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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lakecity55's picture

Fur pie is my fave.

Bald Beaver #2

canuck's picture

So Yen Cross, you think a euro break up will not be considered WHATEVER the cost? That kind of comforts me somewhere, but I don't believe it.

Yen Cross's picture

I stated that the deutschmark/ northern euro, would be tough on German exports. Nothing more and nothing less. I think there will be some defaults, but the break up you are suggesting is something I can't quantify yet. There is a meltdown coming though.

canuck's picture

And while I can appreciate jokes about jumping into a boat and paddling to an island or wherever, yes I like my dark humour, I am also a little boring and would like to consider scenarios of the future of Europe.

peterh101's picture

I laugh in your face silly knit-wits. You guys have no idea about Australia. You have a totally distorted picture of your own country (MSM), what liberty is....hahaha, what freedom is......hahaha, and where you will be in 20 years time. We can look out at the world from where we are in Australia and what a joke it is. In Australia we have never ridden kangaroos down the street, and we certainly don't pay any more than $13.50 for chicken pie with a load of veges and gravy at the local working mans club. Last night I paid $6.99 for a full sized family roasted chicken. I don't know where the author ate out , maybe the 'Versace' (but certainly not a working mans restaurant). We have an unemployment rate of only 5.3%, the only street sleepers we have in this country are those who choose the lifestyle, we can walk into any public hospital in Australia and receive A1 healthcare and treatment for free, and we don't have a dozen departments of 'Big Brother' watching our every move (yet). I'm sorry, but you guys and girls have a totally distorted picture of our country. 

Gatts's picture

Nice one Peterh, insult everyones intelligence over the cost of a chicken pie. No one really gives a shit about a working mans chicken pie with vegetables. You have managed to miss the entire point of the article about exported inflation of which Oztralia is soaking up with glee. There is nothing like adding zeros to the price of your home to make you feel wealthy enough to go out and leverage your new found 'equity' on a brand new SUV. Have you looked at personal debt levels in Australia and where all those over inflated house prices are going rather than chicken pie.
Please continue with your ever so commonly reproduced Aussie nationalism, your govt. salutes your obedience.
As for sledging yanks over their MSM brainwashing, where did you get your unemployment figures from pray tell? Your dream machine govt. considers 1 hour of work per week as employed, and have you stopped to think about the countless masses that are shoved into 'up skilling' courses to pad the numbers.
There is no need to sell your MSM mantra of the lucky country here.

wonderatitall's picture

take it easy on them. i mean , besides putting down a couple of keggers and a barbie what the  hell are australian.  dont worry once the obama/bush regime gets us our "free" healthcare we can stay as drunk as "australians" and have no worries..eh mate...australians...criminals and drunks...everything will be rosy and uneployment out the wazoo...just like australia. they count having a barbie as working ...good times

 

wonderatitall's picture

australians? a bunch of criminals who think obama is a piker. free you say. i love the nazi thought process, such as it is that it is free. do the doctors work for free. do your nurses? what is wrong with the infantile democrat mindset that they love slavery so much?

...and new zealand is the real country...you and you gday shit can stick it...australians...too funny

debtandtaxes's picture

Australians are known for their arrogance, narrow mindedness and feelings of entitlement displayed every time they travel outside their borders for cheap all inclusive vacations on the islands.....

Oh wait, sounds like 'mericans ..... hmmm

 

AC_Doctor's picture

peterh101 your housing bubble in on par with the Vancouver Canada area, and no you guys are not immune to future economic insomnia.  Plus, you are in China's line of sight with a low percentage of private gun ownership and a very small standing army, so who is watching out for those Maersk container ships full of Chinese Army regulars looking to feed on your local Roo population and strip mine your beautiful country clean?

mess nonster's picture

I've ridden a kangaroo...oh wait, she wasn't a kangaroo!

TheObsoleteMan's picture

Peterh101; The phrases "best healthcare in the world" and "completely free of charge" don't go together. Sorry, but there is no such thing as a "free lunch". SOMEBODY HAS TO PAY. That is what is wrong with so many people these days, they want the best of everything, yet pay for none of it. That mentallity is why we are witness to the current global finacial meltdown.

EmileLargo's picture

The day the politicians bribe the people with their own money, it will be the end of the American republic. - Alexis de Tocuqeville

Antipodeus's picture

You're quite correct there, OldMan.  Our pretty-excellent health care isn't "free" in the sense that it costs us nothing.  We all pay for it out of our taxes -- we like to buy our civilisation that way.

 

And if you're on any sort of welfare, you can get it VERY cheap -- no-one NEED go without if they're 'in need'.

 

There's a reason why if you buy travel insurance. there's one rate for the rest of the world, and another one for the USA.

 

Dre4dwolf's picture

Since all the inflation is being exported, would it be possible for there to come a time where other nations that have already imported a lot of our debt could turn around and for the average consumeer in that country (lets say for the sake of argument AUSTRALIA) could find that for the average person it would be cheaper to send money to a relative in the USA to buy goods and have them shipped into australia?

 

IE: Might it be possible that everyone outside America suddenly wants to buy American goods from American store shelves ?

 

I know I can send a chicken pot pie to Australia for probably half the price of one there XD !

Strange-Currencies's picture

Ideology rules, right? Statesmen and central bankers are idiots, obviously, and passionate and highly opinionated people who leave comments to the articles on ZH know how to fix things, if only someone let them do it.

So tell me how we profit from all this? "Buy gold" does not count as a valuable piece of advice (this I know already). -

engineertheeconomy's picture

 

I have been stacking Gold for decades. Because of that I can afford to retire comfortably. Also, I can afford to pay cash for another home or two if I choose. Because the Gold price is going up exponentially, in a few years I will be able to buy myself an entire town.

I don't know what the hell your problem is.

lakecity55's picture

I have a physical Au supply as well, but went into silver, as I think the gap between silver and gold is too great. I think silver is going to catch up? Anyone have any feedback?

Thanks.

Silverhog's picture

Just like Gold & Silver, when are they going to dump 250 million pounds of beef on the market to knock the price down? I was at BJ's yesterday and wow, my $200 did not go very far.  

engineertheeconomy's picture

not going to happen. the bankers already own all the farms and ranches. time for a revolution?

poydras's picture

37 years of trade deficits is truly remarkable.  I suggest that few in 1975 could have imagined it lasting that long.  The unsustainable has to end sometime.  That end is likely to be a bit ugly.  It is fine until a critical mass of participants conclude otherwise.

BandGap's picture

The dance gets faster, the cycles get shorter and at some point an anisoptropy will disrupt the system. Then any directional flow becomes chaos in an instant.  When it becomes every man for himself don't be near the exit doors.

 

ivars's picture

A scenario how things might start to unfold very soon with a critical poiint in May 2012 (EUR down, USDx up, Silver UP, DJIA UP, GOLD steady:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=36724#p36724

AC_Doctor's picture

Ivars, I don't see how silver can go up without gold tagging along.

ivars's picture

Silver may be first to get attentions of masses due to its relative cheapness.

AC_Doctor's picture

I could see that it being more affordable could make it more attractive to investors.  I believe the upside in silver is 30x and gold 12x returns within 3 years. 

jfarrall's picture

I Didn't see this one, and it is my personal favorite Donnie quote from Just Shoot Me:

   http://www.youtube.com/watch?v=ApmvDU5RmyY

More here on vacant houses being stripped of plumbing for the value of the copper pipes in Cleveland Ohio:

   http://blog.cleveland.com/parmasunpost/2012/01/parma_police_ask_for_resi...

   (Take it easy on the Cleveland jokes - Parma is not an inner-city kill zone, but a very middle class suburb with a typically low crime rate)

OH, and my favorite, more pressure for Greece to default, withdraw, or otherwise get lost from Germany:

   http://edition.cnn.com/2012/03/01/business/greece-fund-delay/index.html

   (So the saga continues, Greece lied to be able to live off of low rates afforded to it, now has no chance of paying... and Germany doesn't really want to pay either)

One more just posted worth a read - In case you think Germans work so much more than others in Europe (or other places):

   http://fullcomment.nationalpost.com/2012/02/27/lorne-gunter-its-probably...

 

spinone's picture

Townsend made a bunch of money in the dot com boom, and got really interested in economics with ChrisMartenson.com.  But being rich didn't make him smart.  Why is it rich people think they're smart?

Anyway, inductive reasoning (specific to general) is specious.  From the specific fact that he saw a pot pie for $57, he generalized that the US is exporting inflation.

It would be logical to use deductive reasoning, from the general to the specific, or to use more than one observation of pot pie price.

Waste of time.

Bob Bercy's picture

What a load of unsubstantiated tosh. "I think, I think, I think". Who is this guy and who cares what he "thinks"? If he had spent his past several years acquiring a basic knowledge of monetary economics rather than swanning around the world what he "thinks" might have been worth reading. As it is I can only think that ZH is getting more and more deperate for anything bearish...

Mary Wilbur's picture

Anecdotes are not evidence. I have no doubt that the huge increase in the EU and US paper money supply will have and is having consequences (China is already reducing its US dollar supply) but the future cannot be predicted. All anyone can do is prepare for all kinds of possibilities. One thing does seem certain the level of risk in the world economy seems to be increasing, and its quite obvious the elites have no idea what is happening nor I suspect do they care.

rsnoble's picture

I live in the US and I just put a chicken pot pie in the microwave. Delicious. It cost 99cents.  Guess I my as well get as fat as I can since I won't be able to afford to eat in the future.  I don't really want to give up my lifestyle.........but I don't want to force other countries into starvation either. Which is inevitable coming here it looks like......and we all know by now where the problem is.

Then again maybe I don't wanna get fat. Chopping firewood, growing a garden, chasing chickens with an ax and taking shifts to guard the premises from the zombies is hard work.  Our roles will shift from consumerism to pure survivalism.

Speaking of which I'm always making crazy videos on my cellphone and sending them to friends.  Usually when we're all drunk everyone gets a good laugh and sometimes they even request them lol. At any rate I was cutting wood the other week and a huge piece of bark fell off the tree and it had those white worms you see the natives eat all over. So, being drunk as I was, got my cellphone out and grabed a small handful and popped them in my mouth. Starting chewing. Instant gag reflex I threw that shit up all over.  I'm sorry to say......we're just never going to make it. LOL.

 

optimator's picture

After a thoroughly exhaustive study on the best place in the world to live where one will get the most stretch and acceptance of dollars and/or gold, I've arrived at not only the country, but the area of the country to live in. If you like living on the shore the place is Wonsan, N. Korea. If you like the big city it will be Pyongyang.

mimsy's picture

I don't have a problem with Martenson's or Townsend's analysis on what is happening globally. I am a bit confused on what is going on with bonds.

If we are in a liquidity trap, which essentially means that money is not flowing in the real economy but is sloshing around in the banking system solely used to create massive profits for banking executives and speculators, then why is the Russel 2000 at all time highs? Martenson says that bonds are not attractive to investors due to 2% or lower yield, so that is driving stocks up. Wouldn't that suggest that we are not in a liquidity crisis, and that the money is reaching small businesses? I could be just severely misguided, but maybe someone could clear this up for me. btw first post sup.

altlaw's picture

The $57 Pot Pie is a terrible example.  Restaurant Food in Australia has always been expensive compared to the US for at least 2 reasons.  1) Servers are paid a living wage and that wage is reflected in the price of food.  There is no (or minimal) tipping in Australia; and 2) The taxes are built into the price.  I was recently in Australia and the prices were high, though not as high as Erik suggests.  However, if you take a $25 entree and add 8% tax ($2.00) plus a 15% tip ($3.75), the US price becomes $30.75.  This undermines his credibility.

monkeyboy's picture

What kind of moron orders a chicken pie @ a strip club?

$57 chicken pies do not exist in this country in working class restaurants.

Have a look at the top restaurants in Oz(Tetsuyas, Vue De Monde, Pier, Press Club, Rockpool(has some incredibly expensive steaks!) Nobu, etc) no one is chraging $57 for a chicken pie. A full degust is from $120-$250 from the top restaurants in the country.

$57 for a chicken pie @ a 'working class' restaurant - tell him he's dreaming! Still get $10 parma and a pot on a tuesday night at quite a few pubs here in Melb - working class restaurants.

In saying all that Oz is pretty expensive relative to the rest of the world, but like everything in life knowing where to buy helps.