Mark Grant On The Coming Reversal

I very rarely paste someone's thoughts directly, but Mark Grant's column this morning summed up the state of the financial markets perfectly.

Mark Grant is the author of Outside of The Box & Onto Wall Street.

Mr. Grant is a graduate of Occidental College and has been on Wall Street for thirty-seven years in various senior management positions. He has run Capital Markets for four Investment Banks and been on the Board of Directors of four Investment Banks. Mr. Grant was also the President of a public company in the telecommunications field and on its Board of Directors for several years while he continued his work on Wall Street. He currently works at a publically traded Investment Bank and is a Managing Director of the firm.

The 100% Prediction of a Reversal

A reversal will come. The odds on this are 100%. You cannot have every asset class on the planet in a bubble forever. The world does not operate this way. The disconnect between economic fundamentals and the markets continues but the odds on it continuing forever is Zero. Let us begin the postulate from here.

Corporations, banks, the housing market, borrowers and the securities markets have significantly benefited from the actions of the central banks. Money has been poured, dumped and shoved into the financial markets. The total exceeds $16 trillion to date and perhaps twice that amount if we were given accurate data to be able to count it. It was been a Tsunami of money.

Liquidity has buoyed the world as the central banks acted in concert and in a coordinated effort to provide fresh cash. The balance sheets enlarge but the money has not significantly helped anyone's economy. Europe is in a recession, America is in a muddle and the world's economies, without all of this money, would be in a sinkhole and so it continues. There is nothing else supporting the economies and the markets except the capital provided by the central banks.


The disparity is so large and so universal that something will break the bough as the weight eventually cannot be supported. When this happens it will be Katie bar the door. If you fall from ten feet you get hurt but if you fall from one thousand feet the consequences are quite different

All of this is knowable but what is not knowable is what will cause the break. It could be the rise of nationalistic political parties in the U.K. or Germany. It could be social unrest, a major bank failure, a major hedge fund blowing up, some sovereign deciding to quit the Euro or a host of other possibilities. The odds on one item are minimal. The odds that a break will happen somewhere are 100%.

The creation of all of this money also has another effect. It causes stupidity. People and institutions rush around to invest their money but when there is too much easy money, such as right before our 2008/2009 debacle, really dumb things are done with money as people search for yield and appreciation. This is another 100% prediction made by me after being in the markets nearly forty years. When too much easy money floats around; stupidity takes its course.

Then there is the made-up fantasy data numbers. Just because you do not count liabilities, or because you do not count people not in the work force or just because you claim exports, in the case of China, that bear no resemblance to reality does not mean that the consequences of the real numbers, and not the phony numbers, do not begin to have serious effects. The lies, let's call it what it really is, that are being produced in Europe, America and in China are in lock-step with the printing of newly minted paper. More money, more lies and virtually every government on the planet hands shovels out more manure and heaps it on its citizens.

Now the central banks have also entered into currency manipulation. I call it "Global Thermonuclear Devaluation." Lower the value of each and every currency so that the cost of goods and services does not cause Inflation though this game is so dangerous, and having never been tried before, you could get quite serious Deflation. No one on the planet really knows how this new game will work but I can tell you this; edgy games often end in disastrous results.

  It is quite true that we do not know the "what and the when" of it but my prediction that lacks any "If" will prove to be true. There is no longer an "If." The disparity now is just too great.

Play the game as long as you can. It has gone on to date right in line with the increase in the money and in the lies. Play the game. However if you are smart you will have an exit strategy and a defense lined up well in advance before the man with the scythe shows up and takes a swipe at you. I will tell you this. If you have no plan you will be in danger of losing your head when this fellow smiles at you and sluices in your direction.

It was January 13, 2010 when I predicted Greece would go bankrupt. I looked at the real numbers and not the drivel we were handed out and made my prediction. The yield on the Greek ten year was 4.38% on that day. This is a yield we have never seen again. Money has been made and lost here but history has borne out my prediction.

Later I predicted Ireland, Portugal and Spain. Each country, in my opinion, has gone bankrupt in one form or another. Yes, a giant ruse for Spain with money given to the banks and no admission of guilt from anyone but the charade does not change the reality. Each and every country went over the edge.

We stand on a precipice. There is an avalanche of lies, distortions and currency that has been created and is tumbling all around us. It cannot be dodged forever. Those odds are 100%. That is my prediction.