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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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Mon, 12/19/2011 - 14:33 | 1994845 JW n FL
JW n FL's picture

 

 

You should only read things that you feel are correct.

Mon, 12/19/2011 - 15:26 | 1995033 DoChenRollingBearing
DoChenRollingBearing's picture

Pow!  Good one!

Mon, 12/19/2011 - 16:09 | 1995202 Calmyourself
Calmyourself's picture

"Feeling" being the operative word there..

Tue, 12/20/2011 - 00:59 | 1996733 StychoKiller
StychoKiller's picture

Ah, just sticking with Mao's Little Red Book -- how wise. :>D

Mon, 12/19/2011 - 14:27 | 1994812 tony bonn
tony bonn's picture

god bless you paul!!! this analysis is magnificent....

"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”;

this is the most important perception i have read anywhere (outside of myself :-o).....the analogue is that there are no lone nut gunmen especially in the case of jfk...

but more to the topic at hand, this financial crisis was engineered and planned.....it is the crisis which musn't be wasted...

fuck the plutocrats and their rockefeller-mic-yale-cia axis of evil...

Mon, 12/19/2011 - 14:41 | 1994884 Jendrzejczyk
Jendrzejczyk's picture

What purpose does this crisis serve the masters of the world? They already run the planet and have more money and power than the rest of us combined. Just not seeing the upside of destroying everything.

Not picking a fight, looking for explanations.

Mon, 12/19/2011 - 16:01 | 1995168 TSA gropee
TSA gropee's picture

To your question and statement, let me say that (imho) what we're seeing today illustrates that having it all, fame, fortune and power are never permanently fullfilling and always transitory. They are an illusion or mirage if you will, and I believe it often leads to madness or some psychosis. When one has the ability to fulfill all material wants, it is a slippery slope to wanting power as well. Power and its quest is where I believe the real danger lies. As one accumulates more and more power, the desire to control more increases to the point of obsession which in turn leads to its ultimate and final destination of absolute control without accountability. Once achieved, human attributes such as compassion, consideration and ultimately morality are quickly replaced with cruelty, indifference, corruption and amoral tendencies. History is repleat of examples of the madness that ensues when absolute power is achieved. To have it on the horizon on a potentially global scales is quite disturbing.

Mon, 12/19/2011 - 16:23 | 1995314 malek
malek's picture

You misunderstood something. Their goal is not to destroy everything, but all those who might challenge their power or otherwise seriously question the status quo.

Mon, 12/19/2011 - 20:06 | 1996048 Jendrzejczyk
Jendrzejczyk's picture

Thanks for the responses Dizzy, tsa and Mal.,

I understand having to do bad things under duress, but I'm still hiding from the reality that pure evil exists.

Tue, 12/20/2011 - 01:01 | 1996740 StychoKiller
StychoKiller's picture

Pretty sure that the Grim Reaper ain't gonna give you time to pack a suitcase -- the point being "E'en the best-laid plans of mice and men..."

Mon, 12/19/2011 - 17:55 | 1995703 s2man
s2man's picture

"this financial crisis was engineered and planned"

Posh.  It is a mere coincidence that every developed nation, and their banks, is bankrupt and on the verge of collapse, and that they are all so intertwined that if one falls, they all fall.  Just a coincidence.  Nothing to see here... </sarc>

We are being set up for a big one.  Note the only investment recommendations: Gov security/military contractors, gold and silver.

Mon, 12/19/2011 - 14:31 | 1994828 ebworthen
ebworthen's picture

Pithy!

The whole report, that is.

Mon, 12/19/2011 - 14:40 | 1994880 GeezerGeek
GeezerGeek's picture

I reject the concept of right-wing socialism, because both national socialism - including fascism - and international socialism place the state atop the individual in importance. Jonah Goldberg wrote a book describing this and reflecting my attitude. If we are limited to a two dimensional spectrum going from government supremacy to individual rights, there can be no right-wing socialism. I am for small government with limited powers. My friends always called me a right-wing conservative because of this attitude. Progressives/liberals/communists all wanted to pretend Hitler was a right-winger, when in fact he was really of the political left, just like Benito Mussolini.

Mon, 12/19/2011 - 14:53 | 1994915 Buckaroo Banzai
Buckaroo Banzai's picture

Instead of a left-right linear spectrum, think of the political spectrum as a mobius strip, where the two ends invert, and meet.

Mon, 12/19/2011 - 18:09 | 1995750 Widowmaker
Widowmaker's picture

Government should do only one fucking thing -- routine processing.

All else is deplorable and those who want big government should have to shoulder all the expenses.  The only enablement of bloated, insulated corruption known as government is the fact that others have to pay for it.

Mon, 12/19/2011 - 14:54 | 1994920 J 457
J 457's picture

ZH bearish gauge pushing Oct 4 highs, meaning its time to BUY BUY BUY.

PS.  I expect nothing less than 20 red arrows, so thanks in advance.  But later this week SPX at 1,240....$$ in my pocket.

Mon, 12/19/2011 - 15:06 | 1994967 i love cholas
i love cholas's picture

Financial History>stupid math classes i had to sit through

Mon, 12/19/2011 - 15:07 | 1994969 San Diego Gold Bug
San Diego Gold Bug's picture

Everything is so bad that I have to share this Holiday cheer that Turd posted on his site.  It is classic.   Christmas Silver

Mon, 12/19/2011 - 15:12 | 1994986 jimmyjames
jimmyjames's picture

“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.

***********

Cycles do exist but cannot be fitted into a specific time frame as Kondratieff suggested-mainly due to technological innovations such as lengthening our life cycles with modern medicine etc. and by having the power to Inflate at will-so Kondratrieff was right about the four seasons but wrong about the time line of arrival-

The Fed and all world Governments temporarily deflected the deflationary correction-but cannot prevent it from occurring-

http://photos1.blogger.com/hello/101/3984/1024/K-Cycle-Interest-Rates-18...

http://photos1.blogger.com/hello/101/3984/1024/K-Cycle-Interest-Rates.jpg

 

Mon, 12/19/2011 - 15:42 | 1995111 the grateful un...
the grateful unemployed's picture

the biggest shock of all may be no shock at all, what Bernie Schaeffer calls "a long cold day to last the rest of your life.." from Groundhog Day the movie. every new president looks like either Bush or Obama. the Fed chief is hated, but remaains for several decades until he is ready for the resthome. politicians are hated, almost as soon as they are elected. politicans and wall street banks steal in broad daylight walk the street, guys doing a fivce dollar bag do ten years. the ME tries to demilitarize, as this is what most Muslims want, but the rest of the world insists they play the game, spend money on armaments only to have them destroyed by the people who sell them in countless wars of liberation. the economy stops when people stop using it, go to barter, move off the grid, but the younger generation always has to try, so there are always fresh consumers to buy cigarettes and cable TV and super sensitive condoms.

the big shock is peak PEOPLE, the world population begins to decline, and then the world money supply has to shrink and that creates a vicious cycle. the current system was never made to wind down. a new system will replace it. people buy 50 year bonds and horde cash and gold.

this is just the beginning to enjoy the cocktails, but notice the decks aren't quite as busy, not as many passengers. yes the Titanic will sink but who is left to go down with her?

Mon, 12/19/2011 - 15:44 | 1995112 dizzyfingers
dizzyfingers's picture

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

For some of us, yes, but apparently for many others (driving those huge shiny new cars from Germany and buying up the foreclosed castles in FANNIE & FREDDIE auctions, and taking their bonuses from taxpayers) life just gets better and better.

If anyone reading this is among the latter, please kill yourself.

Mon, 12/19/2011 - 16:01 | 1995166 BandGap
BandGap's picture

Or the surface of a sphere.

So are these events symmetric or asymmetric in nature? One would require a complex control scheme, the other just a reaction to events as they relate to indivdual circumstances on a case by case basis.

If all of this is planned, did we all fall asleep for the past 30 years?

Mon, 12/19/2011 - 16:32 | 1995371 overmedicatedun...
overmedicatedundersexed's picture

pasttense, do you know what a republic is? you obviously do not.

small states avoid control of large states for a hint as to why the college is there..but then thats from the old white guys way back when who no longer matter.

Mon, 12/19/2011 - 16:54 | 1995473 gwar5
gwar5's picture

I agree with pretty much everything of this article, including the overall tone, but would only quibble about the role of the political parties. 

 

The socialists and leftists are the true totalitarians and miliarists and always have been. Republicans are just the slow motion version of the same thing. Wars? From "Progressive" Woodrow Wilson rounding up 100ks for violating the "Sedition Act", and from FDR rounding up Asians to put in concentration camps, the lefty Dems got us into all the major wars of the 20h century: WWI, WWII, Korean War, and the Vietnam War, along with the Federal Reserve Act 1913.  From LBJ's "Great Society" to Obama's socializing medicine with life/deah decisions given to the state and aken from the individual soveriegns. Socialism is confiscation and redistribution of property to others by force of law, and more confiscation is needed now more than ever by the state.

 

More Ayn Rand quotes for hose who hate her:

"Where there's srvice there's someone being served. The man who speaks to you about sacrifice is speaking of slaves and masters, and intends to be the master."

"Run for your life from any man who tells you that money is evil. That sentence is leper's bell of an approaching looter."

"We are fast approaching the state of the ultimate inversion, the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force."

 

 

 

 

 

Mon, 12/19/2011 - 17:05 | 1995509 s2man
s2man's picture

Wow.  That pdf is a good read.  Thanks, Tyler.

Mon, 12/19/2011 - 18:05 | 1995717 Widowmaker
Widowmaker's picture

Mylchreest might take a look at the number one correlation of all time regarding the financial abortion trying to wear the mask of capitalism -- a system hijacked literally in 1963 when America wept.

The death of JFK and the subsequent orchestrated assault on national sovereignties via debt-money that began with it.

History is dripping with truth, and every metric or calculation to date supports this correlation -- JFK's death and the banking oligarchy becoming the harborer of organized oppression against humanity -- of all people.

Don't tell the boomers though, they ignore all truth and logic for damn near everything it seems nowadays. 

Just like the warren commission --  I expect nothing from the boomers then, and now.

Mon, 12/19/2011 - 21:46 | 1996230 sgt_doom
sgt_doom's picture

"The turbocharged, debt-driven over-consumption of past decades must be undone."

Allow me to reframe honestly:  the banksters' ultra-leveraged seven-year run, culminating in the meltdown, a repeat of the 1920s bankster ultra-leveraged run which culminated in the Great Crash of 1929 and the Great Depression, has now not only been re-started, but continues on unabated.

Good luck, folks!  (And what is that so difficult for so many to grasp???)

 

Tue, 12/20/2011 - 14:23 | 1998221 Sandmann
Sandmann's picture

Oligarchy is independent of political orientation - it is simply about being part of the ruling order. Party programmes are for the foot soldiers and useful idiots

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