Martenson Reports

by Gregor Macdonald, contributing editor

Tuesday, May 22, 2012

Executive Summary

• Why oil price vulnerability is growing 
• Why the marginal cost of oil is rising higher at an accelerating rate
• Why the marginal cost of oil for non-OPEC regions is now above $90
• The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
• The new rules that will govern the price of oil from here
• The alarming growing risk of large-scale war for oil

Part I: OPEC Has Lost the Power to Lower the Price of Oil

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Cruel Math of the Marginal Barrel

An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.

This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.

Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.

by Chris Martenson 

Wednesday, May 16, 2012

Executive Summary

• Where the gold price is most likely to go from here
• History rhymes: Why today resembles 2008
• How to best deploy your capital once the central banks announce the next round of money printing
• Why prudent actions you can take now are so much more valuable than the options you'll have once the correction is underway

Part I: Get Ready: We’re About To Have Another 2008-Style Crisis

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: What To Do When the Central Banks Blink

Where Gold Goes From Here

While I personally would not part with my gold these days, and certainly not at these prices, I do expect the price of gold to drop going forward.

The reason is that gold has multiple elements contributing to its price, and some of that is attributable to the speculation and rampant liquidity that is sloshing through the system. Various hedge funds and other speculative funds are holding quite a bit of gold, mainly the paper variety, and when they dump that because the tables have turned and/or their liquidity sources have dried up, they will sell that paper gold and the apparent price will go down.

Further, weak hands holding gold via the GLD ETF will be shaken out during a liquidity crisis, putting physical gold back onto the market.

However, it is my strongest contention that this will represent a very nice buying opportunity. Someday, nobody knows when, the central banks will announce another big round of thin-air money printing and that will be a turning point in the price of gold (and many other things, including stocks and commodities).

by Charles Hugh Smith, contributing editor

Monday, May 14, 2012

Executive Summary

• How the State supplanted community enterprise with an entitlement-driven economy
• Why the State's entitlement approach is unsustainable, mathematically -- and is finally imploding as we watch
• What to expect at this point: more egregious abuse to keep the system working, ultimately triggering serious social unrest 
• How self-reliance and local enterprise will emerge as paramount once the current State system collapses

Part I: Acknowledging the Arrival of Peak Government

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The End of the Free Lunch

In Part I, we examined four key drivers of Central State expansion and how they are now likely entering an era of prolonged contraction.

This historic vast expansion did not occurred in a vacuum; as our social and economic orders are not infinite, the State’s expansion largely came at the expense of community (private society) and the marketplace.

Many observers have noted that the Central State has largely replaced community within the nation’s social order. That is, the Central State now dominates the society and the economy, while community and the marketplace operate beneath its shadow. 

Some see this withering of community as occurring off-camera, so to speak, for reasons that had nothing to do with the State. In other words, the decline of community left an opening that has been filled by the State. This view discounts the active encroachment by the expansionist Central State on private society and markets such as housing and equities, which have become State-managed platforms for perception management and private predation.

by Gregor Macdonald, contributing editor

Wednesday, May 9, 2012

Executive Summary

• Why many entrepreneurial ventures addressing resource scarcity have less time than they imagine
• Why understanding the unintuitive economics created by resource scarcity is key
• Copper is serving as a case study in how peak supply is putting upward pressure on world prices
• The approaching "dead end" for millionaries
• Why physical networks will trump the importance of digital ones in tomorrow's economy

Part I: 'Cornucopians in Space' Deliver a Dangerously Misguided Message

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Looming Dislocation Risks Posed by Resource Scarcity

One of the most stunning and repeated patterns seen in the 2000-2010 timeframe is that, right as many natural resources experienced phase transition to much higher prices, the production rate of those resources either slowed, stalled out, or in some cases fell.

This is the real reason, in my opinion, why so many writers and thinkers are grappling with the problem of creating future wealth and obtaining (or recapturing, if you will) the kind of abundance we once enjoyed.

It’s positive, actually, that the news story about mineral mining in space has been so popular and covered in just about every major newspaper, because it unintentionally articulates the very long timeline to the solution of resource scarcity now facing human economies. To Peter Thiel’s point, therefore, it would be better to solve our problems in ways that actually serve humanity on relevant timescales, than to delude ourselves into thinking that miracles are just around the corner.

by Alasdair Macleod, contributing editor

Tuesday, May 1, 2012

Executive Summary

• The political and economic reasons why Europe's leaders will not change their behaviour until forced to by further crisis
• The reasons Europe's future is in the hands of Germany and the ECB
• How risk has spread from the periphery: What's next for Spain, Italy, and France
• The sure bet for investors to consider

Part I: The Europe Crisis from a European Perspective

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: What Lies in Store for Europe

In Part I of this article, we looked at the background to the Eurozone crisis and made the point that there are substantial extra government liabilities that were hidden by most member nations to meet the joining criteria in the target year for proof of convergence, 1997. And the only reason that capital flight from Greece, Ireland, Portugal, Spain, and Italy has not led to a banking and economic collapse already is that it has been accommodated by a build-up of imbalances between the accounts of national central banks of the individual Eurozone members.

The End of the Keynesian Experiment

In truth, all advanced Western democracies face the same crisis. It is the end of the Keynesian experiment, marked by the collapse of various credit-fueled bubbles four years ago, mostly involving property. This event threatened a global systemic banking collapse, which was only averted by sovereign nations guaranteeing the solvency of their banks by shifting the risk to government bond markets. The answer for the US, UK, and Japan has been to flood the system with dollars, pounds, and yen respectively, partly to give banks breathing space, and partly so that governments could fund their ballooning deficits.

The individual states in the Eurozone gave away that facility to the ECB, so they are only the first of the advanced nations to face collapse. This is because printing money is the principal means by which governments survive financial crises.

In that sense it is wrong to blame our financial ills on Europe; that would be like sinners casting stones. Like the rest of us, by agreeing to underwrite their banks, Eurozone governments have multiplied their potential debts three, four, or even five-fold (Ireland by eight!). Unfortunately, there is nothing, frankly, that the politicians can do to stop a Eurozone meltdown; they are in a bind of their own making, and they do not understand, nor can they explain to their increasingly angry electorates, how to get out of it.

There is a remedy, and it is deeply un-Keynesian.

by Charles Hugh Smith, contributing editor

Tuesday, April 24, 2012

Executive Summary

• Expect the Fed's ability to move the market to weaken from here
• The three key investment-actionable indicators
• The most likely direction the dollar will head next
• Why capital preservation is now of paramount priority

Part I: What Data Can We Trust?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Three Key Indicators to Watch

In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.

Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?

by Gregor Macdonald, contributing editor

Thursday, April 19, 2012

Executive Summary

• Rising wages in the developing world create upward price pressure everywhere globally
• The paradox of safety: Many traditional "safe" assets (e.g., bonds) are horrible places to store capital during 'hot' inflation
• Money velocity drives inflation -- and it has only one direction to go these days: up
• Winning and losing assets if 'hot' inflation does indeed break out

Part I: Get Ready for 'Hot' Inflation

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Triggers That Will Spark 'Hot' Inflation

Arthur Lewis was an economist from the small, Caribbean island of St. Lucia who went on to win a Nobel Prize in 1979. His work identified the process by which very cheap labor is brought from the countryside to urban areas during phases of industrialization in developing countries. At a certain point, this supply of cheap labor went into decline and wage pressures began to mount.

Now referred to as the Lewis Turning Point, such a phase marks the end of a kind of deflationary boom, in which input costs fall during a phase of hyper-strong growth, and the beginning of inflationary restraints, in which profit margins stop growing. This is exactly what’s happening in China today.

by Chris Martenson 

Tuesday, April 17, 2012

Executive Summary

• Why once you understand the oil situation, you understand how systemic change is inevitable
• Why to expect a major financial crisis this year
• Why now is the best time to understand what true prosperity is (beyond just money), and how it should shape your priorities in advance of the coming changes
• Our guidance on where to focus your efforts most for the greatest returns

Part I: The Trouble with Money

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: True Prosperity

In understanding material wealth, the role of energy -- and particularly oil, in today's world -- is hard to underestimate. 

Primary Wealth

This point cannot be made often enough: Oil is responsible for everything we see around us.

This means that oil is responsible for most everything we might think is delivered by our economy. Which means that oil is the source of nearly all wealth.

As Gregor Macdonald recently penned for us in an excellent report: 

by Charles Hugh Smith, contributing editor

Wednesday, April 11, 2012

Executive Summary

• A plethora of technical indicators show a breakdown is in progress
• The key charts you need to be aware of
• Time to place your bets: higher equity prices or higher interest rates?
• Why a defense strategy in the near term is critical for those holding stocks and bonds

Part I: Are We Heading for Another 2008?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Why a Near-Term Market Rollover is Probable

In Part I, we summarized the global financial meltdown of 2008 as recognition that the collateral beneath an enormous inverted pyramid of leveraged debt had vanished, while all the monetary and fiscal tricks of central banks and governments failed to sustain the illusion of sufficient collateral.

Once again we find that massive, sustained intervention in global financial markets is being touted as successful – everything has been “fixed,” markets have been “stabilized,” and a global “recovery” is well underway,

If we believe this, we might be exposed to a dramatic downside should 2012 turn out to be another 2008, when markets realized that intervention did not create collateral, but instead a temporary illusion of sufficient collateral. 

by Gregor Macdonald, contributing editor

Tuesday, April 3, 2012

Executive Summary

• Three attractive sectors to invest in early as we enter the post-oil economy
• The transition away from oil has already begun -- which energy sectors are leading?
• The key trends over the next five years
• How scarcity -- and inflation -- will manifest in this next phase

Part I: The Race for BTUs

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Promising Investments as the Race for BTUs Heats Up

Hopefully, readers will not be too shocked by my open-mindedness towards a cyclical global expansion --restrained by oil for sure, but made possible by several years of continued reflationary monetary policy and the ability of humans to tactically access new sources of energy.

Let’s remember that a tremendous amount of pain, in industrial terms, has already been taken by the OECD over the past 7 years as it shed nearly 15% of its oil demand. Readers will also recall my previous essays, in which I warned that an export boom was continuing to unfold in the United States. And readers of my work over the past several years know I’ve been adamant that the 5 billion people in the developing world have plowed right through the 2008 financial crisis increasing their reliance on coal.

Thus, I identify three areas of investment as the world stumbles forward with poor growth in the OECD, restrained by oil but becoming increasingly desperate to find some -- any-- additional energy resources. These are not stock recommendations, nor am I making a timing call as to when to invest in these areas. Rather, these are indicative of three means by which an investor could participate in emerging, secular trends over the next 2-4 years.