate a quick exit from the EU. This is unlikely.

As has happened in Australia in 2016, the UK and with a 9% confidence level in US Congress reflecting the rising distrust voters have for politicians. This is a trend that will continue around the world for the foreseeable future. The unintended consequence of voter distrust however is that political confidence begins to fail and economic confidence collapses soon after.

In the United States the Democratic – Republican flash point continues to escalate. President Trump is beginning to claw back a few points against the “Deep State” influence working inside government. Investigations are building cases on leaks and corruption. Trump is slowly gaining momentum with his agenda despite the continual challenge of the left agenda.

Unfortunately the first directly attributable acts of violence have occurred with a Republican Congressman and two police officers wounded at an annual practice baseball session for Congress politicians. The use of violence in political discourse is inherently evil itself and not in keeping with the liberal-democratic tradition that has benefited humanity. Since 2015 we have witnessed an increasing breakdown of civil discourse – a cornerstone of a free society. This marks the first violence of the civil strife we predict emerging in the US. We anticipate this will continue to escalate over the next few years. It will not end well and directly reflects the internal divisions that continue to rent US civil society.

At the same time we move slowly towards The End of the Long Game, the last gasp of the “Industrial Revolution Cycle” that commenced in 1783. We still view the September 2017 – March 2018 time window as the time for that final top, to be followed by the downward phase of the cycle. As always rebirth follows endings and the advance of humanity continues.

This worsening political discord in the US and other liberal democratic countries merely reflect the changing cycle mentioned previously. Given the magnitude of the cycle involved – one that builds and destroys empires, we can glimpse directly at the political and economic forces shaping events and the changes to come.

Political Risk in 2017-2018

In the UK, the conservatives it appears, will win a reduced majority to govern the UK and Brexit process. It is also clear that a loss or hung parliament  for the Conservatives will set the UK back a hundred years politically and economically in the confusion and discord it would sew.

There is a minor risk of a hung parliament where, like 2010, the new government may have to collaborate to hold office. This would make managing the Brexit process untenable. The loss of political and economic confidence that would ensue would bring chaos to the UK. Should there be an outright victory to Labor, we would see a reversion to the 1950/70’s style politics that would also be a disaster.

So, the stakes are just as high as they were in June 2016. What was a ‘sure thing’ bet at the start of the election process has become marginal at a time when the consequences are high. The spontaneous ordering of the voting process may check politicians from being able to achieve their agenda at the expense of the national interest. What hubris by PM May who put personal agenda ahead of the national political interest.

This is typical of the problems found in liberal democracies. Liberal democracies around the world are dying. Voters are cynical of the promises and ability of politicians to achieve anything.

Flag - EU 12Ironically, the EU have hailed Macron’s victory as a sign that right wing populism has peaked and in remission. With no mirror for self reflection the EU elite are back at ‘business as usual’. “Nothing to look at here – move on”! They needed a Le Pen win to shock them into making real change. Macron’s victory has only deferred the inevitable by a year. Meanwhile, the political change that is sweeping the world at present will continue with German elections in October this year. Merkel it appears is set for a heavy defeat.

And in the USA the left wing is continuing its attempt to undermine President Trump and effectively ignore the rule of law. Left wing forces operating at every level of US media, government and politics are moving to impeach Trump. Meanwhile the silent majority that elected Trump are watching and waiting and growing angry.

The last time we saw his level of scale of political unrest was 1740 – 1785 culminating in the French Revolution. The rising tide of political unrest in the USA, UK and EU is polarized by left vs right as well as the elite vs the people. Remember, when political confidence falters, economic confidence falls soon after. This is what is happening now. As pressures continue to mount in the USA and EU there is increasing risk of civil strife breaking out.

The phase June 2017 to December 2018 remains a time of escalating risk. Over this 18 month time frame, what transpires will shape the world and its history for the next 12 years and set up the circumstances that will shape the rest of this century.

Post Australian Election Commentary

In our Australian election forecast of 28/06/16 and 16/06/2016 we forecast the risk of a ‘hung parliament’ or an outright win to the ALP. This was based on the principle of ‘Contrary Opinion’.

It took two weeks to resolve the final outcome of the national election. It left a Liberal government in power but without a majority in the Senate. The result has continued the ongoing risk element in Australian politics. Should government fail to deliver or introduces any form of controversial legislation, we may expect blocking in the Senate. Not quite the ‘hung parliament’ suggested but a second best – with a kind of severe arm lock if government steps beyond its mandate.

The voters got what they wanted. Through the mysterious spontaneous ordering process, the electoral process has communicated the deep level of cynicism Australians have towards politicians. It also reflects that no politician really has any clear solution or way forward for society and economy. And so voters have ensured that politicians can’t get away with too much. Little has been said by politicians that offers any resonance with voters.

Economic, social  and political restructuring is needed to set Australia on course for its next phase. The electorate is exhausted by the constant personality bicker of politicians and their inability to tackle the big issues. Politicians have delivered a consistent message for over a decade that political self interest is more important than the people. Accordingly, many believe the economic and social decline experienced by Australians is set to continue.

Unfortunately, without a clear vision from government and a high risk of being blocked by the Senate, Australia remains in an entropic state with a continuing risk of stagnation. This trend may start to accelerate as capital outflows intensify over late 2016/2017 into US dollars. We anticipate inflation in the USA will climb rapidly over the next 1-2 years. Capital will be sucked from the EU and periphery including Australia. This will indeed be the last gasp of the ‘end of the long game.’

Crude Oil Lows?

We are still waiting confirmation that crude oil prices have completed their forecast lows. Notwithstanding one more low, potentially down to our target of US$12 per barrel, we anticipate the recovery of the oil market.

We expect oil prices to recover slowly, reaching as high as US$80 – $95 per barrel before entering a stagnating, equilibrium phase lasting many years and keeping oil prices in a long term trading range between US$30 per barrel and US$60 per barrel. Long term over supply will continue to keep this market under pressure despite the potential for geopolitical shocks occurring from time to time.

The coming oil price movement is typical of a commodity market that has been through a major boom and bust phase. Once we have confirmed the lows are in, we can more accurately define the next phase of the crude oil market.

High Risk Stock Market Situation

The US stock market has the potential for large, rapid falls over the next couple of weeks. As long as the DJIA stays above 11258 (SP500 1219.8) the market remains in a correction phase.

Completion of the selloff phase above 11258 (SP500 1219.8) would indicate a potential move to new highs over the next few years accompanied by stronger inflation and strong prospects for the US economy.Such a scenario has the potential to unfold with rising interest rates, a strong US dollar and a strong domestic US economy.

A breach of 11258 (SP500 1219.8) followed by a corrective rally would indicate a major bear market was unfolding and provide the momentum swing to take out the 2009 lows.

While this prediction is valid for the US stock market we see signs the US dollar will continue to strengthen over the course of 2016 leading to a potential top. The strengthening US dollar and rising interest rates will have bearish implications for the rest of the world economy where funds are being sucked from the periphery to the centre.

Oil Consumption Forecast

Barry Norman forecasts oil consumption.

Crude Oil added 45 points as traders bought up the cheap commodity taking advantage of low prices and the hopes that OPEC members will cut production now that Iran has returned to the marketplace combating US exports. Brent Oil added $1.08 to 29.64. Crude oil prices continued to be hurt by bearish sentiments across the globe as markets remain nervous as to how low oil prices can go. Besides, the supply side remains intact further exerting downside pressure on oil prices.

Low oil prices, weak investment demand and low physical demand are push factors for gold prices to trade lower while bargain hunting will provide a push for gold prices in the near term.

The EIA (U.S. Energy Information and Administration) had reported that the global crude oil production will rise to 95.9 million barrels per day (MMbpd) in 2016 and 96.7 MMbpd in 2017. The global crude oil production was at 95.7 MMbpd of crude oil in 2015. The global oil consumption is expected to average 95.2 MMbpd in 2016 and 96.6 MMbpd in 2017.

Meanwhile, the JPMorgan Chase and Goldman Sachs suggested that crude oil prices could test $20 per barrel in 2016. Royal Bank of Scotland suggests that crude oil prices could test $16 per barrel, while Standard Chartered suggests that oil prices could hit $10 per barrel in the worst-case scenario.

Source: FX EMPIRE

Chinese Economy braced for a Reality Check

Valentin Schmid evaluates the Bank of America Report on the Chinese Economy.

The Chinese regime still has considerable power over the markets. After a 7 percent crash of the Shanghai Composite on January 4, it managed to reverseanother 3 percent drop on January 5.

So, in the very short term, all is well. In the long term and even in 2016, Bank of America sees big problems ahead for the Chinese economy. According to their analysts, the regime has to fight multiple battles at once and will ultimately lose to market forces.

“We judge that China’s debt situation has probably passed the point of no-return and it will be difficult to grow out of the problem,” states a report by Bank of America’s chief strategist David Cui.

The report points out that a spike in private sector debt almost inevitably leads to a financial crisis. China’s private debt to GDP ratio went up 75 percent between 2009 and 2014, bringing total debt-to-GDP to about 300 percent. Too much to sustain.

This is “a classic case of short-term stability breeding long-term instability. It’s our assessment that the longer this practice drags on, the higher the risk of financial system instability, and the more painful the ultimate fallout will be,” Cui writes.

For the coming crisis, Cui believes China will probably have to devalue its currency, write off bad debts, recapitalize the banks, and reduce the debt burden with high inflation.

After the events of last August, and after the International Monetary Fund finally included China in its reserve currency basket, the regime completely abandoned the stable currency objective and let the yuan drift lower. The regime promises reform, and even follows through in some cases. But if push comes to shove, it resorts to central planning to mould the market according to its needs, with less and less success.

“It seems to us that the government’s policy options are rapidly narrowing-one only needs to look at how difficult it has been for the government to hold up GDP growth since mid-2014. A slowdown in economic growth is typically a prelude to financial sector instability,” writes Cui, and predicts the Shanghai Composite to drop by 27 percent in 2016.

Source: Bank of America Report

 

The Great Sovereign Debt Crisis Coming Soon

Starting in Europe and reaching public consciousness when Japan implodes before engulfing the USA and remaining Liberal-Democratic nations.

The Great Sovereign Debt Crisis of the 21st Century is steadily gaining momentum. The forces of deflation have been steadily building since 2000 and the stage is set over the next 6-12 months where the reality of public plundering of the means of production comes home to roost. The weight of public and private debt, government regulation and leverage, fraudulent economics and fallacious political thinking that assumes that if you keep taking and spending other people’s money you will never ever run out!

Yet this is exactly what is happening. The politicians have borrowed to deliver on promises they were never going to be around to see delivered. They’ve debased the their currency and now we have reached the problem that there is so much debt in the world that the world does not have enough income to service that debt.

Historically its happened many times before of course and yet we never seem to learn. Empires grow and prosper, politicians make promises, governments and people borrow and everyone takes for granted the wealth that has been achieved until finally, it all collapses. History records the rise and fall of civilizations on exactly this premise. It’s always government and the self-seeking of leaders that cause civilizations to self-destruct.

While we observe the rise and fall of empires due to reasons of currency debasement or war, we can also observe that these are merely the mechanisms that cause the problems. Behind them lies the cyclic nature of humanity. Deep in the limbic system of the human brain reside deep impulses that play out at individual and aggregate levels.

We might look back at the Tulip Mania Bubble of the Dutch Golden Age (1634-1637) and wonder how people might have been so crazy as to invest in tulips. The Tulip Mania occurred on the back of a Europe-wide debasement of coins (1619-1622) used to finance war. Yet they did and future historians will look back at early 21st century share, commodity, real estate prices and wonder “how could they have been so blind?”TulipPricesDebasement of the currency has occurred this time by closing the link between gold and paper money and the massive printing of money that subsequently occurred. Each era brings the usual excuse “this time its different”. But the same debasing of money, the same political hubris, the same grasp for political power create the same drivers that cause the boom and the bust.

We watch at the moment the European debt drama playing out in Greece. Other nations sit on the edge of potential debt crises including Spain, Portugal, Italy, Puerto Rica and various cities of the US. This is just the beginning. Soon we shall see the debt crisis spreading to northern Europe, Japan, China and the US. Its about sovereign debt of course, the debt accumulated by generations of politicians spending other people’s money.SouthSeaIn Japan they experienced this in the early 1930’s when massive money printing operations inflated their economy. It resulted in the assassination of the Finance Minister and Prime Minister, the establishment of the military as the power brokers of Japanese politics and the beginnings of the build up for for WWII. That didn’t end well for the Japanese people.

Between 1740 and 1783, the French experienced it with the massive indebtedness of the monarchy, high taxes, high levels of regulation and cronyism led to the French Revolution, Napoleon and a final defeat in 1815.

Pax Romana followed a similar path where eventually the debasement of the currency and accumulated debt caused the empire to implode. To look at Pax Americana is to see an identical script unfolding. Massively unsustainable debt levels, vast militarization, endless monetary debasement, constitutional decay and subjugation of citizens by taxation, regulation and blatant spying signal, as it has in many previous civilizations, the demise of this short lived empire.

Using financial markets as a barometer we observe markets in major topping patterns, working out of main trends. The next 3-6 months will prove critical in determining if the Great Sovereign Debt Crisis has truly arrived or if there is still enough gas in the tank for one last sprint before the weight of debt, regulation and political hubris bring down the liberal – democratic nations of the world. dow-jones-100-year-historical-chart-2015-08-07Once again the cyclic nature of human egress and regress is playing out at individual and aggregate levels and from where we stand, major and minor cycles of human endeavor are changing direction. Crisis bring danger and opportunity for those so prepared.

The Rise of Medical Tourism

Rise of Medical TourismComparative advantages between countries creates opportunities for sick people needing treatment. In many government run health care systems it can be cheaper to travel to another country and be treated there. You jump the waiting queue and the costs are much more affordable where you are required to pay some or all of the cost.

Traveling from the USA to Mexico for treatments such as dental care and other small procedures is well known. Thailand is well known as a Medical Tourist destination with excellent facilities and extremely cost effective. Singapore is well known as a destination for advanced procedures for wealthy Indonesians and Africans.

As more government run healthcare systems become bogged down by regulation, burgeoning costs, under-resourcing and underfunding, even governments will see Medical Tourism as a partial solution to their problems. A health insurance provider will examine the local cost to perform say, a hip replacement or heart bypass surgery) and offer their insured the choice – stay and wait for the surgery or take you and your partner on an all expenses holiday (airfares, hotel, hospital & surgery and recovery time) to Thailand, Mexico or India.

For government they relieve political pressure as it gets the waiting lists reduced, saves money and frees up the healthcare system. It introduces competition for medical services that helps to put a brake on healthcare costs, especially for doctors fees. For consumers, you get immediate attention to your health issue, a holiday (with or without your partner) and reduce your out of pocket expenses.

All that’s needed now is for doctors, politicians and bureaucrats is to let go of their hubris and ensure the requisite healthcare standards are in place so people can become medical tourists. Easy!

Yanis Reveals EU Denial of Any Right of the People to Vote

Varoufakis Yanis

Greece’s Finance Minister Yanis Varoufakis has come out to reveal the quite shocking and anti-democratic events that took place during the last Eurogroup meeting. First, they do hate Yanis’ guts, for he understands far more about the economy than anyone in Brussels. At their demand, any further discussions will be without him. What led to the EU breaking off was exactly what we reported previously — they do not want any member state to EVER allow the people to vote on the euro. Brussels has become a DICTATORSHIP and is so arrogant without any just cause, believing that they know better than the people.

We are watching the total collapse of Democracy and the birth of a new era — Economic Totalitarianism from arrogant people who are totally clueless beyond their own greed for power and money.

Source: http://www.armstrongeconomics.com/archives/34115

Editor Note: Greece is the end of the beginning for the EZ and the beginning of a long period of political, social and economic instability that co-incides with the topping phase of the upward phase of the Industrial Revolution cycle that began in 1783-85.

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.

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

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

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

 

India About to Hit the Sweet Spot

A combination of factors is bringing India to the “Sweet Spot’.url

A population of workers with an average age of around 35 combined with the arrival of a new government may be pulling Incredible India to where, at last, its population and vigor may carry it aloft. Like China in the early 80’s and 90’s, India has the potential to achieve rapid growth. But due to lack of political will, religious divisions, corruption, poverty, a massive overhang of the post-colonial era when Marxist-socialist solutions were the fashion and lack of capital, India’s progress has been slow.

The analogy is of an aircraft taking off. The back wheels are still on the ground but the nose has lifted up. This has been the case for some time with the deadweight of the various factors holding her back. This is about to change. Continue reading

The Coming Retail Evironment: Print Makeup Illustrates How It Works

 Imagine being able to make your own gorgeous, high-quality makeup at home, using any colors you choose.

That’s the future envisioned by Grace Choi, who made a huge splash this week when she presented a product that can 3-D print makeup at TechCrunch Disrupt.

Choi has created a prototype for a printer called “Mink” that will let users choose any color imaginable and then print out makeup in that exact same hue (at this point, she’s only done demonstrations with blush). By allowing people to skip the expensive department store prices to make the perfectly colored products themselves, Mink could completely revolutionize the makeup industry.

TechCrunch reporter Colleen Taylor asked Choi some more questions about Mink after her ground-breaking presentation to get a better idea of how the product will work.

Here’s what the final Mink could look like.

Although the prototype is currently the size of the average at-home printer, Choi says that the final product will be about the size of a Mac Mini and will sell for about $300, at least at first. There are two key features to this printer: It uses a cosmetic-grade dye that’s FDA-compliant, and, instead of printing on paper, it will print its colors onto a powder substrate that is like the raw material of regular makeup.

“It comes from the same sources as those products that you see on store shelves,” Choi told Taylor.

Choi’s product would let users find a color online, use a tool to find that hue’s hexadecimal number, and then print it. Every color has a unique hex number so you could literally print out any color.

She says that Mink will be targeted toward 13- to 21-year-old girls who are still experimenting with their makeup habits. That period is also when girls build confidence, she says, explaining that when she was growing up, she would sometimes have trouble finding beauty products suited for her skin.

When stores didn’t have any products targeted toward Asian women, she says she felt alienated. Similarly, when stores didn’t carry the more-exotic colors she was looking for, it made her feel like her ideas were abnormal.

“If they didn’t have a green- or black-colored lipstick that made me think that there was something weird about the way I was thinking,” Choi said. That thinking damaged her self-esteem, and she says that she stopped speaking up in class because she started believing that all her ideas were strange.

She wants her products to encourage young women to test out lots of different looks and have complete freedom over the colors that they choose, without ever feeling like their ideas were weird.

She says that the reaction to her product so far has been completely amazing.

“I’m really grateful. I’m really overwhelmed. I’m really excited about all of this,” Choi says. After a pause, “I’m speechless.”

Source: http://www.businessinsider.sg/mink-3d-printed-make-up-grace-choi-2014-5/#.U29c3YkazCR

Screenshots / TechCrunch

Editor’s Note: Expect many new and exciting products to come to market as 3-D printing takes off. This will revolutionize the retail industry over time as many OTC products can be replaced with a 3-D printer and their basic ingredients.

The End Long Game 2009-2018?

As at 31st March 2014

Updating the main theme of this website we showed in our last lead article ‘A Generation of Correction’ how the big picture view had resolved itself into two clear scenarios. We painted the broad brush strokes showing those scenarios. Now the picture has advanced sufficiently enough to reveal the direction ahead.

To recap firstly, we are witnessing in our lifetime the completion of large scale cycles of human endeavor and activity with the attendant dislocation and reallocation of social, economic and political activity. The article does not attempt to make trading or investment recommendations, however an understanding of the broad brush strokes both economically and politically may serve to enhance your perspective on what emerges next. The scale of forces at work in societies and economies is so huge that the current social, economic and political drama is taking decades to unfold. This is the topping and completion process of an economic cycle that has been going on for over 200 hundred years. By the time it is finished, it may well have spanned generations of people. On a historical note, we are witnessing the completion of the growth phase of the industrial revolution that began around 1783-5. These cycles affect all industrialized nations including China which joined the industrial revolution much later. Given the length of time involved we anticipate this having a generational impact and may not be completed for decades to come.

We had seen our previous forecast, ‘The Five Act Drama’, invalidated as the so called economic recovery since 2009 continued. The phase 2000 to 2009 which included the dotcom bubble collapse, the post 9/11 recovery and Iraq War followed by the subprime mortgage debacle were all part of a major degree of correction occurring in the late stages of the Industrial Revolution Cycle that began around 1785. We had concluded that the logical outcome of the economic peak in 2007 and the following financial crisis (GFC), that a major downturn with attendant declines in asset values and income levels was underway and that this process would continue into 2016 and possibly as late as 2024. The tenacious strength of the recovery since the GFC surprised us but also revealed alternative cyclic viewpoints. The ‘animal spirits’ that drove bull markets and buoyed economic activity from the 80’s to 2000 along with  the animal spirits of the central bankers whose hubris has now reached giddying heights illustrates the scope of those bull markets and gives rise to what is happening now with a clear scenario emerging.

In the first quarter of 2014 we observed stock markets pushing to new highs. At the same time, the massive US Federal Reserve intervention known as quantitative easing (QE) had started to be wound back. Unemployment levels have continued to fall modestly and economic activity has continued to sputter along in the US and other liberal democratic nations. The effect of QE has had the effect of fuelling asset prices with only marginal improvement in economic activity. The effect of not allowing spontaneous ordering to take place with the required liquidation of malinvestments of the last 20-30 years has been to stall the potential of a recovery that is founded on real growth and productivity. 

Realignments normally occur with structural economic or political realisations and to this end there is no shortage of potential factors. These include the potential for significantly higher bond interest rates, political scandal, general economic failure, student loans, China, Europe, etc. Despite all the worries of Main Street underperformance compared to stock and commodity markets, it appears QE is having the effect of distorting all relationships between markets and their ability to fairly price. Ultimately this too will result in unintended consequences and only prolongs the inevitable. One result will be the utter demolition of the myth that is Keynesian economics.

Our previous scenario was based on the assumption that the beginning of the correction (and completion of the growth phase) of the Industrial Revolution Cycle began in 2000 with the bursting of the Dotcom bubble. Since then asset values have effectively moved sideways to higher in a broad band and currently stand at the upper levels of those bands. In real terms however, asset values are broadly lower reflecting the massive money printing that has occurred. This is also reflected in sputtering global economic activity and rising political and social frustration about the political-economic situation. From another perspective this may be seen as the result of 40 years of fiat money and the economic and social dislocation that occurs when money has no store of value.

At time of writing, US money supply growth figures indicate the potential in 2014 for a mild correction of asset values due to weakening US M2 money supply growth. In effect the US Federal Reserve has failed to transfer money printing to Main Street as banks still remain resistant to large scale lending. This is in part due to distorted interest rates making it unprofitable and risky to lend.  This mild correction is merely a pause in the asset appreciation we have witnessed over the last 5 years caused by QE programs. Any excessive fall in asset values will be met by significant QE stimulus in the short term.

The fact is, the largest investment bubble in the history of humankind is unfolding right on schedule. By schedule we don’t mean time dependent but that what is unfolding is form dependent. All economic bubbles return to the starting point from whence they came. The massive money printing undertaken by central banks, the dislocation of market pricing shows a growing divergence between stocks for example and the rest of the stock market and the relentless chase for yield. Whilst divergence is indicative of major stock market tops, the topping phase can go on for a long time. We have already seen the breaking from the uptrend of many markets including gold and silver, base metals, interest rates and currencies. Human history is littered with examples of failed nations, whose prosperity and future was cut short by depreciation of money values. What makes this era any different? The modern fiat money experiment has been going on for a mere 42 years. The economic system of industrialized nations resets or reforms roughly every 40 years and so it appears we are right on time for the next reset. Given the culmination of history, cycles, accumulation of knowledge and human hubris it appears technology changes but the nature of humankind does not.

One aspect worth considering is the level of political hubris maintained by many liberal democratic countries whose politicians firmly believe that they have the skill and tools necessary to engineer recovery. Until this hubris is totally wiped away along with the hopes and dreams of the people represented, there is not much scope for real change at a societal, political or economic level. Indeed one factor contributing to the economic malaise is the inability of most markets to clear out the malinvestment most industrialized nations suffer. Typical of this is the gridlock in the US political system where entrenched self-interest stops any real or meaningful change. The weight of US economic recovery has been placed firmly on the shoulders of the Fed. US politicians are incapable of undertaking any real economic restructuring and this has the effect of prolonging the contraction phase of the cycle. Meanwhile the hubris continues, restructuring remains on the side-lines and most industrial nations face high unemployment and debt levels, unaffordable social security programs and large ageing populations starting their transition to retirement.      

Interestingly, in this next phase, all of this will come to a head. In the last cyclic correction of the same magnitude – 1710 to 1785, great things were achieved with the advance of the sciences, arts and many new inventions and discoveries. That phase concluded however with the French Revolution and Napoleonic Wars. This next phase will end the same way as humanity forgets itself and its past. It will also be accompanied by many new inventions, discoveries and advances along with the wars and other upheavals. Like all plays (the world is certainly a stage), this year 2014/15 is where the drama reveals the direction and thrust of things to come for the next 20 – 30 years or so.

In effect the recovery from the GFC is the last gasp of the fiat money boom that has been in effect since Nixon left the gold standard. Economic growth since the late sixties has been largely sponsored by credit that has left the liberal democratic economies bloated with debt, regulation and fiat money. To see how this pans out graphically, refer to the accompanying chart. The recovery since 2009 has been boosted by massive cash injections (read printing) of money into the industrialised economies boosting asset prices (read inflationary) as Keynesian orthodoxy suggests boosting asset prices will eventually lead to a follow through in consumer spending. Industrial nation governments are doing their best to boost spending in the finest tradition of neo-Keynes. The printing however is having the harmful effect of dislocating markets and the traditional matrix of pricing set by the markets is breaking down, together with a worrying disconnect between Wall St (stock market prices) and Main St (economic activity, employment). Anticipate the main buzzword to be stagflation through 2015. Commodity markets are spiking up, interest rates are starting to rise and yet, in spite of that, stock markets continue to climb a wall of worries and this gives rise to our predictions.

Our scenario suggests that quality performing stocks, commodities and real estate will continue to climb even as incomes decline and other assets peel away. Translating that into index levels implies, for example seeing the DJIA advancing to new highs from late 2014 onwards, in excess of 20,000 whilst the S&P500 reaches towards 2000-2200. Given the QE printing stimulus to asset prices over the last few years, such a move could be characterized by a final exponential rise followed by a collapse of these two indexes any time from late 2015 onwards. Such a top would mark the completion of the entire Industrial Revolution upward phase of the cycle and indicate we are entering into a prolonged period of economic, social and political stagnation and upheaval. Whilst these highs are being made the discrepancy between Wall Street and Main Street will be acutely emphasized with further deterioration of the economic, social and political fabric of the industrialized nations. At the same time, this may well be accompanied by dramatic movements in interest rates, commodities, currencies, gold and silver. The upward spike in these markets is the result of the massive QE programs flowing through to asset prices. You can also anticipate the emerging market economies to suffer as more cash gets sucked into the leading economies – the US, UK, Germany and Japan. Japan will be forced to make another QE intervention later in 2014.     

In economic history this present phase may well be a replication of the 1921-29 phase also known as the “Roaring Twenties”. This culminated of course in the Crash of 1929 and we are suggesting that the circumstances are building for a repeat performance. The scale and scope however of the coming crash still years away will dwarf the events of 1929-33. Using the stock market as a barometer or benchmark of prosperity is a recent development by the US Federal Reserve and illustrates how far we have traveled from orthodox economics in justifying the level of intervention by government and the Fed. The severity, speed and relentlessness of the events following will shock. For this scenario to unfold there needs to be a further consolidation of stock and commodity markets during 2014 before the final advance begins. We believe however that the time scale to complete the End Game is small, measured in, at most, a few years, before the next major sell off phase.

To summarize, let us be very clear about what is happening or about to happen in the final phase of the End Game:

  • ·         Expect stock markets to correct over most of 2014 before beginning an upward surge leading to an exponential rise in stock, commodity, gold and silver prices. For example anticipate the DJIA correcting to 13784 – 15341 and not below 12876.
  • ·         Anticipate central banks to respond to this correction by escalating their QE programs.
  • ·         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 stagnant economic activity will prevail. This is called stagflation.
  • ·         Expect credit markets will seek to re-price themselves in light of emergent inflation 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. 
  • ·         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. 
  • ·         Anticipate ongoing social and political dislocation in many countries.

Near the peak or shortly after it will also be possible to predict more accurately how long the ensuing economic contraction will last. Suffice to say, that from now ‘til anytime out to 2030 we are in for some tough times punctuated with attempts at recovery. By then the writing will be clear for everyone to see. And of course the 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, where a generation of people will learn about long forgotten natural law and how it applies to human behavior. Social mood will have become dark and this will also be expressed right through music, the arts, fashion, crime, political and social mood and drama. The last phase will set the stage for a new beginning for people from which a new and sustained economic recovery will slowly begin. By the time that moment 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.

 By Peter Twigg

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 Hope for Humankind

 

The End Long Game? 2009-2018

We have updated the main theme of the Emerging Events website. Click on the title to read how larger trends and cycles are moving to complete within the next few years and the implications this brings to to people and nations ……… Find it here: http://www.emergingevents.com/?p=2761 Continue reading