Generational Dynamics

Velocity of Money

Mainstream economists (including those in the so-called "Austrian school") think that inflation is determined by the amount of money in circulation as set by monetary policy -- interest rates and quantitative easing. And you can find thousands of articles in the past decade explaining why continued low interest rates would cause inflation. 

But anyone who's taken Economics 1.01 knows that inflation is caused by two factors: the amount of money in circulation times the velocity of money. You can google "velocity of money" for a full explanation, but it represents how frequently money is actually used to buy things or pay wages.

The above graph shows that the velocity of money has plummeted three times in the last century: During the Great Depression of the 1930s, following World War II in the 1940s, and during the financial crisis of the 2000s. 

Economists -- and I mean pretty much all economists of all ideologies -- are completely oblivious to the velocity of money. If they think about it at all, then they think that if the central bank prints money, then it will raise not only the money supply but also the velocity of money. 

What economists don't understand is that they have no control over the velocity of money. It's a generational variable, just like attitudes towards sex or war. A high velocity of money means that people are willing to spend lavishly. A low velocity of money means that people want to save money prodigiously, or to pay off their debts. These are attitudes that are deeply ingrained in people, just like their attitudes toward sex or war. The government cannot change the velocity of money by either monetary policy or fiscal policy. 

And if the government can't control the velocity of money, then the government can't control the inflation rate. 

Here's what formed Fed Chairman Ben Bernanke said in December: "I think negative nominal interest rates are something the Fed might consider. We’ve seen it put to work in Europe primarily. But the scope for negative nominal interest rates is fairly limited. You can’t get very negative before people will begin to hoard cash, for example, which pays zero nominal interest rates. Although I’ve been surprised by how negative have been able to get in some European countries, I don’t think that, in the context of the United States, I don’t think that it could really be a central tool because I don’t think that rates can get that negative."

It's pretty clear that Bernanke doesn't understand the velocity of money, or thinks that hoarding money is being caused by low interest rates. The causation goes in the opposite direction. 

Since 2007, the velocity of money has been decreasing, meaning that people are hoarding their money more, not spending it. This is causing a deflationary spiral, and forcing the Fed to lower interest rates. 

As the deflationary spiral worsens, the Fed in desperation will resort to negative interest rates, as has happened in Japan. 

Ever since 2003, when I started writing regularly about Generational Dynamics, I've repeatedly written that in this generational Crisis era, Generational Dynamics is predicting a deflationary spiral. Mainstream economists, on the other hand, have been predicting that inflation or even hyperinflation would begin "next year" every year since then. Mainstream economists have been dead wrong, and continue to be wrong, while Generational Dynamics is right. The reason is that mainstream economists are oblivious to the velocity of money. Market Watch (15-Dec-2015) and St. Louis Fed

DYI Comments:  Generational Dynamics is absolutely correct as ultra low inflation and deflation rules the U.S. economic landscape not until Boomer's begin to retire in significant numbers will inflation begin its long march upwards.  Demographics has that threshold arriving around the year 2022 when Boomers begin retiring at around age 70.

DYI   

Drunken Nation: Russia’s Depopulation Bomb

Aspecter is haunting Russia today. It is not the specter of Communism—that ghost has been chained in the attic of the past—but rather of depopulation—a relentless, unremitting, and perhaps unstoppable depopulation. The mass deaths associated with the Communist era may be history, but another sort of mass death may have only just begun, as Russians practice what amounts to an ethnic self-cleansing. 

Since 1992, Russia’s human numbers have been progressively dwindling. This slow motion process now taking place in the country carries with it grim and potentially disastrous implications that threaten to recast the contours of life and society in Russia, to diminish the prospects for Russian economic development, and to affect Russia’s potential influence on the world stage in the years ahead. 

In the postwar Soviet era, Russia’s so-called “total fertility rate” (TFR), which calculates the number of births a typical woman would be expected to have during childbearing years, exceeded 2.0—and in the early years of the Gorbachev era, Russia’s total fertility rate temporarily exceeded 2.2. After 1989, though, it fell far below 2.0 with no signs as yet of any recovery. Russia’s post-Communist TFR hit its low—perhaps we should say its low to date—in 1999, when it was 1.17. By 2005, the total fertility rate in the Russian Federation was up to about 1.3—but this still represented a collapse of about two-fifths from the peak level in the Gorbachev years.

Country	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Russia	1.25	1.27	1.3	1.33	1.26	1.27	1.28	1.39	1.4	1.41	1.41	1.42	1.61	1.61	1.61

Is Russia’s post-Communist plunge in births the consequence of a “demographic shock,” or the result of what some Russian experts call a “quiet revolution” in patterns of family formation? At the moment, it is possible to see elements of both in the Russian Federation’s unfolding fertility trends. Demographic shocks tend by nature to be transient; demographic transitions or “revolutions,” considerably less so. But this much is clear: to date, no European society that has embarked upon the same demographic transition as Russia’s—declining marriage rates with rising divorce; the spread of cohabitation as alternative to marriage; delayed age at marriage and sub-replacement fertility regimens—has reverted to more “traditional” family patterns and higher levels of completed family size. There is no reason to think that in Russia it will be any different. 

In addition to its daunting fertility decline, Russia’s public health losses today are of a scale akin to what might be expected from a devastating war. Since the end of the Communist era, in fact, “excess mortality” has cost Russia hundreds of thousands of lives every year. 

The 1960s and 1970s witnessed an increase in mortality rates for key elements of the Soviet population. But Russia’s health patterns did not correct course with the collapse of the USSR, as many experts assumed they would. In fact, in the first decade and a half of its post-Communist history the country’s health conditions actually became worse. Life expectancy in the Russian Federation is actually lower today than it was a half century ago in the late 1950s. In fact, the country has pioneered a unique new profile of mass debilitation and foreshortened life previously unknown in all of human history. 

Like the urbanized and literate societies in Western Europe, North America, and elsewhere, the overwhelming majority of deaths in Russia today accrue from chronic rather than infectious diseases: heart disease, cancers, strokes, and the like. But in the rest of the developed world, death rates from these chronic diseases are low, relatively stable, and declining regularly over time. In the Russian Federation, by contrast, overall mortality levels are high, manifestly unstable, and rising. 

The situation for Russian males has been particularly woeful. In the immediate postwar era, life expectancy for men was somewhat lower than in other developed countries—but this differential might partly be attributed to the special hardships of World War II and the evils of Stalinism. By the early 1960's, the male life expectancy gap between Russia and the more developed regions narrowed somewhat—but then life expectancy for Russian men entered into a prolonged and agonizing decline, while continued improvements characterized most of the rest of the world. By 2005, male life expectancy at birth was fully fifteen years lower in the Russian Federation than in Western Europe. It was also five years below the global average for male life expectancy, and three years below the average for the less developed regions (whose levels it had exceeded, in the early 1950's, by fully two decades). Put another way, male life expectancy in 2006 was about two and a half years lower under Putin than it had been in 1959, under Khrushchev. 

According to the U.S. Census Bureau International Data Base for 2007, Russia ranked 164 out of 226 globally in overall life expectancy. Russia is below Bolivia, South America’s poorest (and least healthy) country and lower than Iraq and India, but somewhat higher than Pakistan. For females, the Russian Federation life expectancy will not be as high as in Nicaragua, Morocco, or Egypt. For males, it will be in the same league as that of Cambodia, Ghana, and Eritrea. 

In the face of today’s exceptionally elevated mortality levels for Russia’s young adults, it is no wonder that an unspecified proportion of the country’s would-be mothers and fathers respond by opting for fewer offspring than they would otherwise desire. To a degree not generally appreciated, Russia’s current fertility crisis is a consequence of its mortality crisis. 

By any reading, the situation in Russia today sounds awful. The Russian Federation is afflicted with a serious HIV/AIDS epidemic; according to UNAIDS, as of 2008 somewhere around 1 million Russians were living with the virus. (Russia’s HIV nexus appears to be closely associated with a burgeoning phenomenon of local drug use, with sex trafficking and other forms of prostitution or “commercial sex,” and with other practices and mores relating to extramarital sex.) Russia also faces a related and evidently growing burden of tuberculosis. As of 2008, according to World Health Organization estimates, Russia was experiencing about 150,000 new TB infections a year. To make matters worse, almost half of Russia’s treated tubercular cases over the past decade have been the variant known as extreme drug-resistant tuberculosis (XDR-TB). 

In Western Europe, age-standardized mortality from injury and poisoning, as tabulated by the World Health Organization, fell by almost half between 1970 and 2006. In Russia, on the other hand, deaths from injuries and poisoning, which had been 2.5 times higher than in Western Europe in 1980, were up to 5.3 times higher as of 2006. 

A broadly negative relationship was evident between mortality from injuries and per capita income. In other Western countries in 2002, an increase of 10 percent in per capita GDP was associated with a drop of about 2 points in injury deaths per 100,000 population. Yet Russia’s toll of deaths is nearly three times higher than would be predicted by its GDP. No literate and urban society in the modern world faces a risk of deaths from injuries comparable to the one that Russia experiences. 

Russia’s patterns of death from injury and violence (by whatever provenance) are so extreme and brutal that they invite comparison only with the most tormented spots on the face of the planet today. The five places estimated to be roughly in the same league as Russia as of 2002 were Angola, Burundi, Congo, Liberia, and Sierra Leone. To go by its level of mortality injury alone, Russia looks not like an emerging middle-income market economy at peace, but rather like an impoverished sub-Saharan conflict or post-conflict society. 

Taken together, then, deaths from cardiovascular disease and from injuries and poisoning have evidently been the main drivers of modern Russia’s strange upsurge in premature mortality and its broad, prolonged retrogression in public health conditions. One final factor that is intimately associated with both of these causes of mortality is alcohol abuse. 

Unlike drinking patterns prevalent in, say, Mediterranean regions—where wine is regarded as an elixir for enhancing conversation over meals and other social gatherings, and where public drunkenness carries an embarrassing stigma—mind-numbing, stupefying binge drinking of hard spirits is an accepted norm in Russia and greatly increases the danger of fatal injury through falls, traffic accidents, violent confrontations, homicide, suicide, and so on. Further, extreme binge drinking (especially of hard spirits) is associated with stress on the cardiovascular system and heightened risk of CVD mortality. 

How many Russians are actually drinkers, and how heavily do they actually drink? Officially, Russia classifies some 7 million out of roughly 120 million persons over 15 years of age, or roughly 6 percent of its adult population, as heavy drinkers. But the numbers are surely higher than this. According to data compiled by the World Health Organization, as of 2003 Russia was Europe’s heaviest per capita spirits consumer; its reported hard liquor consumption was over four times as high as Portugal’s, three times that of Germany or Spain, and over two and a half times higher than that of France. 

Yet even these numbers may substantially understate hard spirit use in Russia, since the WHO figures follow only the retail sale of hard liquor. But samogon—home-brew, or “moonshine”—is, according to some Russian researchers, a huge component of the country’s overall intake. Professor Alexander Nemstov, perhaps Russia’s leading specialist in this area, argues that Russia’s adult population—women as well as men—puts down the equivalent of a bottle of vodka per week. 

From the epidemiological standpoint, local-level studies have offered fairly chilling proof that alcohol is a direct factor in premature mortality. One forensic investigation of blood alcohol content by a medical examiner’s office in a city in the Urals, for example, indicated that over 40 percent of the younger male decedents evaluated had probably been alcohol-impaired or severely intoxicated at the time of death—including one quarter of the deaths from heart disease and over half of those from accidents or injuries. But medical and epidemiological studies have also demonstrated that, in addition to its many deaths from consumption of ordinary alcohol, Russia also suffers a grisly toll from alcohol poisoning, as the country’s drinkers, in their desperate quest for intoxication, down not only sometimes severely impuresamogon, but also perfumes, alcohol-based medicines, cleaning solutions, and other deadly liquids. Death rates from such alcohol poisoning appear to be at least one hundred times higher in Russia than the United States—this despite the fact that the retail price in Russia today is lower for a liter of vodka than a liter of milk. 

It is not obvious that Russia will be able to recover rapidly from its health katastroika. There is an enormous amount of “negative health momentum” in the Russian situation today: with younger brothers facing worse survival prospects than older brothers, older brothers facing worse survival prospects than their fathers, and so on. Severely foreshortened adult life spans can shift the cost-benefit calculus for investments in training and higher education dramatically. On today’s mortality patterns, a Swiss man at 20 has about an 87 percent chance of making it to a notional retirement age of 65. His Russian counterpart at age 20 has less than even odds of reaching 65. Harsh excess mortality levels impose real and powerful disincentives for the mass acquisition of the technical skills that are a key to wealth generation in the modern world. Thus Russia’s health crisis may be even more generally subversive of human capital, and more powerfully corrosive of human resources, than might appear to be the case at first glance. 

Putin’s Kremlin made a fateful bet that natural resources—oil, gas, and other extractive saleable commodities—would be the springboard for the restoration of Moscow’s influence as a great power on the world stage. In this gamble, Russian authorities have mainly ignored the nation’s human resource crisis. During the boom years—Russia’s per capita income roughly doubled between 1998 and 2007—the country’s death rate barely budged. Very much worse may lie ahead. How Russia’s still-unfolding demographic disaster will affect the country’s domestic political situation—and its international security posture—are questions that remain to be answered. 

Written Spring of 2009

DYI Comments:  Nothing has changed since 2009 except with the very real possibility that conditions are worse.  On a demographic basis Russia is having their last flurry on the world's stage before their population bust is so severe maintaining a military becomes inhibited.

To illustrate, Russia's land mass is 6.592 million sq. miles as compared to the continental U.S. (excluding Alaska, Hawaii) at 2.959 million sq. miles and yet the population difference is staggering, despite a land size 122% larger, Russian is 142 million as compared to the U.S. with 320 million or 55% less people.  Guarding Russia's vast frontiers requires man power for their army and air forces a task that becomes more and more difficult due to their demographic disaster.  If their population were to drop below 100 million holding onto the political subdivision east of the Urals would become impossible.

DYI

Le Drian: France Is Entering New Strategic Era

The phase known as the end of the Cold War has closed, he said, and a new period is opening. France, by understanding the major shifts, can prepare for the future and maintain its position in the world. “Militarized terrorism” among jihadist fighters, a resurgent Russia and the spread of advanced arms technology are among the new factors.

Other factors include a lack of European solidarity and war in the Middle East while Russia, a nuclear power, rearms itself, he said. A “strategic patience” is needed, balancing international and national inertia and the impatience of public opinion. 

Separately, the chief of the Defense Staff, Army Gen. Pierre de Villiers, said in a Jan. 20 article in daily Le Monde that winning a war called for winning the peace, and that requires political stability and economic support for the local population after combat ends.

DYI Comments:  As the U.S./U.K./NATO/EU alliance continues their stripping away of Russia's allies as in the case of Montenegro joining NATO with the long term goal of chasing the Russian navy out of the Black Sea.  And as the U.S. makes its pivot to Asia a power vacuum occurs. France by filling this vacuum with political and military assets will give them a bigger seat at the table for negotiation within the alliance.  In the months and years ahead I expect further involvement from France.

DYI 

Lay-ups loom in the dry freight market

I stare out my office window on the 23rd floor and there they are, stretched out as far as my eyes can see, dry bulk vessels sitting pretty in the Singapore strait. 

Although each vessel is of a different shape and size they all have one common enemy — unemployment. 

With the engines running and crew on board, these vessels are burning fuel into thin air, literally waiting for orders. 

Owners are holding steady, with many unwavering in the face of historical lows in the freight market.

DYI Comments:  World wide economy dancing on a pin between slow growth and recession. Appears that the possibility is increasing for a downturn to be notice by all this summer.  If this occurs stocks and junk bonds will be hammered along with an interesting Presidential election cycle.

DYI

Generational Dynamics

As I wrote in "29-Dec-15 World View -- Artificial Intelligence breakthroughs in 2015, the Singularity by 2030", the year 2015 saw many major achievements in artificial intelligence, and the Google's AlphaGo technology continues that trend. 

What's interesting is that as recently as 2014, most experts thought that for a computer program to play Go at a master level was at least a decade away, and possibly several decades. This illustrates how many people in the computer field underestimate how rapidly computer AI is improving, and how quickly the Singularity is arriving.

 

Above playing board for the game of Go.

How to play Go...British Go Association 

As I wrote in the article referenced above, I estimated in 2004 that the Singularity would occur around 2030, and I have no reason today to change that estimate. However, people tell me all the time that computers won't be as smart as humans for many decades, even centuries, because we don't yet understand enough about the human brain. However, this misses the point. Humans are smarter than apes even though we don't understand apes' brains, and computers will become more intelligent than humans by using technologies that don't require understanding the human brain.

In fact, we're going to start seeing rapid changes well before 2030. According to a new report from the World Economic Forum, AI is take away 5 million jobs from humans in the next five years. 

Jobs that are most at risk of this transition to artificial intelligence are in administrative and office divisions, so much so that some jobs today are already being replaced by mobile apps and algorithms linked to the internet. For instance, a website may offer finding better hotel deals than a travel agent, or a mobile application can help you learn better Mandarin or French than a personal instructor. Other sectors that are also at risk are manufacturing, construction, health care, and even the arts and entertainment. 

And it's my personal estimate that AI will replace most computer programmers' jobs within the next five to ten years.

DYI Comments:  The biggest area where jobs have been displaced or outright vanished is in manufacturing.  Despite the move to China and other Asian countries the biggest villain has been automation.  For every one job outsourced 1.7 manufacturing jobs vanished due to automation.

Why Factory Jobs Are Shrinking Everywhere

A report from the Boston Consulting Group last week suggested the U.S. had become the second-most-competitive manufacturing location among the 25 largest manufacturing exporters worldwide. While that news is welcome, most of the lost U.S. manufacturing jobs in recent decades aren’t coming back. In 1970, more than a quarter of U.S. employees worked in manufacturing. By 2010, only one in 10 did. 

The growth in imports from China had a role in that decline–contributing, perhaps, to as much as one-quarter of the employment drop-off from 1991 to 2007, according to an analysis by David Autor and colleagues at the Massachusetts Institute of Technology. But the U.S. jobs slide began well before China’s rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology, and there’s reason to think developing countries are going to follow a different path to wealth than the U.S. did—one that involves a lot more jobs in the services sector. 

Pretty much every economy around the world has a low or declining share of manufacturing jobs. According to OECD data, the U.K. and Australia have seen their share of manufacturing drop by around two-thirds since 1971. Germany’s share halved, and manufacturing’s contribution to gross domestic product there fell from 30 percent in 1980 to 22 percent today. In South Korea, a late industrializer and exemplar of miracle growth, the manufacturing share of employment rose from 13 percent in 1970 to 28 percent in 1991; it’s fallen to 17 percent today.

DYI Continues:  No one is immune both white and blue collar jobs are effected.  Brick and mortar stores are in a death spiral as on line shopping reduces and in some cases the entire need for a store. To say the least the term "future shock" has arrived.

  Toffler argued that society is undergoing an enormous structural change, a revolution from an industrial society to a "super-industrial society". This change overwhelms people. He believed the accelerated rate of technological and social change left people disconnected and suffering from "shattering stress and disorientation"—future shocked. Toffler stated that the majority of social problems are symptoms of future shock. In his discussion of the components of such shock, he popularized the term "information overload."

Shattering stress and disorientation is an excellent description for our northern manufacturing areas especially Michigan and ground zero Detroit.  I don't have any answers only to state the obvious; technological changes will require an individual to be in constant training and education plus fast on their feet.

DYI

Bubble Indicator Flashes Global Warning Sign 

Recently we have come across news that seem to confirm that the global central bank printathon in the wake of the GFC has indeed created a major bubble on a global scale. This implies that the denouement of the bubble will likely be globally synchronized and may accordingly turn out to be quite intense. 

We were very surprised to learn that the number of buildings classified as “super-tall skyscrapers” (with a height of 300 meters or more) has in fact doubled since 2010. It took 80 years to build the first 50 super-tall skyscrapers, and just five years to build the next 50! This is an astonishing datum – an awesome monument to bubble excess. Here is a chart from Bloomberg illustrating the historical trend:

 

Conclusion

Based on the skyscraper index, we appear to have experienced one of the biggest booms ever – as uneven as it has been, with real economic growth generally not much to write home about in most parts of the world. The same can obviously not be said of asset prices, which have benefited greatly from the flood of money unleashed by central banks in recent years.

DYI

Chart Of The Day: The Bear Perambulates The Globe

The MSCI All-Country World Index dropped into bear market territory last week after losing 20%. Some countries—China, Russia, and Saudi Arabia—are down more than 40% from their highs.

DYI Comment:  Things are getting interesting!

DYI

No sign Saudi Arabia will ride to oil market rescue

Low oil prices have pushed top exporter Saudi Arabia to hasten difficult economic reforms and cut spending on popular benefits, but it has few options beyond sticking with a strategy to defend its market share - no matter how low prices sink. 

A return of Iranian crude to the market after sanctions were lifted may now plunge prices to new lows after a 19-month drop of 76 percent that caused Riyadh's $54 billion fiscal surplus in 2013 to swing to a $98 billion deficit last year.

 It has led them to what, in the oil world at least, is an epochal change in policy, abandoning their position as a so-called swing producer that would raise or lower output as required to balance the market, and instead defend market share.

DYI Comments:  The time is now to dollar cost average into your favorite oil/gas/service mutual fund.  DYI's favorite is the chart above which is Vanguard's Energy Fund.  Most energy funds are down about 50% from their peak.  The time to buy bargains is when prices are way down.  Only dollar cost average at this point in time as the world economy along with the U.S. could very easily go into recession driving prices even lower.

If prices on West Texas Intermediate becomes a teenager then lump summing with my favorite closed end fund Adams Natural Resource Fund symbol PEO.

Don't forget precious metals mining companies share prices have been decimated down 70% to 80%.  This industry will recover through mine closings along with mergers and buyouts bringing these companies back to profitability.  The worlds central banks have printed money on a vast scale setting the seeds for inflation in the 2020's pushing up all metal prices.  This is an amazing time to build a position at incredibly low prices. Speculators on the long side will hate this time but the real long term value player has an opportunity to build a position at prices that have been decimated.

The above chart is Vanguard's Precious Metals and Mining Fund symbol VGPMX.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  1/1/16

Active Allocation Bands (excluding cash) 0% to 60%

80% - Cash -Short Term Bond Index - VBIRX

20% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

HAPPY HUNTING

DYI

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Billionaire George Soros makes grim forecast for China, global economy

The investor said a crisis similar to the financial catastrophe of 2008 could take place in 2016.

DAVOS, Switzerland, Jan. 22 (UPI) -- Billionaire hedge fund manager George Sorossaid the Chinese economy is in for a "hard landing," after stock markets tumbled early January in the world's second-largest economy. 

Soros made his grim prediction at the World Economic Forum in Davos on Thursday, when he told Bloomberg that the downturn is "practically unavoidable."

 Wicked Skew: When Extreme Losses are Standard Outcomes

John P. Hussman, Ph.D.

The chart below presents MarketCap/GVA on an inverted log scale (blue), along with the actual subsequent S&P 500 nominal annual total return over the following 12-year period (red). The good news is that the recent market retreat brought the 12-year prospective S&P 500 total return toward 2.5% annually in nominal terms. If this seems low, recall that the 12-year nominal S&P 500 total return following the more extreme 2000 market peak was actually negative. Consider the recent retreat as progress, but don’t imagine for a moment that it has gone a significant distance in resolving the distortion of years of yield-seeking speculation that the Fed provoked through its deranged policy of quantitative easing.

 

On the economic front, I continue to believe that a U.S. recession is not only a risk, but is now the most probable outcome. As I noted last week, among confirming indicators that generally emerge fairly early once a recession has taken hold, we would be particularly attentive to the following: a sudden drop in consumer confidence about 20 points below its 12-month average (which would currently equate to a drop to the 75 level on the Conference Board measure), a decline in aggregate hours worked below its level 3-months prior, a year-over-year increase of about 20% in new claims for unemployment (which would currently equate to a level of about 340,000 weekly new claims), and slowing growth in real personal income.

Gold Is Back in Fashion After a $15 Trillion Global Selloff

Hedge funds and other large speculators more than doubled their net-long position in bullion last week, just three weeks after they were the most-bearish ever. Investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has jumped by $3 billion in 2016. 

“People have become complacent about risks, whether it’s macroeconomic and geopolitical,” said George Milling-Stanley, the Boston-based head of gold investments at State Street Global Advisors, which oversees $2.4 trillion. “What’s out of fashion may be coming back. That atmosphere of people feeling completely calm and untroubled, I think, is starting to go away. Gold is a very good risk-off trade, and I think people are starting to look very, very carefully at the risky positions that they have on a number of other markets.”

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  1/1/16

Active Allocation Bands (excluding cash) 0% to 60%

80% - Cash -Short Term Bond Index - VBIRX

20% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

DYI

The World Just Lost One Of Its Biggest Oil Plays To Low Prices

Energy analysts Wood MacKenzie said last week that low oil prices have now caused the delay of 68 planned petroleum projects globally. Representing $380 billion in frozen capital expenditures.

And news late last week shows it’s not just the private sector shutting things down in oil development.
Governments are also now looking to hold off on developing their in-ground reserves at low prices. Led by oil powerhouse Brazil, which said Friday that it will discontinue offering new offshore projects in one of its most prospective regions.

DYI Comments:  Low oil prices are only temporary as geopolitics are being played.  

Prices could very easily be push down further with the worlds economy slowing.  If a world 

wide recession occurs pushing oil prices to the teenager level lump summing into Adams

Natural Resource Fund symbol PEO is advised.  And/or dollar cost average into Vanguard's

Energy Fund symbol VGENX. 

Happy Hunting!

DYI

U.S. Throws Kurds To The Wolves, Launches Program To Roll Back Kurdish, Not ISIS, Advances In Syria

It has been said by RPI advisor John Laughland that “it is better to be an enemy of the Americans than their friend. If you are their enemy, they might try to buy you; but if you are their friend, they will definitely sell you.” 

The YPG have long been considered as one of the warmer forces in terms of its relation to the United States. While certainly not the equivalent of the Iraqi “Barzani” Kurds who are closely connected to the NATO intelligence apparatus, the YPG has been willing to accept help from any who are interested in defeating ISIS, be that the Syrian government or the United States. 

Of course, any claims from the United States or Turkey professing a desire to shut down ISIS supply routes can be dismissed out of hand since it has been these two countries that have provided a massive portion of the aid to ISIS since the beginning and even before the Syrian crisis got off the ground. 

What is interesting, however, is that both the United States and Turkey openly admit that the plan is to prevent the YPG from gaining ground in Northern Syria and sealing off the border themselves. There is no doubt that it has been the Kurds that have been the most effective fighting force against ISIS in Northern Syria. There is also no doubt that Kurdish success on the borders of Turkey is intolerable for the Islamist Turkish leadership concerned that Syrian Kurd success will equal a union and eventual military campaign by Turkish Kurds, possibly in coordination with Syrian and even Iraqi Kurdish organization. 

Turkey has, for some time, been launching attacks against Syrian Kurds under the guise of fighting ISIS and the United States has looked the other way, another indication that the Turkish agenda and the American one are largely one and the same. 

Still, the cooperation between the U.S. and the YPG may take a very different form if the “U.S. led coalition” begins funneling more hardware and jihadists against the Kurds for the benefit of Erdogan and his lunatic fantasies of becoming the new Ottoman Empire.

DYI Comments: To understand U.S. foreign policy it is necessary to know our 5 strategic goals.  These goal have been developed and built upon since the beginning of our republic/empire. As described by George Friedman in his book The Next 100 Years.

1.  The complete domination of north America by the United States Army.

2.  The elimination of any threat to the United States by any power in the western hemisphere.

3.  Complete control of the maritime approaches to the United States by the Navy in order to preclude any possibility of invasion.

4.  Complete domination of the world's oceans to further secure U.S. physical safety and guarantee control over the international trading system.

5.  The prevention of any other nation from challenging U.S. global naval power.

DYI has added on point number 6.

6.  To secure control through political or military means the worlds supply of oil/gas and other strategic resources for the U.S./U.K./NATO/EU alliance.  

The U.S. method of prevention for any country in challenging U.S. naval power is to eliminate the naval threat.  The true U.S. presence in the mid east is to strip away from Russia all of her allies as in the case of Syria and continue to move closer and closer to chasing the Russian navy out of the Black Sea.

 

The reason the U.S. has allowed the Turks to "mix it up" with their arch enemy Russia as it serves multiple purposes for the U.S.  First it ties down human and financial resources for Russian land based armies and air forces and at the same time destabilizes the Caucasus' along with the oil/gas rich Azerbaijan and Kazakhstan region. This soaks up valuable Rubles for Russian naval power.

The Asian Pivot

The U.S. is in the process of pivoting to Asia to deal with the new regional naval power China.  There are two geographical ways to pivot to Asia.  By sea or land.  The U.S. is already moving additional sea based assets(air craft carriers) to the east and south China Sea area.  The other route to China is through Russia.  Since the end of WWII U.S. ultimate strategic goal is to break Russia with the loss of the Caucasus', the Laplands (north and east of St. Petersburg) and all lands east of the Urals. These new countries east of the Ural mountains containing strategic resources especially oil/gas will need 1st world technology to develop their resources provided by the U.S./U.K./NATO/EU alliance. Companies such as British Petroleum, Royal Dutch Shell, Total, Exxon Mobil, Chevron, Valero Energy etc. would be there in an effort to cut out of the competition companies such as China National, Saudi Aramco and Lukoil(Russian).  With the U.S. led alliance in control of these strategic assets Russia and China will have to submit or be cut off.  That submission is not having a naval presence.  The seas along with world trade are to be controlled by the U.S. and staunch ally England.

Do not not be lulled into thinking oil prices will be low forever.  The dropping of prices is geopolitics Saudi Arabia became tired of its OPEC members cheating on production quotas.  They opened the flood gates of oil to drive the price down to pick up market share.  Along the way to punish Saudi Arabia's arch enemy Iran plus their benefactor Russia.  This is why the Iranians are having sanctions lifted and allowed to pump oil further driving down the price of oil.  It is the hope of the U.S. State Department Russia will default on their sovereign debt further destabilizing the Mother Land.

Both countries Russia and China knows full well the intentions of the U.S./U.K./NATO/EU alliance. Will the alliance be successful?  Russia 20 to 30 years from now will most likely be a much smaller country west of the Urals loss of the Caucasus and Laplands to the north.  With a good chance of the smaller Russia coming into the alliance.  China will be another matter as most of the upper tier politicos believe war is destined to the point of preordained.  It appears that world war is coming.

World War III

Surprisingly despite all that the alliance is doing to Russia in the end will align themselves as allies.

The Allies...Christians and Shiites
U.S./U.K./NATO/EU, Russia, India, and Iran

The Axis Powers...Buddhists and Sunnis
China, Pakistan, Saudi Arabia, Egypt, UAE along with other possible Sunnis.

Hopefully cooler heads will prevail but human nature being as it is the world has not had a world war since 1939-1945.  Those who remember those days of massive death and destruction are extremely old and passing away quickly(or already dead) leaving only the sons and daughters who have any knowledge passed on to them by their parents.  The Boomers are ageing leaving more and more in control of those generations who have no direct or indirect knowledge(other than history books) of the horrors of world war.  DYI will keep watching and reporting.

DYI    

Alberta's economy pinched by oil

Canada's economy relies heavily on the energy sector and nearly all of its oil and gas exports target a U.S. market less dependent on foreign reserves because of the shale boom. Lower export revenue and even lower crude oil prices are hurting exporting economies like Canada's. 

"There is no question that Alberta's and the broader Canadian economies are now facing serious shocks," Finance Minister Joe Ceci said in a statement. "These shocks are having a serious effect on government revenues in all energy-producing jurisdictions -- including ours."

DYI Comments:  Canada being a petro-state will be serious trouble if oil and gas prices stay at low prices and God forbid they drop below $20(U.S.) per barrel.  Canada will go into an outright depression as this will hammer Canada's over inflated real estate market. Canadian's are also far higher in debt than Americans as shown by the chart below.  Our northern friends could very easily experience a deflationary smash.

As for investors DYI will have our eye's on the Toronto market for if it drops substantially it will be time to dollar cost average into your favorite fund specializing in Canadian securities.  DYI favorite is Fidelity Canada Fund symbol FICDX.

 

Be prepared interesting times lie ahead.

DYI 

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Fake “Pentagon” Mall Abandoned on Outskirts of Shanghai

The Pentagon World Trade and Commerce Mall was originally built to attract tourists; but, it was largely ignored because of its remote location and confusing interior layout.The structure has the dubious distinction of being China’s largest vacant building, at 500,000 square meters. As each side of the Chinese Pentagon measures 320 meters long, it is even larger than the original.The shopping mall currently has only one tenant, an importing business that operates out of the northeast corner of the five-sided structure. The building’s owner has been trying to increase interest from prospective tenants.

DYI Comment:  Just a dip of the iceburg of the overbuilding in China.  China will soon be entering their version of the 1930's.  It will be seen if they can keep their empire together as many feel such as this blogger their automatious regions will break from China and form their own countries reducing their land mass by one halve to two thirds.

DYI  

F. William Engdahl: Russia aims to break Wall Street's monopoly on oil prices

Russia has just taken significant steps that will break the present Wall Street oil price monopoly, at least for a huge part of the world oil market. The move is part of a longer-term strategy of decoupling Russia's economy and especially its very significant export of oil, from the U.S. dollar, today the Achilles' heel of the Russian economy.

Later in November the Russian Energy Ministry announced that it will begin test-trading of a new Russian oil benchmark. While this might sound like small beer, it's huge. If successful, and there is no reason why it won't be, the Russian crude oil benchmark futures contract traded on Russian exchanges will price oil in rubles and no longer in dollars. It is part of a de-dollarization move that Russia, China, and a growing number of other countries have quietly begun.

The setting of an oil benchmark price is at the heart of the method used by major Wall Street banks to control world oil prices. Oil is the world's largest commodity in dollar terms. Today the price of Russian crude oil is referenced to what is called the Brent price. The problem is that the Brent field, along with other major North Sea oil fields, is in major decline, meaning that Wall Street can use a vanishing benchmark to leverage control over vastly larger oil volumes. The other problem is that the Brent contract is controlled essentially by Wall Street and the derivatives manipulations of banks like Goldman Sachs, Morgan Stanley, JP MorganChase, and Citibank.

The sale of oil denominated in dollars is essential for the support of the dollar. In turn, maintaining demand for dollars by world central banks for their currency reserves to back foreign trade of countries like China, Japan, or Germany is essential if the dollar is to remain the leading world reserve currency. That status as world's leading reserve currency is one of two pillars of American hegemony since the end of World War II. The second pillar is world military supremacy. ...

DYI Comments:  The game is on as Russia fights back against the almighty U.S. Dollar.  With all of Russia's problems this is a long shot at best.  However, it is a good idea from a Russian point of view to bring back into the fold at least economically many of the countries during the Soviet Union.  At least that is Russia's attempt.  I'll be watching to see if this new trading floor dominated in Rubles has any staying power and possible growth.

DYI

Puerto Rico Revises Debt Recovery Plan, Leaves $16 Billion Financial Gap

Back in September 2015, Puerto Rico's top economic officials announced a debt recovery plan, stating that the country would need about $14 billion of debt relief over the next five years in order to help the U.S. territory to revive its economic growth and reduce its vast debt.

As it turns out, the estimates were far too optimistic.

According to The New York Times, officials in the Latin American U.S. territory stated on Monday that it now expects creditors to give the country a $16 billion break instead, as the financial situation of the island territory turned out to be far worse than expected.Puerto Rico's officials further stated that they had run updated forecasts for the next 10 years as well. The results of the 10-year forecast were not very encouraging, as the officials stated that without debt relief, the financial gap could balloon to a very hefty $24 billion.The Obama administration has stated that it aims to give the island territory the same bankruptcy rights as other U.S. states through a law known as Chapter 9. If granted, Chapter 9 would enable Puerto Rico to shed or restructure some of its debts under the supervision of a judge.Puerto Rico's financial troubles have become a pivotal aspect in the campaign of a number of presidentiables, with Jeb Bush and Hillary Clinton stating that Puerto Rico must be granted Chapter 9 rights.

DYI Comments:  DYI agrees that Puerto Rico deserves the same type of laws governing our other 50 States.  Having the ability to file Chapter 9 will allow this island protectorate to work out its problems with their creditors on the same level playing field as our other U.S. States.  

No doubt Puerto Rico has borrowed money to a level so high that any sane person would realize impossible to pay.  Of course it takes two to tango, investors were very willing to shovel vast amounts of Dollars despite any prudent man would find repayment increasingly dubious.  Politicians and investors willing to go over the cliff together.  

There is a third party as well:  The U.S. Federal Reserve who has held rates for so long at the sub atomic level investors were desparate for yield. This became the overall backdrop environment of willing investors and eager politicians(vote buying).  With normilized interest rates investors would have other options for their monies.  Going over the cliff would have been far more difficult as interest rates started at a much higher level.

Unfortunately this arrives, like many things in life at a bad time, as the world economy is very possibly entering recession.

DYI wishes the citizens of Puerto Rico the best of luck!

DYI