Podcast

Erik Townsend: Expect a U.S. Price Shock as Black Swans Come Home to Roost

Friday, March 2, 2012, 1:37 PM

American investor (and longtime CM.com member) Erik Townsend has spent the past several years living internationally, with an eye to which countries may be good alternatives if economic crisis and/or Peak Oil start to materially impact life in the U.S. 

His main observation as an expat? Through its misguided policies, the U.S. has been exporting inflation to the rest of the world, raising prices all over the globe (as an example, Erik cites a $57 chicken pot pie from the menu at a 'working class' restaurant in Australia). 

This inflation is affecting the rest of the world harshly, but is not yet being felt in the U.S. due to our ability to export it as the issuer of the world's reserve currency. Our immunity will not last forever though, and when it ends, a massive upwards spike in prices is going to hit U.S. markets.

On the Global Economy

As far as I can tell, this whole economy is being propped up by stimulus and money printing, really, since 2009. And I think that what is going on is we have forgotten that we are literally changing the I do not know if you want to call it changing the terminology or changing the paradigm but what is going on here is, we used to use words like “solution” fairly accurately. Now as we are just creating these Band-Aid fixes to temporarily put symptoms of problems at bay.

We are calling those solutions, and we are actually behaving and when I say “we,” I mean collectively market participants are behaving now as if the ECB printing money in order to buy some more Greek bonds and put a bid under that market was a solution to the European sovereign debt crisis. And it is obviously nonsense. The ECB printing money just dilutes the value of the euro and causes more reason in the long term for people to flee away from making investments in euro-denominated sovereign debt. So it does not solve anything.

But we have gotten to the point where we are so overwhelmed that the market is thinking in terms of these Band-Aid patches as being actual solutions to problems. And I think as long as that is the case, we are going to continue to apply these Band-Aid patches, which are things like printing more money, until it all comes to a head. When it comes to a head and how it comes to a head, I do not think anybody is smart enough to predict accurately.

At some point, though, we are going to get to a point where we cannot handle any more printed money, and I think that the black swans that have been leaving the market alone for several years are going to come in force.

 On the Market's Willful Blindness

I do not think that we have ever seen a larger basket of major macro structural risks that everybody is aware of. It is not like nobody sees these things. But we have just somehow put them all on the back burner. Do not worry about China. Do not worry about Europe blowing up. Do not worry about Iran. Do not worry about the carry trade unwind in Japan that you have just written about recently. Do not worry about Peak Oil. Do not worry about the domino effect of China and Japan going down, taking out other economies that depend on them.

It is all fine. The LEIs are looking up. And we just seem to be in this cyclical trading mindset that it is going to continue to last until something breaks. And I think that when something breaks, it is going to break big.

On the China Wildcard

I think China has quite a bit of pull here. In that as QE3 happens and I am convinced it is going to happen sometime this year, I do not know when it is going to export so much inflation to China that it is going to be almost intolerable for them.

And I think that we are forgetting that if China says, “Okay, guys, we have had enough of this. If you do any more QE-ing we are going to dump the U.S. Treasury bonds that we are holding and we are going to use the money to save our own economy.” If we see that kind of reaction from China, it really could put a monkey wrench into the plans of the central banks to inflate this all away.

I think that whether it is that mechanism or another one, at some point we are going to get to a hard wall here where you cannot just print money forever without the unintended consequences coming back and biting you.

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78 Comments

Davos's picture
Davos
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Nice!!!

Nice!!!

Doug's picture
Doug
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Hey Davos

This must be old home week.  Dogs back one week, Davos the next.  Welcome.

Great interview Chris and Erik.  I look forward to a continuation of this conversation.  One question.  It seems I hear more and more rumblings about China, Russia and others already dumping US bonds.  Do either of you have any sense of how big that is so far?  And, how will we know when the trickle is about to become a flood?

Doug

plato1965's picture
plato1965
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Bernanke/Schwarzschild radius...

CB balance sheets as black holes (not to be confused with Black-Scholes) for fictional collateral...

I do like that concept... (as a pure idea, if not as a policy) Chris.. :o)

 Also interesting concept from Erik, that the debt crisis is designed to concentrate financial into political/legal power...

 Rehypothecated from the financial frying pan into the political fire..

  To add a slightly unorthodox idea.. are the "nations" really competing ? 

Thinking here of the principles of Oligarchic Collectivism..  - Orwell style.

  http://en.wikipedia.org/wiki/The_Theory_and_Practice_of_Oligarchical_Collectivism

I dunno...

 but by the exercise of doublethink he also satisfies himself that reality is not violated . . . To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary. Even in using the word doublethink it is necessary to exercise doublethink.

 see: "Fedspeak."

 

 Anyway. Nice interview.

Erik T.'s picture
Erik T.
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Davos wrote: Nice!!! Holy
Davos wrote:

Nice!!!

Holy Cow! I couldn't possibly be more honored than by a first post from such a site legend as Davos. Welcome back my good friend!

ET

JAG's picture
JAG
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Exporting Inflation? Not So Fast

Its great to hear from Erik again, and I'm so happy Davos has poked his head up, but the "exporting inflation" idea is shallow thinking at best.

A $57 chicken pot pie is the result of outrageous endogenous credit expansion, not a global currency war.

You can't blame inflation in China on US monetary policy when the Chinese choose to peg their currency to the USD and pump out bank credit at incredible rates.  

Don't blame the Fed because you will be taking your eye off the real culprit of inflation; investment banking.

Jeff

P.S. It's nice to have some old sparring partners back.

 

Arthur Robey's picture
Arthur Robey
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Good conversation.

Doug, the Chinese are trying to sneak out the back door. They are putting adverts on tv  encouraging their citizens to buy gold and silver. What are they doing? Converting Paper into something of value. I believe that one of the iron ore mines here in Australia is insisting that China pay for their ore in Yuan.  (ouch!)

I work for the Australian Government. 10 years ago the Government garnished my paycheck before I had a look in and placed those funds in a Government guaranteed fund. Then they changed their minds and no longer guaranteed the funds. Yesterday they sent out a form saying we could nominate whichever fund we wanted.

What does that mean? First guaranteed, then not, and then invited to leave? That does not sound like salad days to me. Let me guess. The fund managers haven't got a clue where to park the money.

Do the workers care? About beer, yes. My bosses always rush in to shut down any conversation. They think I am a good worker with weird and embarrassing ideas.

I suffer from massive amounts of cognitive dissonance.

Plato, you have got it. Bernankies bubble has a Schwarzschild radius

Mark_BC's picture
Mark_BC
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I am wondering, why is it

I am wondering, why is it that QE exports inflation? Shouldn't the US also be experiencing it? Is it that the deflation from the collapsing economy is offsetting it? Then why have we not seen $57 pot pies in Canada, since our economy is booming on commodity extraction and definitely not in deflation? Does China feel it more because commodities are a bigger portion of daily expenses?

I applied for New Zealand immigration but was rejected. I guess it helps if you've actually been to the country... Actually, apparently Chile is one of the best bets right now I think. They dealt with a lot of their corruption issues in the previous decades. We have put down some roots there. I think S America is the best overall place to be. My concern about Canada is that although we have the biggest oil reserve left on the planet and a very low overall population density, we are right next door to the US. I could see us being flooded with millions of desperate American refugees. Maybe we'll be taken over by the US, actually that sounds almost inevitable considering the way the media is able to justify the most heinous acts to the American population and get them to buy into it..

Poet's picture
Poet
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$57 Chicken Pot Pie Doesn't Bear Repeating

Nice interview, and some good insights.

I quite agree about the risks. It is interesting to watch how the market herd seems to daring themselves to frolick out in the meadow, despite the presence of sharp-toothed black swans lurking behind the tree line.

And I really love Erik Townsend's take on agility. I hadn't really thought about it that way before. My focus has always been about trying to find a way to build up resiliency, when agility is obviously just as important. Thank you.

However, I think the examples of food prices just don't make sense to me. I've been to restaurants that charge a lot for not much ($50 per person, not including appetizer, soup, salad, or dessert), and they didn't even look that fancy, though they certainly tried to be.

Let's look at other, ordinary restaurants out of Wellington, New Zealand, courtesy of some Googling and Menus.co.nz...

Here's a listing of restaurants under NZ $10 to $20 in the Wellington area:
http://www.menus.co.nz/restaurants/wellington/?&i=10-20-dollars

Here's a couple of restaurants I noticed:

Sweet Mother's
http://www.sweetmotherskitchen.co.nz/?q=home&quicktabs_1=3#quicktabs-1

Maranui Cafe
http://www.maranuicafe.co.nz/user/file/1/Maranui%20Food%20Menu.pdf (PDF)

Now, granted I'm nowhere near as worldly nor as well-traveled as Mr. Townsend. I've only made 3 overseas trips out of the U.S. in the past decade. But may I suggest that perhaps to Mr. Townsend what is an ordinary, "middle-of-the-road casual dining restaurant", is to the rest of us likely something above the ordinary.

Thus, I don't think that a USD $57 chicken pot pie or a USD $31 heirloom tomato salad are noteworthy indicators of exported inflation but of a casual dining establishment's imported aspirations to ambience. There are numerous other indicators of exported inflation available. I just don't think the anecdotal evidence here cuts it.

Poet

 

 

SingleSpeak's picture
SingleSpeak
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Possibly Off-White at this stage...

 

    Erik, you can have a pot-pie at my place anytime, no charge. Looking forward to the Financial Sense interview.

    Erik looking for black swan, Chris postulates perhaps a dark brown would suffice, I'm thinking off-white could possibly do the trick at this stage.

    SS

    Nice 

     to have Sherman on the board. 

Sabco's picture
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 I have no idea where you

 I have no idea where you were eating Eric but I live in Perth Western Australia and those prices are utterly outrageous. 

A typical good restaurant meal for 2 costs about $60-$70 Aus. A family pizza costs $20. A Big Mac meal costs $6.

Sounds like you went to some kind of rip off joint or top class restaurant. 

 

DGCanuck's picture
DGCanuck
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Not a bail-out

 Erik Townsend:   "You tell the taxpayers, look, we are buying, we are buying this stuff up. It is not really a bailout. We are just transferring it from the private to a public balance sheet. But do not worry. It is not bailout. We are just buying this stuff for what it is worth. Well, of course, they are actually paying ten times more than it is worth. And then eventually it gets sublimated off of the Fed’s balance sheet—I, I like that expression—in a way that nobody ever really finds out that, you know, that was a bailout."

 

Erik, we're way ahead of you. It started at $25B in 2008.

 

Canada Mortgage and Housing Corporation Supports Canadian Credit Markets

http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2008/2008-10-10-1700.cfm

 

$25B credit backstop for banks 'not a bailout': Harper

'Market transaction' will cost government nothing, Tory leader says

http://www.cbc.ca/news/business/story/2008/10/10/flaherty-banks.html

 

Then it moved up to $75B

 

2008: ARCHIVED - GOVERNMENT OF CANADA ANNOUNCES ADDITIONAL SUPPORT FOR CANADIAN CREDIT MARKETS

http://www.fin.gc.ca/n08/08-090-eng.asp

 

2009: Special investigation: How high-risk mortgages crept north

http://www.theglobeandmail.com/report-on-business/article727831.ece

 

2012: Connect the housing bubble dots: There could be trouble on CMHC’s horizon

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/connect-the-housing-bubble-dots-there-could-be-trouble-on-cmhcs-horizon/article2310132/print/

 

But don't worry, Canada's banks are the best in the world, eh?

Rector's picture
Rector
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That was great!

Thank you so much for a clarifying interview. You guys are helping a lot of real people navigate the mess we're in. My four kids thank you.

Rector

nigel's picture
nigel
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Presently I am flooded in,

Presently I am flooded in, today i watched a black swan with two babies paddle over the driveway. That aside food price inflation is systemic in australia. I have observed 100% approx since 2008. A large part of that is due to the constant floods and cyclones, however a large part is the food price inflation that Erik is talking about. I have noticed an increase in australian food prices, I frequently travel to other cities and I would agree it is happening. I even wrote in a thread on the subject in the asia/pacific forum in the message boards on this site on the subject of australian inflation.

I always get a chuckle when anyone talks about black swans. I only have to walk a half mile to watch them swim in the lake beside my driveway.

jeanius2's picture
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$57 Chicken Pot Pie

Erik I have a bridge to sell you.

Your example of $57 pie and intimating it is typical of highly inflated prices in Australia destroys the entire article for me. Here in Perth you could eat for a week on that $57 (our family of 4 - 2 adults, 2 teens - spends well less than $150 /week on food).

Or you can dine out and have steak every night on less than $100 as this guy did: http://www.watoday.com.au/entertainment/restaurants-and-bars/one-week-seven-steaks-100-20120104-1pkni.html

Our fuel prices have gone up recently in line with yours, but in general inflation is very subdued at about 2%.

 

RJE's picture
RJE
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My day starts with the price of Oil and ends with Oil

Is the economy a mess and how do I navigate its treacherous waters? I watch OIL, and that means the waters are getting really stirred up right now. Frankly, under a hundred and I'm less concerned, and making good coin. Over a hundred and I'm really concerned, and sitting straight up in my chair. Trailing stops, and paying myself a wage. That's it for me.

GOLD and Silver is my insurance for all other investments.

Erik, was it the best chciken pot pie you ever ate? How about the salad? If the company of your Lady was rewarding then the meal was properly priced. Well, OK, maybe a little pricey. I had campbell's tomato soup and grilled velveta cheese, butter on bith side that was delicious. Cost $3.79 plus $1.21 tip. $5 bucks and had the time of my life because I woke up after surgery...It don't get better than that.

BOB

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Chicken pie

 Don't know where he was eating but it definately wasn't "working class"

I live and work in Sydney, (city) probably the most expensive place in the country and I can tell you if that's working class prices they'd run out of customers in 10 min. Unless we have a vastly different idea of whatworking class is.  Sounds like exaggeration .

Davos's picture
Davos
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Erik's Talk of Exporting Inflation

Percisely 1 year ago today, there was an article on FSN that had a section called, "Bernanke's crimes against humanity, exporting higher food prices to poor nations."  

The $57 pot pie, IMNSHO (in my never so humble opinion), is a "boots on the ground" observation.  Might it be a just a little bit short sighted to say that we agree with ET, or we don't agree with ET on the point that "Bernanke is is exporting inflation", by predicating it soley on the price of a pot pie?

Big picture from 30,000 feet:

  • 54% [and declining] of all trades globally are transacted in U.S. Dollars.  
  • Joemanc just sent me a piece where Buffett wrote, "the dollar has fallen a staggering 86% in value since 1965."
  • One can also go to the BS, (oops, forgot the L), the BLS and use their CPI inflation calculator to get a trend for the purchasing power of our dollar.  When I do this I always watch CM's chapter 16 first.  It's one of my favorite chapters and probably why I continue to drop the L.
  • The bottom line is that our dollar, isn't a dollar, at best it's a "two-center".  Maybe we should start calling it what it is?  Inflation is the most missunderstood and also the most important topic today, and few get it.  Rising prices are a sympton of inflation, they are not inflation.  
  • High prices are caused by three things, and three things only: 1.) the value of the dollars---2 cents and falling--(use gold not pretty other pieces of paper from other countries as your "value measuring stick") 2.) the price of oil, it is in everything even food. & 3.) supply and demand-for which we have 7 billion people all, for some unexplained reason, vying to eat.
  • As mentioned in the FSN article, we, the 313 million, tend to view the rest of the world, the 6.7 billion through what we see.  What we spend out of our income, verses what the rest of the globe spends out of their income on food is very different.  Link to map that shows that the vast part of the globe (excluding fish) pay more than we do to eat.  Can you fathom paying half of what you earn on food? Link
  • Remember too that even if a country exports a lot of food, it still has to import food it doesn't have or can't grow.  Remember also that these countries are very poor, buying food is really buying gas. 

While I agree with my friend JAG that the bankers blew the economy up, I think ET is correct, Bernanke is exporting inflation, or IMNSHO words from exactly a year ago,  "Bernanke's crimes against humanity, exporting higher food prices to poor nations."  I don't think we should be taking pot pie out of context.  I think, once again, ET has nailed it.

I'd add that the most important words on this entire site right now for any of us wondering how this is going to (continue) to play our are (link):  

According to Ludwig Von Mises: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. [Greenspan's housing bubble] The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, [when Paulson cut the "700" billion check voluntary abandonment was tossed out the window] or later as a final and total catastrophe of the currency system involved.”

 

 

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Exporting Inflation

If Erik's observation is that a $57.00 pot pie is outrageous, then I take it as his own personal and honest assessment.  I and probably many others would not only think it outrageous but out of our league.  I wouldn't have even concidered buying it after looking at the menu.  The point is that there is definately a debasement of our currency and thus inflation.  Thus we have a need to buy more gold and silver, as someone said recently, a silver quarter can still buy a gallon of gas.  I helped my daughter buy some silver for her three boys yesterday.  A good start for those youngsters.

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Davos wrote: Big picture
Davos wrote:

Big picture from 30,000 feet:

  • 54% [and declining] of all trades globally are transacted in U.S. Dollars.  
  • Joemanc just sent me a piece where Buffett wrote, "the dollar has fallen a staggering 86% in value since 1965."
  • One can also go to the BS, (oops, forgot the L), the BLS and use their CPI inflation calculator to get a trend for the purchasing power of our dollar.  When I do this I always watch CM's chapter 16 first.  It's one of my favorite chapters and probably why I continue to drop the L.
  • The bottom line is that our dollar, isn't a dollar, at best it's a "two-center".  Maybe we should start calling it what it is?  Inflation is the most missunderstood and also the most important topic today, and few get it.  Rising prices are a sympton of inflation, they are not inflation.  
  • High prices are caused by three things, and three things only: 1.) the value of the dollars---2 cents and falling--(use gold not pretty other pieces of paper from other countries as your "value measuring stick") 2.) the price of oil, it is in everything even food. & 3.) supply and demand-for which we have 7 billion people all, for some unexplained reason, vying to eat.
  • As mentioned in the FSN article, we, the 313 million, tend to view the rest of the world, the 6.7 billion through what we see.  What we spend out of our income, verses what the rest of the globe spends out of their income on food is very different.  Link to map that shows that the vast part of the globe (excluding fish) pay more than we do to eat.  Can you fathom paying half of what you earn on food? Link
  • Remember too that even if a country exports a lot of food, it still has to import food it doesn't have or can't grow.  Remember also that these countries are very poor, buying food is really buying gas. 

Excellent post old buddy, It's great to have you back in the conversation.

I want to ask you about one point that you made regarding using gold as the measuring stick for the dollar. I think this is a false, albeit very popular, argument. In this day and age, comparing gold to a currency is comparing apples to oranges. 

Gold is a market asset and its market value is defined by its price in a given currency, not the other way around. 

You don't define the value of the dollar by how much AAPL stock that it can by, or any other asset for that matter. I can't buy a loaf of bread with my Apple stock, just like I can't buy it with gold bullion. 

I think many people interpret the price action of gold in a macroeconomic context, when history (think of the 1990s) suggests that there is little to no correlation. The price of gold has everything to do with Wall Street profits, just like tech stocks and home prices did in the past. Like other assets, its price is correlated to credit-fueled market speculation, not the value of the dollar.

And speaking of correlation...

People buying gold to protect themselves from inflation are contributing to higher prices throughout the commodity sector, especially food. Wall Street has us by the short hairs. These days you don't even have to play the markets to lose your money to the big boys. 

Thanks for reading....Jeff

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Admittedly, it has been

Admittedly, it has been almost 10 years since I've trapsed around international airports, but a funny thing comes to mind, Gold was listed on every currency exchange window.

AAPL wasn't.

Now one could argue, "Well Gold is a commodity that is traded on many exchanges such as the NYMEX."  

And I could argue back that WTI Crude wasn't listed on currency exchange window next to AAPL either.

But, I'd rather not argue.  If you look at gold as an asset like IPE--- which Amazon bought a 30 percent share of before it realized that pets dot com was in the gravel shipping buisness and people became opposed to paying 45 bucks to have UPS ship a 5 dollar bag of cat litter to the same zip---I understand your view.

I don't share it.

But I realize it is your view.

 

Mine is different.  I feel gold is a currency and has been for 6,000 years.

As Egon von Greyerz says, 'We;ve never, until now, had a situation where ALL soverign countriew were bankrupt and printing all at one time.'

Time is a harsh judge of right and wrong---we'll see who is right, I wish us both well.

 

 

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JAG said...

" The price of gold has everything to do with Wall Street profits, just like tech stocks and home prices did in the past. Like other assets, its price is correlated to credit-fueled market speculation, not the value of the dollar."

and,

"People buying gold to protect themselves from inflation are contributing to higher prices throughout the commodity sector, especially food."

This thinking is so backwards that it boggles the mind.  Correlation does not imply causality.  The value of the dollar is ultimately tied to how many dollars (paper and credit) are emitted by the central bank.  Indeed, all the emission (liquidity) is fueling the stock market... and it is also causing the prices of Gold and Silver to rise as more (costlesslly) emitted dollars chase the limited ( by nature) stocks of Gold, Silver, and oil.  Since most CB's are emitting their own credit money at a rapid pace (http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/) .. it is hard to see the depreciation while comparing the value of one currency against another (ala DXY)... this is why you must view the value through the lens of real assets, and this is why the PM's are so heavily manipulated (for now).... in order to distort that lens of last resort (or maybe oil is the true lens of last resort, since Western bankers don't control that cartel).  As Chris said in the interview.. markets don't provide meaningful information anymore.. neither stocks or bonds.  

Blaming a Gold buyer for causing higher food prices....  I don't even think that deserves a response.

Thank you Erik for passing along your ideas and experiences.  I loved your simple point about how the markets are cheering the way TPTB are dealing with symptoms, but not the structural causes of this crisis. 

 

 

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Travlin
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Welcome back Davos

Davos -- Welcome back. It is good to see you here again.

Erik -- Thanks for sharing your views. They are always interesting.

Travlin

 

Davos's picture
Davos
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 The value of the dollar

 

The value of the dollar is ultimately tied to how many dollars (paper and credit) are emitted by the central bank.  

 

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.~Greenspan autographed the original sometime in the 2000s for Dr. Ron Paul and told him he believed in everyword he wrote, JAG knows Paul's kid so maybe he can score me a copy of that autograph?

 

I find it amazing how people understand counterfeiters should be arrested because they debase our dollar, or "dawler" as my favorite Canadian female reporter calls it, (and I think I made her cry when I emailed her a "Your a moron" email with a link to all the comments she got on 0-Hedge).  But anyway, when Bernanke decides to print people think because he is smart that it won't debase the currency and that holding paper is a good idea.

 

Thanks Travlin & Single Speak

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SagerXX
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Black sparrow?
SingleSpeak wrote:

 

    Erik, you can have a pot-pie at my place anytime, no charge. Looking forward to the Financial Sense interview.

    Erik looking for black swan, Chris postulates perhaps a dark brown would suffice, I'm thinking off-white could possibly do the trick at this stage.

    SS

    Nice 

     to have Sherman on the board. 

Things are so far out of whack and seem to be teetering so precariously, that a single black sparrow could land on the top of the pile and bring it all crashing down. 

One man's opinion...

Thanks for the interview.  Always interested when Chris and Erik get to talking...

Viva -- Sager

David Phillips's picture
David Phillips
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Canada

Erik,

How has Canada scored in your world tour study? 

David

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JAG
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Jim
Jim H wrote:

The value of the dollar is ultimately tied to how many dollars (paper and credit) are emitted by the central bank.  

Sorry Jim, but you are so wrong on this one it's a shame. The credit that the central bank creates is a pittance compared to the credit created in the banking system, especially the shadow banking system. 

And before you counter with age old "money multiplier" farce, try reading something that isn't marketing on a goldbug blog. 

My dollar today buys a lot more house than it did in 2005.

Price inflation is relative to who gets the credit and what they buy with it. The only people gettting credit in America are the investment bankers who invest in the commodity and equity markets. 

Have a good one...Jeff

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RJE
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Inflation and chicken pot pie (this story could go viral btw)

Clearly, inflation has been exported by Ben Bernankster, and Erik (with a k not a c) found himself paying $90 bucks for a salad and a chicken pot pie ( SUPER-DUPER HYPER-INFLATION), and that is unfortunate (Truth: plain silly). I believe however that Mr. T paid too much, and should have left the table , and politely (or not) went somewhere else.

BOB

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David Phillips
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Canada

Mark BC,

I want to thank you for responding to my previous post.  You warned me about Dutch Disease several months ago when I was asking questions about Canada.  I appreciate your frankness. 

Sorry to make your worse fears come true, but my family is set to migrate to Canada from the US next month.  We are not fleeing the US out of desperation. Our migration has been planned out over eight years and we are excited about starting a new life in Victoria, BC.

We saw a long time ago that the US was making some bad decisions and that Canada offered a better future for our children.  Our goal is to obtain duel citizenship so that all four of us will have the option of living in both countries.

Of course  I am curious to learn more from you.

Do you have any further words of wisdom that wish to share before we depart on our journey?

 I am seeking truth and reality, not just pretty pictures.

David

 

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Erik T.
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More on the pie...

I'm surprised by how much the Chicken Pie has dominated the conversation! For the record, I never described Donovan's on the Beach as a "working man's" restaurant. That description found its way into the base post by Adam, probably because I was not as clear as I could have been when I described the restaurant. What I meant to say was that it was more a casual dining than a fine dining restaurant based on what I know of that industry's terminology, and it certainly wasn't the fanciest place in town. When we walked in we were thinking it was going to be "burgers on the beach", but it turned out to be a gourmet casual affair instead. But it was a LONG way from a Michelin-starred fine dining restaurant.

My $57 price quote was in USD. The actual price was $54 AUD. I notice on their website that the menu now says $46AUD - I'm not sure if the price came down since we visited or if that's just an old menu on the website.

Donovan's was clearly not the most thrifty option available, but my intended point was that the problem is across the board. For example, last night we stayed in and ordered Pizza here in New Zealand. Two individual-size (~12") pizzas were $25 and $27 (one was veggie, one had meat toppings), and there was a $9.50 delivery surcharge. We're staying in an upscale town without a lot of competition, so I'm sure there must be cheaper pizzas elsewhere in New Zealand. But one way or another, our "cheap night staying in" involved a $61.50 payment to the Pizza guy.

Erik

 

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RJE
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Come home Erik, drop what you are doing and come home....

...I am so relieved to know that here in America we can still eat rather cheaply, and compared to most everywhere our price for a gallon of gas is still on the cheap side too (Yes, I am aware of how heavily we subsidize our gasoline).

$61.50 for pizza!!!!!!!!!!!!!!! What the %$#%$^*&&()**)(_)+_ Man!!!!!! LOL

Was the pizza pie bigger than the chicken pot pie?

I can't wait for the next episode of Erik and his Lady's excellent adventure.

BOB

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Jim H
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Jag..

Your dollar buys more house because housing is still in the process of mean reverting off a huge mortgage credit fueled bubble, and there is way more housing stock than is needed, or affordable by the populace... so this will probably continue.  Housing is not a good reference point for the buying power of your dollar.  Rents are going up though.  If the CB's were not enabling the status quo through all their outright printing and dollar swaps, then dollars would be a pretty good place to be for savings.  Until that time comes, I will remain a Goldbug, and you can choose to be a Paperbug if you like.   

I understand how fractional reserve banking works.. what the CB's are creating now is high powered money that can, and probably will be the tinder for the ultimate hyperinflationary firestorm.... this coupled with all the dollars that have been emitted abroad, and that will ultimately find their way back to our shores in the end game.  

I am not a banker, but I sure as heck took advantage of this cheap credit with my new 3.87 % 20 year fixed mortgage.

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More on: Your dollar buys more house because housing is still in

Your dollar buys more house because housing is still in the process of mean reverting... 

Bernanke says here that "Housing is no longer a safe investment".  Probably the only thing he ever got right in his life.  Housing has a lot more to fall. 

  • Last I recall shadow inventory was 1.6 million…
  • BUT there were 3.5 million seriously delinquent mortgages (over 4 months late) as of January of 2012.
  • So we’re looking at 2.6 million shadow inventory, probably by years end.  They can’t (really wont) cram all 3.5 million in this year.
  • I suppose regular inventory is what? 2.27 million I think in 2011.  Like I said, my RE finger is off the pulse.
  • So back of the envelope we have 1.6m+1.0m+2.3m=4.9m and many more too follow.
  • Of course, an easy way about this is there are about 70 million homes in the U.S. and 12% of them are vacant.  So inventory is 8.5 million, or will be soon.

Like CM says " Given the propensity of bubbles to overshoot to the downside, we can’t discount that a 40% to 50% decline is in store."

Here is what Moron Bernanke wrote in his crud book, good for kindling if you don't get the electronic edition.   

The “debt crisis” touched all sectors.  For example, about half of all residential properties were mortgaged at the beginning of the Great Depression…

The proportion of mortgaged owner-occupied houses with some interest of principal in default was in none of the twenty-two cities [surveyed] less than 21 percent (the figure for Richmond, Virginia); in half it was above 38 percent; in tow (Indianapolis and Birmingham, Alabama) between 50 percent and 60 percent; and in one (Cleveland), 62 percent. For rented properties, percentages in defaul ran slightly higher.

Now here he is on CNBS contradicting what he published in his book years after it was published.

2005: http://youtu.be/HTzMY5lYlJk

And we can even add to this if we so choose.  

During the FOMC 2005 meeting these (ehems) were laughing about the housing bubble that this ehem chairman was lying (when he was at the White House (pre-Fed Chairman but post Llyodd Blankfein's housemate at Winthrop in Harvard)) on CNBS about.

“–I offer one more piece of evidence that I think almost surely suggests that the end is near in this sector. While channel surfing the other night, to the annoyance of my otherwise very patient wife, I came across a new television series on the Discovery Channel entitled “Flip That House.” [Laughter] As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas, and access to a bank, you too could tap into the great real estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis. [Laughter]~David Stockton, Dec. 13, 2005, economist and Fed comedian.

And wait...there's even more!

Remember this guy?

 

Education: Julliard School.  Hitler taught us the world needs more artists, even if their art (ehem).  N.Y.U. B.S. economics, M.A. economics, dropped out of Columbia (to follow Burns to DC to learn how to chase power and powerful positions). PhD N.Y.U.  His NYU dissertation—removed upon his request when in 1987 he became Chairman of the Fed.  One copy remains out there and it includes a discussion of soaring housing prices and their positive effect on consumer spending. It even anticipates a housing bubble and collapse.  He noted that homeowners were refinancing for larger amounts than their original mortgages, monetizing their appreciation and then spending the excess cash on goods and services.  Economists had missed this trend.  He also wrote in his now secret dissertation,

“There is no perpetual motion machine which generates an ever-rising path for the prices of homes.” …”break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building.”

_________________________________________________________________

The entire problem is that most people don't have a clue what deflation is.  FY2006 30% of the buyers were sub-prime, they're gone.  The negative externalities derivatives created wiped out about as many prime borrowers.

People run around saying money dried up, there is no credit.  Bee-s!  The buyers are GONE.  It is supply and demand.   Not "deflation."

It pains me because I have a lot of good friends who are deflationists.  They are incredibly uber-intelligent, but they have this one flaw being able to wrap their minds around this and the bottom line is that in this sense they are different from horses.

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JAG
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Jim & Davos

LOL.....I need my Saturday night beer.

All the best....Jeff

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Mark_BC
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Posts: 398
With interest rates so low

With interest rates so low why would anyone purchase real estate in the US as an investment? It can ONLY go down! Why not take advantage of something that will hold its value and maybe even appreciate? There's millions too many houses. They are made of plywood. They rot and get looted when not maintained by OWNERS. I can understand if you want to refinance your own house but I sure wouldn't buy one for investment. I look at all these glass condos going up in my City of Glass, gawd why would anyone pay half a million bucks for a closet?

I got an electric car and I think that within 10 years (more likely 2) when we see where gas prices are going it will have turned out to be a very good investment. There are very few electric cars in the world right now.

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 My head hurts just

 My head hurts just watching...get me a copy of that Greenspan autographed 1966 Ayn Rand Objectivist piece from your doctor frined and maybe I'll forgive you.

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Davos
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The # 3 Search at my little blog?

 

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Jim H
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Enough about chicken pot pie already...

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goes211
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Is gold money?

First I would like to say it's nice to see some of the old-timers on this thread.  If you guys actually stick around, it would make CM.com a more interesting place.

As for the question of if gold is money, the truth must lie somewhere in between.  Gold certainly has a history of being money but it is hard to say that is what it is acting like as now.  Maybe it is in the process of reemerging as money but it is hard to see how that can fully happen when it is measured against an entity that can be created without cost and then is taxed on the basis those artifical gains.

One thing is for certain, it is not as simple as Jim saying "The value of the dollar is ultimately tied to how many dollars (paper and credit) are emitted by the central bank. ".  One look at a chart for monetary/credit growth vs gold price between 1980 and 2001 should make that pretty obvious.

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Davos
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Where the heck is MachineHead??????

First I would like to say it's nice to see some of the old-timers on this thread.  If you guys actually stick around, it would make CM.com a more interesting place.

 

Where the heck is MachineHead??????

David Rosenberg: “The Best Currency May Be Physical Gold”

&

“You know why Warren Buffett doesn’t like gold, doesn’t understand gold, because gold has out performed his stock in the last ten years by three and a half times.”~Egon von Greyerz (KWN link)

 Link to Zero Hedge for the chart.

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ao
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pass on early generation electrics
Mark_BC wrote:

I got an electric car and I think that within 10 years (more likely 2) when we see where gas prices are going it will have turned out to be a very good investment. There are very few electric cars in the world right now.

For good reason.  You never want to buy first generation technological devices.  It almost always turns out to be a bad economic choice.  They're already recalling the Volt.  There will be other unanticipated problems as well until they get the bugs worked out.  And if it is a pure electric, the range problem would be a deal killer for me. 

ao's picture
ao
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Posts: 2220
inflation

You boys may want to review this little gem from our old timer friend strabes.

http://csper.org/lesson-61-sovereign-money.html

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Travlin
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David Stockman dynamite
Davos wrote:

Where the heck is MachineHead??????

David Rosenberg: “The Best Currency May Be Physical Gold”

Davos

MachineHead left soon after you. I miss him very much. I PMed him with no reply. If anyone can contact him to encourage him back, then please do.

David Stockman gave a dynamite interview to the AP. He wants to go on record with a national audience. I found it via the first poster in the David Rosenberg article. The first time I ever found a post that was worthwhile after a Zero Hedge article! You all need to read this.

http://www.usatoday.com/money/economy/story/2012-03-03/david-stockman-says-economic-disaster-lurks/53339644/1

Travlin 

 

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nickbert
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agility
Poet wrote:

And I really love Erik Townsend's take on agility. I hadn't really thought about it that way before. My focus has always been about trying to find a way to build up resiliency, when agility is obviously just as important. Thank you.

+1

Agility and flexibility is my family's focus as well.  For us and at our stage in life and available resources, we have a selective advantage in mobility and flexibility over trying to buy and establish a home.  If one is young, odds are that agility is your biggest advantage!

Another selling point of the "agility path" is if one has close family that is in the other position, and you and they are willing to pool efforts and resources.  This is the case with us, where our extended family have established homes they own outright with gardens and a couple other modest resiliency measures, but little mobility or flexibility in the economic sense.  I think we are better off complementing each other's strengths & weaknesses rather than us weakly duplicating what they already have (and having to go into debt to do so).  I kind of suspect that their retirement means will not live up to the promises and eventually they will need any income we can bring them, and we can't do that very well if we're working through mortgage payments or can't move to take advantage of opportunities.

Lastly, I like Erik's outlook on traveling to see what place he and his significant other might like to eventually settle down and comparing pros and cons of each place.  You never know what you might be missing if you don't go out there and see new places.  Even if after all that you find that the place you originally called home is the best place for you after all, you will still have acquired some great experiences.

- Nick

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Sabco
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 The Aussie Dollar was

 The Aussie Dollar was around 0,60-0,70 US$ About 5 years ago. Now it is 1.08 US$ I don't think the US has exported its inflation. They have devalued severly which will feel like inflation whenever you buy something overseas.

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derelict
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Sanity

I sense some confirmation bias going on wrt the food/menu prices issue. So many folks want to believe the end is near - and maybe it is! - that the story of a 50+ dollar "pot pie" gains traction.

First of all, Erik needs to get out more.There are plenty of great places to eat in Melbourne that will be $20/main, or there's a huge Chinatown area filled with authentic, tasty and inexpensive places to eat. At Donovan's you're in St Kilda, it's trendy, and you're overpaying. Maybe sitting on an outdoor patio with a view of the ocean is worth something extra, I don't know. Lot's of people think it is, at least for special occasions.

OK, New Zealand has Pizza Hut and Dominos like everywhere else. You can look up their prices on the net. But maybe the gold standard for designer pizza is the Hell's pizza chain. hellpizza.com. Pick a 12" nice pie like Lust or Wrath click through the menu and you'll find it's $15.50. "Pepperoni, Salami, Ham, Bacon & Cabanossi, Lashed With Your Choice Of Sauce. e.g, BBQ, Sweet Chilli, Smokey BBQ or Tomato."

So again we must be talking about something extra special at $25+. Nuff about that.

Yes you do pay for delivery in NZ. It's $7 from Hell's, though you'll sometimes see free delivery added in as an offer. Let's talk about this, and about why it is so. In NZ the minimum wage is $13. So if you work a 5 hr shift as a pizza delivery guy, say from 5-10 PM, you're going to earn $65, plus you may need to cover vehicle costs if it's not a company vehicle. Well, in NZ people don't tip, so the pizza company can't count on hungry (desperate?) employees willing to work basically for tips plus a minimal salary.

When I waited tables in the states I was paid $2.01/hour. Don't know if this is still the practice, or if this is in all states, but you were essentially free labor to the restaurant. You could work a lunch, have your station shut down after a few tables, and walk out of a shift with ten dollars in your pocket. That's unfettered free enterprise for you.

So as we globetrot around the world it's interesting to look at the nitty gritty details of life and how things work in different places. What would it look like to raise the minimum wage in the USA to a liveable amount? What would that do all the way down the - literally - food chain.

But the idea of a $50 pot pie has legs, because it sounds so outrageous. Hopefully it was a good pie. But the fact is, if you're not choosy, you can buy a classic meat pie in any dairy (Stop n Go) for under 5 dollars. These are the frozen burritos of australasia -  but you won't get the ambience, you won't impress anybody, and don't mind the petrol fumes while you unwrap it and gobble it down on the sidewalk.

 

 

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Davos
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David Stockman dynamite

 Thanks Travlin,  I'll check out Stockman.  I'm going to email Mike P, I had dinner with him over the summer, and I'll email Farmber Brown and 2 Beers With Steve.  Stockman is a good guy, he reads the blogs, he donated support money to Jim Quinns burning platform too.

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joemanc
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Posts: 834
Prices

Erik is right. I traveled to Sydney several years ago and was shocked at some of the prices. Even the Subway sandwich shop was expensive, and this was when the US dollar was buying 1.20 Aussie dollars. And I'm used to high prices as I live in an expensive state and work in one of the most expensive places in the US. I went to Quebec last month and again, some of the prices I saw on things like food, drink and fuel(high taxes) just made me scratch my head how folks can afford to live. I think Schiff said it: The US biggest export is inflation.

As for prices in the US - other than houses, I'm still waiting for those to come down. Just bought a roll of insulation at Home Depot the other day. Was less than $10 in the winter, now it's $15. I need to invest in tissues for the deflationists, they are going to need them.

Welcome back Davos. Who knew my little weekend getaway down to Virginia would get both you and Dogs back to the site. We need machinehead back too.

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Davos
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Prices

 Thanks Joe, it was great to finally me you, Dogs & Cat.

Travlin, that was a super read.  

Here you have Stockman the ex-budget director holding gold and totally out of the stock market.

And check out the crew slamming gold.  

  1. You have a moral degererate wall decorator  (don't click on this link if you don't want to see disgusting skulptures).  Roubini's investment research firm is on the block after loosing $2 million.
  2. You have Buffett whose stock has for the last 10 years been out performed by gold by 3 and a half times.
  3. And Bernanke.

I hate gold, but I wouldn't even let them look for me when crossing the street.   Barbourous relic?  Barbourous wall decorator.  

Travlin's picture
Travlin
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Round ‘em up

Davos and Joemanc

By all means, round up the old stalwarts. The lull before the storm is coming to an end. We’re going to need them.

Travlin 

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KugsCheese
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Posts: 1392
Mark_BC wrote: I am
Mark_BC wrote:

I am wondering, why is it that QE exports inflation? Shouldn't the US also be experiencing it? Is it that the deflation from the collapsing economy is offsetting it? Then why have we not seen $57 pot pies in Canada, since our economy is booming on commodity extraction and definitely not in deflation? Does China feel it more because commodities are a bigger portion of daily expenses?

I applied for New Zealand immigration but was rejected. I guess it helps if you've actually been to the country... Actually, apparently Chile is one of the best bets right now I think. They dealt with a lot of their corruption issues in the previous decades. We have put down some roots there. I think S America is the best overall place to be. My concern about Canada is that although we have the biggest oil reserve left on the planet and a very low overall population density, we are right next door to the US. I could see us being flooded with millions of desperate American refugees. Maybe we'll be taken over by the US, actually that sounds almost inevitable considering the way the media is able to justify the most heinous acts to the American population and get them to buy into it..

Well, the US reported inflation is under-reported (see John Williams Shadow Stats).   Then the Velocity of money is not very good so that is keeping a lid on the hot money.  But Velocity could take off at any time so the US would be in real trouble then.   Think $50 pot pie one week then $100 pot pie 3 months later.

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