| January 25, 2014 | | | | | | | |  | | | | Flotsam and Jetsam | | | | | - A look at the markets over the past week… what spooked them?
- The week's top five insights from The Daily Reckoning from Bill Bonner...Dave Gonigam… Chris Mayer… and Matthew Milner...
- Plus, be sure to see Flotsam & Jetsam for a 2009 classique by Lord William Rees-Mogg on two schools of economic thought…their limitations and why deflation is inevitable
| | | | | | | | | | | | A Secret Even the NSA Doesn't Know About
We've kept it under lock and key for months, now. Finally, our publisher has decided to let the cat out of the bag, but NOT to the general public.
This secret is being revealed to our loyal readership only, and for a very short amount of time. Don't get left behind. Click here now, while you still can. | | | | | | | | | | |  Peter Coyne, checking in from "Charm City"…
The Dow took a beating at the end of this week. Yesterday it was down 318 points… after falling 176 points on Thursday. What has investors spooked? Emerging markets and currencies were sold off. Specifically, manufacturing data out of China showed a contraction in the sector for the first time in six months. If China starts to slow down… who's left? Some pundits are blaming the FOMC which meets next week. They think more tapering is on the table. Personally, we don't see how that's possible. The Fed has two jobs to do: maximize employment and keep prices stable. In Bernanke and Yellen's book one goal comes at the expense of the other. Unemployment is higher than the 6.7% reported. Yet despite QE, inflation, while pushing up financial asset prices, is low. At least according to the headlines. (In 2013 the CPI rose just 1.5%). Why slow QE now? Besides, deflation seems a likely and logical outcome. By that, we don't just mean, falling prices. As Jim Grant of Grant's Interest Rate Observer often writes -- deflation isn't too many goods chasing too few dollars. That's just progress or "everyday low prices". That's what you and I hope for. Instead, says Grant, deflation -- the kind the Fed fears -- is too few dollars chasing too much debt. Won't that have to be the case at some point? Hasn't Congress only piled the debt higher? Finding more questions than answers, we seek clarity from an old sage. Below, we've revived the classic Daily Reckoning section "Flotsam & Jetsam". This week you'll find Lord William Rees-Mogg there, writing to you on March 10, 2009 about the two schools of economic thought and each views debt. We hope you enjoy it. And, as always, there's more Daily Reckoning, below… including Bill Bonner putting in a call to the SEC… Dave Gonigam reporting on China's gold accumulation… Ray Blanco on the future of the "good" drones… and more. Regards,
Peter Coyne
for The Daily Reckoning | | | | | | | | | | | | Ex-Secret Service Agent: 'It's worse than people know...' One of Obama's former Secret Service agents recently smelled a rat. What he discovered inside our Government was so devastating he only saw one option… he quit.
What's worse – he fears what he found could affect your job… your neighborhood… and, most importantly, your family. Very soon.
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| | | | | | | | | | | This Week in the Daily Reckoning
******************************* | | |
 THE NEXT MAJOR BUSINESS TREND
1/20/14
By Matthew Milner
"We predict that the next big equity crowdfunding vertical to emerge in 2014 will revolve around the $2.5 trillion market for healthcare and "life sciences." This is a natural sector for specialization. Healthcare requires an encyclopedic understanding…"
 THE FED'S EQUATION FOR STOCK MARKET GAINS 1/23/14
By Bill Bonner
"Liquidity mainly drives asset prices, not the real economy. Asset prices do not reflect the genuine facts on the ground' for businesses or consumers. They are jimmied and jived by the authorities..."
 JOB CRISIS JOINS THE INFLATION DEBATE
1/23/14
By Chris Mayer
"Things can always change, and sometimes quickly. But if you are betting that interest rates are going to take some big jump in 2014, my guess is that you will be disappointed..."
 WHEN GOLD KNOCKS ON CHINA'S FRONT DOOR 1/22/14
By Dave Gonigam
"So we now have the Chinese media… citing a U.S. expert… making a prediction that the Chinese central bank will do its "big reveal" any day now. Stories like this don't show up in the Chinese media by chance..."
 THE $400 BILLION INDUSTRY SET FOR TAKE OFF 1/21/14
By Ray Blanco
"Once potential UAV operators know how they will be allowed to use the flying robots, I expect there will be a rush to fly them. Within a few years, there will be thousands in the air.The FAA expects 7,500 by 2018..." | | | | | | | | | | | | Government Trembles In Fear Over The "Fourth Revolution" Although you may not see it yet, a "fourth technological revolution" is at your door. At stake is your share of a rapidly growing $8.4 billion dollar industry. It's a revolution so massive, that it could: Change everything about how you shop – on both the internet and at your local mall…
Shift the global balance of power back towards the west…
Eliminate entire industries, while giving rise to a new quantity of entrepreneurs never seen before in history… And make up to $84,000 (or more) for those quick enough to see the opportunity standing before them. That's why we've posted all our research on this "Forth Revolution" to our website, which you can view 100% free of charge, right here. | | | | | | | | | | | | | | Flotsam & Jetsam ******************************* Economic Schools of Thought | | | | by Lord William Rees-Mogg | | |  There are two ways of studying economic theory... One approach is mathematical, and has been much enhanced by the computing power available to the individual economist. The other is historical and relies on the accumulated understanding of economic theory and practice. The events of 2007 and 2008 have shown the limitations of the mathematical method. The credit crunch came as a shock to the number-crunchers – it took them completely by surprise. It did not come as a shock to the economic historians, however, who happily settled down to discuss the resemblances between this credit crisis and earlier ones, going back to the South Sea Scheme in 1720 or the Wall Street panic of 1907. The economic historians know that similar events had happened before, and had also learned, often by painful experience, that such events are quite common. Neither group foresaw the actual events of August 2007, of course. But the historians were quite able to put the credit crisis in a context of other crises. Even though both groups were taken by surprise, it was the mathematicians whose previous forecasts were stood on their heads. By and large, historical economists -- who follow the example of major English economists such as Maynard Keynes or W.S. Jevons -- do not regard timing as any more predictable for economic shocks than for earthquakes. One can say that there is a build up of stress in the system which will eventually have to be released. One cannot say that the release of pressure will occur next Tuesday or next August or even next century. Some say the big earthquake will happen along the San Andreas Fault in California. It may come tomorrow; it may come before 2050; it may not happen for 500 years. We can usefully predict what and where, but we can very seldom predict when. | This makes expectation difficult to quantify, though all markets are based on expectations. | This makes expectation difficult to quantify, though all markets are based on expectations. What we do know from economic history is that there is a cycle of debt which has to be relieved. In twentieth century history the war debts of the first war played their malign part in the European depression of the 1920s and eventually in the Great Depression of the 1930s. The Austrian School of Economics, and particularly Friedrich von Hayek, developed the Debt-Deflation theory of the business cycles. Hayek indeed foresaw the risk of a deflationary crisis as early as 1927. Keynesian economics, as expounded in his General Theory (1936), were criticized at the time for an inadequate appreciation of the negative aspects of excessive debt. Bankers of the Gold Standard era attached great importance to the balance sheet rather than the profit and loss account. I get the impression nowadays that people read the current account much more carefully than they do the capital account -- partly because they think that off balance sheet financing has reduced the transparency of the balance sheet itself. As a result, government balance sheets, bank balance sheets, corporate balance sheets and personal balance sheets have all deteriorated. Finance ultimately depends on the security of capital, and weak balance sheets, at any level, are exposed to risk and to problems of opportunity cost. An old-fashioned banker would now be calling for strengthening of balance sheets at every level. But the liquidation of debt takes years to accomplish and diverts fund from current consumption. The 2007 credit crunch calls for liquidation of debt, but that is bound to have a deflationary effect. Regards, Lord William Rees-Mogg
for The Daily Reckoning
March 10, 2009 | | | | BE SURE TO ADD dr@dailyreckoning.com to your address book.
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