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Deleveraging For Dummies: Cravens Brothers' Observations And Outlook For An Uncertain Age
The Cravens' Brothers summary:
"We see:
- Slow Growth Period: Debt payments consume disproportionate amount of consumer income.
- “Accordion-Shaped Markets”: Markets that go up and down in dramatic fits and starts. Currently, markets are in a positive trend due to government stimulus. However, we still believe that stocks are in a long-term secular bear trend.
- Risk of Global Debt Reset: There is a distinct possibility that countries and banks will have to take “haircuts” on their foreign debt holdings, leading to bank failures and a second financial crisis."
Full presentation:
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Kinda the way I see it. Too much debt, deleveraging everywhere with the back drop of QE to prevent collapse.Prices for essentials going up.
Humans beware.
But no mention of the very real possibility that central banks will monetise government debt to keep interest rates low, leading to hyper-inflation....
here's my can't lose investment portfolio for a global currency crisis scenario:
[_____GOLD______________|__________________________SILVER________________________]
you forgot crude oil and agriculture. You can't eat gold.
Alagon,
You are definately from bat country !
You're right my portfolio is not nearly complicated enough. Now I'll never be a paid moneychanger^H^H^H^H^Hanalyst at Morgan Stanley.
or
[_Au_l___silver__l___guns/ammo___l____food/water___l_other_]
other=medicines, vitamins, comm(SW/HAM), power generation,
clothes, camping supplies, heat source, early warning gear, etc.
I'm suprised at the number of people that exclude tools from their SHTF list. After all, most things require repair, from time to time.
If I were to keep tools around, the gnadige frau would find uses for both them and me. I guess I could bury them in PVC like my ammo.
If you don't mind, I've made some adjustments to your otherwise survival kit:
[_Au_l___silver__l___guns/ammo___l____BEER___l_PORNCOLLECTION_SIGARETTES_COFFEE]
[____+ butter/margarine_____water_wings_____]
Don't forget toilet paper ...
*chuckling*...water wings:)
Thanx, SD.
Actually, tobacco and coffee fall under medicines as does vodka. I am deficient in the beer/porn areas though. I will contact the SEC next Tuesday for porn downloads and BATF for beer deliveries.
This is a much better diversification.
Parrot AR Drone. Control it with an iPhone or iTouch on your Wi Fi network. Remote camera, very quiet. Good for perimeter check !
http://ardrone.parrot.com/parrot-ar-drone/usa/how-does-it-work
Any clue what they mean by "alternative investments"? Or is it just code for "the other stuff we deal in"?
art, wines, stamps et al.
50% of your portfolio in art, wine & stuff! lol.
A weed plantation in your attic?
Buy shares from the local strip joint?
All potential goldmines if you ask me :)
always invest in vice son!
Love the presentation; the drawings on the napkins tell the story.
$14 trillion in debt liquidity makes this an ethereal journey.
I'd say precious metals and cash but there may be no limits to the house of cards propping - to the point of forcing investment in equities by the powers that be.
I like pea soup but not when my assets are swimming in it.
Check out the book The Back of the Napkin by Dan Roam.
I think these guys either hired Dan Roam or were influenced by him. Just a guess.
Obviously too much Glenlivet was had as he was drawing on the cocktail napkins. That "We are here" thingy needs to be moved quite a bit to the left.
Wow no "pleasure" toys or the real thing in the bunkers? No sex in the NWO?
Here's a really cool info graphic about the debt in Europe, and who's exposed as a percentage of the GDP:
http://www.washingtonpost.com/wp-srv/special/business/financial-crisis-i...
Now imagine what happens when one of those Countries starts giving out free haircuts.
Love the napkins but flash can crash
Learn how to work and survive in the Underground economy
How? Where to start?
Stocks are at their highest any day now. There will be a decline until April , then short prop up in May-June ( may be QE3 or abscence of it but good profits in Q1) . From then on, Japanese type accordean with huge ( DJIA-8000 or less ) slowdown in H2 2011. That would be a double dip. Then , whole 2012 average DJIA will be 8000 with lowest at approx 7000-7500 during 3rd dip in spring of 2012 which will coincide with 190 USD oil. And , of course, after such 2012, Democrats will lose the president, and Congress will become , slowly, a Tea Party dominated institution. No one would like to miss out the growing popularity of going against the elites of both Rep and Dem responsible for current mess.
Nevertheless, 2013 will only see partial improvement (DJIA average) 8500 with oil shooting from 150 after elections to >200. Then and there, the only USA option to firm its biggest export, IOU USDs, will be military intervention into oil producing country ( guess which) , but it will not please the Chinese anyway being too close to home and Central Asia.
So, in another war and conflict like atmosphere, stocks will start to move up, as will economy, but the populist anti elite internal politics of the USA in 2014 will have little resemblance to today.It will be much less democratic than ever as the survival of the USA will be at stake.
In 1930 ties, it was Germany vs. USSR with the USA watching and China grabbing the opportunity to get communist. After 2014, it will be the USA vs. China with others slowly getting involved in coalitions on both sides. Germany will be watching as it builds a huge economic block (already today there are 130-140 million people directly involved and dependent on German economy in East European states around it) around itself in Europe and militarizes with USA accord ( as will Japan). And there will be no one to back up the USA if something goes wrong. Most likely the USA will team with Russia and Europe and Japan and Canada and even Mexico. China will expand into Central Asia and Southwards. plus get allies whom they will bribe to love their state capitalism ( Venezuela, other Latin Americans, Africa, Belarus?). Consider Taiwan and South Corea gone within 10 -20 years from now.
May I quote you?
It is just how I honestly see it and put my own money in based on this. Looks stupid, what can I do. But kind of not very dependent on who does what when short term. As the recovery from 2009 lows to current high was not. A cooperative solution, when market acts like a single damped oscillator, absolutely predicatable exponential relaxation. Pure Sornette. Now, the decooperation phase begins - less predictable, as oscillators uncouple, but still not without logic remembering that ultimate decooperation is conflict, and ultimate conflict-war. Time scale will be extremely extended compared to Great Depression ( about 5-6 times-if the double dip occured then after 6 months, now it will take 2,5 years-March 2009- December 2011 or even later-but not later than March 2012) nor the dips will be as big, time scale extension all due to added transparency thanks to information proliferation.
"Pure Sornette," you say. Well I just happen to have Mr. Sornette right here (Sornette appears as in this famous scene from Annie Hall: http://www.youtube.com/watch?v=bBtXfBdEXEs).
I would love to see some support of your ideas. Any website I can go to or have you published something? By the way, are you familiar with John Casti's "Reality Rules"? I've read various papers of Sornette as well as his book, "Why Markets Crash".
Well, Sornette has noticed in one of his publications that after sharp drops, markets ocillate like a damped oscillator, meaning, that during this time, they are almost 100% cooperative. He also has identified herding ( cooperation) as major driving force behind the bubbles. His mathematical model for log periodic oscillations plus further orders of correction ( dicrete scale invariance) that show prominently even in daily , by minute trading, contain damped oscillators and herding, leading to DSI. But this is a very complex paper, impossible to understand details and difficult to understand the model in simple terms. But it works well for times FAR from crash, already in the plato zone (before or after).
Oscillatory Finite-Time Singularities in Finance, Population and Rupturehttp://arxiv.org/abs/cond-mat/0106047
He has not talked much about decooperation after crashes, but, he has done analysis on the aftermath of the Japanese 1990 bubble, and there You can see that bursting of the bubble involves by definition more than one dip, with intermediary peaks. We are now sitting on top of the first intermediary peak already in the plato zone, meaning DOW is unlikely to move much below the value of the first dip ( 6500) . This analysis seems very applicable to the decooperation after last global crisis as well as applied to DJIA as the index containing the most accurate world wide information because of its sheer size and information flows- everyone follows DJIA, most people own something related to DJIA or S&P.
This is the work of Sornette I refer to:
"Financial ANTI bubles:Log periodicity in Gold and Nikkei collapses
http://arxiv.org/PS_cache/cond-mat/pdf/9901/9901268v1.pdf
The time scale is one that is difficult to predict, and there I have used some idea to search for patterns that follow sharp dips in DJIA that include at first immense GLOBAL cooperation and coherence with subsequent GLOBAL decooperation. And , not in so distant past, so that environment is approximately the same. So its like pattern matching having an idea where to look.
That gives me the lead time to the next dip 2,5-3 years from March 2009 between January -March 2012 ( level 7500) , next one in September-December 2012 ( level 7000), last one in December 2013-march 2014 ( level 7000). After that stocks start to grow, implying some military action since I do not believe there are more bubbles to be blown. But who knows.
Similar thinking has been applied to price OIL, which due to the number of USD around , will go out of phase with USA demand by 180 degrees during all of these dips (meaning price of oil will be highest as stocks are at their lowest) and hence will be seen ( rightly or wrongly ) as the cause of the USA recession. Which requires action.
I have no webpage nor publish, are You joking? I just observe, read history, and try to make sense of what might happen. I have a lot to learn, and what I have written so far might be total bullshit.
But one thing I am sure of- China communists will end its capitalist boom very soon. There is an analogy in history- New economic Policies by Soviet Union which started in 1921 as the country economy was destroyed and ended straight after 1929 crisis as Stalin understood that the time for fast militarization has come as potential adversaries against the communist cause ( in that time, to install Soviet model communism in many countries) were dramatically weakened -same as today. And he was immensely succesful- after WWII, Soviet empire and communist controlled teritories had grown HUGELY. NEP run full scale in Soviet Union for about 7 years,before Party split over continuation, and Stalin(hardliners) won. Chinese has run theirs for 7*5 =35 years, so its time to end this temporary measure (1980-2015) of improving economic conditions and move back to improving ideological things and power of communists, and project it internationally.
http://en.wikipedia.org/wiki/New_Economic_Policy
China will NOT cooperate long with the rescue of the West because of its economic interests. That is not important for a communist when international policy gains are within reach. And, by cooperating, China is itself running in trouble ( inflation, income gap) that threatens the power of the Communist party itself. Never trust a communist, period, based on Western values (greed) . Does not work.
Ivars,
Thank you for this response--it looks very interesting and I will be reading the papers you cite. I hope you become a regular contributer to ZH--I find your ideas compelling. I'm always on the look out for comments that communicate an understanding of how geopolitics, finance, and mathematics come together.
ivars, thank you for sharing your insights. they're sound. doing so takes courage. i floated some thoughts in the spirit of sincerity the other day and was lambasted by a dyspeptic left fielder. fine analysis. keep posting. M
I do not live in the USA, so I do not care about leftists or whoever. May be I care of not seeing any more communists rule any country, but not much I can do there as West has offered Chinese communists a piece of cake in terms of economic but mostly so ideological superiority by arranging this terrifict debt driven crisis.
Then don't come here to the USA...we're going more and more communist every day. Our "poor" on welfare get EVERYTHING they want...cell phones included.
I fear they're (Communists) ARE winning...
At least they-communists- will be beaten in the USA, but they will make gains in the world after 20 years of beeing dismissed as a safely dead ideology and regime. Most likely place for them to resurface is still Africa which is brutal enough to carry through communist like purges of own population. With Chinas example and help. And they have resources in Africa-no communist regime can exist on its own without natural resources as means to secure technology purchases.
fascinating post! I wish you're just partly right :)
I think there will be a deflationary crash which will drive the DOW to < $3,200. Timing is the issue. This year, you may be right about DOW 8,000. One thing I know for sure is the FED and the USG will pull out all of the stops to prevent it, but I don't see how. With a debt to GDP ratio at nearly 400% I believe that a massive debt deflation is baked in the cake. Just look around at all of the world wide insolvencies in RE and government. Here in the USA CA and IL are already insolvent. The only thing that the USG and the FED have managed to do is pass the losses from the privileged banking and political classes onto tax payers. Well, IMO, there is going to be further massive resistance to this policy. As far as your statements about war, that usually happens AFTER the bear market bottom. Who knows where it will be or for what.
In your scenario, where do you see the precious metals with a deflationary DOW of 3200?
My guess is a lot lower than it is now. Our currency is backed by "The full faith and credit of the USG". Therefore, when debt is destroyed, the money supply shrinks. That means that fewer dollars buys more assets, including gold.
The FED is hopelessy caught in a deflationary trap of its own making. They will have monetized $3T by the end of QE2. That is 5% of the $60T+ in outstanding debt, which doesn't even take into account the $300T in entitlement liabilities outstanding. Then there are the derivatives... There is no way that the debt can be repaid, there simply is not enough cash flow in the economy to do it. If the FED decides to just monetize all of the shaky debt then not only will it destroy its balance sheet and become the laughing stock of the world of finance, but it will encourage anyone and everyone to issue as much bad debt as possible. I really think that is a very unlikely scenario. Afterall, even now, the FED will only buy shaky debt that is backed by the Treasury. Like I said, there will be a taxpayer revolt before Congress gets around to backing all of the shaky debt in the system. Not a likely scenario, IMHO.
I am very interested about your thoughts about precious metals when USD starts to break, since what I am thinking, OIL will shoot up because its needed, Gold is not needed, so given that X dollars has the ability to purchase or secure y things, one would prefer to have oil guaranteed, not gold. Gold is good to put Your savings into? But not so good for debts? Since there are no net savings...May be I am wrong.
Personally, I think owning some gold is a good idea...as insurance for the fall of Saigon type scenario. But I agree that oil stocks are better long-term investment because they throw off dividend income. However, I don't agree with the peak oil crowd and their massive inflation in oil theory. I think that a deflationary crash will drive down demand for commodities, including oil. I will wait until XOM is paying a 4+% dividend or CVX is paying a 5+% dividend then commit to a long-term position. IMHO, the peak oil crowd is ignoring the core of human nature that has put us on top of the animal kingdom and that is our ability to adapt to our environment. When oil last peaked, there was a waiting list to buy a Toyota Prius (or taking the bus!) and all kinds of talk about building mass transit, nuclear reactors and other substitute energy methods. If oil gets too expensive, then there are viable alternatives to it. I think that OPEC knows it, so they are reluctant to try and force the price too high.
As far as your assumption about a dollar crash, I think that the strength of the dollar is going to be the big surprise over the next couple of years. Japan's balance sheet is much worse than the USA and the EU is at least as bad as the USA in terms of leverage, plus they are a lot more shaky politically. China is run by a bunch of central planners (even more so than the USA!) so you know that the leverage they used in their banking system has been mis-allocated. I think as the credit bubble collapses, dollars will be in high demand.
Loved the wack-a-mole xD
For me the most effective and direct quote is that you can't fix debt problems with more debt. It doesn't get much simpler than that, nor deadly, and that is exactly what is being done. I believe the commonly used phrase is Game Over.
how are you investing in agriculuture/food?