Hope Is Not a Strategy

John ButlerTHE INFLATION TIPPING POINT

By John Butler

Financial markets have ushered in 2012 with a collective sigh of relief. 2011, the year of the never-ending crises, is over. Although the crises continue, equity markets have risen moderately month-to-date. There is clearly hope that things in 2012 will improve. While hope may not be a strategy, past episodes of misplaced hope are instructive. With specific reference to the early 1930s, as the US Great Depresson unfolded, the first quarter was always positive for the stock market. Yet these gains, and more, were given up in the subsequent quarter, and the negative trend continued through the remainder of the year. Thinking specifically about 2012, we can see a number of reasons for caution. However, investors must keep in mind that central banks around the world stand ready to print money in response to deflationary pressures, something missing in the early 1930s. As such, while cash continues to provide liquidity, it fails to provide a reliable store of value. [Read more…]

Big Ideas Whose Time is Coming a Lot Sooner Than We Think

Light bulb

BIG IDEAS WHOSE TIME IS COMING A LOT SOONER THAN WE THINK

By David Harris

During the first week of February, I was over at my friend Arnold’s house to watch the Super Bowl, standing on his terrace during halftime.  It had been snowing here on the highest elevations the week before but now it was shirtsleeve weather, as high as the low 80’s in the inland counties.  Down in Texas, ice storms had closed half the state, New York City was snowed in after having been balmy two weeks earlier, it was drier in north China than it had been in two hundred years, the Arctic was warmer than anyone could remember and parts of the Midwest colder, Antarctica continued to melt, Australia’s north coast had been flooded for weeks, the same with Brazil, and Europe felt like a meat locker.  And now Arnold and I were watching springtime in San Francisco roll through in the middle of winter.

Since Arnold is the smartest person I know, and is paid large sums of money to share his intelligence with companies and governments, I used him to check my bearings.

“It’s happening just like the climate scientists said it would, isn’t it?” I asked.

“Actually it’s happening bigger, faster, and more widely than the computer models predicted,” he corrected me. “It seems highly likely that climate destabilization is upon us.”

We both let that thought hang there for a minute before continuing.

“It’s hard to get your mind around,” I finally offered. [Read more…]

The Inflation Tipping Point

Investing StrategiesTHE INFLATION TIPPING POINT

By John Butler

The Fed, already deep into a dilemma largely of its own making, is about to find itself facing an even more unpalatable choice before long: Accommodate the surge in demand for real goods with a continuing easy money policy or, alternatively, slam on the brakes sufficiently to force an end to the incipient behavioral changes behind the growing stagflation, thereby running the risk of causing another acute round in the ongoing financial crisis.

So what is the Fed going to do? Take responsibility? Well that would be rather out of character given that the Fed so far has steadfastly denied any blame whatsoever for the credit (or asset) bubble that it created with a prolonged period of excessively easy monetary conditions in 2003-07. More likely, the Fed will simply hope that somehow inflation will rise moderately to a level which helps to reduce the real debt burden on the economy and then stabilize. But if an inflation tipping point is soon reached and consumer price inflation ratchets sharply higher this year, no doubt the Fed will deny that such inflation is in any way a monetary phenomenon, notwithstanding the analysis above and Milton Friedman’s famous dictum to the contrary. [Read more…]

Making the Extraordinary Ordinary

Man on ladderMAKING THE EXTRAORDINARY ORDINARY

By David Harris

Thanks to decades of our own chemical emissions, the climate with which humans have become familiar over hundreds of centuries will soon shift under our feet, the physical premises of civilization will destabilize, and the setting we have long assumed for our species will erode at an accelerating rate.   There will be a lot less of what we need, and a lot more of what we don’t.  Our surroundings will become harsher than most of us have previously known and our margins for error will evaporate. [Read more…]

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