CRB Screams Calamity Ho, Laszlo! ~ The Risk Averse Alert

Monday, January 28, 2013

CRB Screams Calamity Ho, Laszlo!

Last Thursday I alluded to the danger of over-exciting animal spirits whose undesirable effect could drive capital aggressively into "things." Let's take a look at the Commodities Research Bureau Index and develop some better sense of this risk...

There are a couple interlocking dynamics we need consider in order to assess the message spoken by capital movements into both stocks and "things" (i.e. commodities). The first, and foremost, surrounds what today is a thoroughly marginalized economy. Political circles wailing about regulatory uncertainty really should give some thought to the negative effect wildly fluctuating commodities prices are having on economic activity. Truth is ensuring a robust business climate in an environment beset by unstable input costs is a virtual impossibility. Why even today yet another oil refinery bit the dust.

The problem lies in an inability to reasonably maintain adequate profit margins, this on account of a cutthroat business climate's extreme fostering over the past several decades resulting in an increasingly marginalized physical capacity unsuitable for profitably conducting business. In the imperial age of globalization business capacity has been so thoroughly compromised as to restrict general ability to expand productivity, and so both counteract rising input costs, as well as manage natural, competitive pressures. Likewise restricting cultivation of such conditions as are necessary to secure adequate profit margins prerequisite to ensuring growth are onerous debt burdens, the bulk of which are proving illegitimate, and the likes of which only the more impinge on the business world's practical ability to expand its productivity. Indeed, increasing indebtedness has gone a considerable distance toward marginalizing physical capacity, as well, with capacity being sold off, and often times dismantled in order to service debt, thus rounding out an effective, negative feedback loop.

Such is the essence of a hyperinflationary dynamic played out over the past several decades whose negative impact on the physical economy—indeed, marginalizing it—has ushered in a present state of affairs placing the entire global economy at the precipice where its accelerated shutdown is virtually assured, this particularly if all things policy-wise remain more or less unchanged, as seems likely. For the sake of historical context policy leading to today's compromised economic state can be traced back to the years leading up to the August 15, 1971 termination of the Bretton Woods system of fixed exchange rates. Wild fluctuations in commodities prices represent a symptom of having abandoned policy serving to foster a stable economic environment wherein increasing productivity insuring both profit margins promoting growth, as well as unquestioned capacity to extinguish debt (even were this growing in nominal terms, as in fact it has been) is effectively assured. Policy in the age of imperial globalization contrarily has fostered marginalization of productive capacities of every sort, both physical and financial, negatively affecting every permutation of activity within both of these respective sectors. Ongoing, evolving consequence of this policy's pursuit spells but one word: ruin. Increasingly wild fluctuations in commodities prices rather only indicate where there's smoke, surely there's fire. Sadly, nowhere is anyone rushing to extinguish this. Instead, Ivy League geniuses are adding the most dangerous fuel of all, this taken from the lender of last resort wood pile, while equally insane Austrian fascists fantasize they could somehow survive a smoke-choked climate should their policy of pissing on the fire be allowed.

Now on to the not unrelated tulip trade whose flourishing over the interim has evolved to the present day's manifestation requiring reckless central banks, insane stewards of national treasuries, and clueless dupes who evidently wouldn't know a sound investment from a stinking cesspool. Notwithstanding demand challenged contraction of physical economic activity following the collapse of Adam Smith's Leveraged Ponzi Scheme in 2008—this formerly having provided the means of masking the physical economy's marginalization behind a ruse claiming to represent a "capitalism" success story (when in fact capitalism was nowhere in the neighborhood of what in fact was going on)—we see commodities fairly remaining still a beneficiary of the ruse everyone who is anyone has been groomed to uphold as if theirs represented the very calling of Jesus Christ himself. Again, though, buoyant commodities prices in the face of a demand-challenged backdrop (and this subsumed beneath a massive mountain of illegitimate debt) can only serve to but further marginalize the physical economy. Certainly judging by the CRB's more muted relative performance in relation to the S&P 500 (see bottom panel), trapped weak hands evidently are fully aware of the wall against which they have been backed.

There being a dearth of AAA-rated trinkets which to bid up following the collapse of Adam Smith's Leveraged Ponzi Scheme in 2008 thus leaves a constricted supply of so-called "assets" toward which credit gushing forth from lenders of last resort can be assigned. Thus does fantasy seeking a trade in carbon credits still survive, as urgently needed are widely treasured financial instruments capable of magically absorbing an ever increasing supply of credit required to forestall the trans-Atlantic banking system's collapse. Indeed, anything allowing leverage of something deriving its value by arbitrary decree will do—synthesized assets only minimally impinging upon a physical economy otherwise to be sustained in a state of relative calm amidst what is, and what must by necessity continue to be, the economy's increasing marginalization. How ever arbitrary and ultimately misguided are policies venturing to somehow revive Adam Smith's Leveraged Ponzi Scheme, so long as we can go on living in the land of make believe, where never a bad credit is to be acknowledged and, God forbid, subsequently written off, the "S" in USA must out of necessity stand for "Swindle," much as in fact ultimately has been true over the entire duration of the post-Bretton Woods era, all illusory, unsustainable, debt-fed "wealth" created over the interim aside.

Now, we cannot claim to know whether bankrupt imperial powers of the trans-Atlantic soon will succeed turning still more of the resource-rich, lesser developed regions of the world into virtual slave labor concentration camps serving to provide an increasing store of physical backing to today's still growing mountain of ultimately illegitimate financial claims on the world's material wealth. Yet if the banking system in its present, disease-wracked state is to linger on, imperial intrigues both at home and abroad in all probability will be materializing with increasing frequency over coming months and years. Not that any of it could forever forestall the banking system's collapse. Yet in what might likely be ventured—we have a couple decades now of geopolitical intrigue which to cite in support of our worst fears—a greater measure of credibility, foremost, might be assigned to those whose cause is given to exposing enterprises promoting global empire.

More immediately, though, concern over commodity supply constraints prospectively imposed by an expanding presence of commodity-based ETFs trading in today's global financial arena might be alleviated with such imperial intrigues, were these to continue with increasing frequency. Thus, too, a momentary means of absorbing ever-increasing supplies of credit needed to support the banking system might be forthcoming as a result, this without causing a wildly disruptive hyperinflationary blowout in a mad scramble for control over physical commodities supplies, this at any price, whose effect likewise would precipitate untold misery and an unprecedented explosion of social outrage.

Yet, really, could any such imperial scheme adequately compensate for those former, more seamless means employed for absorbing capital in synthesized, AAA-rated trinkets now proven no more suitable for investment than were tulip bulbs some centuries ago? I hardly think so. Indeed, were such utility in fact available leveraging financial control over commodities, then more than likely it would have been employed and milked to the fullest long before Adam Smith's Leveraged Ponzi Scheme blew up in 2008. Rather, the imperative to securitize commodities vital to the physical economy probably is better thought a transitional operation facilitating a modern means for supra-national fascists of the globalization set to further consolidate top-down control over worldly affairs, economic and otherwise. Thus might one imagine this an effective avenue lending Substance to Swindle, even to the effect of providing power to pick winners and losers in prospective, upcoming battles intending to further secure specific objectives on the road to consolidating global empire.

Let's get something straight. There is absolutely no possibility of resuscitating Adam Smith's Leveraged Ponzi Scheme. That game is finished. Since its collapse in 2008 we might better assume commitment to some larger, underlying objective is being cemented. In other words, all appearances of so-called "public servants" being committed to preventing a second Great Depression strictly are for the consumption of naive dupes. Truth of the matter is the U.S. Treasury and the Federal Reserve have been woefully trapped into serving some nefarious purpose whose consequence surely will defy their claimed, joint resolve to prevent a second Great Depression. The question of real substance per these two institutions is whether their unified opposition to the reinstatement of Glass-Steagall is an overt act of subversion? Mark these words: at some assigned future moment (and this might not be far off) both these federal institutions likely will play an instrumental role in the hyperinflationary blowout of the global economy, all things more or less remaining equal. Thus does resistance to Glass-Steagall, indeed, appear a willful commitment to fulfill an assigned, future role in not only destroying life as we know it, but assuring a living hell rises in its place. If today's leaders assigned to both the Treasury and Fed prove no less naive dupes than those who insist these institutions are serving a useful, stabilizing purpose, then exposed will be truth of the total subversion of the Ivy League and what a colossal waste of money an education there has been and probably still is.

So, then, if resuscitation of Adam Smith's Leveraged Ponzi Scheme is an impossibility, how much longer can we suppose financial claims at the very bottom of the capital structure will continue outperforming physical commodities? And if further inflation of commodities prices threatening an accelerating shutdown of the physical economy will continue being avoided like the plague, and this no matter the extent of turmoil that necessarily will have to be endured by heavily indebted commodities exporters, then what future likely lies in store for both financial claims at the very bottom of the capital structure, as well as commodities? Likewise, how might core, U.S. Treasury debt securities be supported at this late hour desperately seeking the means of remaining in limbo where both deflationary collapse and hyperinflationary blowout might be held at bay? To wit, how might further consolidation of physical and financial assets be facilitated, such that core, dollar-denominated debt securities are made relatively more secure (i.e. the most attractive leper at the party)?

For decades now the larger part of the game employed by modern finance has involved robbing Peter to pay Paul. The extent to which this act by necessity in fact has required increasingly convulsive crises is the stuff destined to make 2008 neither a beginning, nor an end, but rather a link in a chain leading to a modern era reenactment of circumstance whose conclusion stands to precipitate something like the 14th century's Black Death. No, I certainly do not delight in perceiving this threat. Yet I likewise cannot ignore it. Not one thing has been done since 2008 to ensure that, a similar crisis or, indeed, something worse could not be suffered. Not one thing. Look at the euro-tomb's periphery: nothing but a cauldron stirred with evil intent! As things stand today, this outcome is only slated to spread far and wide throughout the globe. Then what? A hyperinflationary blowout for the ages if we continue tolerating what are woefully incompetent, soulless subhumans masquerading as well-educated authorities. As much as I truly lament and fear this outlook, its odds of occurring are well better than slim to none.

Now take a quick look at the CRB's momentum oscillator in the above chart's top panel. We should be very concerned about the oscillator's diminishing trend, as well as its proximity below its 0-line. Keep an eye on this, as it certainly appears on the verge of confirming the general viewpoint I have expressed here, not to mention the profoundly bearish case I have been making for months on end. If collapse should come suddenly and spectacularly, then by all means give my best to Laz...

Word on the Street
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