The 'Big Reset' Is Coming: Here Is What To Do

Tyler Durden's picture

A week ago, Zero Hedge first presented the now viral presentation by Raoul Pal titled "The End Game." We dubbed the presentation scary because it was: in very frank terms it laid out the reality of the current absolutely unsustainable situation while pulling no punches. Yet some may have misread the underlying narrative: Pal did not predict armageddon. Far from it: he forecast the end of the current broken economic, monetary, and fiat system... which following its collapse will be replaced with something different, something stable. Which, incidentally, is why the presentation was called a big "reset", not the big "end." But what does that mean, and how does one protect from such an event? Luckily, we have another presentation to share with readers, this time from Eidesis Capital, given at the Grant's April 11 conference, which picks up where Pal left off. Because if the Big Reset told us what is coming, Eidesis tells us how to get from there to the other side...

First of all, what is systemic risk?

Typical Systemic Risks:

  • Wide-spread defaults, sovereign debt crises, devaluations, capital controls, bank holidays, etc.

How it usually happens:

  • No warning;
  • Emergency announcement over a weekend;
  • Drastic measures to “protect the public” against [insert suitable culprits];
  • Outcome- someone’s value gets expropriated.

Yes, it can happen here –it has in the past.

Usually, the best warning indicator of a major systemic "event" are soaring cross-asset correlations: something we are experiencing right now.

  • Crisis of 2007-2009 was a “High Correlation” disruption:
    • Multiple institutions and majority of the population were affected.
  • Reducing systemic risk called for lowering correlation, i.e. “firebreaks”, de-coupling, etc.
  • Instead, governments’actions since 2008 have been increasing correlation:
  • Fiscal Policies –sovereign debts are higher than ever and still growing fast;
    • Monetary Policies –broken price mechanism = system-wide misallocations and mispricings;
    • Too-Big-To-Fail –bigger than before the crisis;
    • Euro Zone Crisis –“solutions” keep increasing interconnectedness – a “mutual suicide” pact;
    • Financial Regulation –was supposed to reduce the risk but stalled through stiff opposition:
      • A single JP Morgan trader is reported to run $100 bln CDS book?!?!?!?!?! [ZH: now confirmed, and we all know the story since]
    • Lack of Transparency –more opacity since the crisis; mark-to-market remains suspended.

Everyone knows this but only few are willing to accept the implications; fewer still are willing to act.

What are the key systemic risks:

  • The already unfolding crises:
    • The Euro zone, Argentina.
  • Redistribution of wealth:
    • ZIRP –Taking from net savers for the benefit of net debtors.
    • Inflation targeting –Debasing debts at the expense of savers and bond holders.
    • Pending tax hikes for top earners.
  • Financial Marshall law:
    • FBAR and FATCA raise penalties and tighten reporting on all financial assets held offshore.
    • Argentina –Currency controls; “Dollar-sniffing”dogs at the airports and border crossings.
  • Governments co opt banks to police the assets within the system:
    • FATCA - all foreign financial institutions to report on all US customers or face 30% withholding.
    • Swiss banks have been firing US clients; deal on reporting is inthe works.
    • Swiss banks have agreed to report on their German and UK customers’accounts.

FINANCIAL REPRESSION IS AN ARRAY OF POLICY TOOLS THAT PRECLUDE CAPITAL FLIGHT AND ENABLE WEALTH TRANSFER FROM THE SAVERS TO THE DEBTORS

What to look for:

  • There are always losers and winners –many more losers than winners.
  • Majority has “normalcy bias” – tendency to underestimate risk of disaster.
  • Only a few heed the risks and make proper contingency arrangements.
  • Historically, financial disaster preparedness has enabled accelerated wealth creation.

Systemic Insurance is the only way to protect wealth from “High Correlation” events.

But more than anything, the one biggest giveaway is near endless complacency: the more the pros exhibit it, the closer we are:

  • Western economies have enjoyed V-shaped recoveries and domestic peace for over 65 years.
  • Mainstream investors have never experienced a “reset” or repression, financial or political.
  • Disdain for history and post-WWII Western exceptionalismunderpin collective hubris:
    • "There can be few fields of human endeavor in which history counts for so little as in the world of finance.Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of the those who do not have insight to appreciate the incredible wonders of the present.” - John K. Galbraith

Complacency is misplaced – despite apparent normality, the risks are high and growing.

One simple example of the true cost of systemic risks in vitro:

  • Analyze This: Crisis of September 2008 Without The Bailouts = ? $$,$$$,$$$,$$$,$$$

What's the big deal: they bailed us out before, they will do it again.

Wrong: "Due to massive new debts and politics governments’ capacity for future bailouts is limited."

Which means that systemic hedges should be used by everyone. At what cost though:

  • Price of Systemic Insurance = Probability of Disruption X Potential Loss Severity

As Eidesis notes: Insurance is cheap whenever consensus under?estimates the Probability of Disruption.

Or, worse, when the status quo is artificially keeping the price of systemic insurance low to prevent the general public from realizing just how precarious reality truly is. Remember:

  • "When it becomes serious, you have to lie" Jean-Claude Junker

So if we are handed cheap insurance options, where should we be looking? Long-time Zero Hedge readers likely already know the answer:

SAFE HAVEN ASSETS –KEY REQUIREMENTS

  • Ideal Attributes – Valuable, uniform, divisible, portable, storable.
  • No One’s Liability–Physical form, unlevered, non-financial custody; no reliance on capital markets.
  • Multiple Exit Strategies – Diversity of buyers; ability to exit via different currencies.
  • Geographic Diversification ? The only feasible way to manage sovereign risks.
  • Flexibility – Ownership arrangements must be actively managed to address evolving conditions

Exposure to Safe Haven assets via financial instruments IS NOT Systemic Insurance

SAFE HAVEN ASSETS –DEFENSIVE, LONG TERM STRATEGY

  • Proven Safe Havens for preserving value through the “trough” of a crisis:
  • Real Estate – “Real” but immovable; not uniform, usually owned with leverage; easily taxable.
  • Diamonds – Valuable, portable and storable but neither uniform nor divisible.
  • Art, Antiques, Collectables – Issues with subjective valuations, authenticity and provenance.

ART, ANTIQUES AND COLLECTABLES HAVE BEEN PROVEN HIGHLY EFFECTIVE IN PRESERVING VALUE OVER TIME. HOWEVER, ABILITY TO OBTAIN FAIR VALUE IN TIMES OF DISTRESS IS OFTEN LIMITED.

Which leaves...

  • Precious Metals can preserve value through a crisis AND provide liquidity during a crisis:
  • Silver–“Poor Man’s Gold” but impractical for large sums.
  • Platinum –The bullion is not as readily available as gold.
  • Palladium –Somewhat esoteric.

GOLD –Always liquid, widely available, universally accepted, deepest markets, global pricing

Gold – 2,500-year unbroken track record of liquidity and “Safe Haven” performance.

But don't take our word for it... Or that of Eidesis. How about that of... the Federal Reserve:

Here is the FRBNY explaining why people own gold:

  • “For centuries, gold had a profound impact on history, as a symbol and a storehouse of wealth accepted universally around the world.“
  • “When people are worried about political instability, war or inflation, they often put their savings into gold.”
  • “Gold functions as a medium of exchange, particularly in areas where currencies are distrusted.”

Why the US government nationalized gold:

  • The 1933 prohibition against gold ownership “prevented hoarders from profiting after Congress devalued the dollar (in terms of gold)”by 41%.

ACCORDING TO THE NY FED –GOLD IS A “PHENOMENAL ASSET” AND AN “IMPORTANT STORE OF VALUE”
GOLD NATIONALIZATION OF 1933 PRECLUDED THE SAVERS FROM PROTECTING THE VALUE OF THEIR ASSETS

What else does the Fed tell us:

THE FED –WE STORE FOR OTHERS; OUR OWN IS OUTSIDE THE BANKS!

  • “As of early 2008, the Fed’s vault contained roughly 216 million troy ounces of gold“–“about 22 percent of the world’s official monetary gold reserves.”
  • “The United States owns approximately 27 percentof the monetary gold”–“262 million troy ounces as of 2007.”
  • “A majority of [the U.S.] reserves is held <…> at Fort Knox, Kentucky, and West Point, New York. Most of the remainder is at the Denver and Philadelphia Mints and the San Francisco Assay Office.”

WATCH WHAT THEY DO; NOT WHAT THEY SAY:
THE U.S. GOVERNMENT STORES ITS GOLD WITH THE MILITARY, NOT THE BANKS.
APPROXIMATELY 49% OF ALL MONETARY GOLD IS PHYSICALLY LOCATED ON THE U.S. SOIL.

Which means that as we approach the date with the Grand Reset which Raoul Pal predicted could come as soon as the end of the year, and which Soros has as under 3 months and counting, there is only one question:

 

Do You Have Systemic Insurance?

 

Full Eidesis Presentation:

 

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RacerX's picture

As long as they're playing Marshall Mathers.

boogerbently's picture

This guy was SPAMMING his gold buying site.

putbuyer's picture

Another Soro's loving AHOLE

Harbanger's picture

Marcia, Marcia. Marcia.  Has everything to do with it.

http://www.youtube.com/watch?v=-yZHveWFvqM

dbomb12's picture

Maybe he meant US Marshal Samuel Gerard

jeff montanye's picture

i thought the same.  but it may just be intellectual prejudice.  reggie middleton is stymied by the past tenses of imperfect verbs but his financial analysis is, mostly, spot on.

Dr. Engali's picture

I had plenty of insurance until I had an unfortunate boating accident. Now it's at the bottom of a river.

Stackers's picture

Lucky bastard. Mine's out in the Gulf of Mexico somewhere.

XitSam's picture

Gee that's awful.  What river did you say that was again?

Normalcy Bias's picture

Considering the skyrocketing instances of boating accidents as mentioned on the 'Hedge, I'm thinking of buying a dredge. All I need is a rolling enrollment of 5% non-voting partners, and I'll do the work of inventorying the pm's and firearms.

Carpe Diem,

Sergei Mavrodi

Founder, 'HedgeDredge-2012

Caviar Emptor's picture

Too many people chose The Matrix. Very few want a reset that could involve reality

disabledvet's picture

The bailouts are given. THAT is reality. NOT that i am complaining about ya' all's "purity of thought" in these here parts...m'kay?! Now "here's how the deal goes down":
http://www.youtube.com/watch?v=tnepPZChA5U&feature=player_detailpage
you see...it's always been a WORD GAME people. THAT'S ALL THAT'S HAPPENED HERE FOR TWO PHUCKING YEARS RUNNING NOW!

sessinpo's picture

No, actually to many people don't even realize they are in the matrix. They don't know they have a choice, just the illusion of one such as republican versus democrat.

Freddie's picture

The stupid fux love The Matrix (TV and Hollywoods shit).  You cannot even get them to pull the plug which is the elites source of power.  I bet 80% of the people posting here still watch TV and enable the oligarches like dumb fukkking sheep/serfs.

Troy Ounce's picture

The political & bankers class need a reset also.

peekcrackers's picture

Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." Alan Greenspan

jumbo maverick's picture

Gold silver food guns good knives and if you live up north channel stuff hats. Jason Vorhees is not going to blob up from behind every tree to chop you up but when you cant regulate body temperature you will develop hypothermia and die.
Keep your core temperature stable. Go out in the middle of winter and just try to load 3 or 4 magazines. After a short time it gets awful hard. Add to that the stress of combat when all your blood leaves your extremities and goes to your brain it's almost impossible to load let alone shoot accurately.
And don't forget water. Gotta have lots of water.
Wish I could afford a monster box before the great rush.

post turtle saver's picture

Rule of Three: Three minutes air, Three hours exposure, Three days water, Three weeks food.

dbomb12's picture

Or a rainwater collecter and a homemade longbow

Seer's picture

"Three hours exposure"

Except if you fall in to a body of (cold) water...

wee-weed up's picture

@jumbo maverick

You bring up a good point I'll bet many survivalists in warmer climes may not have yet considered...

If the crash/collapse happens during winter - there will be hoards of northern folks up to no good rushing south to loot/plunder/rape and take whatever they can get, any way they can get it. This will be in addition to what they would have to deal with locally.

Harbanger's picture

The South is actually more dangerous.  I think that there's generally more rioting in the warmer climates of the US.  It's easier to live without shelter, which attracts wanderers .  The Northern climates are not as habitable, especially not in the winter.  Harvesting and prepping food for winter storage is also more common in those areas.

Seditious Blasphemer's picture

I'd just add that having some set up/system and means to securely and most importantly discreetly store and keep safe said "Systemic Insurance" is as valuable as the Systemic Insurance itself.

Bizaro World's picture

This is a great point for anyone considering storing systemic insurance themselves. Are there any security expert ZHers that have recommendations on how best to protect such insurance?

Gunga's picture

I'm pretty comfortable with my knowledge, having been to Liberia Africa, Sarajevo Yugoslavia and Kuwait/ Iraq while in the Marine Corps . John Mosby at mountainguerrilla.blogspot has a lot of good defense info and he offers classes.

Stackers's picture

I'll take a fridge full of silver over a shoe box full of gold any day. !!!!

Harbanger's picture

I hope the fridge is on the 1st floor.

Boilermaker's picture

I'm going to the store and buying some Huggies.  Because I'll be packing those suckers like crazy.

This is going to be some scary shit.

post turtle saver's picture

You may laugh but toilet paper and diapers go pretty damn fast in a panic.

 

Stock up on tobacco and whisky for trading if you truly believe things are gonna go tango upsilon. Hell, I made more headway through the sand with cartons of Marlboros than anything else.

 

I wonder how many here are stocking up on gold and have medical conditions? Or their family? How much prescription meds do you have stockpiled? Any diabetics in the house? Seriously, this stuff cracks me up. "I got gold and guns and bullets blah blah... *gack* forgot my nitro pills *THUD*"

Teabunny's picture

honestly, most American families cannot afford to stockpile meds, insurance will only cover a limited supply. so many accept this fact, and just do what they can to get their family preparred. I know, I have no thyroid. lost it to cancer right after my oldest daughter was born. She is six now. I will be one of the "thuds" you hear.

dbomb12's picture

I make sure my wife always keeps at least a 3 month supply of synthroid any longer than that we are all fucked 

Teabunny's picture

same here...the problem runs into when you are at the 2 1/2 point, and the insurance will not fill early. my prayers that your flight be not during "winter" in your medication pattern. (or mine! lol)

Teabunny's picture

did you see greece? the medication situation? they say after collapse reset takes about 8 weeks...what if collapse takes 3 months, or longer?

Teabunny's picture

I'm not pleased with that option, but thanks all the same. I figure when I get to my "safe zone"  I wait for the looting to began, the crazies will go for what they can get high on...I will clean up what i need to live....hunter gatherer rules will prevail...the cops will not work without a paycheck!

Harbanger's picture

"hunter gatherer rules will prevail..."  It's a financial collapse, not the end of civilization.  People in the boonies won't even notice. 

Seer's picture

"People in the boonies won't even notice."

I suspect that the ones you're thinking of are very few in number.

But, it WILL be the end of "civilization," as "civilization" can be best described as being city-structures, and it will be cities that puke (because cities contain no real resources, requiring importation from rural areas).

FeralSerf's picture

Costco only charges about $10 for 100 of the generic ones (levothyroxin?).  Surely you can afford a year's supply.  Walmart isn't much more.

The Navigator's picture

Think about maxi pads which also double as pressure bandages for wounds.

Uchtdorf's picture

Now that's an honest assessment, and one many of us will experience.

lailapa's picture

Global Debt Crisis - The greatest private fraud of human history.

Who are the great fraudsters who are becoming the murderers of the human kind?

How does the economy "illness" threaten Democracy and the freedom of people?

http://eamb-ydrohoos.blogspot.gr/2012/01/global-debt-crisis.html

.

World War III - The first private war in history

Those who won all battles shall lose the war.

http://eamb-ydrohoos.blogspot.gr/2012/02/world-war-iii.html

.

...They have asked for a war and they are getting the Armageddon.

DavidPierre's picture

Gold, by default, needs not do anything to become valued as everything. 

It doesn't need to produce, pay a dividend or interest.  It doesn't need to be insured or guaranteed.

It doesn't need to be recapitalized, funded or rated AAA. 

It just has to be. 

Gold has value because it is, it has value because it is MONEY.  We are going through the process of investors coming to the realization that their monies are really not money at all.  These monies are chits.  They are loans/IOU's to pay more of the same and more of the same and even more of the same.  Gold needs not promise anything. It's one and only promise is that it is pure and will hold it's value over the long term.  Isn't that what everyone wants and will want even more when they understand that the current system is fucked and the money is counterfeit?

Do you not think that investors, once they fully understand that their investments are denominated in in fake currency will want out as fast as possible? 

Do you see that governments far and wide are taking actions that can only expose their currencies as the fakes that they are? 

This is easy logic if you put your mainstream media blinders on!

world_debt_slave's picture

meh, I'm closing down my business at the end of the month, started it in 2000, fun times. Going to live in my van until it's Heaven's Gate time.

Heaven's Gate Cult Initiation Tape Part 1

http://www.youtube.com/watch?v=AqSZhwu1Rwo