Facing the Fourth Industrial Revolution
Enrique Peña Nieto
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THE DEFLATION MONSTER HAS ARRIVED / SAFE HAVEN
The Deflation Monster Has Arrived
By: Chris Martenson

And it sure looks angry
As we've been warning for quite a while (too long for my taste): the world's grand experiment with debt has come to an end. And it's now unraveling.
Just in the two weeks since the start of 2016, the US equity markets are down almost 10%. Their worst start to the year in history. Many other markets across the world are suffering worse.
If you watched stock prices today, you likely had flashbacks to the financial crisis of 2008. At one point the Dow was down over 500 points, the S&P cracked below key support at 1,900, and the price of oil dropped below $30/barrel. Scared investors are wondering: What the heck is happening? Many are also fearfully asking: Are we re-entering another crisis?
Sadly, we think so. While there may be a market rescue that provide some relief in the near term, looking at the next few years, we will experience this as a time of unprecedented financial market turmoil, political upheaval and social unrest. The losses will be staggering. Markets are going to crash, wealth will be transferred from the unwary to the well-connected, and life for most people will get harder as measured against the recent past.
It's nothing personal; it's just math. This is simply the way things go when a prolonged series of very bad decisions have been made. Not by you or me, mind you. Most of the bad decisions that will haunt our future were made by the Federal Reserve in its ridiculous attempts to sustain the unsustainable.
The Cost Of Bad Decisions
In spiritual terms, it is said that everything happens for a reason. When it comes to the Fed, however, I'm afraid that a less inspiring saying applies:

Yes, it's easy to pick on the Fed now that it's obvious that they've failed to bring prosperity to anyone but their inside coterie of rich friends and big client banks. But I've been pointing out the Fed's grotesque failures for a very long time. Again, too long for my tastes.
I rather pointlessly wish that the central banks of the world had been reined in by the public before the crash of 2008. However the seeds of their folly were sown long before then:
Note the pattern in the above monthly chart of the S&P 500. A relatively minor market slump in 1994 was treated by the then Greenspan Fed with an astonishing burst of new money creation -- via its 'sweeps' program response, which effectively eliminated reserve requirements for banks .That misguided policy created the first so-called Tech Bubble, which burst in 2000.
The next move by the Fed was to drop rates to 1%, which gave us the Housing Bubble. That was a much worse and more destructive event than the bubble that preceded it. And it burst in 2008.
Then the Fed (under Bernanke this time) dropped rates to 0%. The rest of the world's central banks followed in lockstep (some going even further, into negative territory, as in Europe's case). This has led to a gigantic, interconnected set of bubbles across equities, bonds and real estate -- virtually everywhere across the globe.
So the Fed's pattern here was: fixing a small problem with a bad decision, which lead to an even larger problem addressed by an even worse decision, resulting in an even larger set of problems that are now in the process of deflating/bursting. Three sets of increasingly bad decisions in a row.
The amplitude and frequency of the bubbles and crashes are both increasing. As is the size and scope of the destruction.
The Even Larger Backdrop
The even larger backdrop to all of this is that the developed world, and recently China, have been stoking growth with debt, and have been doing so for a very long time.
Using the US as a proxy for other countries, this is what the lunacy looks like:

As practically everybody can quickly work out, increasing your debts at 2x the rate of your income eventually puts you in the poor house. As I said, it's nothing personal; it's just math.
But somehow, this math escaped the Fed's researchers and policy makers as a problem. Well, turns out it is. And it's now knocking loudly on the world's door. The deflation monster has arrived.
The only possible way to rationalize such an increase in debt is to convince oneself that economic growth will come roaring back, and make it all okay. But the world is now ten years into an era of structurally weak GDP and there are no signs that high growth is coming back any time soon, if ever.
So the entire edifice of debt-funded growth is now being called into question -- at least by those who are paying attention or who aren't hopelessly blinkered by a belief system rooted in the high net energy growth paradigms of the past.
At any rate, I started the chart in 1970 because it was in 1971 that the US broke the dollar's linkage to gold. The rest of the world complained for a bit at the time, but politicians everywhere quickly realized that the loss of the golden tether also allowed them to spend with wild abandon and rack up huge deficits. So it was wildly popular.
As long as everybody played along, this game of borrowing and then borrowing some more was fun. In one of the greatest circular backrubs of all time, the central banks and banking systems of the developed world all bought each other's debt, pretending as if it all made sense somehow:

The above charts show how hopelessly entangled the worldwide web of debt has become. Yes, it's all made possible by the delusion that somehow being owed money by an insolvent entity will endlessly prevent your own insolvency from being revealed. How much longer can that delusion last?
All of this is really just the terminal sign of a major credit bubble -- a credit era, if you will -- drawing to a close.
I will once again rely upon this quote by Ludwig Von Mises because apparently its message has not yet sunk in everywhere it should have:
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." ~ Ludwig Von MisesWell, the central banks of the world could not bring themselves to voluntarily end the credit expansion - that would have taken real courage.
So now we are facing something far worse.
Why The Next Crisis Will Be Worse Than 2008
I'm not just calling for another run of the mill bear market for equities, but for the unwinding of the largest and most ill-conceived credit bubble in all of history. Equities are a side story to a larger one.
It's global and it's huge. This deflationary monster has no equal in all of history, so there's not a lot of history to guide us here.
At Peak Prosperity we favor the model that predicts 'first the deflation, then the inflation' or the "Ka-Poom! Theory" as Erik Janszen at iTulip described it. While it may seem that we are many years away from runaway inflation (and some are doubting it will or ever could arrive again), here's how that will probably unfold.
Faced with the prospect of watching the entire financial world burn to the figurative ground (if not literal in some locations), or doing something, the central banks will opt for doing something.
Given that their efforts have not yielded the desired or necessary results, what can they realistically do that they haven't already?
The next thing is to give money to Main Street.
That is, give money to the people instead of the banks. Obviously puffing up bank balance sheets and income statements has only made the banks richer. Nobody else besides a very tiny and already wealthy minority has really benefited. Believe it or not, the central banks are already considering shifting the money spigot towards the public.
You might receive a credit to your bank account courtesy of the Fed. Or you might receive a tax rebate for last year. Maybe even a tax holiday for this year, with the central bank monetizing the resulting federal deficits.
Either way, money will be printed out of thin air and given to you. That's what's coming next.
Possibly after a failed attempt at demanding negative interest rates from the banks. But coming it is.
This "helicopter money" spree will juice the system one last time, stoking the flames of inflation.
And while the central banks assume they can control what happens next, I think they cannot.
Once people lose faith in their currency all bets are off. The smart people will be those who take their fresh central bank money and spend it before the next guy.
GM SPEAKS UNTRUTH TO POWER / THE WALL STREET JOURNAL OP EDITORIAL
GM Speaks Untruth to Power
Forget the techno-babble. Detroit needs to engage in straight talk about regulation.

General Motors Co. GM -0.76 % last week disclosed its $500 million investment in the ride-sharing startup Lyft, and the announcement was a gem of obfuscatory PR that could only have been cooked up by GM itself. The two companies, it said, were joining up to create a “network” of driverless, ride-sharing robot vehicles.
Let’s see: Ride-sharing is largely an urban phenomenon, but congested urban settings will not soon be hospitable to robot cars. Autonomous vehicles will be practical sooner in exurban environments, particularly on the freeway, but these environments don’t fit the ride-sharing business model. In short, GM and Lyft are selling vaporware for the more gullible sort of tech geek.
Don’t fight the meme! And the meme today is all about electric cars, self-driving cars, ride-sharing. But GM’s puffery is also typical of an industry deeply habituated to public disingenuousness as part of its strategy to survive the relentless onslaught of politicians and their regulations.
Never mind that the Big Three earn most of their sales and profits from pickups, and pickups are not especially urban or shareable (next time you’re in Manhattan, count the number of Ford F150s on the streets). Also, that self-driving cars are still a long way off and far from ready to handle snow, rain, poorly marked and changing roads, or human traffic. At a recent Hyundai-sponsored competition in South Korea, all but four of 12 vehicles failed on Day 2 because, as one blog put it, “a strange liquid [i.e., rain] fell from the sky.”
Electric cars’ enlistment in the climate wars makes little sense either: Two-thirds of America’s electricity is produced by burning fossil fuels, and U.S. passenger cars account for less than 2% of global emissions anyway. Converting them to electricity solves nothing.
Detroit as an industry has long put up with unusually close public and political attention and has developed PR habits that amount to a comprehensive smokescreen around its decision making and internal motives. That especially means not talking about what’s really on its mind.
GM CEO Mary Barra played the game during 2014’s congressional Cobalt hearings when she declined to acknowledge the troubled, money-losing small car was built by GM only to meet federal fuel-economy mandates.
The auto industry has learned much from Elon Musk, who does not let a month go by without a gee-whiz announcement, if not a real announcement then a fake one about plans for a hyperloop or something.
The real reason, however, for GM’s Lyft deal is to use GM’s money to strengthen the No. 2 player in ride sharing, Lyft, in case the No. 1 player, Uber, takes ride-sharing in a direction unfriendly to GM.
Uber has been noticeably standoffish from Detroit. It also has $10 billion in investor cash in its pockets. Yet so credulous has been the oohing-and-ahhing in the tech media, some bloggers actually accuse GM of intending to rush robotic vehicles into production to put Lyft’s current drivers out of work.
In fact, the deal is reminiscent of the Big Three’s hurry in the late 1970s to buy rental-car agencies (since unloaded). GM, which took stakes in National Car Rental and Avis, sought to assure itself of a dumping ground for the money-losing sedans it was obliged to churn out under fixed-cost labor contracts and government fuel-economy mandates. GM’s Lyft deal has less in common with GM’s big investments in Electronic Data Systems and Hughes Aircraft in the 1980s, which were genuinely aimed at bringing advanced technology into GM.
This is a good moment to notice something: Today’s pie-in-the-sky burble about fully autonomous vehicles notwithstanding, robotic technology has actually been remarkably slow to take hold in the auto sector. GM’s Hughes affiliate demonstrated a practical collision-avoidance system for autos more than 20 years ago. Such systems are only reaching consumers now.
A big factor—unless economics is a deluded field of study—is the forced diversion of billions in vehicle investment dollars into fuel economy, which Detroit should be loudly criticizing. Take the Obama rules requiring 54.5 mpg (from today’s 24.9) by 2025: These are expected, depending on how much testing fakery and loophole-exploiting the government allows, to cost auto makers $3,000 to $5,000 per car, crowding out lots of features consumers might prefer for their $30,000 sticker price.
The industry is so cautious, for political reasons, about admitting this reality that it’s a wonder the SEC doesn’t place its leadership in handcuffs. But if $2 gasoline persists for more than a couple of years, a financial calamity lies ahead for an industry that won’t be able to sell its mandated electric and high-mileage vehicles for anything resembling the cost of building them.
In welcoming visitors to this week’s Detroit auto show, the Detroit News warned that “a sudden reversal in the industry’s now-robust health” could be just around the corner. No kidding.
IRAN AND NUKES: FROM FEAR AND LOATHING TO LOATHING AND COOPERATION / MAULDIN ECONOMICS GEOPOLITICS
Iran and Nukes: From Fear and Loathing to Loathing and Cooperation
George Friedman
Editor, This Week in Geopolitics
International sanctions on Iran were lifted on Saturday. It was determined that Iran had carried out its obligations under its agreement with the United States, Britain, France, Russia, China, and Germany to stop pursuing the development of an atomic bomb. At Geopolitical Futures, we expected sanctions to be lifted and Iran to agree to halt these activities. However, our forecast was not based on the issue of nuclear weapons. Rather, it was based on our model, which indicated there would be cooperation between the US and Iran as a result of converging strategic interests. Nuclear weapons were at one point the main issue when it came to Iran. But by the time an agreement began to emerge, they had become a minor issue. There were much more important problems that needed to be addressed. These problems included the future of the region, the Islamic State, and the common interests of the United States and Iran on both subjects.
So clearly, as much as the West would like to think that it was the sanction regime that changed Iranian policy, the lapse of a decade would seem to indicate that this was not what broke them. The freezing of assets mattered of course, and the lack of substantial oil revenue and investments also took a toll. But given that the Iranians were not compelled to agree to a settlement when oil was at $100 a barrel and sanctions on oil sales would have had the biggest impact, they were unlikely to feel compelled at $30 a barrel. Sanctions hurt, but not enough to force a change in policy.
It was now up to regional powers, who had far more at stake than the United States—and couldn’t withdraw—to manage the situation. The United States would provide air power, intelligence, weapons, and training, but it would not take the primary responsibility on the ground for shaping the situation—because trying consistently led to failure, and continuing to do the same thing hoping for a different outcome is the definition of insanity, to use an appropriate cliché.
WHERE TO PUT YOUR MONEY DURING THIS BEAR MARKET / CASEY DAILY DISPATCH
Where to Put Your Money During This Bear Market
Justin Spittler
The U.S. stock market is rolling over.
In the first week of trading this year, the S&P 500 dropped 6%. It was the index’s worst week since 2011.
Now two weeks into the year, the S&P 500 is down 8.0%. It’s the worst start for U.S. stocks since at least 1927, according to Bloomberg Business.
Today, U.S. investors get a short “time out.” U.S. stock markets are closed because of Martin Luther King, Jr. Day.
• Global stocks also fell last week…
On Friday, the Shanghai Composite Index dropped 3.6%. Chinese stocks are now down 18% on the year.
The Euro Stoxx 600, which tracks 600 of Europe’s biggest stocks, dropped 2.8% on Friday. The Stoxx 600 is now down 20.6% since setting a record high last April. As of Friday, European stocks are “officially” in a bear market, which happens when a price falls 20% from a prior high.
• Over half the world is in a bear market...
Bloomberg Business reports:
… [M]ore than $5 trillion has been erased from global equities in the most dismal start to any year on record. At Friday’s close, more than half of the 45 markets tracked by Bloomberg had entered a bear market decline of at least 20 percent from their recent peaks.
Canadian stocks entered a bear market two weeks ago. Chinese stocks have been in a bear market since June. Brazilian stocks have been in a bear market since August. And Japanese stocks are on the verge of a bear market. The Japanese Nikkei 225 index is down 19.7% from its high last June.
• The S&P 500 is still “technically” in a bull market…
The index is down 12% from the all-time high it hit last May. From that perspective, the U.S. stock market looks OK compared to other markets.
However, the S&P 500 doesn’t tell the whole story of U.S. stocks. Although it’s the most widely watched index on the planet, the S&P 500 only tracks 500 large U.S. stocks.
More than 3,700 stocks trade on the New York Stock Exchange (NYSE). The NYSE has fallen 17.3% from its all-time high set in May 2015. On Friday, an incredible 702 stocks on the NYSE hit 52-week lows.
Regular readers know small stocks have done much worse than large stocks lately. The Russell 2000, an index that tracks 2,000 small U.S. stocks, is in a bear market. It has dropped 22% since June 2015, to its lowest level in more than two years.
• And the S&P 500 is cracking below the surface…
Although the S&P index is down “only” 12%, more than half of the stocks included in the index are in bear markets. On average, S&P 500 stocks have fallen 24% from recent highs.
How is this possible? The S&P 500 is weighted by company size…larger stocks impact its performance more than smaller stocks. For example, Google (GOOG), the second-largest S&P 500 stock, makes up 2.52% of the index. McDonald’s (MCD), the 36th largest stock, only makes up 0.6%.
Last year, the S&P 500 fell 0.7%. It was the index’s worst year since 2008. However, it would have been much worse if the FANG stocks – Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google – hadn’t done so well.
On average, the FANG stocks climbed 83% last year. These large companies, along with a few others, have been propping up the S&P 500.
• Now FANG stocks are starting to pull down the S&P 500…
So far this year, all four FANG stocks have dropped more than the S&P 500. Amazon is down 15.6%. Facebook is down 9.3%. Netflix is down 9.0%. And Google is down 8.5%.
In general, it’s a bearish sign when stocks that had been leading the bull market start to roll over.
• Meanwhile, S&P 500 stocks are still expensive…
The index’s PE ratio is currently 19.81. That’s 27% higher than the S&P’s average PE since 1917 (a higher PE ratio means a stock or index is more expensive).
• The current bull market in U.S. stocks has run for 83 months…
That’s 31 months longer than the average bull market since World War II.
U.S. stocks have soared during this period. The S&P 500 has gained 178% since March 2009. Since 1932, the average gain for the S&P during a bull market is 136%.
Old age and steep valuations aren’t enough to end a bull market. But they are good reasons to invest with caution. We recommend holding a significant amount of cash right now. This could help you avoid major losses if U.S. stocks continue to fall. At some point, U.S. stocks will be cheap again.
When that happens, you’ll want to have cash on hand to buy shares of world-class companies at fire-sale prices.
• We also recommend owning physical gold…
Dispatch readers know gold is financial wealth insurance. For thousands of years, it’s preserved wealth through every kind of financial disaster imaginable.
The price of gold rose 1.0% during the stock market sell-off on Friday. Gold is now up 2.6% on the year. It’s trading near a two-month high.
If you’re worried U.S. stocks will keep falling, we recommend owning physical gold. As a safe haven asset, gold prices typically rise when stock prices fall.
We also recommend watching this free video. It’s a short presentation to teach Casey readers simple strategies to protect their money in a bear market.
• Louis James, editor of Casey Resource Investor, says U.S. stocks will keep falling…
In the latest issue of Casey Resource Investor, our advisory dedicated to investing in large resource stocks, Louis wrote,
I see the coming fall of the U.S. stock market as one of the surest bets in the world today.
Louis is shorting U.S. stocks (betting they will fall). Earlier this month, Louis told his readers to buy the Proshares Short S&P 500 ETF (SH). This fund goes up when the S&P 500 goes down.
In less than two weeks, Louis’ readers are already up 8.3% on the trade. And the fund is still a BUY, even after its initial jump.
You can learn more about this trade, and other ways Louis is hedging his portfolio, by signing up for a risk-free trial to Casey Resource Investor. Click here to learn more.
Chart of the Day
On Friday, emerging market stocks hit new lows…
Today’s chart shows the performance of MSCI Emerging Markets Index, which tracks stocks in 23 emerging markets.
Last year, the index fell 17% for its worst year since 2011. Over the past two weeks, the index has dropped another 11%. It’s now at its lowest level since 2009. According to Thomson Reuters, Hungary is the only emerging market that’s up this year.
Many emerging market stocks are getting cheap. Yesterday, Bloomberg Business reported that emerging market stocks are trading at a 29% discount to stocks in developed nations.
Eventually, we’ll get an incredible opportunity to buy emerging market stocks at bargain prices. But for now, we recommend staying away. As you can see from the chart, emerging market stocks are in a sharp downtrend. They’re likely to fall further before bottoming out.
We’ll let you know when emerging market stocks begin to carve out a bottom.
U.S. ECONOMY -- SLIP-SLIDING AWAY / SEEKING ALPHA
U.S. Economy - Slip-Sliding Away
By Pater Tenebrarum
"The Econoday Consensus estimate was for a slight improvement to -4 from a November reading of -4.59. The actual result was -19.37 with the lowest economic estimate -7.50."
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
Paulo Coelho

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- THE DEFLATION MONSTER HAS ARRIVED / SAFE HAVEN
- GM SPEAKS UNTRUTH TO POWER / THE WALL STREET JOURN...
- IRAN AND NUKES: FROM FEAR AND LOATHING TO LOATHING...
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