Preparing for the end game

The century of inflation 1913-2013
More on that tomorrow…

Preparing for the end game

Today is October 1. 2009. I have called for a market crash this October. I have called for preparing to short the markets aggressively. I still urge you to be prepared, always prepared. But, it is too soon to say if it will materialize. Perhaps the massive stimulus programs will give us another run for the money.

Your situation right now, dear reader can be compared to a mom and pop store owner, say a small lamp store (you) – located next to a luxury Italian furniture store (the government). The furniture store owner also owns the building you’re both in, and drives all the traffic into your store. The building is worth USD 10 million. Recession arrives, and the furniture store owner starts loosing money, big money. He has to call it quits, or raise the stakes. His wife and friends are employed in the store, he feels he cant’ loose face and close. As he owns the building, he goes to the bank and takes out a loan on the value of the building. He already has a loan of 3 million on the building, he lends another 3 million totaling 6 million and puts 3 million into his furniture store. Effectively he bails himself out. He takes his own ability to lend on his fortune, to bail himself out in the present. He is consuming his capital. But, right there and then – everything looks fine. He’s wife is happy, he can come home and rest in the afternoon – just like he is accustomed to. All is well – right?

This is precisely what the government has done. It borrows on the citizens ability to pay future taxes (or the stupidity of lenders to think they will be repaid in non-depreciated currency), and bails themselves out in the present to create the illusion that all is fine.

This is your situation right now. You were saved by someone else’s bailout. If he had called it quits, you would have been gone too. But instead he raised the stakes, so you have been given some time. Can he bail himself out again? Perhaps? Perhaps he can lend another one to two million, if he is stupid enough. Perhaps not – it’s not your call anyway.

You see that the furniture store is loosing money, but he does still have money to go for another year or two. And perhaps the bank will even lend him that million or two more on the building – hard to tell. But sooner or later, the furniture store will go under – and you will go under with it. You can not survive if the store is empty, or a supermarket moves in.

So effectively, what you have is some time. The game is lost, but there is still time. You are a living dead. You don’t have a sustainable business – but you have some time. Some time to make money, before the reckoning.

What do you do?

So we have been thinking what to advice you and your lamp store, what if… what if this stimulus program really is “working”. That there will be another boom, before the final bust. Before the end game. Before the crackup boom. What if this is the fist stages of the crackup boom? Because we are pretty confident that this, if it materializes, will be the last boom of the inflating 20th century. Firstly, this boom will be shorter than the previous, is is built on such shaky grounds. We’ll give it two to four years. Hmmmm. That happens to be about 2012. The Federal Reserve was created in 1913, and that’s when the inflation madness began. How fitting if the final crash comes at the centennial of the Fed 2013 – what a spectacular way to go down.

This boom will be shorter, and it will be more “shallow” in nature. The markets are truly spooked. The financial markets are lifted, that is the prices of equities are lifted, but investments in long term production assets will probably not be euphoric like the financial markets. This is hot money, super hot money driving the markets.

So, ok. Let’s say there is a rally, two, three or four years. Should you participate? Should you invest, should you leverage, should you borrow? Regardless what you do you should do as my old friend Sture Eriksen used to say an “stand near the exit door”. When this thing comes crashing it will be fast, and you should be able to slip through before the stampede.

In general we do not favor debt, we don’t like it. But, if you can leverage and indebt a limited liability corporation – that is something different. This is what it’s for LIMITED liability. So, if you do call this rally as another surf-able wave of inflation you should surf it through a limited liability corporation, not in your own name. Do not co-sign on the liability with your own name – keep arms length distance. Then, invest in highly liquid assets. And then, lastly – “milk” the inflationary gains as you get them by diversifying into other legal vehicles. While the going is good you can “fan out” – spread your assets, spread your risk, diversify and gain control. When the bust hits, this will be much harder.

Ideally you should have two limited liability corporations. One with very low risk, the one you aim to keep for life. Another where you take extreme risk, where you go for quits. As the risk inc makes paper money, phantom profits in the “up” wave – you move money over to the safe house. Any restaurateur will know this model, one company owns the premises another company runs the establishment. This is perfectly legal.

Another free tip, worth hundreds of thousands of dollars is to have different auditors of the two companies. Trust me, don’t aim to save some money by using the same – use different, you can play them up against each other.

So, back to the lamp business.

This is what you should do, this is the recipe:

Incorporate your own personal holding company.
Incorporate the lamp business in a separate limited liability company.
Use different auditors and different banks.
Put yourself on a high salary.
Negotiate massive credit lines with the bank, increase over time.
Negotiate massive credit lines with all supplies, increase over time.
Lend money n the bank to branch out and establish several other lamp stores.
Have suppliers extend more credit to set up more stores.
Sell to everyone you can, even buyers with lousy credit. Extend credit.
Get the auditor to accept low write downs on inventory and accounts outstanding to show large “profits”.
Channel over all profits over to your holding company each year – use the bank credit to actually transfer over real money.
Pay yourself first, don’t have any money outstanding.
When the furniture store goes bankrupt, declare bankruptcy on the lamp store.
Negotiate with the bankruptcy lawyer to do a massive inventory sale, that you get paid very well to do by him.

There you have it.

Please notice that this procedure is perfectly legal. And, on top of this there are numerous illegal tricks as well. The whole things is morally despicable, but no more despicable than what goes on every day in the Central Banks and the commercial banks. In fact, they encourage you to do just this, in fact they WANT you to do this. While the going is good, this is called economic growth. Positive Gross Domestic Product GDP. And people had jobs as well – great!

The bank will lose money in the bankruptcy, sure – but that really does not matter for the state will bail the bank out. And in the good years they made money on you – right?

And so it goes.

Hans Lysglimt
Oslo, Norway
October 1. 2009