The Other Side Of The Coin

Tyler Durden's picture

From Mark Grant, author of Out Of The Box

The Other Side of the Coin
Coins have two sides. That much we know and can agree upon. Trader, portfolio manager or senior executive; I think we can all agree on this premise. Since the financial debacle of 2008/2009 we have seen one side of the coin and what it has accomplished. We have also learned something in the process I hope. The Central Banks of the world have spewed out money like a whale does water when it hits the surface. Giant amounts of cash have been deployed into the marketplaces. We are given numbers that only reflect the surface because what can be hidden from our eyes and ears is done so with regularity given the penchants of the various Central Banks and their stated and not-stated purposes.
Equities have rallied to all-time highs, sovereign debt is still just off their all-time lows and risk assets have compressed to their benchmarks in ways not dreamed about five years ago. The absence of hyper-inflation, once thought to be the consequence of this type of behavior, is nowhere to be seen and this has befuddled many economist and money manager alike.  In other words, what most people thought would happen has not happened and there is a lesson here which rests upon all of the Central Banks acting in concert.  Money is always put to use, it is never idle because it then earns nothing, but since it cannot be invested off-world it must go into the spaces that are provided and so it has. One can honestly say that the game has been rigged and this is an accurate statement but it makes no difference; this is the game that we have been given to play. Investors get to make all kinds of choices but we do not make the rules and arguing with reality may be an interesting academic exercise but it changes nothing in the end.
The sovereign debt of the United States is now around $16.5 trillion, non-financial debt just hit a record high of $13.9 trillion; then throw in municipal debt and financial debt and you end up with about $57 trillion. Then if you add in the balance sheet at the Fed you are up to about $60 trillion and with an American economy of $14.3 trillion the problem begins to emerge. The debts of the country are 4.2 times the size of our economy. The problem with debt, of course, is that interest must be paid on the principal and then the principal must be re-paid at maturity. The issue is where does this money come from as the debt balloon increases and the answer has been to print money. You see it is not just that Quantitative Easing has funded our sovereign debt it has also allowed for increased borrowing from every other sector as an off-shoot to helping to finance the government. The current psychology of the markets is that this will go on forever and without end and that the coin on the table is without a flip side but I am here to tell you; that is not the case.
While there are three types of Valuation (Absolute, Intrinsic and Relative), the marketplaces operate on Relative Valuation for the most part. There was the thought, for a time, that Gold as the alternative to currencies would sky rocket and this was part of either a hyper-inflation thesis or an Armageddon thesis. Gold did go up but not to the levels many predicted and so there has been a pause in this play. Gold rises when one of two conditions are in place and the first is inflation and the second is calamity. Neither, to date, has taken place and so the speculation, while profitable for some, has not been the panacea as thought. Yet the Relative part of the equation continues to operate and some sort of currency battles are in progress no matter what you are told. The reason for this is twofold; the recession/depression in Japan and the worsening recession in Europe as brought on by mis-management and by austerity measures in a time when there is no growth to cure the ills of fiscal decline. This will then lead to both Japan and Europe doing what they can to devalue their currencies against the Dollar as China adjusts the Yuan to keep up with the ministrations of the rest of the world. The German economy at $3.5 trillion cannot support all of Europe and as things worsen not just in Greece, Cyprus and Portugal, all manageable because of the size of their economies, but worsen in Spain, Italy and France; the real trouble will begin. Everyone has been cute and managed to play hide-and-seek up until now but the coin is ratcheting about and may soon flip. The Euro was kept high against the Dollar in an attempt to compete for the world’s reserve currency but this can no longer be afforded by Europe and soon, in my opinion, great efforts will be made by the ECB and the other central banks in Europe to devalue their currency against the American one in an attempt to upright their economies. Austerity and high taxes reduce spending and raise income in the short-run but in the longer term they both decrease gross revenues as a result of their implementation. In my view the short-run has ended its course and now the longer term effects are coming into play and this will make the recession worse than thought by almost everyone and the financial projections for the upcoming several years a prayer that was never answered.
Now in Europe a strange method of arithmetic is used. The do not count liabilities, eighty percent of the liabilities on the banks’ balance sheets are declared “risk free” and revenues are double counted by being put in various baskets and trotted out as official numbers. Long before the end though this kind of arithmetic becomes troublesome. The money is not there to pay the bills, the interest and principal must be paid by someone and contingent liabilities become current liabilities with the passage of time. Then assets that have been declared “risk free” are all of the sudden at risk and Pandora shows up with her Box. Here is another cause of the coin’s palpitations and why I think the flipside may be showing its face soon.
Political Exercise:
Jumping to conclusions, running up bills, stretching the truth, bending over backward, lying down on the job, sidestepping responsibility and pushing your luck.
Just as everything rose in tandem as all of the water came in with the tide; the reverse will take place as the tide goes out. It will be higher yields, wider spreads and an equity market that will stutter and then plunge as the reality of the numbers overtakes the official counting of the numbers. As we all await the outcome of the Italian elections I am reminded of one truth in a democratic country; the people get to vote and their collective decision cannot be ignored. This is also the way of it in the financial marketplaces. All of us get to vote and the ballot box is the placement of our money and as confidence evaporates as the result of greatly disappointing numbers the coin will shudder and flip.
Beware the Ides of March!

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francis_sawyer's picture

Coins have two sides


Heads the banksters win... Tails you lose... If it lands on its side, everybody takes a shot & the game starts again...

HowardBeale's picture

"A shot" (at a bankster) "if it lands on its side"?

How about: if it lands...

Cheesy Bastard's picture

Coins have two sides. That much we know and can agree upon.

I disagree.  The coin in one sense has 3 sides.  Heads, tails, and the rim around the outside.  Then you must answer how many sides a circle has... 

flacon's picture

Then you must answer how many sides a circle has...  


Ah. A candidate for a pH Dee. 

francis_sawyer's picture

Two ~ Inside & Outside... [It's a big club & you ain't in it]...

Bastiat's picture

If the coin lands on the edge the government takes your money and gives it to the bankster.

chubbyjjfong's picture

When the coin lands (heads, tails or rim), the government takes your money.. period.

jonjon831983's picture

It don't matter - either way they are still the same coin.

Piranhanoia's picture

Mr. Grant believes strongly in the status quo for a living.  He can not understand the circle concept because it doesn't pay.  If it doesn't pay,  the money (gambling addiction) doesn't work the same.  I like the constant love of the future "growth",  or if you will,   cancer.

Smuckers's picture

If you even agree to play flip the coin, you've already lost.

Stack your own coins.

Rocket De Stock's picture

I imagine USD will take the majority of "risk off" flows -  as sad as that is. Stocks really can't go much higher here.

_ConanTheLibertarian_'s picture

"sovereign debt is still just off their all-time lows"

Something's missing here?

RockyRacoon's picture

I hope you are right -- otherwise I'm befuddled.

Also: "Gold rises when one of two conditions are in place and the first is inflation and the second is calamity."

Uh, also when it's not manipulated to the downside to cover up the inflation and to calm the calamitous.   Who knows what the actual "price" of gold should be?  That's what happens in rigged markets.

disabledvet's picture

gold also rises in value when general prices FALL relative to it. this was why gold held such great value in the USA during the Depression...even though it was priced at or around 35 bucks an ounce. All other prices had completely collapsed. we shall see if gold prices getting wobbly here is a sign of something more fundamentally wrong with the economy at large.

GMadScientist's picture

Ask Brazil how they feel about your "there's no inflation" call.


akak's picture

I am strongly tempted to immediately dismiss anything this Grant guy has to say, if he is as dishonestly willing, or egregiously ignorant enough, to say such a things as "inflation does not exist".

Is he a liar, brainwashed, or just plain stupid?

flacon's picture

Americans are still sound asleep and still dreaming "The American Dream". Inflation is not an issue in most American's minds. Joblessness, yes. Inflation, no, not really. So if a tree falls in the forest and there is nobody to hear it, does it make a sound?


Look at your facebook page, are your friends all talking about how expensive bread is, etc? Nope. They are posting pics of cute cats and dogs, and their kids. There is no inflation in the minds of the masses. 

akak's picture

"Facebook", you say?  What pray tell is that?

As for "There is no inflation in the minds of the masses", when has there EVER been much of substance, or reality, in the mind of the masses?

StychoKiller's picture

"Extraordinary Delusions and the Madness of Crowds"

GMadScientist's picture

Consumer credit allows all kinds of people to put their head in the plastic sand and maintain denial about price inflation.

akak's picture

"the plastic sand"


TheFourthStooge-ing's picture

akak asked:

Is he a liar, brainwashed, or just plain stupid?

Why yes, I believe so.

decon's picture

I tend to agree with you.  There is significant inflation behind the monkeyed numbers from the gov. Rampant inflation is missing because most of the money they've created is tied up in bonds or in reserves with the Fed and therefore the velocity of money required for red hot inflation is not there.  Like I've said many times here, hyperinflation is different.  Inflation is a monetary/fiscal process, hyperinflation is a psychological event.  What triggers hyperinflation can come from many different sources but when loss of faith in a currency starts happening it'll be like flipping a light switch and then we'll all be fucked.  They've kicked the can farther than what I thought they could have 4 years ago but the start of the big re-set can't be that far out.

Half_A_Billion_Hollow_Points's picture

Because all federal employees are paid with fake money, inflation will start to creep in and chase goods and services.  Expect prices of the items they use, say, restaurants in DC, go start to become weird (if they haven't already started).  Then time makes sure that it spreads everywhere, then trust is gone, V doubles overnight, and the game is on.

StychoKiller's picture

EVERYONE has a vested interest(s) in the status quo; don't think so?  Try going without electricity for longer than a week, hot water, running water, etc.

lasvegaspersona's picture

this man has murdered the analogy

wwd (writing while drunk?)

my mind hurts trying to follow the prose through analogy to some logical conclusion...I can't find my way through this piece.

Joseph Jones's picture

Thanks for noting this. I agree, though I did not know what bothered me about it till I read your post.  I wonder if he writes this way just to add some sort of "mysticsm," to portray himself as a sort of Svengali.  I'm not saying he's not correct.  Conversely, though, one can hardly help but notice this entire blog is largely funded by gold coin sales (on my L and R as I type). 

I've read these same points over and over here for two years now.  Remember that addage, "even a broken clock is correct twice per day?"

As f'd up as is most of the planet, is it possible that the USA will remain a little less screwed up on average, hence remain the last bastion for investment?  IOW, what's ahead is, as some here predict, just a really, really slow decline into oblivion, the crab pot thing, slowly dying away into blackness, so slow, we won't really notice it?   





StychoKiller's picture

If you place one crab in a pot, (s)he will eventaully climb out and try to escape, but place two or more inside and the others will drag any crab try to get out back into the pot...

GMadScientist's picture

"the people get to vote and their collective decision cannot be ignored"


Vooter's picture

LOL, indeed. Anyone who still votes in this country is an asshole. If you vote, you are PART OF THE PROBLEM.

flacon's picture

Don't miss the forest for the trees. Nobody voted for Obama. Everybody voted for CHANGE, and that goes for both the "Republicans" and the "Democrats".


Just because I stopped voting (I am becoming the change I need in this world) doesn't mean that Obamabots or McCain/Rmoney bots have stopped voting. 


Maybe one day they will finally realize that CHANGE comes from within and not through voting.

StychoKiller's picture

What, NOW you expect the Ignorati to suddenly grow some spines, assume responsibility for their lives and take action(s) to better themselves?  Give me a hit of whatever it is you're smokin'! :>D

Fred Hayek's picture

Equities have not rallied to all time highs. They have been guided to all time highs by the plunge protection team which now does a hell of a lot more than just protect against plunges.

Everything is manipulated.

akak's picture

Let's also ignore the fact that the US dollar has lost at least 30% of its value since the DOW was last at 14,000 back in 2007, as the DOW is inherently defined by the (nominal) dollar value of the stocks of which it is composed, so in real terms (but who cares about that?) the DOW is nowhere near an "all-time high".  Let's also convienently ignore all the various stocks (cough, Lehman, cough cough, Bear Stearns, etc.) which were included in the DOW back in 2007 but which have since been dropped from it as they lost value or went bankrupt.  "Survivor Bias", anyone?

oddjob's picture

Shitty citi only has to get back to $550/share for paperbugz to get even.

Vooter's picture

"The absence of hyper-inflation, once thought to be the consequence of this type of behavior, is nowhere to be seen..."

Oops! LOL...

StychoKiller's picture

[quote] The absence of hyper-inflation... [/quote]

This too, shall pass!

oddjob's picture

Copper ore grades have been halved in the last 20 years.

Cloud9.5's picture

Gold is money.   Copper is an industrial metal.

MeBizarro's picture

Another crappy space-filler op-ed.  Waste of 30 seconds.

God Bless The Virtuous's picture

Hey Mark, why don't you and Tyler start a "Real Financial News Network" to replace the absolute SHIT we are forced to watch during the trading day,(thank God for the mute button)!

C.N.B.C. IS TOTAL PROGRESSIVE BULLSHIT! It is unwatchable, Ron Insana used to be a great independent minded commentator who has devolved into a Steve Liseman / Bob Pisani ass licker who bends over for the biggest scumbag since Greenspan, Benny the Bastard Bernanke.

Bloomberg, well what can I say? This garbage has gotten so putrid with Mikey's Obama God worship fetish, it too is also best watched in tiny amounts(always with the mute button on) as to not corrupt your Freedom loving mind! Hey Mike you PUTZ, why not just ban the fucking pizza? Now Bitchcunt Bloomberg has banned 2Liter soda with Pizza deliveries, W.T.F.?

And Last to Fox Business, God I want to love Liz Claman(partial to red heads with green eyes, but I digress), but she has been so "Dumbed Down" as to make the Mute button required veiweing also,Asman? Got to go buddy!

Kneale should never have been brought back from C.N.B.SHIT!

So there you go, anyone who once believed in the "Free Market System",(Which died when Hank Paulson whipped out his limp dick bazooka) and Bernanke was elevated to STUPIDSTAR status, demands their rule of law and common sense back!

What do you say guys? We need some quality again, how long do we put up with the putrid shit stain of Financial news reporting?


God save the Republic and please lord some fire and brimstone on the progressive machine of Obama / Krugman / Bloomberg and public enemy # 1 -

Benny the bitch Bernanke

StychoKiller's picture

So, don't like having to read ZeroHedge?  We're stuck where we are...

lieto's picture

TPTB strike me as being more like a juggler who keeps adding balls in the air until they all fall down.

Kirk2NCC1701's picture

They had the EXACT same behavior and tricks under the old East Bloc communism.  Their corporate and civil service leaders eventually realized that the system was broken, but no one dared to swim against the current. 

Just like in the indebted West today.  Therefore... if you depend on The System, this institutionalized behavior and nodding to official group-think is surprising HOW?