Greg Weldon has long been my favorite slicer and dicer of data – his charts and insights on charts really help me keep my eyes peeled. But in order to get across to us the drastic state of the economy as we plunge headlong into 2014 – a year that we all know will be pivotal – Greg has felt it necessary to resort to a rather trenchant metaphor from the year just past. Yes, says Greg, the economy is … Breaking Bad.

But – listen up now – bad is now good. At least temporarily.

Good, because bad macroeconomic data means an ongoing (if slightly tapering) supply of monetary steroids (Greg’s term) will be forthcoming from our pushers, the central banks of the developed world.

Greg reminds us that the “Breaking Bad Era” actually got underway decades ago. He traces its history back to pre-WWII manipulation of the bullion market; to the historic post-WWII Bretton Woods agreement that gave the US currency “seigniorage,” thus setting it up to become the world’s reserve currency; and right on through to the closing of the gold window by Richard Nixon in 1971.

Since then, the US economy has been dependent on steady – and of course ever-growing – doses of monetary steroids, with only one brief drug-free stint in the Paul Volcker Rehabilitation Center in the 1980s.

And of course the Greenspan Fed did try to do the tighten-up from time to time; but each attempt brought greater pain during withdrawal … and the ever-compassionate Dr. Greenspan took pity on us and increased our monetary prescription.

Now, Greg really socks it to us (and we haven’t even gotten to those charts yet … but we will):

Who, even a short ten years ago, would have ever thought that the most popular shows on US television would be about hero-serial-killers and methamphetamine ‘cooks’?? We could extrapolate to suggest that this reflects the intensifying socio-economic impact of the secular trend related to the polarization of wealth, the expanding production-output efficiency generated by technology, the rise in the level of poverty in the US, and the increased social unrest evidenced by ever more incidents of seemingly random, premeditated violence.

The story line in the award-winning US television show Breaking Bad is ‘Milton-esque’, in that it explores the internal war between good and evil as manifest within the lead character, a high school chemistry teacher who contracts brain cancer. In need of money to pay bills that his health insurance will not cover, the teacher turns to the nefarious underworld of ‘cooking’ crystal-meth.

Greed leads to violence, which in turn leads to chaos and intensifying desperation. Ultimately, things spin out of control, as the teacher-turned-meth-cook finds it impossible to maintain a balance between family values and the ruthlessness of his business.

Therein lies the analogy, as the global situation finally reached the desperation point and threatened to spiral out of control in 2008-09 … when withdrawal from Fed monetary tightening led to organ failure in the housing market, which nearly spilled over into the banking system, [leaving] the US economy perilously close to ‘death’.

We are tempted to say that the US has been in and out of a coma ever since, in the sense that “real” reflation remains flat-lined.

You get the picture.

But now Greg wants us to dig even deeper. Yes, the Fed has “saved” the banking system – for now. And yes, the Fed has refloated the US consumer – on the bloated back of the stock market. (“Note,” says Greg, “the exceptionally ‘tight’ positive-correlation between the Fed’s Balance Sheet, the US S&P 500 stock index, and US Household Net Worth” – great chart follows.)

But in doing all this saving of the economy from itself, Greg wants to argue, the Fed has already sown the seeds of the next macro-market deflationary wave. So let’s give Greg the floor and let him paint the Big Bad Picture for 2014. And be sure to catch his special offer for Outside the Box readers, at the end.

I write this note from Vancouver where I will shortly be speaking to the local CFA organization before traveling on to Edmonton and Regina to speak for their respective CFA groups. I came in to Vancouver early yesterday so that I could finally get the opportunity to meet Frank Giustra, one of the more storied and colorful names in the natural resources field. We have many mutual friends who had been suggesting we get together. The son of an immigrant miner, he is one of those wonderful rags to riches stories that you see from time to time.

Frank hosted a small dinner at his home. Randomly, there was a natural resources conference going on in Vancouver the same day, so Frank was able to get decades-long friend Frank Holmes of US Global to come along, as well as my business partner Olivier Garret, energy maven and speculator Marin Katusa, and a few others. It was one of those special nights where the conversation flowed vibrantly from one topic to the next. Of course we talked about natural resources, but also about robotics and the still-approaching Singularity, the future of work, and the nature of progress – etc. For those who aren’t familiar with Frank, he made most of his money investing in natural resources, was also a founder of the movie production giant Lionsgate, and is a running buddy of Bill Clinton’s. So naturally the talk turned to politics and movies. (Turns out Frank just purchased half the rights to Blade Runner, which may be my pick for all-time best science fiction movie. I am ready for an updated remake!)

Vancouver is one of the most beautiful cities I get to visit. The weather has been spectacular, although I’m told it will turn cold just about as soon as I head east to Edmonton and Regina.

(Wow! I just got word that my old friend Ross Beatty is in town and would like to get together. It’s been a long time. I first met him in the ’80s when he was trying to figure out how to get a little silver out of the ground. I understand that he’s made a few billion here or there in the meantime, mining all sorts of minerals and creating lots of wealth for his investors. Ross Beatty was always and still is a winner. It will be fun to catch up.)

You have a great week and stay warm.

You’re looking for his Under Armor gear analyst,

John Mauldin, Editor
Outside the Box

[email protected]


Fourteen Macro-Market Trading Themes to Watch For During 2014

A Preview of Our Number-One Theme: The United States

The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

We recently finished our 2014 outlook piece entitled “Fourteen-For-Fourteen”, with fourteen separate macro-market ‘trading themes’, all of which offer numerous specific ways in which to participate in a broad and diversified batch of global markets. Our coverage extends from stock indexes, individual equities, ETFs and ETNS, foreign exchange, fixed-income, precious and industrial metals, energy, and agricultural commodities, sectors we discuss every day in our Weldon LIVE research publication.

I have teamed up with my golf buddy John Mauldin to offer a slice (no pun intended) of our first, and perhaps most important, macro-market trading-theme for 2014, as it relates to US Federal Reserve

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