Backed Into A Corner Of Our Own Making

Tyler Durden's picture




 

Via Mark J. Grant, author of Out of the Box,

It is neither pessimism nor optimism but a squaring up with the facts and, when done, it is the inescapable conclusion that we have backed ourselves into a corner of our own making and that to escape this dark and dangerous place will be a painful experience. The scheme rests upon various feet; Central Banks acting in collusion to lower yields and provide capital as an off-set to the government in America and the governments on the Continent who cannot bear, for political reasons, to do what should be done and that is to cut expenditures.

The United States and the European Union are spending far too much money on anything/everything which cannot be afforded by their economies and so the Central Banks print more and more and more money to accommodate their Masters. Inflation, the conclusion that would be expected in normal times, is not present because all of these Central Banks are operating in unison and so, with nowhere to invest money off-world, we are restrained by the boundaries of the planet and what is available to absorb the slosh of capital that has been created. With the Central Banks buying up around eighty percent of any new supply; what is left for the poor beggars defined as private investors and so the money is put to use, equities head higher, absolute yields fall, compression continues unabated in Fixed Income, Real Estate increases in price and it soon become obvious that it is not this sector or that sector but the entire planet that has been filled with a gigantic amount of hot air and newly minted little pieces of paper and that a bubble has been created which is not only world-wide and systemic but it is the likes of one we have never seen which is why it has gone rather unnoticed. It is rather like lying in the poppy fields of Oz on some warm afternoon in May and forgetting that the wicked witch still lurks in her castle and watch out for Toto because she means to get you both!
 
The worry then is how does it all end, what do you do in the meantime and how and what do you do when the bubble is pricked. The Central Banks will try to manage it but they will fail as the demon is now far larger than either spun rhetoric or their ability to contain the monster that they have created. The politicians, on both Continents, have fed the incubus by offering sustenance to the people that elect them far past what their pocketbooks can afford and so Uncle Ben and Super Mario turn on their magic machines which mystically morphs paper into a special affair that can be used to buy goods and services with all of it backed by nothing more than promises to pay and “full faith and credit” and other lofty sounding words that mask the fact that no government could afford to pay except in this “pay in kind” fashion and so the presses print, old debt is paid off with new debt, the size of the debt is hidden in musty drawers, most isn’t counted and six and twenty blackbirds have baked a meringue pie.
 
A meringue is really nothing but foam. And what is foam after all, but a big collection of bubbles? And what's a bubble? It's basically a very flimsy little latticework of proteins draped with water. We add sugar to this structure, which strengthens it; but things can, and will, go wrong. Perhaps very wrong.
 
So there is the definition of the problem. There is the crystallization of the dilemma. The entire world’s financial system encased in a bubble and nowhere to go, nowhere to hide and nowhere to be safe. Many argue for the value of gold when the prick comes but gold is just a currency replacement and while it will rally in response or perhaps rally with inflation if it comes it begs the question of valuation as it has no absolute value as defined by me before and so relative value without the payment of income is a major cause of concern.

Consequently unless the world’s financial system implodes, a thought expressed by some, gold may be a choice but not the best of choices.
 
Since off-world investments are not possible then we are bound by the choices that are available. This brings us around to TIPS or corporate bonds tied to inflation, staying very short in maturities, floating rate notes that rise with interest rates or any other types of investments that float off of CMT (Constant Maturity Treasuries) or any other asset class that will rise in yield and price as valuation decreases and as the effects of the slosh of money wears thin. Bonds such as step-ups may have additional worth now as a partial hedge and fortunes, once again, will be made and lost making the right bet. The big Kahuna will be the question of timing because we play the Great Game to win and not to be right. Preparation is the key now because history teaches us that small bubbles, much less our humongous one, will not last as political and economic forces unite to prick that which is so over-valued in one manner or another.
 
When the economies of Spain, Greece, Italy, Ireland, Portugal and France are in decline and yet their sovereign yields fall as supported by a conditional promise from the ECB then trouble is in the making. When America spends money like it is without end because the Fed hands out the byproducts of the forest as if it was an unlimited supply then the valuation of paper overtakes the use to which it is put. We are sitting with our little round plastic toys and blowing bubbles into the sky and when the turn comes, when the bubble is pricked, scant few will be able to run fast enough or get through the door quickly enough when the madding crowd is rushing in a collective push to get out of the burning theatre. It may not be today and it may not be tomorrow but soon enough and hence my caution before the storm.

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Sun, 01/20/2013 - 03:24 | 3170256 AgentScruffy
AgentScruffy's picture

So where would you recommend a good bee flee to?

Sun, 01/20/2013 - 03:25 | 3170257 AgentScruffy
AgentScruffy's picture

So where would you recommend a good bee flee to?

Thu, 01/17/2013 - 12:28 | 3162560 sodbuster
sodbuster's picture

Barney Frank???

Thu, 01/17/2013 - 12:28 | 3162536 CaptainSpaulding
CaptainSpaulding's picture

Shakespeare? I thought he was quoting David Carradine from Kung fu fame

    " If you cannot be a poet, Be the poem"

                                      David Carradine

Thu, 01/17/2013 - 12:28 | 3162571 Spastica Rex
Spastica Rex's picture

Hey, thanks: Bruce Lee just rolled over in his grave again.

Thu, 01/17/2013 - 12:15 | 3162512 SmoothCoolSmoke
SmoothCoolSmoke's picture

Greece/EU has kicked the can for 3 years.  You gonna tell me the US cannot kick it 10x as long? SP is going to 1570-1600, minimum.

Thu, 01/17/2013 - 12:23 | 3162546 Arbysauce
Arbysauce's picture

I think America just needs a new start. Our culture is stale. We've become wealthy beyond what could have been imagined at the founding. Now what? Perhaps we are like the guy who makes it big and promptly jumps out a window because he realizes he has nothing left to achieve, and lacks the imagination to change his philosophy. Now America bickers and cannabilizes itself. I hope to see in my lifetime the new start, so hurry up DC and die.

Thu, 01/17/2013 - 12:27 | 3162558 Chippewa Partners
Chippewa Partners's picture

By the title of the article I thought they were talking about Manti Te'o..........

Who's on first?     The web of lies continues on all fronts............

 

Thu, 01/17/2013 - 12:39 | 3162617 NidStyles
NidStyles's picture

Our own making? I didn't realize that Bernanke and me were homies.

Thu, 01/17/2013 - 12:49 | 3162670 SpykerSpeed
SpykerSpeed's picture

I hate it when people use "we" like I have backed myself into a corner.  No.  I didn't back myself into a corner.  Those fuckwits in Washington, D.C. backed themselves into a corner.

Thu, 01/17/2013 - 13:04 | 3162710 holgerdanske
holgerdanske's picture

Gold not the best choice?
I don't know, maybe you are right, but many thousand years of localized crisis seem to point towards gold. Maybe not always at full value, it is always the last thing to be accepted before you get to food and water.
And food and water as an investment, I don't know what to say.

I think the whole system is so corrupt, so off the track and so into untested waters, I wish I could just get off the merry go around. This is not my game, and yet I don't want to loose all my assets.

What is a man to do?

Thu, 01/17/2013 - 13:08 | 3162731 H E D G E H O G
H E D G E H O G's picture

"This brings us around to TIPS or corporate bonds tied to inflation, staying very short in maturities, floating rate notes that rise with interest rates or any other types of investments that float off of CMT (Constant Maturity Treasuries) or any other asset class that will rise in yield and price as valuation decreases and as the effects of the slosh of money wears thin. Bonds such as step-ups may have additional worth now as a partial hedge and fortunes, once again, will be made and lost making the right bet. The big Kahuna will be the question of timing because we play the Great Game to win and not to be right. Preparation is the key now"

My question is HOW are your examples of "Tips, Bonds, inflation adjusted this and inflation adjusted that, going to SAVE anyone IF FIAT is worthless? So you have inflation adjusted Tips, that will only allow you to get a GAZZILLION WORTHLESS FIAT DOLLARS, INSTEAD OF A NOMINAL MILLION FOR YOUR WORTHLESS PAPER. Fuck that shit, GOLD, SILVER, Platinum and any other HARD asset is the key! just BTFD! PAPER ANYTHING IS WORTHLESS.....................

Thu, 01/17/2013 - 13:38 | 3162892 Never One Roach
Never One Roach's picture

MSM and the NAR say "everything is fine." They wouldn't lie, would they?

Thu, 01/17/2013 - 13:40 | 3162902 HurricaneSeason
HurricaneSeason's picture

The Bernank will choke.  He doesn't want a balance sheet of $10 Trillion to be called fraud and be discharged. He'll go $5 Trillion, at the most, in treasuries and mortgage backed securities. Interest rates will rise quickly along with interest payments on the national debt and a fall in housing prices. The IRS will be replaced with a national sales tax so they can collect all taxes hourly. The war on terror and foreign bases will close and the dollar will lose half it's value overnight.

Thu, 01/17/2013 - 13:47 | 3162931 SilverFish
SilverFish's picture

That's rather optimistic of you.

 

 

....... but I'd take it.

Thu, 01/17/2013 - 13:55 | 3162963 Miles Kendig
Miles Kendig's picture

Mark, since when has an academic or central bank economist been concerned with economic affordability (beyond ever higher capacity ink cartridge magazines, strike that, belt fed (pun) extraordinary and transitory bazooka's from which to launch an ever greater spray of monetary rounds to motivate the gerbervores)?

Thu, 01/17/2013 - 15:55 | 3163532 hairball48
hairball48's picture

Gold has been "real money" for 1000's of years. I don't see that changing no matter what happens. I'll take gold eagles over US TIPS any day.

Sun, 01/20/2013 - 03:20 | 3170253 AgentScruffy
AgentScruffy's picture

Plus, in a total catastrophe, one can use gold and silver to barter with.

Thu, 01/17/2013 - 16:24 | 3163633 steve from virginia
steve from virginia's picture

 

 

@ Grant sez:

 

"With the Central Banks buying up around eighty percent of any new supply ..."

 

New supply of what?

 

The thrust of this analysis is incorrect, from the wrong starting point is is impossible to come to correct conclusion or make proper policy. Central banks don't 'buy' anything. They lend, they are banks, they make loans.

 

They attempt to solve the problems associated with too much debt by adding to the amount of debt, by substituting central bank debt for private sector debt ... a fool's errand.

 

There is no money -- no 'little bits of colored paper' -- sloshing around anywhere. Nobody has any money. Everyone is broke including bankers and businessmen. Any 'surpluses' are bookkeeping artifacts ... that are borrowed. Our crisis is the consequence of devouring capital and calling the consumption 'production' ... then, believing the lie.

 

Maybe Grant is like Simon Black and hangs out in Gstaad or Monaco and is surrounded with swells with fat bankrolls but the rest of us are busted. Anyone with any cash is hanging onto it for dear life. There is nothing to 'invest' in b/c everything is a form of money-losing waste.

 

Too much easy blaming on central banks, the problem is at the end of your driveways ...

 

 

 

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