What can we expect in 2015?  Global recession and civil disorder top the list, according to what I read.  Given the way central banks and governments have sabotaged free markets at every turn, coupled with the belligerent nature of U.S. foreign policy and the militarization of our police, both forecasts strike me as plausible. 

Since last week, some 12,000 stations dropped their price under $2/gal, with 45.1% of all gas stations (nearly 61,000) now selling under the $2/gal mark. The national average currently stands at its lowest since May 9, 2009, a date that saw 8.9% unemployment . . .

An analysis of the history of technology shows that technological change is exponential, contrary to the common-sense “intuitive linear” view. So we won’t experience 100 years of progress in the 21st century — it will be more like 20,000 years of progress (at today’s rate). The “returns,” such as chip speed and cost-effectiveness, also increase exponentially. There’s even exponential growth in the rate of exponential growth. Within a few decades, machine intelligence will surpass human intelligence, leading to The Singularity — technological change so rapid and profound it represents a rupture in the fabric of human history.  [Italics in original]

The first technological steps — sharp edges, fire, the wheel — took tens of thousands of years. For people living in this era, there was little noticeable technological change in even a thousand years. By 1000 A.D., progress was much faster and a paradigm shift required only a century or two. In the nineteenth century, we saw more technological change than in the nine centuries preceding it. Then in the first twenty years of the twentieth century, we saw more advancement than in all of the nineteenth century. Now, paradigm shifts occur in only a few years time. . . . 

As exponential growth continues to accelerate into the first half of the twenty-first century, it will appear to explode into infinity, at least from the limited and linear perspective of contemporary humans. The progress will ultimately become so fast that it will rupture our ability to follow it. It will literally get out of our control.

He has received twenty honorary doctorates, and honors from three U.S. presidents. Kurzweil has been described as a “restless genius” by The Wall Street Journal and “the ultimate thinking machine” by Forbes. PBS included Kurzweil as one of 16 “revolutionaries who made America” along with other inventors of the past two centuries. Inc. magazine ranked him #8 among the “most fascinating” entrepreneurs in the United States and called him “Edison’s rightful heir”.

Fundamental measures of information technology follow predictable and exponential trajectories, belying the conventional wisdom that “you can’t predict the future.” There are still many things — which project, company or technical standard will prevail in the marketplace, or when peace will come to the Middle East — that remain unpredictable, but the underlying price/performance and capacity of information is nonetheless remarkably predictable. Surprisingly, these trends are unperturbed by conditions such as war or peace and prosperity or recession.

• By the early 2020s, we will have the means to program our biology away from disease and aging.  We already have the tools to reprogram our biology the way we reprogram our computers.  “RNA interference, for example, can turn genes off that promote disease and aging.”
• By 2030 solar energy will have the capacity to meet all of our energy needs. The production of food and clean water will also be revolutionized. “The total number of watts of electricity produced by solar energy is growing exponentially, doubling every two years. It is now less than seven doublings from 100%.” Once we have inexpensive energy we will be able to convert all the bad water on the planet to usable water.  Agriculture will go from horizontal to vertical, where we will grow high-quality food in AI controlled buildings.
• By the early 2020s we will print out a significant fraction of the products we use including clothing as well as replacement organs.  The early 2020s will be the golden age of 3D printing.  We’ll be able to choose from thousands of open source clothing designs and print them out at pennies per pound.  “We can already experimentally print out organs by printing a biodegradable scaffolding and then populating it with a patient’s own stem cells, all with a 3D printer.  By the early 2020s, this will reach clinical practice.”
• Within five years, search engines will be based on an understanding of natural language. “At Google, we are creating a system that will read every document on the web and every book for meaning and provide a rich search and question answering experience based on the true meaning of natural language.”
• By the early 2020s we will be routinely working and playing with each other in full immersion visual-auditory virtual environments. By the 2030s, we will add the tactile sense to full immersion virtual reality.  The latter will require “nanobots [nanometer-size robots] traveling noninvasively into the brain through the capillaries and augmenting the signals coming from our real senses.”

In this interview Marc lays out his reasons for an imminent Stock Market Correction/Crash of 30-40%, and why the only sector that is truly beaten down right now are the gold and silver mining shares. Some key summaries of this 13 minute interview are below – Money Talks Editor

When speaking about an imminent stock market correction, Marc Faber argues that since the market hasn’t had more than a 10% correction since 2011, it is likely that we will se a 30-40% decline in the not to distant future.

Marc has witnessed many bull markets and crashes in his career. Marc says that bull markets frequently go on for longer than expected, but the current bull market is already very old, and has been going up steeply since 2009 – in other words, more than 5 years old. “The one thing I can say, is that we are in a aging bull market, and the recovery has lasted longer than the typical recovery phase over the past 100 years.”

We ask Marc if the Fed’s current slowdown in tapering will be reversed in a stock market correction? Marc points out that whenever there is a problem with liquidity in the markets (1988, 2000, 2007), the Fed has stimulated the economy by injecting liquidity, so it’s not unlikely that the Fed will again try to support assets markets. The problem is when this goes on long enough, numerous assets aren’t affordable for the majority of people. The impact of this may be negative for the economy, because some asset prices may rise disproportionally in comparison to other prices. 

On the multi year low in mining equities, Marc says that general assets are very high right now. And the only asset class that in Marc’s view are beaten down now are the gold and silver mining shares. When looking at the Dow Jones Index in comparison to the GDXJ(junior gold mining stocks index), the underperformance from the GDXJ has been colossal. As a contrarian or as a value investor, Marc sees reasonable value in the gold mining stocks right now. Government bonds and other assets are essentially inflated, but the gold mining stocks are deflated.

Speaking on the influx on gold into Asia… Marc thinks it’s an interesting situation, because in the west we have rumors of central bank’s manipulation of the gold market to keep the price depressed. Marc believes that these rumors are insensible – the West should want to sell their gold at a high price, not at a low price point.  

Finally, in the last 20 years, there has been a huge increase of wealth in Asia. The increase in gold purchases in Asia, comes from a growing population, and a population which is increasingly affluent. Marc says that in terms of the Asian stock markets, they are relatively depressed in comparison to the US stock markets, and there is better value there.

 About Marc Faber

Dr Faber publishes a widely read monthly investment newsletter “The Gloom Boom & Doom Report” report which highlights unusual investment opportunities, and is the author of several books including “ TOMORROW’S GOLD – Asia’s Age of Discovery” which was first published in 2002 and highlights future investment opportunities around the world. “ TOMORROW’S GOLD ” was for several weeks on Amazon’s best seller list and is being translated into Japanese, Chinese, Korean, Thai and German. Dr. Faber is also a regular contributor to several leading financial publications around the world.

The Dow rose 323 points yesterday, or 1.8%. 

People come to think what they must think when they must think it. But what do they think now? Why do they think stocks are so valuable? 

Apparently, they believe that Janet Yellen, Mario Draghi and Haruhiko Kuroda – the powers that be – will continue to make stocks go up. 

The Fed has stopped active liquidity pumping. But it still has its hand on the pump handle, just in case. 

The European Central Bank is promising and preparing to pump as soon as it can get the Germans out of the way. And the Japanese – the world leaders in modern state finance – are pumping with both hands.

Gaming the System

Since 2009, the Fed has put more than $3.5 trillion to work on investors’ behalf. 

This – along with the help of the ECB, the Bank of Japan, the Bank of England, the People’s Bank of China, etc. – has helped lift stock markets by $18 trillion. 

And corporate chiefs – now back in their cushy seats after the holidays – are borrowing more money to buy their own shares. They, more than anyone else, have figured out how to game the Fed’s system. 

They take the Fed’s zero-interest-rate credit. And they use it to buy back their own shares. This pushes up the value of the remaining shares. Which leads to big, fat bonuses. 

And so one of the wonders of the modern financial world unfolds before our dumbstruck eyes: borrowing from someone who has no money… charging it to someone else’s account… and pocketing a good part of the cash. 

The average S&P 500 CEO got an $11.7 million compensation package in 2013. Last year must have been even better, though we don’t have the figures yet.

Meanwhile, the dollar rises and foreign investors move their money into US stocks and bonds, seeking safety and capital return in a market where the former is illusory and the latter is fraudulent.

Good luck to them all!

Sooner or later Mr. Market will have his say. He always does.

Bubbles Always Pop

But this may need explanation… 

If central banks are committed to pumping more money into the system (birds gotta fly, fish gotta swim, the Fed’s gotta pump), why should stocks ever fall?

Good question. Beneath the phony market created by artificial intervention is a real market. Real buyers and real sellers. 

At some point, the supply exceeds the demand. Then the smartest people in the room get worried. They move toward the door… quietly. 

Then the next smartest people notice that the geniuses have left the room… and they, too, begin edging toward the door. Then short sellers move in. Prices drop. And pretty soon, the market is in free-fall.

That is what always happens. Bubbles always pop. It happened to the dot-coms, to houses, to subprime mortgage companies, to oil and to the oil-slick debt.

A Frightening Fall

“Prospects dim for US high-yield debt,” reports the Financial Times.

We have no special insight into this process. But we have faith in it. Nothing lasts forever; of that we are sure.

We also have faith in certain reliable patterns of human behavior. No one escapes the cemetery. And markets follow boom-bust cycles. Always have. Always will.

We are now in what appears to be a boom cycle on Wall Street. It could last much longer… and go much further.

Often, a boom of this magnitude needs an all-out, barn-burning, super-duper final stage before it blows up.

Our guess – and it is just a guess – is that there will be another big scare before the final top of the equity bubble is achieved. 

We expect a frightening fall… a quick reaction from the Fed… and then the great race to disaster will enter its Last Looney Lap. 

Regards,

Bill Bonner

With continued uncertainty in global markets, today the Godfather of newsletter writers, 90-year old Richard Russell, covers everything from peace of mind, to gold and the erratic world stock markets.  Russell also takes a close look at the importance of January in determining market direction for 2015.

….read it all HERE

Scenes From a (Suddenly) Nude Beach

Warren Buffett’s classic aphorism “You only see who’s swimming naked when the tide goes out” is being tossed around more frequently these days, as the world gets yet another deflation scare. Zero Hedge just published a great piece on this topic, which should be read in its entirety. In the meantime here’s a summary of the story with a few added bits.

Let’s begin with the common sense premise that overly-easy money sends a false-positive signal to market participants, leading them to buy and build things that maybe shouldn’t be bought or built. Then, when money goes back to a more reasonable price, the bad decisions (malinvestment in economist-speak) are revealed and financial turmoil ensues.

Today’s situation has its roots in the 1980s, when the developed world got too lazy to live within its means and started borrowing way too much money. It then tried to inflate away its debts by creating a tidal wave of new currency and pushing interest rates down to unnaturally low levels. Flush with extra cash and cheap credit, consumers (especially in the US) bought huge amounts of imported junk. This in turn led China — the main producer of said junk — to go on an infrastructure/factory building spree of epic proportions, which shifted into hyper-drive after the 2008 crash. Chinese demand for industrial materials like copper, iron ore, and oil soared, pushing their prices far above historical averages.

This in turn led miners and drillers to mine and drill on an unprecedented scale, which caused the supply of industrial materials to surge. The flashiest case in point is the US shale oil boom, which sent domestic oil production back to levels not seen since Texas’ blockbuster oil fields were young.

But it was all a money illusion, and every part of this process has recently hit a wall. Consumers refuse to go more deeply into debt to buy non-necessities, even when money is nearly free. Faced with lower demand and poor cash flow from the past decade’s overbuilding, China has tapped the brakes on its infrastructure build-out. The US is trying to stop monetizing its debt, which has sent the dollar through the roof on foreign exchange markets, thus making life even harder for about half the world’s population.

As a result of the above, demand for basic materials is returning to normal levels, which, in the face of inflated supply, is tanking prices across the commodity complex.

In other words the tide has gone out, leaving a whole beach full of naked (and unfortunately not very attractive) bodies. Specifically:

Shale oil junk bonds. Back when oil was over $100 a barrel, everybody wanted to lend to drillers, especially in the exotic (and as it turns out fatally-flawed) shale oil sector. $170 billion of energy-related junk bonds are now outstanding, and they are tanking along with the price of oil.

Emerging market economies. These countries and their major companies have accumulated about $6 trillion of dollar-denominated debt, and with the dollar up more than 10% in the past year, the aggregate losses on those loans could exceed half a trillion dollars. Suddenly, the emerging market miracle looks disturbingly like the Asian Contagion that nearly brought down the 1990s global economy.

Mining/drilling firms. These guys ramped up in response to soaring oil, copper, iron ore, gold, and silver prices. Now many of them are earning less per unit of product than it costs to mine/drill it. Massive bankruptcies and consolidations are coming. One dot-comish sign of things to come is Civeo, which provides living quarters for workers pouring into oil fields and mines in Canada, Australia, and the US. With people pouring out instead of into these suddenly non-viable fields, the company’s services are no longer required.

The Texas economy. Texans are cool. But a big source of their cockiness vis-a-vis the rest of the country was due to the fact that the price of their main export — oil — was at historically high levels. Now that it’s not anymore, the Texas economy — like those of Brazil and Russia, is falling back to earth. JP Morgan Chase predicts a recession in 2015.

The US economy. It turns out that most of the full-time jobs gained in the past five years have come from the energy sector. Otherwise, it’s been part-time secretarial/fast food/temp work that no one actually wants and in any event can’t support a family. Reverse out the oil patch jobs and the $10 or so trillion it took to engineer the “recovery” will look like just another piece of money-illusion malinvestment.

Anyhow, that’s just a sampling of the badly-maintained bods suddenly on display. Most are now running for cover, which is an amusing sight for anyone not directly affected by their problems. Trouble is, it’s hard not to be affected by energy, debt and deflation.