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Guest Post: A Major Inflection Point Is Upon Us
Submitted by Michael Krieger of KAM LP
A Major Inflection Point is Upon Us
Great things are done when men and mountains meet. This is not done by jostling in the street.
Always be ready to speak your mind, and a base man will avoid you.
As a man is, so he sees. As the eye is formed, such are its powers.
Excessive sorrow laughs. Excessive joy weeps.
I must create a system or be enslaved by another mans. I will not reason and compare: my business is to create.
If the doors of perception were cleansed everything would appear to man as it is, infinite.
The weak in courage is strong in cunning.
What is grand is necessarily obscure to weak men. That which can be made explicit to the idiot is not worth my care.
You never know what is enough unless you know what is more than enough.
- All Quotes by William Blake
A Major Inflection Point is Upon Us
I have not commented on the financial markets in a detailed way for quite some time now. This is not because I do not have strong opinions on them, rather it is because I see the current ongoing crisis as just as much a political and social crisis as an economic one and so I am compelled to address those concerns as I think it is in that arena that the greatest dangers exist. Additionally, the major macro investment themes that I outlined well over a year ago remain the same. Namely I think long investments in the United States stock market should be focused on precious metals miners, oil related energy shares and the agriculture theme. Anything related to the ponzi economy like financials, real estate (commercial and residential) and traditional retail with little international presence should be avoided. The final reason why I have not been more market focused is that with liquidity so bad and countless players seemingly exiting positions and taking risk down, sometimes I wonder who is really driving these markets. Are the moves expressions of investors and their views on the future or is most of the trading actually related to sovereign interests engaged in financial warfare? If it is indeed the later influence that is most profound then you can forget any possibility of rational moves on a day to day or even week to week basis. Nevertheless, the market always wins in the end and this happens at major inflection points. I think we are at one of those moments right now.
When Oil Breaches $80/b Watch Out
I have mentioned time and time again that the broad stock market has never been able to rally sustainably once oil moves above $80/b. We first saw this back in 2007 when the market top occurred just as oil was about to embark on its surge through the $80/b level on its way to $150/b. Oil has since topped $80/b on several occasions, in October 2009, January 2010, and then the March/April 2010 period. In every case the oil price correlated very positively to the market and in my view was a key factor preventing further gains. Well here we are again with the S&P500 on a nice bounce to the 50 dma and oil at $79/b. If what we have seen in the past occurs once again the market is about to run out of steam. So the question everyone needs to ask themselves is what are the likely scenarios from here. There are two in my view. The first one would play out as many of the previous ones have. Namely, oil and the stock market pull back meaningfully as the “risk on” trade evaporates. This is what I think most people anticipate. The other likely outcome would be the decoupling trade we saw between fall 2007 and mid-2008 where the dollar lost serious purchasing power and commodities and ROW stocks surged in value relative to all other asset classes.
Is a Decoupling Trade on the Horizon?
I think there is a much greater probability of the second scenario playing out than many anticipate and here is why. First, very few are set up for such a trade. It first started almost three years ago now and as we all remember it ended in tears for those that had it on with leverage and couldn’t get out. Investors are now sufficiently conditioned to the idea that oil and the S&P500 are both part of a “risk on” or “risk off” trade. This is likely what the computers are trading on and so it would actually be a huge surprise if that correlation was to break down. That said, just because it would be a surprise to see oil rise and the market decline concurrently isn’t a reason for it to happen. I think one of the reasons relates to the dollar. The U.S. dollar should have completely collapsed versus many of the better managed and fundamentally sound currencies in the last year or so. By these I refer to the Australian dollar, the Chinese yuan (and most emerging Asia currencies), the Swiss Franc and the Brazilian real. While the dollar has certainly lost a lot of value to many of these currencies in the past year or so it would have been considerably worse if not for active intervention by central banks in other countries. Effectively, when the crisis hit the U.S. still had a lot of credibility and so the leaders of all nations decided to support the U.S. and its currency in an attempt to get things “back to normal.” This is why I have mentioned repeatedly that the dollar index is so useless as an indicator (also because the main components are the euro and yen and I do not believe these to be sound currencies either). There is investing in the dollar versus the euro or versus the yen. I think all three will end up in the currency graveyard.
The U.S. has Lost All Credibility
The United States political and monetary authorities have lost ALL credibility in the eyes of the world ever since the crisis hit and for very good reason. The main reason we are still held on life support is so that China can go out and buy up all of the world’s resources while the dollar still has value (and they allow us to bury ourselves) and we have a strong military. We can see the loss of credibility in the fact that we went to the G20 talking about more stimulus and were rebuffed. So when the crisis first hit all other nations defended our system and currency but now I think all nations are going to focus on what is best for them and believe me it will NOT be what is best for us. China has already slowed itself down materially to deal with its irresponsible housing bubble but based on comments recently from authorities it is clear that they are committed to stimulating domestic consumption. Furthermore, while the yuan has only strengthened slightly since they changed policy let’s not forget that it HAS strengthened. While they are proceeding cautiously, this was a change of policy. So to summarize I see a world emerging over the next few months where other nations publicly talk a nice game about the U.S. and its importance but in reality talks will go on behind our back as to how to gracefully cut the cord. Any cutting of the cord would reflect itself in a decoupling trade in my view. Unfortunately, politicians in the U.S. will never admit that they are the reason we are in this mess so they will likely start a war or create some other event (cyber attack to shutdown the internet?). This is precisely why I call on all Americans right now to refuse to get involved in a war. This would be a war to defend our empire plain and simple. We do not need an empire. China needs an empire to feed itself and to provide energy. We are the most blessed large nation on earth as far as land, agriculture and water resources. Plus we have a brilliant social document called the Constitution that the vast majority of Americans would die to defend if necessary against whoever would threaten it. Let’s just get our acts together here and not fall for the trap that I see being set. Also, remember that if the authorities are about to lose control of the precious metals and oil market the best thing for them to do would be to start a conflict so the rise can be blamed on that. If you haven’t learned that Washington D.C is not to be trusted by now I do not know what it will take.
Mike
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Keep in mind that Debka is, allegedly, sourced by The Mossad. As a result, it is deep in information but also disinformation. The challenging part is determining which is which.
If this is true, Mossad driven Debka, then expect no truth. Once you give out information n it's almost impossible to get it back.
Mr. Burns: Smithers, use the amnesia ray
Smithers: You mean the revolver, sir?
Mr. Burns: Precisely
I'm not sure how you can say the Chinese manage the currency well when no one knows how much debt the banking system has pushed out and how much bad debt there is in the system.
Don't mean to be rude, but who is Michael Krieger? Anyone know anything about him other than that he's a "formerly of Bernstien Research" and now manages a fund called "KAM LP"?
For that matter, anyone know what KAM LP is? A google search reveals that this guy's stories from Zero Hedge are amazingly popular and reproduced all over the web, but there doesn't seem to be anything else out there about him.
We do indeed live in interesting times. It is an honor to be an observer of this phase in human history. Although "old" in human terms, I am keeping myself as spry as possible to hang onto the railing and watch the spectacle.
Let's look at the logic here. We've lend(printed) trillions of fiat backed by nothing. That fiat was used to inflate asset prices that were used as fictitious collateral to lend even more fiat. And now you say 'let's stop the presses, and make all this fiat good.' You say let the criminals reap and keep the riches on the back of peoples road to debt peonage. F**k you and the rest of your misguided financial thinkers.
You can huff, you can puff but the only solution is to blow up the dollar. There is no other solution that benefits the people.
Either way, no one in their right mind would be putting money in this rigged market, because it is definitely being flogged by TPTB. Anyone putting money is stocks is playing roulette, and if you like to see you life savings gambled on a minute by minute basis, then more power to you. I will keep my money on the sidelines for a long long time.
I wouldn't be so sure about that. I agree that are a great deal that would do as you say, but to say the "vast majority" is an overstatement if I'd ever seen one. Off the top of my head I'd say 30% at best. That would be many of our older citizens to which the USA still stands for something, the rest would be mostly current and ex-military that have a natural patriotic bone.
Nice article though.
"If you haven’t learned that Washington D.C is not to be trusted by now I do not know what it will take."
Wall Street too.
Excellent piece, Mike. It's a keeper.
"Plus we have a brilliant social document called the Constitution that the vast majority of Americans would die to defend if necessary against whoever would threaten it."
All right, agreed, the US' constitution should be the envy of every nation. So where the hell have all these righteous fuckers been since 1971? Not dying to defend their egregiously beset constitution, that's for sure.
This guy denigrates the very conditions that probably made him wealthy. What does he think would happen to his “portfolio” if the US retreated from empire and returned to autarky? Post WWI England could serve as an example….
This is a beautiful, well thought out piece. I agree with Krieger, especially his comment about empire and America's geostrategic strengths, but he misses one very important point.
We do need empire for one simple reason. Oil. We consumer 19 million bod per DOE. We produce just over 5 mbod domestically, which means we import just under 14 mbod. The top 10 countries we import from (from most to least) are Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, Angola, Iraq, Brazil, Algeria, and Colombia. Canada is the largest at right around 2 mbod.
It doesn't take a lot of understanding to realize that we get over half of our oil, every single day, from nations who are hostile towards us. Take away any one of them and you have gas lines, anarchy and huge problems. Another thing that becomes obvious when you look at this is that NAFTA is really about oil, not manufacturing, because Canada and Mexico combined import 3 mbod into the US.
If you look at where we are busy building empire, you can tie every one of those locations to oil. Even Afghanistan which is all about building a pipeline to the Arabian Sea from the Caspian, bypassing Turkey AND the Straits of Hormuz.
So as much as I love and believe in my country, we do need empire until we find a way to replace oil with energy from other sources. I wish it weren't so, but it is.
I offer for your consideration a truly excellent journalistic endeavor by the Chicago Tribune's Pulitzer Prize-winning correspondent Paul Salopek.
In the series, named A Tank of Gas, A World of Trouble, Salopek "traced individual tanks of gas pumped at a suburban Marathon station to the fuel's precise sources around the globe, from the fishless waters off the coast of Nigeria to the politically restless fields of Venezuela. In doing so, Salopek reveals how America's oil addiction binds us to some of the most fragile and hostile corners of the planet--and to a petroleum economy edging toward an epic energy crisis."
http://articles.chicagotribune.com/2006-07-30/business/0607300242_1_crud...
x
When you say blessed with water resources I assume you mean blessed to be so close to Canada's water resources. And the Constitution has been under major threat yet so far not enough people have been defending it.
previously blessed with water resources now polluted with flouride for some agenda
Wow, that's deep. Something to think about while I'm pinching a loaf. By the way, The markets are Green, The birds are singing and my IPhone 4 has no issues. Life is good.
This post only adds to the credibility of the BP/Govt coverup in the GoM. The only info/"news" about the blowout is tightly controlled. This is the future....tight control on the internet. I will miss ZH and Drudge. The economy depends on the Treasury ability to issue several hundred billions of debt each week. Talk about living on the edge, paycheck to paycheck, not planning for the future.
Right, so, you're saying that whatever happens, anything that happens in the future is basically a "false flag," and any war against anyone for any reason should automatically be rejected with no regard to circumstance ... and we should set up our biases now to avoid using logic and reason or paying attention to the details or circumstances of any particular event.
Neville Chamberlain? Is that you?
Wow, touche!...a Neville Chamberlain broadside. You must be like Grandpa Simpson and piece together most of your knowledge of history by reading the backs of sugar packets.
Pffft. I could have fed Scrabble letters to my dog and he could have shat out a better comeback than that.
Since you clearly fail at cheap shots, perhaps you'd like to try another route, and, oh, I don't know ... make a substantive argument of some kind or another?
It would seem that these inflection points are recognized by many disciplines:
http://www.worldwatch.org/node/6008
There appears to be something in the air. Holling's theories would give some support to Armstrong's theories about time.
What stands out for me in that interview (and Holling's other writing/interviews):
"Humankind has experienced only three or four such pulses during its entire evolution, including the transition from hunter-gatherer communities to agricultural settlement, the industrial revolution, and the recent global communications revolution. Today another pulse is about to begin. "The immense destruction that a new pulse signals is both frightening and creative," he writes. "The only way to approach such a period, in which uncertainty is very large and one cannot predict what the future holds, is not to predict, but to experiment and act inventively and exuberantly via diverse adventures in living."
Add in the emerging geoenginering and technological singularity crowds, and this pulse does not bode well for those who love life as we now know it.
Someone just dusted off their conscience.
But...but.. I thought we are America and history and the laws of economics does not apply to us. I thought having debt made us richer,I thought we fought wars to get WMDs and Osama Bin Laden aka Muslim Dr. Evil with a secret Bond villain mountain fortress. Wait I thought the TV said America will never go bankrupt.
Reposted from another thread. I don't understand why this isn't a larger concern.
TD might want to keep an eye on this, too.
I'm not a meteorologist but, with negligible shear over the Gulf, I'm harding time seeing why this won't intensify to something more significant than a TS over the weekend.
http://www.nhc.noaa.gov/storm_graphics/AT03/refresh/AL0310W_NL+gif/14591...
****Update: There have been MANY excellent responses challenging the OP since I posted this, rendering my comments mostly moot****
The comments on this post provide a depressing example of how ZH is loosing value and in danger of becoming a vacuous echo chamber. Mr. Krieger provides some very interesting and, I believe it to be mostly, accurate opinion here. However, there are some pretty glaring statements which surely someone on ZH disagrees with...?
Is >$80/b causation or correlation? It's not exactly prophetic to proclaim "something will happen" when oil tops $80. It's only happened twice, in inflation adjusted dollars, since 1946. How about looking at the 00' to present trend line, eyeballing it puts us at $80 somewhere around 2015. Clearly, $80 isn't nearly as mystical a number as it was in 1979.
"The United States political and monetary authorities have lost ALL credibility in the eyes of the world ever since the crisis hit and for very good reason. The main reason we are still held on life support is so that China can go out and buy up all of the world’s resources while the dollar still has value (and they allow us to bury ourselves) and we have a strong military." This is a bold statement, backed up with little more than mainstream-media-esque hand waiving. China isn't gobbling up ALL of the worlds' resources, and although they are laying claim to a vast array foreign production facilities, those claims can vanish quite easily. Never mind much of the world fell by following the path of malfeasance the US lead, yet persists along the same demented path a la euro stress tests, currency swaps, etc. Mr. Krieger mentions something of a failed G20... As if the US said "jump" and the world baulked. What Mr. Krieger says makes logical sense, countries should be bailing on the US, but he supplies no evidence of this coming about.
Most people here can argue the salient points much better than I, I'm just looking for some thorough discourse.
There are many examples of the world bailing on the USA.
1. Russia pushing for another global exchange currency/baseline of measure which could include oil or a combination of currencies and base and precious metals.
2. Nobody putting the screws to North Korea for sinking a ship. That is pretty heavy stuff. If Cuba did it, what would happen?
3. USA's anxiety as it starts to pick up the spies it new were in the US for years? why now? Their running scared. How about the geologist in China in jail for spying on China's oil.
4. The very simple fact that China can't be bullied by the USA on its currency.
5. The fact that IRAN has its ass covered by China and Russia and that the west would not dare touch it for fear of what it might open up.
should I go on? It's not what other nations are doing to the USA; it is what they are doing elsewhere irrespective of what the USA thinks. IT IS A multipolar world and the USA has not gotten that yet. If it does not soon, it will get its nose bloodied.
more of the same tiresome, repetitive, inane, and disingenuous empty rhetoric we have come to expect from the likes of Mike Krieger and the hopeless retinue of turncoat investurds, fund managers, and empty suits occasionally gracing the pages here, who have quixotically appended upon themselves the breast plate of righteous moral indignation and pledged themselves Joan of Arc-like to remedy the longstanding wrongs which afflict our unfortunate nation. such unctuous and bald hypocrisy would be appalling if not so prevalent and nauseatingly predictable. this self-serving, melodramatic posing and empty bombast betrays the puerile level of moral dissociation which occurs with regularity in the compartmentalized consciousness of would be crusaders with skeletons still rattling in the closets of the board rooms and haunting the trading platforms where they unscrupulously pander to the insensible greed and rapacious sell interest which are the hallmarks of their inglorious pharisaic culture. vomit.
Awesome. I am sick of all these financial types like Eric Sprott, Hugh Hendry and Mike Krieger advance their economic agenda. Haven't we had enough? There is no difference between GS, MS or these hedge funds types; they are just all talking their book. Consider that most Americans have almost no savings and live paycheck to paycheck--- the most important thing for them is an economy that produces jobs. And that will only happen when we erect trading walls and devalue the dollar.
the most important thing for them is an economy that produces jobs
Yes.
hold on.. let me get my thesaurus... boy your smart... is this Dennis Miller???
Dennis Miller is the court jester of pretentious diction.
@yardfarmer
You've definitely mastered the adjective.
Now let's focus on clarity.
Above all what is needed is to let the meaning choose the words, and not the other way around - George Orwell
Perchance he is channeling WFB.
Yardfarmer - Did you eat a dictionary for breakfast?
Very well put by the way +100
You billowing bail of bovine fodder!
You clinking clanking clattering collection of caliginous junk!
BTW - How did China slow down their housing bubble? Can anyone spell executions! Got to love those totalitarian systems, they are managed so well.
Unfortunately a well managed totalitarian regime is what the US is going to end up after the collapse. That scares the shit out of me because I'm not very good at taking roders from some pompous bureaucratic motherfucker. I suspect my survival rate on the Totalitarian timeline is very short indeed.
What? No Chinese solars???? LOL!!!!!!!!!!!!!!
The US always has the option of killing the Euro.
Oops, did I let the dead cat out of the bag?
The U.S. has Lost All Credibility
oh tweedledum, tweedledee,
your gift is hyperbole
Buy PMs. But buy ammunition, food, and water filters first.
I'm not the smartest cookie on the block so I need some help please, Please!!
1.would sovereign nations use their central banks for currency swaps (unreported) to purchase each other’s equities?
2. Would sovereign nations enter into agreements to support each other's equity markets?
3. Is there any research / information on the physiology of markets (the new fad in investing). I ask because I get the sense that someone or something is purposefully trying to disorient my sense of what the macro national and international data points are telling me.
4. Why is everything tipsy tervy. Up lots one day. Down lots the next? It seems like the buying is almost manic, like life depended on it.
5. If more money is going out of the stock market than entering it, how can it go up?
Many thanks in advance to everyone for your help everyone
Louie
sorry duplicate posting
I'm not the smartest cookie on the block so I need some help please, Please!!
1.would sovereign nations use their central banks for currency swaps (unreported) to purchase each other’s equities?
2. Would sovereign nations enter into agreements to support each other's equity markets?
3. Is there any research / information on the physiology of markets (the new fad in investing). I ask because I get the sense that someone or something is purposefully trying to disorient my sense of what the macro national and international data points are telling me.
4. Why is everything tipsy tervy. Up lots one day. Down lots the next? It seems like the buying is almost manic, like life depended on it.
5. If more money is going out of the stock market than entering it, how can it go up?
Many thanks in advance to everyone for your help everyone
Louie
Monocultures create an illusion of power. They are however much easier to destroy, inherently weaker.
Efficiency, which monoculture societies, ecosystems and economies tend to elevate as an end, is ultimately death.
When you wet the bed, first it is warm, then it is cold. Chinese proverb
Tainter's good as well, but not in my opinion, as accurate or at the level of Holling and some of the other resilience research coming out. His EROI and complexity insights are powerful, but some of his other conclusions seem only to partially describe the reality unfolding.
For another really good examination, google "Biophysical Economics".
EDIT - intended as a response to the poster above that mentioned Tainter!