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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A Lunatic's picture

Inflation is worth far more than gold to the FED.

Teabunny's picture

Grandma once told me "you can't get blood out of a turnip". If bread becomes $10 or more per loaf, don't you think a blackmarket will develop? of course, the situation you see played out in the ghetto everyday, with drugs...will find its way into the affluent areas (well, the ones that are not burned to the ground for being too affluent. and I do mean to the ground...who is paying the fire fighters? The unions are Obama's lap dogs! tell me, does he want the "transfer of wealth"? does he want "social justice" ?) 

fourchan's picture

the fed is the creator of inflation, it is their product.

also known as devaluation.

kito's picture

from tylerss great interview with chris martenson in december 2010 on what to do when it all comes down:

 And aside from such unpleasant “survivalist” thoughts, we can only recommend, as we have been doing on Zero Hedge for nearly two years, that readers purchase as many hard assets as they can.  Anything that Ben Bernanke will dilute by printing, he will; this we are certain of. Which is why purchasing precious metals, hard assets, non-perishable supplies, arable land, and means to protect the above four, is probably the best advice we can give to anyone.......

now tyler, that sure sounds like we should be concerned about more than a simple reset :).........

XitSam's picture

You pays yer money, you takes yer choice.

"I'd like Global Economic Collapse for 600, Alex."

Teabunny's picture

"The new drug that will fuel the new protest movements, reminiscent of those in the late sixties, that causes one to pull people down and devour their faces, in a barbaric display of human cannibalism"

Teabunny's picture

"What are Bath Salts" :)

Dr. Sandi's picture

Calgon, take me away!

 

Cathartes Aura's picture

Answer:  bath salts are the latest CIA drug planted in the drug-using culture, designed to mimic the Hollywood and media "Zombie" meme, thereby ensuring that really stupid people who will use anything to stay "high" (checked out), are feared by TeeVee watchers across the nation.

see: Crack, Gary Webb re: the destabilising of whole communities, and their predators.  divide and rule.

DaveyJones's picture

thanks for digging that up. I was thinking back about it too.

One of the greatest assets will be knowlege and skills that have, except for the most recent period of history, always been necessary. Topping the list is how to grow, diversify and preserve food with nothing more than the natural elements and how to recognize and harvest wild food sources. 

surf0766's picture

I cannot see any type of reset that causes the dollar to have the reserver currency status removed and the standard of living in the U.S. drop fast in a matter of hours not causing significant problems.

 

 

 

dbomb12's picture

Better take the bag off your head

Yes_Questions's picture

 

 

exceptionalismunderpin

 

You know its been a long year today when it takes THREE tries mentally to separate this.

 

zorba THE GREEK's picture

Don't feel bad, yesterday I inadvertently threw my socks

in the toilet instead of the hamper.

Lucky Guesst's picture

Lol just don't put the baby in the dryer!

my puppy for prez's picture

Ha ha!  I thought it was one of those long German words!  See?  You're not alone...

El Oregonian's picture

The Marshall Tucker Band, maybe?

Dr. Sandi's picture

Martial Tucker Band. They come to your town and throw your ass in jail.

 

kekekekekekeke's picture

how much water should I have stock piled 

i live by myself in an apt

also what's the deal with palladium I bought when it was like $300 sold most at $720 got a couple oz don't know if I should hold onto them or not, advice

El Oregonian's picture

Spring for a high grade portable water filter system- Silver people understand- Palladium not so much. Better to hold long-term food, liquor,  canned cigs (Bugler), heat source materials. These people know about in times of crisis. Gold, yes. Silver, yes. gun powder- copper- brass- ammo definitely... Palladium... regular folk... not so much...

kekekekekekeke's picture

good advice thank you I got the water filter covered but could diversify my barter items.  I had no idea they made canned cigarettes! brilliant

kekekekekekeke's picture

I don't recall ever seeing that post but that is something I hadnt considered, nice article ty for bringing it to my attention

Dr. Engali's picture

Good article horseman. I'll have to save it to fill in some gaps.

CloseToTheEdge's picture

"Lack of money is no obstacle. Lack of an idea is an obstacle."

 

you need to get busy, yesterday!

kekekekekekeke's picture

I know! I'm getting on it! gonna make some ghee!

LeisureSmith's picture

The Shithawks will come swooping down when you least expect it. Stay frosty.

q99x2's picture

The End Again.

Here's what I think. I think the Bush's control the US military, that they were the ones behind 911, Waco, and Oklahoma City and that they would just as easily blow the faces off NWO elites as they would new born babies.

Thems some bad and deviant people.

toomanyfakeconservatives's picture

The Bushes and their henchmen will surely be at the center of the coming MASS ARRESTS... http://tinyurl.com/cd5cyjo

Caviar Emptor's picture

Fed will be offering free chicken nuggets to impoverished Americans as part of future bailouts

Teabunny's picture

sorry Moochelle recommends pink slime...those deep fried nuggets will kill you! better tails and snouts.

zorba THE GREEK's picture

Gold is golden, but silver will outshine, eventually.

When TSHTF, PMs will be monetized because they are

proven and there won't be time to come up with an

alternative substitute. I sincerely believe that the future

price of gold and silver will stun almost everyone.

jumbo maverick's picture

Northwest territorial mint has a product of small silver bars/rounds you can buy. Comes in a package looks like a rolled up sandbag. You can purchase 1/2, 1/4oz etc pieces of silver and they even say in the literature that it is for barter. Just brilliant. I did not get a chance to sit down and see if it is cost effective but whomever at that company brainstormed that product line outta get a big raise.
The steeple have no idea what is up the road.

zorba THE GREEK's picture

@ Jumbo.  90% can be bought close to spot and it is very easy to trade with.

dbomb12's picture

Then, I can pay all my debt with 1 OZ. of silver

Atomizer's picture

 

 

As the imaginary lamp post tightens the rope noose, the last visions on poorly planned objectives will run wildly through some minds. While they fight the last moments of fate, the brain neurotransmitters will still be telling the host it was not his/her fault. Priceless.  

Click Here

sbenard's picture

I also suggest owning storage of food and buying agricultural land. And don't forget the necessary seeds.

zorba THE GREEK's picture

Don't forget to include rum and lubricating gel.

Atomizer's picture

Your present DNA structure will become the only thing that saves your ass. Don't take my word for it, watch it unfold in realtime.

 

Zgangsta's picture

Who's to say that your land won't be repossessed?

Heck, they could even do that right now using Eminent domain.

devo's picture

The end is going to be a bunch of defaults and debt forgiveness. I doubt it'll be the end of the world. Just saying.

RacerX's picture

That's what it seems like to me. What's the crisis if you just don't pay it back--or pay back cents on the dollar? Every country is racing to deflate anyhow.. so it's pointless.

Chump's picture

No, it won't be the end of the world, but I would be careful about over-minimizing it.  Cascading defaults would eventually wipe out all pensions, all retirement accounts, and any new borrowing of any kind at the personal, corporate and sovereign levels for a not inconsequential length of time.  The very existence of most major currencies would be threatened, and the dollar would almost certainly lose its reserve status, which opens up a whole new host of interesting outcomes.

At the very least we would be facing a temporary but intense strain on the supply chain and in my opinion we could see a serious interruption.  A 3 day interruption is enough to spark chaos and riots.  2 weeks and major urban areas begin going feral, if not sooner.  It won't be the end of the world for humanity, but it will be for a lot of people.

And if that doesn't convince you, consider the fact that hundreds, if not thousands, of bankers would be at risk of losing their bonuses, support staff, company cars, and seaside villas.  Why, dozens of politicians may be forced to perform menial jobs in exchange for food and drink.  Do you not have a heart?  Are you an animal?

Teabunny's picture

Have you noticed the "eat the rich" sentiment brewing in the streets? hey...does anyone know anything about the rocket launchers that disappeared from Libya, that have begun to surface in Mexico? I wonder...what happened to the bulk of those? hmmmm...

toomanyfakeconservatives's picture

Hence my belief in the MASS ARRESTS and the virtual dissolution of the illegitimate, criminal federal government. You don't really believe the U.S. military can continue much longer without taking decisive action... do you?

Withdrawn Sanction's picture

The end is going to be a bunch of defaults and debt forgiveness. I doubt it'll be the end of the world.

Yes.  It will not be the end of THE world, but rather the end of THIS (financial) world.  Bad for some (those who have invited the karmic retribution...ahem, banksters),  good for many.

After all, are we not men?

LeisureSmith's picture

It seems our favourite tragicomedian from Brussels believe in this systemic insurance aswell.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/7_Nig...

The Fonz...before shark jump's picture

That was a brilliant

Thank you Zero Hedge