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

Tyler Durden's picture

Submitted by ChrisMartenson.com

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

American investor (and longtime CM.com 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):

iTunes: Play/Download/Subscribe to the Podcast
Download/Play the Podcast (mp3)
Report a Problem Playing the Podcast

Or click here to read the full transcript.  

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
viahj's picture

free medical?  pretty sure it's not "free" but paid through taxes.

with regards to the sheeple not preparing and going on as usual up until the zero hour, most will simply lay on the ground and put paper bags over their heads.  not that it will help.

selectricity's picture

BAML MBS strategists are saying today based on cap rate spreads to Treasuries, commercial real estate is set to outperform no matter what the Fed does:

http://www.dailycollateral.com/2012/03/03/baml-cap-spreads-indicate-a-hi...

Seer's picture

"commercial real estate is set to outperform"

When can I stop laughing?

engineertheeconomy's picture

man they're really pushing the envelope on this "greater fool ' thing...

GMadScientist's picture

I'm reminded of the state of the "mall" in my town during Volcker shock. Man, that place was gonna rock. 3 out of every 4 spaces were something that was "coming soon!"

Good thing I only needed the arcade and bookstore.

Caviar Emptor's picture

Inflationista! Deflationista!

Ya no puede caminar

porque no tiene, porque le falta

marihuana pa fumar

And don't forget: It's gonna be BIflation in this country for a long time

nmewn's picture

Da chickenzzzah...are a comin hooomah...ta rooostahhh!!!

Caviar Emptor's picture

I been warning about dem chickens here for a while. My version of it: part of exporting inflation involved decades worth of placing deficit dollars in the hands of strategic trading partners around the world: petrodollars, Eurodollars, Sinodollars. Despite the fact that the cash has been "sterilized" that can all go in reverse if the stars are aligned correctly. Note this week thta Tyler reported here on ZH that China is dumping treasuries. Where do you suppose the proceeds from those sales are going? There are many risks to the strategy that was put in place once the gold window was slammed shut. The unwind will be very painful for everyone

nmewn's picture

Very much so...the offloading of the valueless for value in some cases.

I've often conducted the thought experiment...if I were wanting to hide untold amounts of debt "assets"...lol...(debt as an asset, that can always be defaulted on, has always short circuited my brain) where would I hide it from view?

Why, myself, I would hide it in closed societies of course.

Which brings up the larger point, who are the Chinese dumping it on?...this is never stated fully that I have read, the assumption is the sovereign who issued it.

It's a lot like a snake eating it's own tail or hot potato isn't it?

Caviar Emptor's picture

Xactly. The debt (and dollars backing it) are becoming a hot potato. What I'm also saying is that when the Chinese (and others) start cashing that debt, that propels inflationary forces that end up propagating throughout the world

disabledvet's picture

you mean "the chicken pot pie" is coming home to roost

earleflorida's picture

ya know,... throughout my life i've unwillingly [being an optimist that wears his heart on his sleeve?] / reluctantly have tried not to pay homage to negativity, and cynicism. Unfortunately, as the years fly by, i've gotten tired of getting beaten-over-the-head. now, noticing that when things go bad, they go down-hill really fast for a long, very long, lengthy period of time. we are at that crossroad in america,... where at anytime because of our leaders paying so much attention to geopolitical events, threaded with every imaginable diversion, we've  set ourselves-up for the perfect storm. yes,... we have taken our eye's off the ball! what happens when california gets that unthinkable earthquake that takes half the west-coast into the pacific ocean, or when and if we get long overdue droughts or floods in the countries breadbasket. please don't say these events can't happen, or some similar event takes precedent like the gulf-coast hurricanes making their way up the east coast into virginia, n.y., new england and the tornadoes that rip your electric grids to shreds. 

think it can't happen?

just a warning from an outspoken realist, now a foreboding cassandra 

jmo

Ps. our leaders have left our country broke, powerless, neglected, and most importantly vulnerable to any of the above 

Seer's picture

"reluctantly have tried not to pay homage to negativity, and cynicism"

Yeah, pay no attention to the man sneaking up behind you who is going to "off" you.  I mean, That's pretty negative! </sarc>

People need to quit putting simple qualifiers on shit.  "Positive" wouldn't exist without "Negative."  What we'll soon experience is a correction to the "Positive;" one could call this "Negative," but a correction is for a purpose: to bring things into equilibrium, and I don't think that that's a "Negative" thing.

Doña K's picture

And as all corrections overcorrect, dark times will be here. I hope that the culpirts get what they deserve for the sake of history, for future generations

VelvetHog's picture

The culprits will definitely get what they deserve, but we the unwashed will get what they deserve first.

VelvetHog's picture

Agreed.  In Amerika there are no realists.  Only pessimists and optomists.  Pessimists are Satan and Optomists are the chosen ones.  The o's and p's are equally deluded.

Party on.

monopoly's picture

No matter what any of us think or know, it is just going to continue the way it is, with a flash crash or two until after November. Too many in power know how to hold it together. Just put up with it. Trading this market is insanity. Prepare, just continue to prepare. We know it will not hold together indefinitely. But we do not know when this 3 ring circus ends. When it ends, just watch the tents come down, all at once.

DoChenRollingBearing's picture

+1

I would concur with your timing.  TPTB will do ALL in their power to maintain the status quo.  After November, whichever one wins (probably Obama...) can do whatever he wants.

I agree 100% re preparing more.

non_anon's picture

I've been waiting for this since 10/1/2008 when Hank Paulson said the end of the world was here.

kito's picture

China is not collapsing
There will absolutely be NO qe3 this year
The fun doesn't start until the u.s. faces the debt monster...Europe is just an appetizer

Caviar Emptor's picture

The US (or anyone else) will never "face their debt monster" unless forced. Ever. Like a burnt out druggie. It's the unwind of the debt arrangements throughout the world that threaten stability. And we ain't seen nothin yet as these may only just be starting to happen. But the rabbit hole is very deep 

EvlTheCat's picture

Who the hell down voted you?  I would say all three of these statements are perfectly correct.  However, we will reassess in 2013.

Mr Lennon Hendrix's picture

I didn't down vote him, but who needs QE 3 when the Fed holds ZIRP, works OT2, and swaps trillions to the ECB right when they do the LTRO.  You didn't think it ironic the FX swap is coming due right around the LTRO?

Also, anyone know if we are still doing POMO ops, because I have not heard about them in awhile.  If so, isn't POMO QE?  So if we are doing POMO, then QE is continuing?  Or are POMO ops for OT2 now? 

EvlTheCat's picture

Maybe I am wrong, but I think that was part of his point.  Never said The Bureaucracy is not goosing the system, by any means possible.  I don't even think kito thinks that.  It's all BS, Mr. Hendrix, but as far as "quantitative easing" goes by name, it won't happen until after 2012.  Don't need those pesky tea party activists to start thinking until after the election.

You are completely correct as unusual.

Mr Lennon Hendrix's picture

Why would they do it by name at all at this point if they can do it behind closed doors?

As unusual.  Is that an insult?

EvlTheCat's picture

One word: theater.  What do they care about insulting the proletariat? The Bureaucracy is fucking them in the ass every day without them understanding it!  Quantitative Easing has become a buzz word to the unwashed masses.  Try some of your other equivalent acronyms on them and they will think you are speaking Chinese.

Some of us get it.  Most don't.  I have been shoving this shit in front of as many of my family members as I can, and they still think that red or blue will save the day.  They think I am nutz.

I don't insult people, unless they deserve it.  You are fighting a just cause.  Do I think you are right all the time?  No.  But I would not insult you, because you speak the truth.

kito's picture

The virus must run its course before the host is healthy. The fever is still low grade with some chills. 104 with vomiting won't occur till it hits u.s. shores. Right now it's all NyQuil and theraflu. Only masks the symptoms. The u.s. will have no choice but to succumb......

Open a renminbi account before its too late....

gwar5's picture

A $57 chicken pot pie?

I think the money changers know full well it is all going to collapse. They are trying their hardest to make sure everything collapses at once. No safe havens allowed. When the collapse happens TPTB will be holding the hard assets from the money printing frenzy and will introduce a global currency solution.

 

DosZap's picture

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). 

 Those who think these are MISGUIDED policies, I have a newsflash for you.............by design, is far closer to the truth.

Folks need to remember this is a Global goal, not just a US goal.Where do you start tearing something down?, at its weakest points.

Seer's picture

Yes, it's been by design for a LONG time.  It's really the result of over-production, of pushing exports on everyone because your local market is over-saturated; and now, since the markets are global, it's all LOCAL, it's now no longer going to be able to be a controlled shifting around of this "problem."

JohnG's picture

 

 

OT: But....my brother's house was just demolished in a tornado.  Roof...gone.

He did remember when we were kids and my dad tossed us in a bathtub, so he's safe.  In shock, but safe.

The beer is OK though, he needs a light....

Quite a night here in GA.

EvlTheCat's picture

Take care!  Sympathies from Florida.

Yen Cross's picture

Good posts. I like smart people.

 

    Get your ass out of bed earlier. YEN

EvlTheCat's picture

Usually up by 6:30 EST, but that is when I am out in the garden.  Zerohedge has to take a back seat, for a little bit, to putting food on the table.  That, or I drank to much alcohol trying to numb my brain from reality.  In either case I am here stalking the forums reading your good works!

Yen Cross's picture

I'm Asia time. But I use Sydney time minus 5 for San Francisco. March 11 we move forward 1. In any case , I'm 2.30 west coast time. Or London time/ GMT time. Day before  London fix.

EvlTheCat's picture

:)  Ok, I am 7 minus a 12 pack of beer into my posts.  So I will assume we are speaking the same language at this point!

Eally Ucked's picture

I'm still wondering how they keep this game going, currencies compared to each other are ok so nobody will notice what is going on. All those third world countries, or maybe second world too, delivering goods to western countries producing almost nothing, except Germany, and paying with freshly printed shit, are they crazy?

TheObsoleteMan's picture

No QE3 this year? News Flash: They are doing it covertly already. Have been since last year.

kito's picture

Right, gold hits new dollar highs at 1900 because the fed is printing ( logical) but drops down to the 1600-1700 range for the past 8 months because......massive printing is still ongoing by Ben? ...not buying it....face it.....Ben has eased off the print button since the end of qe2. He's not going to risk a blow up going into elections........

eddiebe's picture

No, gold is down because it got shorted probably naked shorted by unlimited dollars produced by Ben. I guess by your handle that you listen to Nadlers Bs.? Good luck with that mindset.

PolishHammer's picture

Free pie is best pie

engineertheeconomy's picture

It's no coincidence that the oil shortage of 1971 coincided with our captors taking us off the Gold standard also in 1971.

 Has any one besides myself made the connection?

They were buying petro with Gold until the Gold ran out. Since then we have been using our military to force oil producing countries to accept our paper for their crude.

Except now the gig is up.

Get out of assets valued in dollars and get in to physical if you haven't already...

Seer's picture

Yes, there's a big correlation here.  In 1971 US oil production also peaked: maybe the ME oil producers were aware of this?  From that point on it became a matter of physical resources battling imaginary wealth.

Atomizer's picture

 

 

Central Bankers haven't won.  rather are nerved over exposure of a 1913 frail Ponzi system implemented to skim money and create new taxes by keeping the monopoly money flowing. This is not how capitalism was ever designed to work. You’ve been spun a series of stories to convince you into jumping on the Communist bandwagon. There’s Gold at the end of the rainbow is what the Media has been handing down to you.

 

I often tell Progs, if you want to know your future, just watch what unfolds in the UK during a 3-6 month time span.

 

Returning to childhood memories. Click expand tab for a non-speaking British translation.

Public Image Ltd.- The Suit

 

Seer's picture

"This is not how capitalism was ever designed to work."

So, capitalism WASN'T "designed" to operate on interest, on infinite growth?

Atomizer's picture

Study history fuckstick & present your facts before creating a debate on a given baited marxist question.

WonderDawg's picture

Fuckstick is a great word that just doesn't get enough use in our society today.

Yen Cross's picture

 Capitalism wasn't meant to be skewed. The French are about to learn this lesson. Massive GDP underpinnings. Italy looks worse on paper, but the French are the canary in the coal mine.