Martenson Reports

I wanted to cover quite a bit of background here to properly set up today's topic of Inflation vs. Deflation. But because of my schedule, this would require stringing out three reports over five weeks, and given where we stand in the markets today, that isn't ideal. There is much afoot, and I want you to be armed with as much timely information as I can provide.

So we are going to jump to the end and discuss the conclusions before the background. I will fill in the background in a later Martenson Report. If you find this report difficult to follow for this reason, I invite you to re-read it again after the background information comes out in a few weeks. I appreciate your understanding.  read more »

Executive Summary

• Inflation correlates best with government spending.
• Inflation/deflation is a dance that exists between the supply/demand for money and the supply/demand for goods and services.
• Most government spending growth is in mandatory categories - not simple to reduce.
• Inflation will bail out debtors?  Don't count on it.
• Future generations have been consigned to a tremendous economic challenge.
• Prepare now for upcoming destructive inflation.

Executive Summary

• No green shoots in the consumer data
• Mortgage Equity Withdrawal (MEW) is negative
• Consumer credit is negative
• Retail sales are negative
• Rail and port traffic is deeply negative
• Unemployment not as positive as presented
• State tax revenues are negative
• Federal tax receipts? Don't ask.

I want to counter the recent incantations by the media, fiscal, and monetary authorities that "things are on the mend" and that there are green shoots sprouting all over the place. There are indeed some encouraging signs, but there are an equal number of discouraging signs. This is a time for caution, not complacency.

Let's break down the economy into its biggest pieces and see what we can find in each of them.  read more »

Executive Summary

• What can we expect next, and how will we recognize it?
• A series of sharp, interrupted shocks is more likely than a major sudden collapse.
• Five game-changing events, what I call The Five Horsemen, will indicate that the rules have changed and a new reality is about to take over:
  • The First Horseman: New credit growth falls below interest payments
  • The Second Horseman: The Fed monetizes debt
  • The Third Horseman: Government deficit spending exceeds 10% of GDP
  • The Fourth Horseman: The dollar goes down, while interest rates go up
  • The Fifth (and final) Horseman: US debt becomes denominated in foreign currencies

Severe structural damage has already been inflicted on our economy. As I wrote two weeks ago in It Has Hit the Fan:

If you have been waiting for further confirmation about the direction of the economy, or waiting for a sign that it's now time to get serious about preparing for a future filled with less, this report is written for you.

You are living in the midst of the collapse of western economies, which are moving from a more complicated state to a less complicated one. This is it.  Keep a journal, because it's happening right now.

After the Great Depression, many people remarked that it was only obvious in retrospect. While it was unfolding, things steadily eroded. But 75% of the workforce remained employed, while hopeful signs of progress were constantly trotted out by various politicians, private economists, and official-sounding government agencies. It is often quite difficult to appreciate the true magnitude of sweeping change while it is occurring.

The most pressing question now is this:  What can we expect next, and when? 

In this report, I will give you the precise combination of macro-events that will cause me to issue an alert and kick my thinking and actions into new orbits.  read more »

Executive Summary

• Global grain stocks at lowest levels in over four decades
• Shockingly low fertilizer sales suggest possibility of a disappointing yield
• Food supply and demand are tightly balanced
• Food distribution networks are cost-efficient but not terribly robust
• Ways you can increase your food security

Introduction

Food is something that many of us take for granted, but it is important to recognize that this luxury is a recent development in human history. It is time to give more thought to this critical staple in our lives.

In March of 2008, food commodity prices hit an all-time high. This coincided with a world-wide food crisis, food riots, and even a few instances of national rice hoarding. Many believe that this was triggered by economic conditions (e.g. a flood of cheap money), not a fundamental or structural shortfall in food production. But I hold the view that both were at fault.

Food demand has grown steadily over the years, as has food supply. However, in recent years the excess margin of supply over demand has tightened and even gone negative several times. Reserve stocks are incredibly tight, resting at levels not seen since the early 1970's. 

It is easily conceivable that food deliveries could be disrupted within any country, leading to rapid onset of local food shortages. This report will apprise you of several of the challenges that currently exist regarding world food supplies and the possibility that these challenges could lead to a structural shortfall in global food supplies in 2009 or 2010. It also contains specific actions that could greatly enhance your own food security.  read more »

Executive Summary

• Stop waiting for "it" to happen; it already has.
• Keep the big picture in mind.
• This is a crisis of too much debt, not too little spending.
• This is a global crisis.
• The energy situation is getting worse, not better.
• It's not possible for an insolvent nation to borrow money from an insolvent financial system to bail out insolvent financial, real estate, and insurance companies.
• Change is necessary, and we must embrace it.

If you have been waiting for further confirmation about the direction of the economy, or waiting for a sign that it's now time to get serious about preparing for a future filled with less, this report is written for you.

My job is to provide you with a big-picture view of where we are and where we are headed, with an emphasis on clarifying the ways in which the dominant spin-cycle news machinery attempts to lure us back into the false comfort of borrowing and spending more.

At ChrisMartenson.com, people often wonder about what they'll do "when things fall apart."  A frequently-used acronym-containing alternative to this phrase is "when TSHTF," where the "F" refers to a fan and the other letters to something else hitting the fan that I will be coy about, so as not to offend anybody's sensibilities or trigger any spam filters.

I have news for everybody:  It has hit the fan.  read more »

Executive Summary

• The bank stress tests are a sham.
• Reality is already worse than the worst case stress test scenario.
• The stress test results will be used as a “positive indicator” anyway.
• Don’t fall for it.

The bank stress tests, the results of which are to be announced later this week, have already failed. Why? Because the stress test is supposed to assess how a bank’s loan portfolio would fare under a variety of scenarios, but reality is already far worse than the worst-case scenario. The FDIC, Treasury, and Federal Reserve went ahead with their weak input assumptions to conduct the stress test, even though they knew that reality was outpacing their most dire scenario.

In other words, the stress test is a sham.  read more »

Executive Summary

• GDP report for 1Q2009 is a mess of Fuzzy Numbers.
• The surprising 2.2% increase in PCE, or Personal Consumption Expenditures, is discussed.
• Ostensible signs suggest that the bottom is in, but the numbers do not line up at all with hard, factual data.
• Sales tax receipts declined in first quarter.
• The GDP report for the first quarter of 2009 is in serious conflict with actual state sales tax data.
• Vehicle sales are down nearly twice as much as the 19% claimed by the BEA.
• The extent to which investors are fooled by these government reports is the extent to which they risk losing a lot of money in the stock market.
• Trust yourself.

As attendees of my seminars and regular readers know, I am deeply critical of the cheerleading spin cycle that exists between the government and the media, because it often inappropriately mixes facts, opinions, and beliefs. The aim, it would appear, is to foster optimism or confidence in the average investor.

Of course, as chronicled here many times, Wall Street lives off of the fees and products that it sells to retail investors, while the political machine favors a pacified, if not buoyant, electorate. Both of these aims are served by constantly spinning things to the upside.

While it is possible that "investors" are indeed optimistic, focusing on the "slightly more upbeat" report from the Fed and "signs that consumer spending rebounded," these claims deserve a bit of exploration.  read more »

Executive Summary

• Beware the gap between survey data and actual economic data.
• The stock market appears to be responding to survey data, not actual data.
• Surveys contain many potential pitfalls.
• Examples of influential survey data are given.
• Tax data is a relatively reliable indicator of the true state of the economy.
• Beware the "spin."
• The bottom is not in yet.
• Remain skeptical and bide your time wisely.

The past few weeks have seen the stock market shrug off bad news and seize upon whatever glimmer of good news it could find.  I am of the opinion that the stock market rally of the past six weeks is long in the tooth and built upon some highly questionable, if not patently misleading, reports.  I understand the importance of consumer and investor psychology to our economy, and can even sympathize in some small way with those who spin data in an attempt to be helpful, but I still find the practice of self-deception to be distasteful.

It is my opinion that this is not the time to be lulled back into spending more, nor is it a good time to get back into the stock market, unless you are a highly skilled trader who is willing to track your positions on a minute-by-minute basis.  This is a great time to lighten up on any stock or 401k positions that you might have regretted holding onto about a month ago...

One key oddity for me these past two weeks was the startling gap that appeared between so-called survey data (discussed below), which mainly surprised to the upside, and actual economic data, which mainly surprised to the downside.

This report explores that gap.  My theory is that survey data is being ‘massaged' to paint a brighter picture than actually exists.   If these "glimmers of life" that Obama recently referred to, or "green shoots" as Bernanke said, have you thinking of spending more money or wading back into the stock market, you especially need to read this report carefully.  read more »

Executive Summary

• Explaining Oil Pricing - oil prices are "set at the margin"
• Oil Storage - When it's pumped out of the ground it has to go somewhere
• Oil Price Behavior - slight supply and demand imbalances drive prices
• The Total Shortfall - too little oil to support a robust recovery
• Nothing Fails Like Success - the worst thing would be a rapid economic recovery
• Timing - when will Oil Shock III arrive?
• What should you do?
• Investments, food, selecting a community, and an abbreviated buy list

These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike.

We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away -- it will be much sooner.

Within a few months, we are going to realize our visible inventories are really tight -- squeaky tight -- and what would really be inconvenient is to see a recovery in the economy."

Matt Simmons, Chairman of energy investment-banking firm Simmons & Co, March 26, 2009  read more »

Executive Summary

• The relationship between oil and global GDP is explored
• The "undulating plateau": How Peak Oil and the economy interact
• The G20 plan: Why the stimulus plans cannot possibly return the world to growth
• Oil demand
• Oil supply (production)
• Why volatility in energy prices is virtually assured
• Shortages and a spectacular rise in the price of oil predicted

The world's energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable - environmentally, economically, socially. But that can - and must - be altered; there's still time to change the road we're on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.

IEA World Energy Outlook for 2008

This is one of the most important Martenson Reports I will write this year. In this report, I explain why the global stimulus plan will not succeed at returning the global economy to a path of sustainable growth or even to its former heights, seen in 2006/2007.  read more »