Guest Post: 2011 Tipping Points

By Gordon T. Long of Tipping Points

2011 Tipping Points (pdf)

Throughout my 2010 article series "Extend & Pretend" and "Sultans of Swap" I stressed that we were rapidly moving from the Financial Crisis of 2008, through the Economic Fallout of 2009 -2010, towards a Political Crisis in 2011 -2012. We are now clearly beginning to see the early emergence of the final part of this continuum.  From North Africa to Wisconsin all are fundamentally based on the single insidious underlying problem - excessive global debt and credit levels.

The global macroeconomic environment appears to be rapidly unraveling. The situations in North Africa through the Middle East are blatant proof of social unrest and accelerating political instability. Food shortages and inflation pressures are now driving people into the streets. When you feel the hunger in your stomach and see it in the eyes of your children, it quickly erupts and motivates people to action.
It is now time to revisit our Tipping Points framework to see where this is leading. A framework that is clearly pointing to a global fiat currency failure and an emerging new world order which is detailed in our "2011 Thesis - Beggar-thy-Neighbor".

Our Tipping Points which are outlined below are adjusted continuously based on daily news flow analysis.  Through a proprietary 'Process of Abstraction' news is tracked and consolidated around these potentially critical flash points.


INCREASES                                IS    WAS    CHANGE   

1) Oil Price Pressures                 14    30    +16
2) China Bubble                           9    22    +13   
3) Food Price Pressures               5    15    +10
4) Rising Inflation Pressures &
    Interest Rate Pressures            6    14   +  8
5) Geo-Political Event Risk                          New
6) Social Unrest                                         New


1) North & Southern Korea         30    12    -18
2) Financial Crisis Programs
    Expiration Impact                   34    24    -10

The Tectonic Shifts from 2007 to 2013 are best shown in the following illustration which is closely tracking our expectations and projections from the early stage of the financial crisis.


We need to carefully watch:

1) The increasing & accelerated contagion of social tensions. Watch for Asia demonstrations in places such as North Korea.
2) How and if the Central Banks actually do unwind their  crisis ‘triage’ programs or are they realistically now permanent and necessary to maintain the illusion of financial stability?
3) New government public policy initiatives to combat growing inflation and price pressures
4) The financial sectors abilities to continue to hide massive nonperforming commercial and residential real estate loans through Federal Reserve endorsed accounting gimmickry.

These events will allow us to determine if our roadmap is still valid or if we are going to see even sooner and possibly poorer financial outcomes than we predict in our free Monthly Market Commentary and Market Analytics reports.

The public will soon wake up to the magnitude of money printing that is going on to support the economic recovery fallacy. When the public does become aware, “Money Velocity” will accelerate. When this happens, the likelihood is that the markets will dramatically rise, not because economic conditions are improving, but rather because of a depreciating US dollar.  We believe this expectation is presently being priced into the market. We are truly exposed to the potential of a “Minsky Melt-Up” or more correctly from an Austrian perspective, a Von Mises “Crack-up Boom”. 

The risks are presently towards a SHORT TERM corrective consolidation. The Intermediate Term calls for higher market highs into June 2011 - then it gets ugly - fast!

“The Federal Reserve historically was the lender of last resort in a crisis;
Today, the Federal Reserve is the buyer of first resort in a crisis
..... and every day for that matter”