Erik Townsend: Expect a US Price Shock as Black Swans Come Home to Roost

Tyler Durden's picture

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Erik Townsend: Expect a US Price Shock as Black Swans Come Home to Roost

American investor (and longtime member) Erik Townsend has spent the past several years living internationally, with an eye to which countries may be good alternatives if economic crisis and/or Peak Oil start to materially impact life in the US. 

His main observation as an expat? Through its misguided policies, the US has been exporting inflation to the rest of the world, raising prices all over the globe (as an example, he cites a $57 chicken pot pie from the menu at a 'working class' restaurant in Australia). 

This inflation is affecting the rest of the world harshly, but is not yet being felt in the US due to our ability to export it as the issuer of the world's reserve currency. Our immunity will not last forever though, and when it ends, a massive upwards spike in prices is going to hit US markets.

On the Global Economy

As far as I can tell, this whole economy is being propped up by stimulus and money printing, really since 2009. And I think that what is going on is we have forgotten that we are literally changing the—I do not know if you want to call it changing the terminology or changing the paradigm—but what is going on here is, we used to use words like “solution” fairly accurately. Now as we are just creating these Band-Aid fixes to temporarily put symptoms of problems at bay.


We are calling those solutions, and we are actually behaving -- and when I say “we”, I mean collectively market participants -- are behaving now as if the ECB printing money in order to buy some more Greek bonds and put a bid under that market was a solution to the European sovereign debt crisis. And it is obviously nonsense. The ECB printing money just dilutes the value of the Euro and causes more reason in the long term for people to flee away from making investments in Euro-denominated sovereign debt. So it does not solve anything.


But we have gotten to the point where we are so overwhelmed that the market is thinking in terms of these Band-Aid patches as being actual solutions to problems. And I think as long as that is the case, we are going to continue to apply these Band-Aid patches, which are things like printing more money, until it all comes to a head. When it comes to a head and how it comes to a head, I do not think anybody is smart enough to predict accurately.


At some point, though, we are going to get to a point where we cannot handle any more printed money and I think that the black swans that have been leaving the market alone for several years are going to come in force.

 On The Market's Willfull Blindness

I do not think that we have ever seen a larger basket of major macro structural risks that everybody is aware of. It is not like nobody sees these things. But we have just somehow put them all on the back burner. Do not worry about China. Do not worry about Europe blowing up. Do not worry about Iran. Do not worry about the carry trade unwind in Japan that you have just written about recently. Do not worry about Peak Oil. Do not worry about the domino effect of China and Japan going down, taking out other economies that depend on them.


It is all fine. The LEIs are looking up. And we just seem to be in this cyclical trading mindset


that it is going to continue to last until something breaks. And I think that when something breaks, it is going to break big.

On The China Wildcard

I think China has quite a bit of pull here. In that as QE3 happens—and I am convinced it is going to happen sometime this year, I do not know when—it is going to export so much inflation to China that it is going to be almost intolerable for them.


And I think that we are forgetting that if China says, “Okay, guys, we have had enough of this. If you do any more QE-ing we are going to dump the US Treasury bonds that we are holding and we are going to use the money to save our own economy.” If we see that kind of reaction from China, it really could put a monkey wrench into the plans of the central banks to inflate this all away.


I think that whether it is that mechanism or another one, at some point we are going to get to a hard wall here where you cannot just print money forever without the unintended consequences coming back and biting you.

Click the play button below to listen to Chris' interview with Ben Davies (runtime 51m:56s):

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tempo's picture

Caution...Germany just reported 1.7% decline in retail sales M/M!!

flacon's picture

m/m is too short a time frame, imho. There are reports out now that say silver has crashed since m/m sales are down 83% since January. We just had the second biggest sales month for US Silver eagles in January in the history of mankind, and now February is only the fourth largest sales for February, and they are saying that silver bauble has popped.... which of course is total rubbish. 


Doom and gloom...


Look at the real numbers here, you will find that although February was not nearly as "on fire" as January, just go back a few years and see just how far silver has come! 

US Mint

JPM Hater001's picture

Remember- No two data points show a trend.

3 hotties, however, is best served with a bong.

Xkwisetly Paneful's picture

Looking forward to the day when US homes are deconstructed for their underlying materials,

according to that day is coming soon.

engineertheeconomy's picture

that day has already arrived my friend

DoChenRollingBearing's picture

PERU is still rocking and rolling.  Whatever slowdowns in exports (to China, etc.) may have happened still have had no obvious signs on their economy.  I will be down there in less than two weeks and will report in.

Our bearing import company there had it best two month start ever.  Our Korean pieces for cars & trucks (as replacement parts) are selling very well.

Peruvian (at least in Lima) real estate has been in a huge bubble for years now...

Michael's picture

I'm at the top of the food chain. I'm a precision diamond insert tooling maker. Our company is going gangbusters right now. I can only attribute the increase in business to the war being hyped against Iran. If that war doesn't happen, expect a pullback.

OT, this is a neat video;

Reality Check: The Fiat Dollar is the real reason for high gas prices

Michael's picture

What Breitbart was saying is that our animal has not been completely vetted.

People really should take a closer look at the candidate and have them completely vetted before putting them in such a high position of power for our country.

Breitbart: I Have Obama College Films


Michael's picture

It's now "Sector Warfare". Private Sector vs Public Sector.

When the government employees become too hostile toward the American people, the American people will answer the government employees with 300 million personal firearms in the? hands of the American people. That's why the 2nd Amendment was put in the US Constitution.

OldPhart's picture

Got that right!  I might even start tomorrow with California "Board of Equalization" (think about that name for second).  Those fuckers owe about $45k in fuel tax refunds and they're nickle and diming me over nickles and butt-fuckin' dimes!

Support the Constitution, shoot a government worker.

withnmeans's picture

Look at what will soon be here, true as it maybe there are a lot of tax evaders all over the world. When countries get pushed to the limits, look out. I believe in paying my "fair share", if not, then we would be a 3rd world country. Lets make it "fair", I would like the option of a flat tax rate, and not have to go through this "Bullshit" every year to do my tax return. I want to pay it and be done, then I know I'm done, and our Government knows how much they have to "spend". Hell they could almost do away with 3/4 of the IRS.

Anyway, here is a short read on Spanish tax evaders. It will be coming this way next.

The trend is your friend's picture

With over 7k lines in the current tax code, it would put a lot of cpa's and tax attorney's out of business overnite if we went to a flat tax.  Your intention is good and many people agree with your thinking including myself, however the reality is it just won;t happen.

Shock and Aweful's picture

I am not sure which is more assinine....

Your stupid comment about shooting a government worker - As if some average government worker has anything to do with the state of the economy...or that you are getting nickel'd and dimed" .

Or...the fact that you would post something so openly threatening and inciting of violence on a webpage.

(HEY...Wait a goddamn minute here...all this bitching you are doing about the "gubmint' not paying you....does this mean YOU are getting paid by the government...waiting to get your hands on some of that government money...aye?) Are you another one of those  "I hate the gov't....cuz I don't get enough from it" hypocrites?  ... hahahaha

If you really feel that way and want to resort ti MAY want to consider keeping that shit that to yourself. 



OldPhart's picture

Actually, those are prepaid taxes.  We paid them upfront and are trying to get refunds back for non-highway use.  The State of California is supposed to use those taxes specifically for building and maintaining the highways.  They have rolled in into the general fund and roads have decayed.  It's another theft of public funds.


Hey Assholes's picture

I prefer the "productive sector" verses the "parasite sector".

Murray Rothbard RIP.

Diogenes's picture

When has the government backed down from people with guns? Answer: Never.

When has the government backed down from people with votes? Answer: All the time.

Bring back democracy and the government will bow down to 10,000 men, or 1000 women, properly organized.

vato poco's picture

"Never backed down from people with guns"? Really? Well, let's see.....libya, egypt, tunisia, romania, china in 1949, russia in 1917......

"Always backed down from people with votes"? Really? Well, let's see....syria, iran last year, china in 1989, venezueala, nicaragua, russia every year from 1917-1993 except once, I see where putin just got "re-elected" again.....

A most foolish comment.

chubbar's picture

Another OT, Susan Lindauer, second american person indicted with the Patriot Act who was under indictment for 5 years without trial because as a CIA asset she tried to contact two senators (Sen. McCain and Lott) to give them information that 9/11 was an inside job. She finally gets to speak out about her information on this tape.

TrulyStupid's picture

The fact is that Breitbart revealed himself to be another attack loonie whose credibility became so impaired due to his own ethical deficiencies that he was virtually unemployable. Trying to resurect the glory days of his inluence (and income) by regurgitating "the Obama is the Other"  was a futile last stab at right wing glory.

Bush was never properly vetted and the thrust of all the right wing hacks is to this day is to keep his history of substance abuse, his ties to Saudi Arabia and Bin Laden, and his general unsuitability well buried.

kaiserhoff's picture

Freedom is always on topic.

pslater's picture

Michael, that was an awesome video on the fiat dollar vs. oil prices.  Thanks!

Harbanger's picture

$57 for an Aussie chicken? I just paid 12 bucks today for a whole rotisserie with 2 sides. It must be going towards their cameras and security personnel . I went there a few years ago hoping to find some liberty, sorry mates but the place felt like a fckng penitentiary. I expect it’s coming to the US soon.

youngman's picture used to be a Penol Colony....and it still is...

Precious's picture

The chicken is $57.  The lap dance, however, is free.

DanDaley's picture

A country's gun laws tell you a lot about the place.  The Aussies were almost entirely emasculated several years ago in this respect. When the 2nd Amendment goes, you're totally done for.

mliu_01's picture

ET is an idiot. Though he sounds like he know what he is talking about. ET is like Dillinger, both have a big mouth and tiny brain.

I have one advice for these two idiots. Next time, if you don't want be shocked by 57 bucks chicken pie. Try to pay it with the silver coins. You will be amazed how much cheap it went. fools. I know you two idiots said you can't eat gold. Sure, then go ahead shove that 57 buck chick pie down your pie hole while you still can afford it.

LikeClockwork's picture

As an inmate, I would like to know where this pot pie sells. I call BS. Some of us openly welcome the Police State and vote for the Greens.

Red Raspberry's picture

Indeed they strip the copper out of them around me.

deflator's picture

 The condominium complex that I live in was constructed primarily with cedar lumber. Cedar was abundant here in 1970. 2x4's, 2x6's and 2x10s 20' long. Just the 20' 2x10 floor joists and ceiling joists would bring nearly as much as the selling price of a building. It would cost 5 million dollars to rebuild one building which has 4 units. Each unit is selling for less than 65k.

grid-b-gone's picture

Many U.S. barns have succumbed due to the value of their wood in the growing green/repurposing trend.

Old homes that are too costly to convert to modern 'R' value insulation and electrical standards hold significant value in architectural features (especially hand-carved pieces and mantles), copper and lead pipes, cut stone, and wood.

The more central banks overprint, the more people will look for "real" value beyond gold and stocks.

I caught the PBS Amish special this week and it struck me that their lifestyle skipped the entire ramp-up since the Fed was created. Very little need for oil, no bussing, no leverage, no unemployment, no hunger, no underfunded pensions, very rare obesity, no student loans, and no wars.

Their overweighting in ag and timber land, while escaping much food and energy inflation, has helped them outperform.  

Their "think locally, act locally" approach has freed them from most of the world's major problems. No wonder some of us "English" are making more changes toward their lifestyle.

Cathartes Aura's picture

self-sufficiency, self-reliance, support of community - these will not be tolerated!!

"AMERICA, sleep well. After a year of surveillance, an undercover operation, and a pre-dawn raid by gun-toting U.S. marshals, the country is safe from an Amish farmer. Dan Allgyer’s crime? Selling unpasteurized milk to a food co-op in the Washington area.

LongBallsShortBrains's picture


Bad taste to tout your website here.

chubbar's picture

Here's a video on Warren Buffett and the circumstances that surrounded him at the time he sold his Silver.

rqb1's picture

thanks, i wanted to know what happened to warren's ag.

algol_dog's picture

The key to this saga is what is brought and up at aprox. 40:00 minutes of this video. Perfectly expressed there, is what will, and is, being done. The Fed is taking on all this debt, to be extinguished, with a key stroke on a computer - Later. Simple and easy done. That is why none of these doom and gloom scenarios postulated will never be realized. That is the beauty of the fiat system. In reality there is no difference in a nugget of gold, a piece of paper, or a LED character on a computer screen. They only symbolize that which is only emotional in character, and what the participants accept, either willingly or willfully, to represent that emotionality.


grid-b-gone's picture

I'm avoiding any asset the Fed can wipe out with a keystroke.

You can be part of the bag-holder re-set. I'll sit the bench.

If this live Keynesian experiment ends up being successful (I don't think it will) we will only get more of it.

In fact, if you are a country like Greece, and fiat is proven as a valuable tool, they will want the ability to print themselves. Why negotiate with 16 other nations if fiat is proven to be as real as its digital creation? 

algol_dog's picture

Face the reality. Modern man has, at this evolutionary juncture, all of his basic needs fulfilled and met. As long as that is continually met, neither will it matter to him, the methodology that is being used to satisfy those very needs. The herd  ("bagholders") extinct is stronger now that it ever has been. A 100 years ago none of the things we are forced fed, by the powers that be, would of been accepted, but now we accept, and for the majority, are quite grateful for it. Man on the whole is a happy jolly fat-assed couch potato and there will be few willing to get off that couch to fight the "good fight" for the right for you to hold an asset that they supposedly can't manipulate, which you and I know, they can anyway.

A line from Midnight Express comes to mind - Your a bad machine who who doesn't know he's a bad machine. It's back factory for you for re-tuning ....

Robslob's picture



IGNORE the eCONomy...the markets are the only place for $10 Trillion dollars worth of printed fiatcos to go...


The world will burn while the Elitest bastards print their wealth while destroying real people and economies worldwide in synchronicity...

lewy14's picture

Yes. But when?

Unprepared's picture

When Turkey meets Swan.

disabledvet's picture

I did see a Chevy Volt on the highway for the first time. Nice looking car actually. Of course i was still waiting for this moment:

Vampyroteuthis infernalis's picture

It is amazing how long this BS tirade has continued. The system holds together as the working classes are slowly destroyed. We are going to witness an oil shock quickly followed by devastating deflation when defaults kick in.

Mr Lennon Hendrix's picture

And the fiat currency will hyperinflate.  Value in everything except money (PMs), oil, water, and food will skyrocket as everything else plummets. 

The capstone of the Fiat Ponzi will crack and the arch of power will crumble.

disabledvet's picture

the EU is a CURRENCY union...not a "gold union." the gold standard is what cemented the English currency union and the British Pound...for over 400 years i believe. it's the only "glue" that works with these crazy for in the USA since "we all came from the same place and kept moving in the same direction" once we all went bankrupt...and we always did...and still do. there has never been a currency union of the size and complexity of the EU ever in history. Once it flies apart...and it will fly apart...all that can be said is "total mayhem." you don't want to be anywhere near that thing when "it" goes off. "credit" is an interesting subject and never delved deeply enough here. In the USA for centuries "you needed a letter of introduction" first! zero percent credit card offers would truly AMAZE them! needless to say "the concept of inflation" was simply anathema to our "forefathers" who were always speculating wildly in real estate and then demanding...but failing to get...some "holy hand grenade of a bail out". thank God times have changed!

Bringin It's picture

Halalujah!  Halalujah! Somebody give me a Halalujah! 

And so it was written ... The capstone of the Fiat Ponzi will crack and the arch of power will crumble.

Almost sounds Biblical.

Amazing how long it's gone on with one engine and a broken rudder.