Whether or not you've had time yet to plow your way through David Collum's excellent 2016 Year in Review, our annual podcast with Dave always brings additional color to light -- and this year's is no exception.
Any model based on an assumed 7.5% return is doomed. As you get low returns, our pensions get in trouble. And whenever the returns shoot above the norm they say "Well, this is excess." And they scoop it up. So every time they are above water they scoop it up. How? They stop contributing. They start using the money for other stuff. Think of a sine wave oscillating about the mean -- even if you guessed the mean correctly, if every time it is on the high side you skim it you'll never get the mean; and that's what the pension managers have done. And companies just stop contributing to pension plans and started calling the retained funds "profits", which causes equities to go up and makes the thing get out of whack.
We've got a recession coming, one of the full-blown kind. And I don’t know what will happen. My prediction is that it is going to be a bad one. But what a lot of people don’t realize is that is when things start unwinding, counter party risk kicks in and faulty business models start showing up as bad and they start collapsing. All the accounting problems that built up behind the scenes so that the people cook the books to get their bonuses up and they made these crazy assumptions -- under the protective cloak of a recession, CEOs can get away with announcing anything because they say Hey, don’t look at me. It’s a recession. So they write down huge blocks of cost. This actually exacerbates the downswing because people are dumping all their cooked books and getting all the fraud off their books so they don’t have to fess up to the fact that they cooked them. In actuality, they're getting ready to then start building up their stock options again from some bottom somewhere.
This is going to unwind. It has to unwind. This is like a person who weighs 850 pounds -- they're not going to make it into their 90s, right?
Click the play button below to listen to Chris' interview with David Collum (49m:26s).
I read, enjoyed, and very much benefited from the Year in Review and this podcast. Informative and funny. But I can't help but notice I got "triggered" (OMG!) by a number of words in Dave's presentation: idiot, buffoon, numbnuts, and joker. I wasn't offended as, besides being poignantly accurate, they were words I quite possibly would have used in the same instance, chatting among the like-minded. Persuading others of the validity of the 3 E's and our predicament is a common point of frustration for many here. As we're pretty much preaching to the choir here, it's not a big deal, but I was reminded of the fairly recent posting somewhere here of Trey Gowdy's speech where he touched on persuasion and insult. Worth a watch, if you haven't seen it. Thanks Chris and Dave. Happy Holidays all! Aloha, Steve.
The last recession ended in June 2009. Average time between recessions in the last 100 years is 4 years 2 months. The longest time between any two recessions is 10 years. Conclusion: the next recession will probably occur before 2019.
We have never gone into a recession with such loose monetary policy (as in low interest rates) Conclusion: we are in no fit state to go into our next recession.
For these two reasons, the next recession will be the mother of all recessions and will mark the peak for World GDP in my opinion…
For some reason I have this image in my head of Wile Coyote off the cliff and in mid air with his legs running furiously, trying to avoid the inevitable.
Good stuff Chris and Dave!
I'm surprised that more people in the metals blogosphere are not talking about India, specifically the demonetization efforts and the recent 'black money' tax introduced for those folks in possession of more than 500 grams of gold. When you put a crimp in the world's largest (or perhaps second largest?) gold market, there will be some serious head winds for the precious metal.
'cash is king'. Really? When TSHTF you cannot buy assets with cash or pay with your bankaccount. And of course you cannot change your gold for cash. We are trapped. So what's the right moment?
Yep. you have a point, Cr. When TSHTF no one escapes. No one. Debt supercycles end with either inflation, currency devaluation or sovereign default. In the first two ways, that wheelbarrow of cash you thought you had saved all your life can quickly devalue so that it can only buy you a loaf of bread. In the last way, the government 'bails in' your savings. As for gold, you can easily be denied access to it at your place of storage. What do you do? Brake into your bank and steal it back? Income producing property and land however are harder to confiscate and also keep their relative value, but even here, the government can rise property taxes on you.
Unique or hard to acquire useful skill sets can never be devalued or confiscated by the government. Therefore, maybe, the best course of action is to invest your money ---- in yourself.
if i may say so, too many people hold a fixed story in their heads about what SHTF means, and how that story will play out. reading a prepper novel might give you insight on one possible scenario, not a sure-fire prophecy.
there is a range of possible SHTF scenarios to prepare for, including but not limited to:
natural disasters
EMP pulse disrupting the electrical grid
war
civil unrest
hyperinflation
credit system collapse
in most of these scenarios, and especially credit system collapse, cash will be valued.
and even hyperinflation, the least cash-friendly scenario, will give you time to spend what cash you have before it really takes off.
The skill will take you so far,the gold and silver will take you so far, the food will take so far, the money will take so far, some combo of this and you just might survive it, when the shtf. Finding the wright mix hard?
The skill will take you so far,the gold and silver will take you so far, the food will take so far, the money will take so far, some combo of this and you just might survive it, when the shtf. Finding the wright mix hard?
A wise person once told me during my y2k phase that you should never position yourself such that you require an apocalypse to come out ok. Moderation to account for the possibility that you might be wrong is always worth pondering. The disaster scenarios–as in the Great Depression–can look manageable in retrospect.
It would seem based on inductive logic, that the central planning can continue indefinitely. After all, its been agoing full bore for 8 years of both zirp and money printing, with nary a hiccup. I wish it were not so. Of course it can't go on forever (but that time might not encompass our lifetimes) and unfortunately no one has proposed anything certain that will stop it. The central banks are buying junk debt and equities for goodness sakes - and no one is stopping them - or even trying with any wherewithal to do so. I fear a continued slow burn and wealth transfer as savers are deprived of interest and central banks continue to buy assets to prevent debt deflation - thereby continue to reward and enable moral hazard (speculation w/o risk). The eliltes have become hacks and hucksters, justice and common sense be damned.
Otherwise, Life is grand.
until the big energy E bubble (now 200+ years old) finally starts seriously deflating. Then the economy (the dependent E) will whoosh into the emptiness of outer space so fast that the elites will be found orbiting the earth like junked sattellites. Meanwhile the third E will sigh contentedly and begin to rest and recover. I’d like to be a survivor. Who knows? Some of us should be.
Dave didn’t hit the energy E much. When he does it will be in the rear view mirror. Just remember ‘thermodynamics’! Dave’s antenna is up. The Babylonians, the Romans, the Byzantines all understood gold a whole lot more than coal and oil. Listen to Dave’s portfolio more than his words of review for the past 12 measly months. Don’t be distracted by the noise.
The taxes I pay to support this complex society and all the public sector employees that are guaranteed a retirement package makes me a little exhausted. It would be nice to work 25 years, not put any money from my salary aside, and get a check every month. As a self employed entrepreneur, the amount of money I make and the amount of money it takes to live on leaves very little to build a retirement account. How am I supposed to build any savings plan when I am taxed to pay for other peoples retirements? San Bernardino county pays something like 70% of its’ general budget to cover the retirement plans of Police and Firefighters that are no longer working. God bless those men and women that did that job, but guess what, your city is bankrupt. No one could see that coming could they? If that happens to me, I loose my home, I live in a van with my family. I cannot print money or borrow indefinitely and have somebody else pay it back. I’ve been planning for living on very little for some time now, so lets bring the collapse and see how those who think they have nothing to worry about will live. Go out there into private society and see how many people you can barter your skills with to put food on your table. I think a great culling of the herd will occur.
Here is a perfect example of a city manager, retired from El Monte California. Retired city manager James Mussenden collects more than $ 216,000 a year, plus cost of living and fully paid health insurance. And this is 1 man, from a Po-dunk suburb in LA. Median household income of $ 39,000. There are roughly 100,000 people in this suburb who will never have the retirement he has. They are the ones paying for him and Lord knows how many other people. Hubris, it’s all I can think of. I’m sure he really made a great impact for the improvement on society to justify the pension. That’s a public servant.
This is one aspect of what brought Trump to the Presidency.
Let me preface this comment by stating that I find immense value in Dave’s “Year in Review” and look forward to it every January since I was first exposed to it. He is obviously a man of significant intelligence AND wisdom gained from a lifetime of intellectual curiosity, and what he has forgotten about financial markets over the years is likely greater than everything I’ve learned about them.
However…
I was listening to a talk by the late Toby Hemenway through Diego Footer’s Creative Destruction Podcast (formerly Permaculture Voices) just last week in which he made the following statement:
If you believe that your life and livelihood is dependent upon the earth, you will defend it to the death. If you believe it is dependent upon your job and the current system, you will defend that to the death.
This statement is one of those that has really stuck in my head, because it distilled a lot of complex ideas down to a simple truism. You will defend to the death the system(s) that you perceive as sustaining your life.
How does this apply to the interview with Dave? I noted in last year's interview that Dave confessed his relative lack of knowledge on ecological/environmental matters. In reading through his Year in Review for 2016, I noted in his comments on energy that he's invested in North American natural gas, and is rather dismissive of alternative energy (esp. solar), calling it "too political".
I'm not about to go on a harangue here about the superiority of solar over natural gas, namely because I don't think that PV solar is necessarily supportable without a fossil fuel foundation underneath of it, and I do think it is starting to display certain bubble characteristics as pointed out by John Michael Greer. But I do think that the natural gas angle here can be quite revealing, because when we're talking nat gas today we're primarily talking hydrofracturing.
I am originally from Western PA, which is just about as all-in on nat gas fracking as any other part of the country. On the occasional trips I still take back there, I take note of the way that wells are springing up all over the landscape there. Some landowners (my cousin in particular, who owns the old family farm my grandmother grew up on) have done VERY well financially from this boom. But at the same time, I took note of how my grandfather's drinking water well, which was ALWAYS clean-tasting while growing up, suddenly turned downright awful after he had 3 wells fracked on his 35-acre property. I look at the way that water is being pumped up from the Allegheny River for these operations -- and then has to be stored and disposed of. I notice how municipalities are moving toward using products from fracking wastewater to spread on roads during the winter as a means of salting them. Most of all, I note the recent reversal from the EPA where they have admitted that fracking can, and does, impact groundwater around wells.
What I see when I look at the fracking operations is Garret Hardin's "Tragedy of the (Unregulated) Commons happening in real time. You have a common resource -- groundwater aquifers -- that are being trashed for centuries to come, in order for individuals to profit from the nat gas that is under the ground.
This is probably due to the fact that I have come to the conclusion that my ultimate livelihood, and that of my children, is tied to the health of the ecological systems of the earth upon which we live (such is one of the effects of being "infected" by permaculture, as Geoff Lawton has described it). This is why I probably tend to focus overwhelmingly on the problems with something like nat gas fracking. Since I see my prospects as dependent upon ecological systems, that is what I will choose to defend (even as I experience the daily cognitive dissonance of working as an engineer in the industrial economy).
On the contrary, I would hazard to guess that Dave sees his and his progeny's future prospects dependent upon the health of the financial system. As such, he sees more of the benefits of nat gas fracking and probably tends to discount or ignore the costs/problems associated with it. Therefore, that's what he will more likely choose to defend. I cannot personally speak to whether he feels any cognitive dissonance over it.
Please note that I'm not writing any of the above as any type of condemnation or criticism -- but rather trying to evaluate Dave's work against that statement by Toby Hemenway, and to see if there is in fact common ground that can be established between people/groups who see through the lens that their livelihood and prospects are tied to quite divergent sources. Perhaps this is one of those things that can only be solved at the most local of scales where people have to deal in the realm of eye contact and pressing the flesh -- an idea pushed by David Fleming, that our most global problems ultimately require local solutions.
A comment I heard on a new podcast/video, The Vin Armani Show, reminded me of how much our civilization is willing to subsidize fossil fuels not only by ‘messing our own pants’ when it comes to fracking and other mining practices, but also how much expense we are willing to underwrite when it comes to military force to stabilize our access to areas of interest.
If one third of that money was put toward stimulating renewables the leverage gained to more effectively use the remaining accessible hydrocarbons would look like a derivatives deal.
The worst (or best) that could happen is thst Elon Musk might get to Mars sooner.