What’s Scarier Than DE-flation?

Guest Post by EWI

As early as 2011, our analysis warned that Europe’s deflation was coming — here’s why

For the economies of Europe, the past few months have felt like one long ice-bucket challenge that never ends: A perpetual state of shock induced by the bone-chilling fact that deflation

“…has become a reality in many European countries.” (Oct. 24, New York Times)

At last count, eight European nations are now in outright deflation, including:

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Pivotal Events

Guest Analysis by Bob Hoye

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The Desperate Suicide of Competitive Devaluation

Guest Post by Bruno de Landevoisin

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The zero sum game of competitive global currency devaluations is on like Donkey Kong. Anyone still sleeping comfortably, confident that all will end well, best brace themselves for a resounding wake up call.  Be alarmed, Japan just jacked the joint, and the jerry rigged monetary jig is up.  Moving forward, all the other Asian export centric economies will promptly be forced to keep up with their FUBAR neighbor, the juiced Japanese Joneses.

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Why Japan’s Money Printing Madness Matters

Guest Post by David Stockman via Stealthflation

This is getting hard to believe. The announcement that Japan has plunged into a triple dip recession should have been lights out for Abenomics. But, no, its madman prime minister has now called a snap election to enlist more public support for his campaign to destroy what remains of Japan’s economy.

And what’s worse, he’s not likely to be stopped by the electorate or even the leadership of Japan Inc, which presumably should know better. Here’s what Japan leading brokerage had to say about the “unexpected” 1.6% drop in Q3 GDP—- compared to the consensus expectation of a 2.2% gain and after the upward revised shrinkage of 7.3% in Q2.

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Contrary Indicator

I hesitated to post this because it puts an actual person up for ridicule, as opposed to the usual stuff I write about the “gold generals” or ‘stock market touts and trend followers’, etc.  A reader sent along an email containing this link (and its very bearish current view of gold) and the video below.

Daniela (Aug. 24, 2011): “…this [Fed’s Op/Twist.] would create a bullish gold scenario?”

Puru: “Absolutely…”

also… “on the cusp of a massive uptrend in gold…”

Puru (Nov. 15, 2014):  “We are not prophets, but we must admit that we called the entire bear market in the metals pretty accurately. You will recall that in late 2011, we opined that perhaps the metals had seen the secular top and we noted a massive distribution pattern in the Gold Bugs Index.”

As I love to point out I screwed up with an HUI 888 target myself.  But I admit it, move on and never speak or write as if I know what is going to happen in markets.  I hate it when people do that because it makes other people think they have some kind of learned perspective as opposed to a pitch, which is what 99% of the financial media is.

The subject strikes a chord with me because Mr. Saxena wrote a decade or so ago that manufacturing was dead in the US.  I of course was one of those dead manufacturers and really had to shake my head about how financial types tend to be abstracted from the real world.

How about writing ‘in 2004 we opined that manufacturing was dead in the US and not going to come back’?  How about that one Puru?

 

IRS Interaction

This morning I finally got a tax issue from 2012 resolved that was starting to seem like it would never go away.  ProShares sent records (well into 2013 mind you) to the IRS for some profitable sales in 2012 for the Ultrashort silver fund (ZSL) and as far as the IRS knew there were gains that were not paid.

Though Fidelity clears all my transactions and everything taxable (these gains were in non-taxable IRA’s) should have been cut and dry this goofy ProShares apparently has a loosey goosey way of reporting.  Try to contact ProShares directly?  Good luck if you’re not an institution or financial adviser.

I even had my tax guy try to get to the bottom of it and he hit a brick wall.  Well, there are miles of paper work from 2012 because that is the year I basically changed my life to do this market thing full time.  I decided to call the IRS myself and after about 1/2 hour wait on hold, finally got a nice gentleman on the phone who did some quick research and said ‘yup, I am going to decide this in your favor’.  We exchanged pleasantries, the sun is out and today could not be a better one (well, I’d love about 30 more degrees on the thermometer but why get greedy?).

Point is, the agent I spoke with was very helpful.  I write about hype and abstractions that result from hype all the time.  As to the inflammatory negative hype out there about the IRS?  You wouldn’t know it by my experience.

This little irrelevant vignette brought to you by your friends at Biiwii.com  ;-)

Goldzilla

godzilla“History shows again and again how nature points out the folly of man”  –Blue Oyster Cult, Godzilla

I would have written off the gold sector long ago in its ongoing bear market had I thought for one moment that gold’s utility as insurance against the acts of monetary madmen/women in high places had been compromised in any way.  On the contrary, the monetary metal is simply having its price marked down in a bear market while its value, especially given its current price and all that has gone on in the financial system over the last 3 years remains just fine.

Indeed gold, an element dug out of the ground for centuries, once as money and now as a marker to sound money systems will one day be shown to be a calm oasis from the fallout to global monetary shenanigans currently ongoing.  At least it would be an oasis to those who have valued it as such.  It is going to feel like a giant dinosaur (minus the kitsch value) ripping through a city built on paper to the multitudes who have taken the bait on the current too big to fail global inflationary operations.  They will fail.  Timing is the only question.

Despite what many are compelled to believe by aggressive (read: maniacal) global policy making that has turned down to up, right to left and symmetrical to asymmetrical, gold is and has been a lump of monetary value just sitting there, waiting out a phase where monetary policy is working seemingly as intended, to impoverish the working and saving classes and further enrich the asset ownership and investment classes.

I have gone hard on the gold “community” for a few years now because I watched in real time as the dark clouds gathered against the honest money relic and those bullish upon it.  The narrative never changed for many of the most high profile gold “community” leaders and spokespeople, and in the modern financial markets that simply will not do.  In the past, even during the previous bull market, I have likened being a gold investor to being at war.  You are at monetary war in support of ideals and a sense of what is right vs. entities that manipulate and control markets toward desired outcomes.

And do you know what?  They have won every damned battle since 2011.

The most brilliant move made by the US Fed in targeting gold (either directly or as part of the fallout) was Operation Twist, which came on the heels of gold’s flirtation with the $2000/ounce level.  Op/Twist very simply was designed to “sanitize” (the Fed’s word, not mine) inflation signals by selling short-term T bonds while buying long-term T bonds.  It was brilliant, evil and awe-inspiring all at once; genius.  Simply manage paper and digital entries in the bond market so that a long relied upon macro signal (the relationship between short and long-term Treasury yields) will at once show a financial system under diminishing stress (yield curve decline) and a lack of inflationary expectations.

So the US Federal Reserve had the balls to literally paint the macro by turning the out of control 10yr-2yr yield curve (an important gold fundamental) down, sanitize inflation (a less important but sometimes very relevant gold fundamental) and best of all, keep on inflating… and inflating… and inflating… with ongoing ZIRP and QE3 as the global macro pull of deflation put Goldilocks on US markets 24/7 and 365.

Gold bugs would have none of this and why should they?  The average gold bug (the real people, not the pitch men and promoters) is driven by this thing we call honesty and a sense of morality.  To anyone with half a brain and not incentivized to look the other way (like probably 90% of the financial services industry), these macro parlor tricks are ephemeral and will not only not succeed, but one day be looked back upon as a scourge upon future generations.

The problem is that gold is so simple (as a monetary anchor) that eggheads feel a need to make it complex (the old ‘baffle ‘em with b/s’) and those with agendas feel a need to pile on, for example, schooling us over and over again in the media about how gold is a poor “inflation hedge”, when that is not its only utility; not by a long shot.

The post-2011 period has been a veritable Wonderland of possibilities for the printers of paper, enterers of keyboard digits and those who follow their breadcrumbs.

Further, the leadership of the gold “community” have been shown to be little more than dogma spewing robots firmly set in their ideology when maybe what was needed was a more even handed approach that could have helped legions of gold devotees avoid some very unpleasant interim situations before Goldzilla finally rises up and wrecks the cities around the globe made of paper and digits.

The gold sector is rallying as we expected it would from the 2008 lows and a capitulation of at least moderate degree but has not proven much, technically.  Similarly, the fundamentals are not yet fully baked for the sector (ref.  yield curves, gold vs. stock markets, gold vs. certain commodities, intact public confidence in policy making, etc.).  These things will change either sooner or later, but for years now imposing our will upon the market has not worked.  Sit back, relax and let Goldzilla do his thing.

I write the above in the style I used to write as a ‘for free’ public writer (as opposed to the more technical stuff I need to see to now with NFTRH) to hopefully add a level of perspective to the conversation going forward.  The macro is going to change.  It always does.

The Instability Express

Guest Post by James Howard Kunstler

The mentally-challenged kibitzers “out there” — in the hills and hollows of the commentary universe, cable news, the blogosphere, and the pathetic vestige of newspaperdom — are all jumping up and down in a rapture over cheap gasoline prices. Overlay on this picture the fairy tale of coming US energy independence, stir in the approach of winter in the North Dakota shale oil fields, put an early November polar vortex cherry on top, and you have quite a recipe for smashed expectations.

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NFTRH 317 Out Now

Actually it was out much earlier but I had to get it in the can and run this morning.

So now I am back and here to tell you that the screenshot below gives a pretty good idea of where this report is going.  It is going where it needs to go as we manage the fully expected precious metals bounce with parameters and no set in stone assumptions.  Likewise, the stock market, totally unbroken but with a lot of unhealthy signals bunching up around it.

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