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):

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DoChenRollingBearing's picture

When FRANCE goes, we all go.

+ 1

Yen Cross's picture

 Sarkozy can't stand Merkel. The German employment numbers are Bull Shit! I'm digging deep as we speak!

   The default was in need of a pro! posed backstop.  Greece is toast!

ISEEIT's picture

#1 favorite reason I love and respect what the Tyler crew does for us? Let's us have Liberty. We can say anything. We can be free on this site and not be cowed into submission. Tyler stays above the fight. He (she), HER according to my Granddaughter, doesn't get in our way. Tyler understands freedom and Liberty as it was meant to be.

Fucking real.

I'm so sick that this country has become such a cesspool of noxious human waste. So much bullshit, lies so twisted and tied into knots of hellish falseness. A Government class ( your true 1%, were you to take the time to actually consider the truth) that has achieved the dubious distinction of having an overtly criminal gang of soulless sociopaths consuming a nation of perfectly decent, but intentionally, deliberately, disabled human beings.

Blaming us for this was an idea I once entertained.

Not any more.

We have been raped.

It's all about the lies, the lies.

And in the spirit of 'bi-partisanship'.....

FUCK YOU BARACK 'SHITHEAD' oBAMA.

AND FUCK YOU 'BURN IN HELL WITH YOUR DADDY' G.W. BUSH!

I hope you lose.

Westcoastliberal's picture

You see it like I do.  We've been lied to countless times going all the way back to FDR and it's gotten progressively worse.  What we can do about it, I don't know, but I do know I'll not stand idly by much longer.

the tower's picture

What you can do is start a movement to bring production of Apple products back to the USA.

How?

Facebook/Twitter it, make the movement grow, stop buying Apple products, iTunes tracks, AppStore Apps, till Apple caves in...

Why Apple? As it's the ultimate icon of wasted American success.

It will send the strongest signal to TPTB that the American people are taking rights in their own hands.

THAT is what you can do.

Question: Why is it that Americans sit on their couches till the sky falls down?

The Alarmist's picture

But ... But ... But my iPhone would cost $65 more! I would get another month of data service for that! Keep those Chinese slaves working, dammit!

Abitdodgie's picture

I think an armed march on the white house should be organised, then they will listen .

VelvetHog's picture

After a world-class rant like that I might have you have your name tatooed on me left leg.  ...maybe not, but I really liked the part about BSo.

+1

meatball's picture

If you have a lot of money in the stock market, you have been doing very well, well enough to more than offset the inflation at the pump and the grocery stores. The problem is the poor and the middle class don't have much if anything in the market.

Calmyourself's picture

Yes you have been doing well you also have more blind courage (aka stupidity) than any thinking man ought to possess..  That sombitch is going to roll over on you one day and dive and you will not be let out of the cage.  In fact it will have slammed shut behind you that will be the almost inaudible noise you hear right before you hear yourself screaming.

Westcoastliberal's picture

But don'tcha know, NOW's a great time to purchase a NEW HOME!

(a word from the NAR)

blindman's picture

in 71 the gold standard was scrapped. the long bond and
many residential mortgages matured in 30 years, 2001.
derivatives and a housing bubble were inserted as a means
of continuing the feral reserve note fiat system of debt.
speculative leverage paper derivative nominal fantasy in
need of a main plot and function.
three high rises collapsed mysteriously in new york city, not two.
open lawless accounting and finance were embraced to sustain
the global financial system to a mind numbed global population
recently exposed to the internet. shadow systems emerged
exercising power unmatched since the splitting of the atom
or the establishment of the first empire. money as debt has
been the tool of leverage that empowers the shadow empire that
uses non-shadow sovereigns and that "legitimacy" to control
the flows of human energy from the shadows, the problem is the
people can see the difference. ( they will not denounce leverage and debt willingly,
it is their ONLY source of control/power)
the main plot. mind control, control of energy and its applications.
indenturing the many in servitude from the perspective of depression
and cowering recession.
.
cross talk... the 24 year olds making 2 million a year, knowing nothing, while the
elderly were losing their nest eggs and their capacity to read
the quarterly statements, this going uncorrected and rewarded will
only end badly and unexpectedly but for the good. many will just close
their eyes and even the loss of virtue will serve the greater good
after it has served something else for so long it is only balance that
would dictate that it must go the other way.
.
rain is still rain and roses remain roses.
tangential derivatives require a main plot and function
and there is the rub. they did not figure the durability
of the human spirit.
.
more random ... when there is union in purpose words, symbols
and expressions will not be required. just presence and breath.
those things self evident will be known, again. a new generation
realizing the self evident in a new environment, a new time,
a new paradigm, time to realize what is now self evident.

as has been said it has all been said.

SHRAGS's picture

 

I haven't listen to the interview, but from Tylers summary, $57 Pot pie in a "working man's restaurant" is not the norm.  Prices are high in Aus, but not that bad yet.  I suspect he visited the tourist & business area's, but get outside of them there is a noticeable increase in prepared food, but not that outrageous. In the regional mining area's price are high, but so are the wages - 150K for a basic job, but a room at a pub will set you back ~$280 per night.

I live in a regional area outside Sydney, on the more expensive end of the spectrum. All prices in USD at and exchange rate of 1.07 AUDUSD & include the GST (Goods and Service Tax at a rate of 10%)

Gas - I paid $1.45 per litre for premium today ($US5.54 per gallon), a big chunk of the difference is because of our excise tax.  

Electricity up 20% last year, and another 20% each year for the next two years thank to the Gillard carbon tax & forcing the utilities to use renewable (solar rebate scheme).

My local Thai restaurant has stir fried dishes of beef chicken or pork for $15.70. most dishes are between $15 and $20

Supermarket, half a celery $2.32, potato's $2.78Kg ($1.26lb), prime mince $13.07Kg ($5.94lb).

Probably higher prices than the US, but our wages are also higher, especially at the lower end. The average wage is ~65K. The main expense for most working people is the mortgage. This is where we have all ready had our inflation for 25+ years. Property is outrageous overpriced and the mortgage sucks up a significant component of peoples pay.

 

Antipodeus's picture

Pretty good summary, and your prices are generally accurate.

 

$57 Pot pie in a "working man's restaurant" (whatever that's supposed to be) is BullShit.

 

Someone above likened Oz to living in a penitentary -- w/out anything specific,  Sounds like BS as well.

 

You don't like it, don't come/stay here -- all the more room for the rest of us.


The Alarmist's picture

Must have been Daniel's in Sydney ... not exactly working class.

Tip: order the rib-eye and tell them you don't want any sauces and watch the otherwise chatty wait-staff go speechless.

q99x2's picture

Oh Boy two non-GMO thinkers. What a treat.

Atomizer's picture

 

 


Hello Seer.

Your attempts to disguise central planners bourgeoisie wet dreams where publicized before I was even born.

Socialism Explained - Abbott & Costello Explain The Stimulus Plan

Tag, your it. :P

canuck's picture

What I like about this site is that it is not exclusively a roost for europe hating yanks with a lot of understanding of markets. In fact most of us are concerned about world events and are providing each other with very keen observations about how this is all going to pan out. And very self-critical, so the focus is on the problems in America.

Why am I here then. I too think I may have observations from a very self-critical European context. I've never worked in the markets, just read about them for 30 years. Kind of an armchair economist. Probably not worth listening to, hey but left alone and respected or guided along, it all works out.

I agree that the euro is a bizarre monetary experiment never attempted and that its days are probably numbered. We may be underestimating politic will when push comes to shove, but even then, it is too complex for the average politician to understand and they are fed whatever by their advisors, each with their own interests. And those interests may be in a break up of the euro while presenting them as not being so. And that politicians are even bright enough to look into that, and to look at the commulative effect of the advice they're getting from all partners they listen to is well beyond anyones capacity. We are all locked into the big system. I think looking at it, the euro in the context of the rest of the world is about as weak an instrument as was ever considered. It adds an incredibly complex political story over monetary affairs in a monetary system that has no illusions about being tied to gold. So I think any big financial bang in the system will likely erupt here. I could go on and will do so in further posts of course.

 

 

Yen Cross's picture

I love Europeans ya Canuck! I love your "Molsen" brewing ass to. That's NOT the point.

  Your country is divided, and in Perma Frost. Europe is Cluster Fucked!   Any Questions?

  I hope I can afford to answer them, as The United States is Fucked beyond all Fiscal Recognition!

Atomizer's picture

 

 

After you collect data mining information, you change laws to create jobs and begin collecting new revenue fines. Don't just focus on the US, global plans are emerging worldwide.

http://blogs.wsj.com/law/2012/02/27/oh-canada-northern-neighbor-becoming-new-hot-spot-for-big-securities-claims/

q99x2's picture

The last line was great too. "You better hope the economy doesn't recover or we are really in trouble then."

The fact that Corzine was not prosecuted is symptomatic of the NWO that may be planning to allow Governments to redefine rules and laws to move all wealth to them during a transition to a world currency.

Holy Crapola wonder if DHS is hiring.

canuck's picture

And Merkel and many other may think that they must ensure that world inflation must be counteracted by this very weak instrument is just a political story and has the potential to turn Europe into a version or worse of America in a very short time. The story for the average joe has to be that their is willpower to save the euro. It will be difficult of course. If too many people realise the sacrifice either way, at least in the way things are going, you will get an incredible demand contraction and then things are going to get really ugly. So as much as politics is always about confidence, I wonder how long the current confidence about things like LTRO etc and all these new instruments they have that people have never imagined necessary (so is impossible for them to assess except by the illusory size of the operation) will evaporate.

 

What does this do with all the contracts written in euros? I'd like to get some insights into that from others.

bahaar's picture

So US prints with the intetion of devaluing it's currency.  Exports inflation.  China gets mad that value of its dollar reserves are plummeting.  So China dumps US treasury/ dollar to teach US a lesson.  Result?  Massive devaluation of US dollar.  Mission (United States') accomplished.

the tower's picture

Ermm... NO. The point of exporting inflation is to export it. When China dumps US treasuries/dollar, inflation hits home and the reserve currency will collapse. Result? Empty shops, poverty, hunger, homelessless... Think your average third world country...

canuck's picture

Well, Yen Cross, I've never studied financial law, so is the euro breaking up going to cost about 100 billion dollars if we even had the lawyers to arrange it? Or is the break up going to lead directly to financial armagedon? Something has to give somewhere and it's too damn complex for me to even approach let alone get to grips with.

Yen Cross's picture

Hence CAC's and 75% participation?

    A safe estimate is 7-9 Trillion Euros, based on " Lack of mark to market " costs,. Hedge funds are drooling!

Clowns on Acid's picture

Canuck...figure it out...financial law? Geta grip dude...there is no law right now!!

Criminals are printing helter skelter, Jon Corzine is strealing a billion. The Fed is prointing to bail out the well heeled leveragers of paper money that were caught way too feckin' long...

It's not complex...  once there is no law....

Yen Cross's picture

Who is John Corzine? Oh that MF Global ass hat that is living in the Amazon.

Bartanist's picture

As long as money continues to leave the US and is accepted globally there will not be an excess of money here at home to cause hyper-inflation. Trouble comes when the US dollar becomes a second rate currency overseas or money starts making its way back to the US.

canuck's picture

So I've thought for months that what will happen is a version of the euro break up. The Germans are principled enough to leave, arrange it with maximum efficiency under the impossible circumstances and leave the rest scratching their heads with how to support the euro from there. Which leaves us here in the Netherlands very very confused (underneath the political rhetoric then). For us to arrange to join Germany directly is once again a complex problem involving sovereignty and solutions going forward.

Yen Cross's picture

The Germans are in a catch "22".  Are you dyslexic? Short the Euro and hand out life preservers on the Titanic!

  If the PiGGs default all at once the Deutchmark would go Ape Shit , Japan style. A 100k 3 series BMW? Ya right!

Clowns on Acid's picture

No shiite Dick Tracy. I mean its n0ot obvious to anyone who has studied Economics 1 feckin' 01?

"Money is a commodity used as a medium of exchange.

Like all commodities, it has an existing stock, it faces demands by people to buy and hold it. Like all commodities, its “price” in terms of other goods is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. People “buy” money by selling their goods and services for it, just as they “sell” money when they buy goods and services.

Money is not an abstract unit of account. It is not a useless token only good for exchanging. It is not a “claim on society”. It is not a guarantee of a fixed price level. It is simply a commodity."

So...if the Fed, for dfeckin example, creates more paper money...what the feck do yopu think is going to happen? 

Yaysu feckin christie....

Beranke, Greenspan, Giethner...must be held accountable...

Yen Cross's picture

No Merve the Swerve, or Colony speak? Personally I think the BoE is ahead of the curve, and am buying the DEEP dips. The mainland has screwed the Pound, and I'm glad they kept it Sovereign.

TheObsoleteMan's picture

Kito; What makes you think Election years matter anymore? Sure, they still do in some particulars, but by and large they mean little, other than to distract the fools who still think they matter. You speak as if Ben can prevent a blow up whenever he wants. This is no longer the case. All he can do is manage the decline. He is like a pilot who is pulling back on the yoke with all of his might as the aircraft goes into a inverted roll. Sure, it buys a little time, but the end result will still be VERY bad.

Below Zero's picture

A man tried to sell me a cow pie for $10 once but it did not have any pot in it. I was able to restrain myself and say no deal. I wonder how many chicken pot pies were actually sold at that price if any and to what idiots? I would like their names so I can sell them some MBS at face value. Only a fool would believe this tale of pot pies. There appears to be plenty of them here, buying into this story.

Cathartes Aura's picture

cow pies have more affinity to mushrooms, than pot.

just sayin'

canuck's picture

I am well aware, if you look at derivatives for instance, that any semblance of law or necessary and minimal transparency in the system is non-existent. Only to the degree the great unwashed still believe we have people to figure it out and all will be well, impossibly difficult, but well.

Yen Cross's picture

Derivitives? You are Loonie!   We are talking tangible GDP! Those pine cones are scuffing your lips!

canuck's picture

And to expect real financial solutions (other than together trying to hold back either inflationary or deflationary madness breaking out tomorrow) coming by way of the dollar is also illusory. So the madness of the inevitable crisis will break out here first and have Americans left with a wry grin that they don't have it as bad. I am not one to put much faith on some Master Plan involving Global Government even existing or being even remotely sustainable. You will never ever have a world currency. Ever. So that these currencies will remain in existence, and all of our banks levered up with each others garbage, stock ownership dispersed worldwide, no capital controls, yes it is all a matter of time before the crisis comes. As an individual you can buy as much gold as you want and become rich in the new world and protect yourself with guns. However, I am more interested to see what will happen in the time we have left before that kind of an outcome. We can all decide to take a last trip somewhere and do a heroin overdose if that reality hits. I don't know how interested I will be in living in a Mad Max world.

engineertheeconomy's picture

We are already living in a mad Max world. Where the hell have you been? In an underground concrete bunker?

Heyoka Bianco's picture

"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."

 

This tard clearly has no real market experience. If China 'dumps' its Treasury, what kind of money do you think they're going to make? The primary reason they haven't unloaded them already is because it would be slitting their own throats: devaluing their single largest asset in a market that's already overloaded with worthless paper.

And if reports are to be believed, China's banksare already laboring mightily under bad loans and the endles and huge losses incurred by holding those very same Treasuries.If they try to get out, then what do you think happens to they're already sketchy capital reserves? China's balls are in the fire on this whole mess too.

Yen Cross's picture

China finances their Exports Via the fed. If China dumps their tresuries the yuan would go PARABOLIC!

mess nonster's picture

Right-O. China's loans to us are China's problems, not ours. Finally, we hold the madman card- "If you all don't play by our rules, we'll attack Iran, and thus set fire to not only our own ass-hairs, but the entire world! HA-HAHAHAHAHA!!!

Oh, wait a minute, that was Israel speaking.

ltsgt1's picture

Hey, the madman card works very well for the North Korean. We should definitely try to play that card. Come to think of it, if the money printing card were no longer effective, what other card do we have up our sleeves?

Yen Cross's picture

 Ok, now I have a direction. The Keystone , Lower hub from CUSHING to the Gulf. It all makes sense now.

 

mess nonster's picture

You ARE the great unwashed- how well do you feel now?

 

Yen Cross's picture

Time zones do matter.

mt paul's picture

let them

eat pie...