Thunder Road Report Update: "Dear Portfolio Manager, You Are Heading Into A Full-Spectrum Crisis."

Tyler Durden's picture

Paul Mylchreest, author of the Thunder Road, releases his much anticipated latest report, and it's a doozy: "2012: Dear Portfolio Manager, you are leaving the capitalist sector and heading into a full-spectrum crisis." He continues: "You were to hear a report on the world crisis. That is what you are going to hear. For twelve years you have been asking: Who is John Galt? This is John Galt speaking….Now it’s  getting serious. 2012 will be a year to remember as the globalist agenda comes into focus amidst economic and geo-political crises: The titles of the last two Thunder Road Reports were prefaced with “Helter Skelter” - “The Illusion of Market Stability” followed by “Gentlemen Start Your Engines”. Sadly, the Helter Skelter I was writing about – the second part of the Great Financial Crisis is in progress and I’m expecting it to come to a head next year (2013 if we’re very lucky). The only question is WHAT brings it to a head? We’re not short of possible causes – a bank failure, sovereign default, Eurozone tipping into recession or the Middle East. Despite all the evidence to the contrary, like overwhelming debt levels and insolvent banks/sovereigns, the consensus seems convinced that we can “muddle through”. Dow Theory veteran, Richard Russell, explained it best: “In the coming two or three years we will be going through unprecedented situations beyond the understanding of most analysts.”"

From the report:

  • The turbocharged, debt-driven over-consumption of past decades must be undone. The strong medicine could and should have been taken years ago. As the primary architect, Greenspan shoulders much blame, but shrugs it off. The financial system is already past the point of no return (“In my mind and in my car, we can’t rewind we’ve gone too far”) – and we are on the brink of a TSUNAMI of new money/credit creation to delay its failure. This will be the final run to the summit of the Ponzi scheme. All Ponzi schemes end and there will have to be a system reboot. This is a “Crisis of the Ages”;
  • To maintain credibility in the face of insane monetary/fiscal policies, a scapegoat for the coming surge in inflation would be helpful to TPTB, perhaps even necessary. The conflict in the Middle East and North Africa is almost certain to escalate, threatening to disrupt world oil supply. A surging oil price could be blamed as an “unexpected” external shock for the “unexpected” surge in inflation, which central bankers have repeatedly assured us (falsely) is not on the horizon. Since the creation of the Federal Reserve in 1913, the purchasing power of the US dollar has already declined by 98% (using the Fed’s own data). With a track record like that, the last 2% is not going to be difficult. Substantial declines in the purchasing power of the Euro, Yen and Sterling are likely to precede the dollar, especially if the oil price surges (importing nations will need to hold more dollars);
  • BBWestern nations are at increased risk of false flag events as part of a “Strategy of tension” – be prepared then you won’t be surprised. Wikipedia: “The strategy of tension is a theory that describes how to divide, manipulate, and control public opinion using fear, propaganda,  disinformation, psychological warfare, agents provocateurs, and false flag t------st actions. The theory began with allegations that the United States government and the Greek military junta of 1967–1974 supported farright t------st groups in Italy and Turkey, where communism was growing in popularity, to spread panic among the population who would in turn demand stronger and more dictatorial governments.” TPTB might prefer a distracted, pliant and fearful public; and
  • The majority of people probably won’t agree (yet) with much of this paragraph, but we are in a chain of events where the direction of travel is: INFLATIONISM - INTERVENTIONISM - SOCIALISM - REDUCED LIVING STANDARDS - TOTALITARIANISM. Elements of all of them are already present to a greater or lesser extent, as I’ll discuss. Of course, the earlier ones, inflationism and interventionism (which Ludwig Von Mises described as “socialism by installments”), are the most obvious. What we are experiencing was prophesied in fictional form by Ayn Rand in her masterpiece “Atlas Shrugged” when it was published in 1957. I’m reading it and it’s amazing.

This process raises interesting questions regarding asset allocation and while not all of them are very palatable, we are where we are. Let me outline my analytical framework for the big picture (rather than individual stocks) then highlight the key lessons from this report which, it turned out, fit into the framework:

Kondratieff Cycles: back to the dawn (almost) of the Industrial Revolution in 1788 - nominal GDP, real GDP growth, inflation, debt, interest rates and the performance of the key asset classes – stocks, bonds, commodities, gold and real estate. I only know of one other person (Ian Gordon) on the planet who has modelled this in detail, although there may be others. Joseph Schumpeter, who never did say which two of his three goals in life he achieved (to be the greatest economist in the world, the best horseman in Austria and the greatest lover in all of Vienna), had this to say:

“The Kondratieff Wave is the single most important tool in economic forecasting.”

Unfortunately my model of the Kondratieff Cycle is SCREAMING depression and reduction in living standards.

The mechanics of the four great price waves during the last millenium: Medieval, the “Price Revolution” of the 16th to the first half of the 17th centuries, 18th century-early 19th century and the (rather important) current one;

Geopolitics: Mackinder’s Heartland theory, Brzezinksi’s “The Grand Chessboard”, Paul Kennedy’s “The Rise and Fall of Great Powers”, Project for the New American Century, and numerous works on the decline of the Roman Empire due to the startling parallels with the US (as  documented in Thunder Road Report 23);

Demographics: like Harry S. Dent’s work on the predictable nature of consumer spending based on family formation pattern. The US birth rate peaked in 1961 (UK was similar) and peak earnings/spending of the average citizen is 48.5 years of age - as they say in America “you do the math”. The baby boomers’ kids will be coming out of college…!

Market interventions by the authorities: the Gold Cartel (the Gold Anti-Trust Action Committee - GATA - deserves immense recognition here), silver (Ted Butler likewise), equities via the President’s Working Group on Financial Markets and let’s not forget the Counterparty Risk Management Policy Group and the US Treasury Secretary’s gigantic slush fund, the Exchange Stabilization Fund. By the way, Bill Murphy’s Midas column on the Le Metropole Café website is the first thing I have read every day for six years and not just for gold.

Exter’s pyramid: a central banker who believed in sound money and his theory of capital flows in a major crisis is playing out right now. Speculative capital moves down through the credit instruments as, one by one, each credit instrument loses its “moneyness” – the last one being the US dollar/Treasury complex. The final destination is the only asset which doesn’t pay a yield – it doesn’t need to – it’s the ONLY one without counterparty risk in the biggest debt crisis in history.

The nature and history of money: I’m tempted to cite Francisco d’Anconia’s speech about money in Atlas Shrugged and Roy Jastram’s “The Golden Constant” - a key empirical study of how gold outperformed in both inflationary AND deflationary periods since the 16th century  (although it neglects today’s Gold Cartel and that alogorithm which only allows gold to rise on “risk on” days);

The globalist agenda: NWO, CFR, Rhodes, Trilateral Commission, Bilderberg, Club of Rome, etc. Few people in the markets incorporate its impact despite: i) it is heavily documented; and ii) it provides the context for so many world events - which suddenly lose their apparent “randomness”;

“Austrian” economic theory: especially Ludwig Von Mises’ work in relation to credit bubbles and free market capitalism; and

Studying financial history mixed with pattern recognition with the above.

Without a framework with which you can see beyond the short term, it’s getting more and more like being a spectator at a tennis match. Look at the equity market recently, or gold and silver, where the prices have fallen as the banking system disintegrates. Markets are all over the place, as more and more holes in the dyke burst open.

The main lessons I learnt from this report are about SOCIALISM and its impact on financial markets. For example:

  • How far we’ve departed from the ideal of free-market capitalism and how far the Socialist takeover has advanced;
  • How the style of the Socialist takeover has elements of both the extreme left and the extreme right (“national”) on the political spectrum – not only making it harder to categorise, but also harder to see; and
  • What I think that this means for asset allocation.

Let’s take the last point and consider some of the key themes:

  • Socialism from the Left: government taking a greater share of GDP, lower living standards and debasement of currencies;

Combined with:

  • Socialism from the Right: government largesse and corruption with certain large corporate interests which serve the purposes of the state, military adventurism and a much more controlled society.

If it looks like a duck and quacks like a duck…

The source of this whole chain of events is inflationism and the debasement of currencies. As it unfolds, gold and silver increasingly become the critical assets to hold in order to safeguard capital. Currently, prices are being held down to hide the wreckage of the financial system and enable TPTB to load up. Market prices and demand for physical metal are temporarily disconnected. Going forward, essential items, like food and energy (especially crude oil) will account for a larger share of the “economic pie” as living standards decline and inflation increases. In contrast, items like luxury goods and diamonds (not a store of wealth) will suffer. I’m not planning on being short oil in 2012 as it strikes me as incredibly dangerous. The oil sector, along with defence, should benefit from the crossover of socialism from both the “left” and the “right” (military adventurism and the potential for conflict in the Middle East). Defence contractors are big beneficiaries of government contracts and lasting cuts to military spending rarely feature in declining empires. But of all the sectors which are “in bed” with governments, none come close to the major banks. However, I don’t care what happens to their share prices, EVERYTHING I have learnt as an analyst tells me not to touch them as investments. The accounting principles used for both the balance sheets and P&L accounts render them almost meaningless and that’s before taking account of OTC derivatives exposure and counterparty risk which can scarcely be imagined. You can’t even get close to analysing them properly and it’s legitimate to question whether professional investors managing money for pension funds, for example, should hold any major bank stocks at all?

Full report (pdf):

 

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GeneMarchbanks's picture

Richard Russell's interviews from the early 2000s about housing and gold were incredibly accurate and timely. Next 2-3 years will be fun for those forearmed.

DoChenRollingBearing's picture

One small but nice point the author raised is that it is essentially impossible to analyze the banks.  I NEVER did well by investing in (or speculating on) things I did not understand.

Things are indeed getting worse by the day.  Extreme caution is warranted here.  Hard assets, close at hand, will help save each one of us who does so.

Gold, silver, platinum and genuine FRNs held there in the safe (say, three months worth of expenses).  And hold no debts.

Maybe survival stuff like medicines, water & food, guns & ammo, etc.

strannick's picture

Mylcreest talks of Exeter's inverted pyramid of derivative money collapsing into the bottleneck of gold, for an eventual gold price that would make Alf Fields blush

trav7777's picture

gold isn't any realer than platinum or the appliances that flew off shelves in venezuela.

MillionDollarBonus_'s picture

Only the doomer libertarian community could have the arrogance to claim that top portfolio managers are not up to their own game. These professionals have studied the most advanced portfolio theory and the CAPM. They are well equipped to guide clients through any crisis.

OldTrooper's picture

Ha ha ha ha!  ROTFL!  Thanks for that!

strannick's picture

I gotta assume you are kidding, and so I give you a +1

Buckaroo Banzai's picture

Million Dollar Bonus is possibly the most infamous-- and amusing-- troll on this site.

mtomato2's picture

It's humor like this that keeps me comin' back!

CIABS's picture

trav, you might be right, depending on circumstances.  can you save me the trouble of searching for your specific recommendations?  thanks in advance.

Calmyourself's picture

MDB the juxtaposition to reality and the talking heads on CNBC you provide is a valuable service especially to newbies.  Merry Xmas Tyler.

LynRobison's picture

Yes indeed, "top men" are working on it. They will no doubt produce a workable solution to sovereign indebtedness that can never be repaid. Back in the real world, sovereign default or hyperinflation, that is the future. 

tekhneek's picture

Is that a Ruger SP101 as your avatar?

Smiddywesson's picture

MDB:  You really are a poor substitute for Robo (too over the top), but now that I think of it, there's a very familiar tone to your rap that makes me think you ARE Robo.

Tell Tyler you need a day or two off for the holidays, you've earned it.

russki standart's picture

Hahaha, funniest thing I read today. Thank you for the chuckle. :-)

Michael's picture

I think I figured out MDB, Obama speech writer.

The trend is your friend's picture

Hilarious,  I really get a sense of calmness when i see the acronym CFA, CFP, or CIMA on a business card

prains's picture

MDB are you tweaking your nipples while you write this stuff?

nuinut's picture

Of course it's not, but it does have a specific function as the premium store of value which can be held in your real possession thus eliminating counter-party risk.

Useful for those with enough appliances and other real whatnot already and surplus value to store.

A Lunatic's picture

You can't eat appliances.

nuinut's picture

Food falls into the "whatnot" category.

LowProfile's picture

Fuel, medicine, building materials and tools also.

DoChenRollingBearing's picture

@ A Lunatic -- very funny!

@ nuinut -- I have enough appliances and most of "whatnot", your advice is very good.  But, I would expect nothing less from you.

Smiddywesson's picture

It's not because gold is realer.  It's because it is the measuring stick for money, and platinum is not.  For 100 years, we've been told that paper is money, but gold had to be suppressed for that fiction to work.  Gold is completely different than platinum because central banks aren't sitting on the price of platinum so platinum prices aren't compressed like a coiled sprint.  Central banks aren't stacking platinum, and when it is in their self interest to let go of the price of gold, it will be in the self interest of central banks to ramp the price of gold (and silver) to devalue currencies.  Gold will make the banks that hold it solvent.  Platinum will not. 

Gold is unique.  Platinum is not.

trav7777's picture

sorry, but this is the dumbest ass bit of "logic" I think I've ever heard.

Platinum is not unique?  It's a fucking ELEMENT just like gold, dipshit.  It's an element far rarer and historically considered far more valuable than gold.

russki standart's picture

Trav, please give him a break. What I believe he is trying to say is Gold is a traditional monetary metal whilst Platinum is not. Personally I do not agree and I do not understand how Platinum as a store of value competes against gold, or how it will replace it. You have correctly observed that Platinum is far rarer, (at least 30X as per my coin sources) and is often referred to as the noble metal, something you no doubt already know. In the far east, Platinum  jewelry is preferred by the hip over gold. 

 

 

LowProfile's picture

Gold is money.  Everything else is credit, or speculation.

That said, if Mexico independently goes onto the silver standard, it could literally give gold a run for it's money.

Stax Edwards's picture

That is some funny shit.  Mexico decides to go on a silver standard.  

Or hell maybe a lead standard, they still like lead in a lot of their products down there, birth defects be damned.  A lot of candy in mexico has lead in it.  Kids can't get enough of the stuff.

Cast Iron Skillet's picture

um, I seem to remember that Augustin Carstens, President of the Bank of Mexico and (former) candidate for the head post of the IMF against Christine Lagarde, advocated introduction of a silver standard in Mexico. I liked him for that. However, I just tried to google an article to that effect, but didn't find anything, so maybe I'm mixing something up.

Mr Lennon Hendrix's picture

Platinum is coiled because it has not been introduced as money on the Central Banks balance sheets.  Imagine what will happen to PM prices when a major Central Bank vaults platinum and silver.

Boom

Ratscam's picture

hence long platinum short gold is a no brainer with a 190 dollar discount.
Trade only with paper though

GeneMarchbanks's picture

I bought some after the 2008 debacle when it hit around $1000/oz. Platinum has not panned out the way I hoped at all. South Africa has a monopoly on platinum and the mining seems stable for now. Should that change it should start finding 'real' value. It seems manipulated to me not inspite of its rarity but because of it. Where extra supply comes from, I have no clue.

Smiddywesson's picture

Yes platinum is an element, so in that regard it is unique.  You miss the point.  Platinum is not money, but the central bankers can make gold money again, and when they do so, platinum will be in the same boat with all the other assets.

The crux of the issue is that once the central bankers make their move, only gold (and silver) will be unique, everything else will deflate in value as the value of gold is ramped.  That's the meaning of money when you come right down to it, everything else is priced in terms of money.

Platinum is a valuable element, but it's not its value per ounce that is at issue, its the central banster plot to devalue paper currency vis a vis gold that is at issue, not gold's existence as an element or a commodity or whatever price it has per ounce under the old system.  When gold is revalued and currency is devalued, then anyone who doesn't hold gold will feel the difference.  That goes for the holders of platinum too.  Gold silver will be the only lifeboats during this change.

 

Big Slick's picture

Word.  Trav seemed to overreact.  Put you two in a room and I think you would agree on most things. 

Anyone still have those old $5 bills that say 'this note good for $5 in platinum'?  No?

Smiddywesson's picture

No problem, I think he thought I was saying platinum was a crappy trade.  I don't know anything at all about platinum, so I wouldn't argue with someone who owns it.  My point is that gold and silver is central to the banksters plans, not platinum.  Everything but gold and perhaps silver will be affected by TPTB attempting to off load the bill for this on anyone without gold.  

As for Trav, it's his way.  I wouldn't have him any other way.

Mr Lennon Hendrix's picture

Just because an entity, like a bank, does not use an entity, like platinum, as a reserve, does not mean it is not money.  Platinum meets all requirements of money.  That is all you need to know.

Smiddywesson's picture

Money is what the central bankers get people to accept as money.  For 100 years, that was paper to the public, and paper and gold to the central bankers.  The system we appear to be going to is a paper and gold system, not platinum.  The central banks are not stacking it, creating ETFs to keep the public in paper platinum, and creating elaborate mechanisms to suppress platinum prices so they can buy up tons of platinum and then do the tablecloth trick, making everyone with platinum rich and anyone without poorer in all of their assets.

There's no indication that banks will transact in platinum or settle trade deficits in platinum.  If you define money as a metal round that you can walk into any coin shop in the world and trade it for cash, then yes, platinum is cold hard cash.    

Maybe central bankers DO regard platinum as money, but I haven't heard anything to that effect or anything about a platinum price suppression conspiracy.  (that said, it doesn't mean it's a crappy metal to stack)

Calmyourself's picture

So is uranium, but rarer, lets all use that huh??  Trav your logic center misfires sometimes..  5,000 years of history as money and you have declared that null and void, Vanity thy name is Trav.  Platinum was not seriously known or described generally until the 1750's..

Cast Iron Skillet's picture

we could go for the plutonium standard ... THEN the pesky sheeple would be happy to leave it in the vault ... in any case, they wouldn't be rubbing their coins together ....

Calmyourself's picture

It does does not occur naturally it is made in reactors so yeah maybe it is better, extremely toxic poison as well..

Harlequin001's picture

Platinum is not a money because it is not of plentiful enough supply to perform its function of a global money, neither is it easiy recognisable, unlike gold...

It is not money, it is a rare metal.

DoChenRollingBearing's picture

+ 1

Smiddy, I mostly agree.   I hold the great $ value of my PMs in Au.  78% to be specific.

But, I am not God.  I too believe that gold will be the vehicle that blasts off and leaves all else behind.  But, I do not KNOW that, so I hold some Pt and Ag as well.  I hold the silver for spending in a SHTF.  I hold the Pt in case the "Optimists" are right (that Chinese cars will use Pt in their converters, that the world economy will come roaring back, etc., etc.).

Diversification is one of my middle names...  All those names are getting crowded in there...

Smiddywesson's picture

I get that platinum is a good trade, it's just not part of the banking cabal plan.  They are not stacking platinum, they are stacking gold.

(I'm mostly gold, but hold silver too)

goldsansstandard's picture

Besides rarity, durability, divisibility, and tradition what sets gold apart is it's lack of usefulness,versus it's monetary value. Thus it is rarely consumed, and has been collected for over five thousand years. That makes it very hard to add to the existing supply, or for that matter , to subtract from it. Nothing else in the world that I know of is so resistant to a significant change in total quantity. All the mines in the world add to the football size cube by less than a quarter of an inch per year., approcximately. and as the cube gets bigger, and the grades get lower, all the technology improvements , which are exponential, are absorbed by the exponential geometry of adding to the cube. It is so damn perfect,like so much in nature, it could make even Hitchens wonder.

Piranhanoia's picture

I would like to read about the flying appliances in Venezuela.  Please post a link.

mtomato2's picture

Bearing, you are not traditionally one to overreact.  This coming from you is most sobering indeed.

I hope, we can most of us, at least keep out comupters...