American Winter: Understanding Natural Financial Cycles

People have called it many things. The fourth turning. The winter of the Kondratiev cycle. A depression occurs on average throughout history every 75 to 80 years. The last one began in 1929. The current one began in December 2007.

This one, of course, looks far different than the last. One the surface everything appears much better as the facade over the economy has been painted with a beautiful portrait of debt, stimulus, and QE. This has kept the zombie banking system lurching forward and pushed the stock market artificially upward with trillions in credit and currency pumped into the system.

In the real world things are only getting much worse. This is the consequence of a paper money system that is now coming to the end of its global experiment. On average throughout history, a new currency system is created about every 40 years. The current system began in August of 1971.

The last part of this experiment, the part that will finally bring change and ultimately cleanse the financial system, will be the most difficult. 95% of the pain that must be felt due to borrowed money and printed currency will be felt during the last 5% of the real life time period.

The current monetary system has created a world that separates the 1% from the rest, almost like gravity pulling apart the society at the seams. This is what throughout history has always led to the fall of an empire.

The following documentary, which hopefully will be posted in full upon its release, looks at what the real world looks like in America today as the cost of living rises and incomes stagnate, fall, or disappear. This is the true foundation of the country that is being eroded daily, like termites eating quietly away at a home. Nothing changes without collapse and change is coming.


  1. Hi, Thanks for another great post. I really like the Kondratiev cycle graphic especially. Now I've a question for you on a separate matter, if you don't mind - and sorry for jumping in on this post.

    My question is this, the trade of shorting JGBs, as you've pointed out has been a widow maker, but Kyle Bass reckons is about to play out due to flow. Do you think now really is the time to short JGBs?

    I've looked into it extensively, garnering different opinions and feel its a very interesting trade and that perhaps the time is right. With the rate at 0.8, the downside is limited. Can you give any rough indication of the return possible? I know its a function of what the rates may rise to, but how does it scale?

    Thanks for all your work!

  2. I think it is a tremendous short right now. Bass' portfolio short Japan is down tremendously over the past 12 months. I assure you that this does not phase him in the least, and he is most likely adding relentlessly to the position. In order to go short you have to be extremely patient.

    You must also understand that during the initial stages you will be faced against the Bank of Japan, which is a far different enemy than those that are currently battling against the European Central Bank. The Bank of Japan has unlimited firepower to defend the interest rates, where the ECB has been forced to move in a reactionary manner.

    Ultimately the market will overpower the Bank of Japan. The question is of course when? The downside risk where rates are, in my opinion, make it one of the best trades ever.

    Speak with a professional before making a decision.

  3. Thanks for your reply. As you say the Bank of Japan has considerable firepower which adds a bit of an unknown factor to it. Its difficult to predict how strong or effect their measures may be. But that's the trick isn't it. Thanks again for sharing your views!

  4. Sorry to bug you, and if I am, I apologize and just ignore me.

    On the JGBs short through PowerShares - if it takes patience due to the firepower of the Bank of Japan, I suppose its possible for JGBs to fall to prior lows of 0.43. And if this is the case - that the BOJ will be expected to act, is it not wise to stay on the sidelines and only jump in when JGBs rise again in what looks like a meaningful way. Consider that there will be some moves and counter moves, it could be sometime before JGBs make a decisive move and this could be years could it not?

    If so, why not wait for some evidence of this before taking the short position(as they are quite stable...for now). I know you don't want to be too late, but is a little late better than far too early.

    On that point, is the consequence of being early(assuming for simplicity that yields do not fall below 0.8) that the only losses one will incur will just be the annual 0.5% fee of the JGBS?

    Lastly, how do you estimate potential gains, e.g., say JBGS shorted at 1% and yields rise to 4%. Is the gain easily correlated?

    Much Appreciated!!


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