Martenson Reports

Sunday, November 1, 2009

Executive Summary

• A break in past relationships between the stock market, the dollar, and gold, along with a breakout in the VIX, could be signaling the beginning of an important turning point
• Capmark declares bankruptcy (CIT is next).
• A commercial real estate emergency is upon us.
• Is gold signaling a continuation of the financial crisis, or something more?

As you know, I spend a great deal of time combing the available market information for clues about what is happening in the economy and where it may be leading us. This past week (October 24 - October 31, 2009) showed some amazing developments indicating that a major turning point is once again upon us.

This assessment is based on several key events, including the bankruptcy of Capmark Financial, which kicked off the week, the return of volatility to the stock market (reminiscent of past tops), and the bizarre strength in the price of gold on Friday, even as the Dow peeled off nearly 250 points.

Let's take a look at these events one at a time...

Wednesday, October 28, 2009

Executive Summary

• Why prepare?
• Where to begin?
• Action is liberating
• Do what is necessary, knowing it is insufficient
• Put on your own "oxygen mask" first
• Seek personal and community resilience
• Any measure of self-sufficiency is valuable
• Start with small steps
• Food, water, shelter, and warmth 

In a recent report entitled It's Time to Prepare, I walked through the financial preparations that one might take to add greater resilience to one's holdings and where they are located. 

But there is more to preparation that just financial savvy. I have been asked repeatedly to provide some guidance on personal preparation. In this report, I will begin the process of sharing my thoughts and experiences about this subject.

There are some basic things that would like to see every person considering for themselves and their family in order to minimize the impact of future disruptions. While I cannot be sure of when, or even if, these disruptions will happen, I am certain of two things:  you can prepare for these changes relatively cheaply, and you will feel better for having done so.

Tuesday, October 13, 2009

Executive Summary:

• A large investment theme and strategy is discussed.
• A hyper-concentration of income gains towards the top over the past thirty years is shaping our story.
• A rapid and large shift in investment preferences could entirely reshape the investment landscape with startling speed.
• Those early to the game win; those late will find themselves stuck in a wealth trap.

In this report, I will tell you exactly why I am convinced that the next round of destabilizing price adjustments – adjustments that will completely reshape the value of your income and assets – will not follow any prior historical model.  Fortunately, with a bit of analysis, I think we can predict what sorts of changes will happen well in advance and get ourselves properly positioned.

Here is a representative question, asked by enrolled member Eric, who raises an important point:

I agree with your analysis in one hand clapping.  Can you address how inflation will take hold if the new money is only in banks' hands?  I can see the banks piling into various assets creating bubbles, but I don't see where the common man is going to get access to this extra created money unless it is sent directly from the government in the form of stimulus checks.  Otherwise, I cannot see runaway inflation occurring.  Thanks, Eric

Great question.  How can inflation occur if people can't afford to pay for things?  Given that both earning and borrowing money seem to be depressed avenues for most people, where will the new buying pressure come from that will stoke inflation?

This is a good question, and it leads me to another insight that I've been nursing for a while.  I realize I may not have shared it yet, at least not directly, and that certainly needs fixing.

Tuesday, October 6, 2009

As my long-time readers know, I consider my main occupations to be information scout, dot-connector, and analyst.  But as a side job, I also provide a decisive alternative to the mainstream economic propaganda machine, which is thoroughly dedicated to maintaining the status quo, regardless of cost.

Everyone needs to prepare themselves for another round of economic instability, as the nation and world comes to grip with the fact that we are not going to enjoy a V-bottom recovery and that we are not going back to "normal"  -whatever that might be - any time soon.

We are about to enter another leg of the downturn, and this one will be even bumpier and more uncertain than the last.

It's time to prepare.

Monday, September 28, 2009

Executive Summary

• In the prior report, we covered housing supply and prices; in this one, we cover demand and liquidity.
• Housing demand is easy to measure, but hard to predict.  The prime determinant of housing demand is jobs.
• We are not likely to recover from our current unemployment slump for 5-10 years.
• The "housing ATM" is not only broken, but operating in reverse, putting additional pressure on potential housing consumers.
• Artificially low interest rates give us some temporary stability in the housing market - in exchange for an increased risk of future losses.
• The Federal Reserve and federal government are the housing market.
• Our nation is suffering from "stimulus addiction," and the path of least resistance is to continue feeding the habit.
• For the housing market to recover, the job market has to recover first.
• These are all indications that our debt-based money system is seriously flawed.

We are covering housing at this time because it is one of the key determinants of whether or not our economy will enjoy a decent bounce or merely a false statistical recovery here.  As goes housing, so goes the economy.

Here we will focus on the US (primarily because I have good data for it), but the lessons and implications are virtually identical for other areas of the world.  Ireland, Spain, the UK and a number of other spots are in far worse shape by this measure than the US.

In the prior report, we covered housing supply and prices.  Here we are going to cover demand and liquidity

Tuesday, September 22, 2009

Executive Summary

Tracking the housing market helps us see where the economy is headed.  Two categories of data that are useful to focus on are house prices and housing supply.

House Prices

Measuring the value of housing is critical, because the amount of foreclosures and the economic fallout from them are both tightly linked to the difference between the current value of a house and the mortgage held on it.

Housing Supply

To appreciate housing supply, there are three things we need to track:

• Total number of existing homes for sale (expressed in either a raw number or in “month's supply,” which takes the raw number and divides it by the current sales pace)
• Total number of new homes for sale (expressed the same as above)
• Amount of “shadow inventory,” which are homes that are on the books of the banks but have not been released into the market for sale

This is Part I of a two-part report.

Monday, September 14, 2009

Executive Summary

• Gold had the highest weekly close ever
• UN calls dollar trading a "confidence game"
• US fiscal deficit breaks all records, keeps accelerating
• Brazil, Russia, India, & China (BRICs) have dollar concerns
• China promotes owning gold to its citizens
• Examining US dollar reserve currency status (again)

Normally I like to switch up my analyses each week, but last week's look at gold already needs some updating, due to a few important occurrences.  There was a blistering array of developments and cross currents this past week that make me suspect we may be entering a new inning of this game.

The first of these is that gold just had its highest weekly close ever.

Monday, September 7, 2009

Executive Summary

• Gold had a techncial breakout this week to the upside.
• Fundamental support for gold is also strong at this time.
• Swiss vaults are full.
• Gold is accumulating to strong hands.
• Hong Kong "recalls" gold reserves.
• China changing the game?

Because it rose during both down days and up days for the stock market, gold has been acting in a fairly unusual way these past few weeks.  What's going on?  I follow gold very closely, and here is what I am thinking at this time.

Before I begin, let me reiterate this:  Every portfolio, no matter how large or how small, should have a core position of physical gold in it.  Not paper gold (mining shares, ETFs, futures, etc).  I am talking about hard, physical gold that is either in your possession or in a vault.  If you have the means, you should have some in a vault outside of your resident country as well as within it.

Gold's Technical Breakout

From a purely technical standpoint, gold broke out with conviction from a triangle this week (see chart below).  The next usual step to this process would be a back test of the breakout.

Monday, August 31, 2009

Executive Summary

• A funding crisis is in store for the US government and citizens.
• The "Fourth Horseman," represented by the dollar going down while interest rates go up, will signal the start of the funding crisis.
• The Federal Reserve Custody Account has been growing faster than the Trade Deficit, a historical oddity.
• The custody account represents a grotesque imbalance with risks of its own. 
• The US will eventually face a funding crisis. For now, that crisis has been forestalled by willing foreign central banks.
• This end begins with the widespread recognition that the US is insolvent and that propping it up is a lost cause.
• It all ends with a vastly lowered standard of living.

In this report, I write about how the US debt machine will most likely meet its end and how we'll know that this end is approaching.

In The Five Horsemen, I made the case that we have already seen the arrival of three out of the five signposts that will signal the end of US economic dominance and overconsumption. 

I want to examine the Fourth Horseman more carefully, because I believe it will arrive next and will trigger the subsequent arrival of the Fifth Horseman.

If we back up a bit and break out our wide-angle lens, two simple truths about our current predicament come sharply into focus:

1. The US is insolvent.
2. The US is utterly dependent on foreign loans and financing to fund its past, current, and future fiscal deficits.

Ignoring these simple truths because they are inconvenient, or because we'd prefer to focus on green shoots and other signs of 'recovery,' will not make them go away. They lurk like the proverbial 800-pound gorilla in the corner of the room.

Monday, August 24, 2009

Executive Summary

• Guaranty Bank failed on Friday and was sold to a foreign bank.
• Bank assets are undeniably under stress and are deteriorating.
• Given the current trajectories, as many as two thousand more banks may fail.
• The FDIC absolutely must remain well capitalized with liquid cash, or confidence-destroying bank runs will result.
• It was premature of Bernanke to declare victory.
• Choose your bank wisely.

One to two thousand bank failures are on the way. Peak stress has not yet been reached. Nearly every major source of bank loan stress continues to worsen. We've not seen any signs of a bottom yet in the most important measures.

The key risk here that a gap could develop between the FDIC's ability to make good on depositor accounts and demand for funds from those accounts.

While this stress was significant enough last fall to cause me to issue warnings about keeping some money out of the bank and seeking to move funds from less to more sound institutions, I held back those recommendations once I judged that the risk had passed.

But now that risk has returned.