Learning A Harsh Lesson

Tyler Durden's picture

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

A Moment's Notice

“In each age men of genius undertake the ascent. From below, the world follows them with their eyes. These men go up the mountain, enter the clouds, disappear, reappear, People watch them, mark them. They walk by the side of precipices. They daringly pursue their road. See them aloft, see them in the distance; they are but black specks. On they go. The road is uneven, its difficulties constant. At each step a wall, at each step a trap. As they rise the cold increases. They must make their ladder, cut the ice and walk on it, hewing the steps in haste. A storm is raging. Nevertheless they go forward in their madness. The air becomes difficult to breath. The abyss yawns below them. Some fall. Others stop and retrace their steps; there is a sad weariness. The bold ones continue. They are eyed by the eagles; the lightning plays about them: the hurricane is furious. No matter, they persevere.”
                                    -Victor Hugo
The present is a time when things are in great confusion. We are creating money from nothing and yet enjoying the fruits of their labors. The economies in Europe and in Japan and America are worsening and yet yields for their sovereign debt are barely off all-time lows. The stock markets of the world, following the 2008/2009 financial crisis, are back at new highs. All of this has taken place because the world’s central banks, acting in concert, have pumped enough small pieces of paper into the fire to keep it burning long into the night and so all of the markets on the planet have been stoked with fuel. The blaze has burned brightly and while others have enjoyed their success in equities; beginning last spring I suggested the more conservative approach of long corporate bonds where compression has been a huge winner and, according to most indexes, the strategy has outperformed the stock markets while maintaining the relative security of senior debt. So much for the arcane science of Wizardry.
“Though this be madness, yet there is method in it.”
                       -William Shakespeare, Hamlet
The manna continues to flow from heaven, the central banks’ balance sheets balloon, everything is postponed, everything is delayed, more money is tossed upon the table, the politicians in America and in Europe dither, no one wants to confront the real problems, more money is thrown about and those with intelligence wonder when it will all end. There is a sinking feeling to be found in the boardrooms of a number of large money managers that all of this central bank flotation of the world cannot go on forever without consequences.  When the fundamentals of the markets are out of line with their performance then history teaches us that at some point rational behavior will cause a correction. What concerns me the most, quite frankly, is that the plastic envelope has been stretched so thin by the outpouring of manufactured money that when the prick comes, the black swan arrives to be noticed, that the rubber band will snap with an alarming amount of elasticity.
“Logical consequences are the scarecrows of fools and the beacons of wise men.”
                      -Thomas Huxley
It was just five years ago when the world learned a rather harsh lesson. It was a lesson that cost Americans 36% of their wealth. It was a lesson that spewed what capital that was left into the bond markets and evaporated the capital available for equities. It was caused by “easy money” manufactured by the banks and it met its Waterloo when it became clear that mortgages and mortgage securitizations could not be paid. The dawning realization caused a downdraft that sunk many a ship while making fortunes for the ones hauling the right tack. Hindsight proclaimed that we should have seen it and foresight now proclaims that we shall meet our Master again soon. The difference in then and now is that the banks created the problem and this time it is the central banks that have created the problem and while some may argue that the central banks can print indefinitely, and perhaps they can, it is not without consequence when it occurs.
“Sooner or later everyone sits down to a banquet of consequences.”
                          -Robert Louis Stevenson
So the next crisis, the sovereign debt crisis, will occur when some country’s debt cannot be paid and when some funding country refuses to accept the bill for their own citizens. The yield on anyone’s debt, first dismissed by the EU as unfair and now heralded as a sign that things are improving, is little more than a charade of masks. The yields have fallen because of the free-flowing paper that must be parked somewhere. Yet whether the yield is 4.00% or 7.00% if the principal cannot be re-paid then the coupon is of little consequence. In each of the troubled nations in Europe there is grave doubt in my mind if their debts can be serviced even as they add more debt to their woodpile. You can consider Greece, Portugal, Ireland, Spain or Italy and reach the same conclusion about any of them. Most can fund for the moment because of the capital available but when the gimmickry has run its course then woe to those left holding this bag of tricks. It is a very dangerous game of musical chairs in my opinion.
The distinction, of course, is that the banks can’t print money and the central banks certainly can but the other side of this coin has not changed and that is that the debtors still must pay their bills. To date the ability of the creditors to pay has been earmarked, perhaps pockmarked, by the ECB and the EU handing out money, in one form or another, to the debtors so they can meet their obligations but as the situations in Spain and Italy deteriorate then the size of the capital that will be needed will press the ability of the financial sound nations in Europe to cope with the sheer mass of the solution that will be demanded.
The correct bet of last year was certainly on the side of the central banks but the correct bet of this year may soon turn out to be on the side of the consequences of their actions. There is no sheet of paper, no matter how thin, without two sides; no coin without a heads and a tails and no action, as Newton correctly remarked, without a reaction.
Each strategy has consequences and bad strategies may have lethal consequences. Keep playing for now but when the turn comes or the black swan lands be prepared to abandon ship upon a moment’s notice. That is my counsel.

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GetZeeGold's picture



It was a lesson that cost Americans 36% of their wealth.


A good education is expensive.

SheepDog-One's picture

And how many have actually learned any lesson? Few to none. Basically everyone I talk to today is all 'WOW you got to get into some stawks!' and all that.

krispkritter's picture

 'This will NOT look good on a resume`!'

Badabing's picture

It is said that the “money supply” should increase/decrease with the “gross domestic product” this is the so called “flexibility” needed to ward off inflation/deflation.

  Sounds good but……………what if the country supplies the world reserve currency? Then GDP doesn’t mean shit, it’s more like GWP “gross world product”.

  Our money system only works during expansion otherwise the Fucking Bankers would have to get off there ass and contribute to the GDP instead of being parasites! So the big scam is when our country is no longer expanding the FED can export the inflation to expanding countries. Better yet, the FED can exchange our world reserve currency for a small countries currency and hold them hostage by threatening to release massive amounts of the small countries local money into circulation of the small countries economy and destroying the small countries monetary system.



mayhem_korner's picture



Beat me to it, SD-1.  If learning happened, we wouldn't be where we are now.  Stawks are the pens the sheep are filing into - they will be slaughtered.

TotalCarp's picture

Thing is.. people who are pressing the "buy" button are playing the game of extend and pretend with other peoples money. so they dont care much, for them its more career risk of missing the rally. 

Retail is not in this.. they barely have cash to buy milk/eggs. 

secret_sam's picture

"Retail" is over.  In just about every way imaginable.

Panafrican Funktron Robot's picture

Mark Grant apparently hasn't learned this lesson.  Given that the next crisis will be framed/triggered in a similar fashion to the last one, ie., a "liquidity crisis", corporate debt is the absolute last place you should be right now. 

Sean7k's picture

The problem with that quote is it is ignorant of what wealth is. Real wealth cannot be lost. Americans lost equity. Why? Equity has risk- it can be devalued, especially if you control the denomination of that equity. If you control the levels of faith. 

Every writer rails about the coming destruction, but every writer has a solution and yet, the only ones that profit are the ones using your capital to buy investments to charge you fees.  Just another form of bread and circuses.

The entire system is compromised. What makes you think you can prosper in it if you don't operate it? 

Sudden Debt's picture

Well look at it at the bright side!!!



Time for the banks to loan out all that excess money they hold from the FED....

And don't worry about inflation... we've got that covered...

piceridu's picture

I think that might still be less expensive than a student loan.

SheepDog-One's picture

'Be prepared to abandon ship at a moments notice'....dream on...when this blows up there will be no getting safely away there will be no warning all will go down with it. And thats exactly the whole point of what they've done I think. Total transfer.

fonzannoon's picture

Anyone see Michael Pento on CNBS yesterday? He looked like a beaten puppy. He had been yelling he was massively in cash and some bonds for months. Yesterday he was mumbling that he was buying stawks and "don't fight the fed". He tried to say something like "but it's all going to come to an end very soon". Probably the worst advice I have ever seen given out.

Rip van Wrinkle's picture

When the last bear turns bullish..............

youngman's picture

And we will not know anything about it for a couple of days I suspect......it will be hidden as long as they can hide it...but with the internet...we will see strange things happening...if Goldman loses 100 bilion in some derivitives....do you think they will file an SEC report right away...or will they call Bernanke and a few politicians first...

Sequitur's picture

"No one has been held accountable."

- John Corzine

jjsilver's picture

The problem is every market is rigged by fed. Everything is manipulated including your mind!

It's one giant psyop

SheepDog-One's picture

Gotta keep the pensioners and 401K bathrobe brigades placated until the day that giant slaughter happens.

jjsilver's picture

The Matrix is everywhere.  It is the world that has been pulled over your
eyes to blind you from the truth, WHAT TRUTH? That you are a slave.  Like everyone else,
you were born into bondage, born into a prison that you cannot smell or taste or touch. 
A prison for your mind. Morpheus


most of these people are not ready to be unplugged, and many of them are so inert, so hoplessly dependent on the system, that they will fight to protect it. ~ Morpheus

Winston of Oceania's picture

The banksters only get part of it, the rest will be nationalized to combine the 401K, Roth IRA and union retirements into one federal pension to replace SS and the Gub'ment obligation to it's union members.  

LawsofPhysics's picture

What a load of garbarge.  So long as The Federal Reserve and the families behind it exsist rational behavior in these "markets" will never return.

I remain long black markets, any physical assets (especially revenue-bearing) that can't be devalued by paper-pushers, and the tribe and means to protect it all.

q99x2's picture

Got my helium tank ready. No I'm not going to use it to laugh through the collapse it is for my balloon out of here.

Water Is Wet's picture

"When the fundamentals of the markets are out of line with their performance then history teaches us that at some point rational behavior will cause a correction."

How about a paradigm shift?  Since Barack Obama now has a mandate from the free shit army, the markets will be absolutely manipulated and controlled for the next 4 years.  All of you people claiming something like "just wait til the reset" or "this will end badly" will still be saying that crap 4 years from now.  This is top-down totalitarianism for the next 4 years.

NoDebt's picture

At least that long.

The honest truth, ladies and gents, is that central banks had no choice but to re-flate the bubble because there was NO WAY TO FIX THE REAL PROBLEM.  Fixing it in any real sense would require PAIN to somebody's powerful/connected constituency.  Not gonna happen- I show as evidence the pantomime in DC over the debt ceiling and budget.  We are UTTERLY reliant on the Fed printing money to keep this going.  And it will not stop until printing money stops working and, in fact, starts working against us.  This is how things will be until it fails.  Last stop on the bubble train- government hand-outs to everyone from individuals to huge corporations.


LawsofPhysics's picture

Right, because supply lines never break and the paper price and physical price for assets and commodities never diverges.

Good luck with that.  Folks from the former soviet union know better.  Yes, the paper world is going to look great over the never four years.

CH1's picture

at some point rational behavior will cause a correction.

Rational behavior is being outlawed as we speak.

ArkansasAngie's picture

The first thing to do is to unelect all the politicians.  Shoot the messengers already.  They are part of the problem.  They are not innocent.

Have you ever wondered why unelect isn't a word. 

Time for American to just say no.

Don't be wedged.  Don't be distracted.  Demand investigations.  Demand criminal charges.  Demand claw backs.

Tax the rich?  In their dreams.  Chapter 7 bankruptcy!  That's the only fair method of wealth transfer.

CH1's picture

No, just ditch the system and get your life back.

Don't waste your days trying to reform a system that is irredeemable.

FullFaithAndCretin's picture

The plastic envelope, the prick, the Black Swan and the rubber band: 4 metaphors in one sentence. Maybe he's going for some kind of record.

thismarketisrigged's picture

this market is hilarious. aapl, which is the biggest company in the world is down almost 12 percent, and yet the s&p is still green, and even the nasdaq is not down so much.


fuck u wall st, i hope all u bankers lose all ur money and all ask for bailouts again, but dont get them this time

Vlad Tepid's picture

Maybe my attention span is suffering...I totally missed the point or thesis of this article...

shovelhead's picture

So the next crisis, the sovereign debt crisis, will occur when some country’s debt cannot be paid and when some funding country refuses to accept the bill for their own citizens.


Not everyone can print their way into inflation like us lucky 'Muricans. Some goofs actually have to pay their debts or get the boot.

The boot being the consequence.

Or the salvation, depending on your P.O.V. but either way it's going to be painful.

It's just a matter of duration Get laid out in the second round or lose in 15 and take the battering.

venturen's picture

We are all Zimbabwe...BABY! 

thismarketisrigged's picture

the thing that irks me most about this rally is that u have fuckers like on cnbc, bloomberg, etc talking about how this is because the economy is recovering.


why cant they at least admit the truth that there is only one reason why this is happening, and it is because of central banks pumping money

shovelhead's picture

If you want honesty...

Get mugged.

The mugger doesn't care how angry you get after he leaves you penniless.

Son of Loki's picture

0.01% on savings accounts... while crooks are handed record high bonuses...illegitmate money floods into the system....authorities look the other way.


Strange times.



Wave-Tech's picture

Considering the widespread collective failure and insolvency of the financial markets and global monetary systems in 2008/2009, you tell me if the Dow/S&P are fundamentally worthy of revisiting their respective bubble-laden historic highs from which they previously crashed with good cause.

Don’t be fooled Again

SmoothCoolSmoke's picture

I like Mr. Grant.  But his missives remind me of the of the kooky preacher on the street corner saying "the end is nigh!".  If the preacher lives long enough he will surely be right.   I'm sure Mr. Grant will be right too.  But as to what to do in the meantime.....one might as well ask the kooky preacher on the corner. 

AnAnonymous's picture

The economies in Europe and in Japan and America are worsening and yet yields for their sovereign debt are barely off all-time lows.

Unsurprising. 'Americans' run an extortion of the weak, farming of the poor business. And they set the rules.

A guy is indebted. This guy has wealth.

Another guy is indebted. This guy lives a ponzi life, going deeper into debt to pay for volatile life style.

With the first guy, you can be lenient considered he might be able to pay back his debt. And with the second guy, uncompromising, as you understand letting him continue his little scheme will only mean an even debt load never to be repaid.

That is an option.

Another option is that you observe that the first guy has wealth and that using debt as an extortion tool, you might as well extort all of his wealth. Cruelty.

And be absolutely lenient with the second guy as he has nothing to repo.

'Americans' chose the second solution.

In the past, they've been using debt as an instrument to squeeze countries around. Those countries had wealth and debt was a perfect opportunity to rob them blind.

And 'americans' who have been living off ponzis, will now ease every standard of debt repoing for themselves.

Remember, that is the use of debt to GDP ratio.

A guy with a GDP of ten dollars and a debt of ten dollars is in the same situation as a guy with a GDP of ten trillions dollars and a debt of ten trillions dollars.

'American' economics and all.

madcows's picture

I don't know about people's ability to learn.  We get smashed over the head repeatedly and nothing changes.

We are here b/c TPTB want us here.  You are powerless b/c you don't control the money supply and responsible behaviour has been destroyed.... and nothing is going to change.  Prepare, the end is Nigh!