In the years leading up to mid-2007 keen observers noted dangerous leverage in the US debt markets and some predicted that the bubble would pop. Predictions like this were contrarian while the market was rising, and they were ridiculed. But then when the bubble did pop, those same contrarians became nearly household names as network TV invited them on to explain their predictions.
From mid-2007 though the end of 2008 a great deal of pressure on the system from the dangerous leverage was relieved. Many pundits switched sides to join the pre-2007 contrarians, and the spotlight widened. By late 2008 through March 2009 a few optimistic analysts telling investors to buy back into the markets became the new contrarians.
In 2009 we have witnessed a shift from a pseudo-free market overloaded with debt and leverage to a more controlled market driven by public sector stimulus money. This publicly supported market includes the big Wall Street banks as well as some in Europe. Stimulus money and quantitative easing has shifted much of the pressure from the debt bubble onto the public at large.
Through the process of watching this slow-motion train wreck (still ongoing), the consensus opinion about danger in the system has shifted from an imminent threat to a long-term threat. Before 2007, a few "doomers" were contrary to the consensus, and for the most part they were right. Late in 2008 and early 2009, a few optimists were contrarian and for the medium term, they have been right. There were some excellent bargains during that time that have paid off very well.
The point is that during times of transition, surprises are always the order of the day. Look to the consensus on both sides, optimistic consensus and pessimistic consensus, and expect a surprise different from that consensus, depending on which direction we go.
One of the few things we are confident about is, some very improbable things will happen. Surprises will occur so often they will become routine... I am sure this was only the beginning of a parade of shockers. - Richard Maybury 06/09
This is true because the market CANNOT reward the majority for long. A zero sum game, the market must reward a minority. If too many people pile into one line of thinking, the market is primed for surprise.
Because of the slow-motion train wreck we are all passengers on, we have reached a unique dichotomy of opinions. This divergence can be boiled down to the inflation-deflation debate, with a few variations. On the inflation side we have both optimists and pessimists, who view the coming inflation as either good or bad. And on the deflation side we have mainly pessimists who see continued downward pressure on the stock market, the housing market and consumer prices as well.
Running parallel to these general impressions, we have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later.
A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks.
Frankly, I'm not buying it.
Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin.
In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be. While at one time it may have happened over a month, it could now happen overnight! The laws of economics can only be violated for a limited time frame. So far that time frame is four months and counting. Or viewed another way, 15 years and counting. Viewed yet another way, 38 years and counting. And viewed one more way, 96 years and counting. These are four waves of economic violation that are converging right in front of us.
What kind of correction are we looking at?
I think we will have a correction of ALL FOUR waves of economic and monetary violation... all at once!
To see this, you must view the imbalance that has developed during each of these time frames. On the medium scale we have the imbalance of debt in the West with surplus in the East. This imbalance is an ongoing flow that has not only gone parabolic, but is projected to continue through at least 2025 (BIS study)! How can a trend that has gone parabolic in only 15 years continue for another 15 years?
In the shortest time frame, the imbalance is between market technical patterns, managed through media spin and "other means", and long term (secular) market fundamentals. This imbalance is most obvious in the divergence of the public sector and the private sector. The public sector has been bailed out by the private sector without its consent. In fact, against its wishes. This has created an imbalance of fairness that is boiling under the surface tension of the green shoots media hype.
Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has also gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic.
The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?
This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers!
Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."
It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.
Some of the entities that you think most deserve to be wiped out will turn out to be the BIGGEST beneficiaries of this "overnight" transfer of wealth. And others who thought they were fully hedged will be wiped out. These are the kinds of surprises I expect. I am truly in the mode of "expecting the unexpected" with a timeline shorter than a normal TV season. ;)
Call me contrarian. But please don't call me a "doomer". I do not view this as doom. I realize the difference between the monetary system and the real economy. I recognize the difference between real capital and illusory wealth. The current monetary system is like a virtual grid, an electronic parasite overlaid on the real world. It can completely vanish and leave the real world totally intact. I look forward to a new beginning for the entire system. A healthy start like we have not seen in generations.
This reset is not something I am pushing for. It is not something I even wanted a mere year and a half ago. Instead, it is what I see as inevitable. Yes, many will be hurt and I will mourn their losses as some of my own loved ones are not well prepared. But what can I do more than I am already doing? We cannot fight the inevitable. We can only prepare.
Some have said that I am only viewing the forest and not the trees. That I do not care for the individual trees that will be engulfed by the forest fire. I do care, and this is why I blog.
There is NO SOLUTION that will save everyone's dollars. There are simply too many of them. There is NO SOCIALIST PARADISE. There is only reality and, living in it as we do, we must each walk our own Trail into the future.
Perhaps I am wrong and this fateful day will come later than I expect. I hope I am wrong. More people will make it to the safe harbor in the meantime. But do I venture out into the open sea while I wait? No, I remain moored to my anchor.
So call me contrarian, but follow the consensus voices out into the choppy waters at your own peril.
