The Perfect Storm Bearing Down Upon Us

Posted on July 28, 2015 by MN Gordon

The barbarous relic wasn’t the only thing that got smashed last week.  Commodities did too.  On Thursday copper fell nearly 2 percent, to its lowest level since 2009.

Iron-ore prices also dropped.  Oil did too…falling below $50 a barrel.  Still, commodity prices could fall even further.

According to Morgan Stanley, the ongoing oil slump could be the worst crash in more than 45 years.  The rationale is simple to follow.  In short, at this point in an oil price decline cycle, production would have tapered back and, hence, supply would have dropped.

A reduction in supply would be the precursor to a price recovery.  Yet this time around, even though oil prices have fallen, supply has increased.  This is completely illogical.

Following the price collapse earlier this year, U.S. production has leveled off.  This is what one would expect.  But, for whatever reason, OPEC production hasn’t decreased or even been flat.  Instead, it has increased from roughly 30.5 million barrels per day in January to over 32 million barrels per day in June.  What to make of it? Continue reading →

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The Barbarous Relic takes a Beating

Posted on July 24, 2015 by MN Gordon

Fantasies, failings, fraud, and folderol.  These are the elusive straws we grasp for when contemplating the marvels of modern day money.  There’s little hope we’ll ever come up with a solid handful we can pull ourselves up by.

Still, we continue to mull things over like a freshman math major mulling over Fermat’s Last Theorem.  With a little luck we may eventually have a breakthrough.  Where to begin?

President Nixon’s dirty deed in 1971 is as good an entry point into the review as any.  Recall that seizing the unique opportunity of the breakdown of Bretton Woods, Tricky Dick severed the last vestiges of gold backed money and stiffed the world unconditionally.

No longer could foreign governments redeem the dollars they acquired through trade for gold.  The world’s currencies became wholly the fiat – paper money – of governments. Since then currencies have floated like anchorless buoys, rising and falling on a sea of surging currents.

Without restraint the darnedest things were made possible. Continue reading →

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China’s Exercise in Futility

Posted on July 21, 2015 by MN Gordon

At the moment, it appears the Chinese government has forestalled a full stock market meltdown.  To do so, the People’s Bank of China made direct purchases of stocks trading on the Shanghai Stock Exchange.  What type of chimera is this?

Obviously, this was a desperate measure that only pushes instabilities further out on their precarious perch.  For all is not well in China.  Like the stock market, the financial and economic fundamentals of the country are also out of whack.

Beijing’s policies of mass credit creation have enticed the Middle Kingdom’s corporations to borrow gobs of money.  Corporate debt in China has run up to $16.1 trillion.  This is the largest corporate debt pile in the world…and it appears to be breaking down.

The situation Chinese businesses find themselves is the unfavorable place where debts are rising while profits are fading.  Borrowing more money to increase production only exacerbates the problem.  Companies can’t make up for profit losses with higher volume.

Making matters more difficult is the economic structure of China.  Namely, the abundance of state-owned enterprises.  These companies are notoriously inefficient. Continue reading →

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Will We Get the 1930s or 1970s?

Posted on July 17, 2015 by MN Gordon

What’s the deal with your neighbor?  His car’s 12 years old.  His house has minimal upgrades.  He’s the only guy left on the street who still cuts his own grass.  Is he a weirdo?  Or is he a millionaire?

Certainly, he’s a bit unconventional.  He does things a little different than everyone else.  But there’s a good chance he’s also a millionaire.  In fact, as explained in the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, this humble neighbor of yours fits the profile of a millionaire.  No kidding…

“The book defines the ‘millionaire next door’ as someone who doesn’t look the part,” explains Philipvan Doorn at MarketWatch.  “He or she makes no ostentatious display of wealth.  There’s no fancy car, no $5,000 watch, no McMansion.  This wealthy person lives in a regular middle-class or lower-middle-class neighborhood.

“According to statistics backing the book, ‘more than 80 percent [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.’”   Indeed this is a notable achievement.  So what’s the secret…how did they do it? Continue reading →

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