Exter's Pyramid

[durentuMember]

I’m trying to figure stuff out. but I cam across exter’s pyramid, and it seems that we are progressing exactly as this pyramid is drawn. I remember jim willie and greenspan both say that the last bubble will be the bond bubble. right now, I think we are in a commodity bubble because there are supermarkets popping up all around me and 99 cent stores every month it seams …  Next is the bond bubble, then currency crisis then gold/silver.  am I off the mark? Why does this pyramid explain the course of events or bubbles so well?

[hunkered_downMember]

What you have displayed is probably Trace Mayer’s updated Exter’s pyramid.   John Exter was a VP of the New York Federal Reserve.   It would be worthwhile to take a look at his original pyramid so you can understand the evolution of it in the updated version.

In the original Exter’s pyramid, derivatives where not a big component (yet) of the global financial system.  In Trace Mayer’s updated pyramid, the various derivatives are included at the top level.  

Check out the image below.   Things are not progressing exactly in order.  But CDO’s and MBS’s are pretty much inactive.   CDS’s have not collapsed yet but you can easily find signs of stress in that market.   And Sovereign debt is way down the pyramid but certainly in Europe it is showing signs of stress.

Try not to think about it in terms of bubbles.  It will probably hurt your understanding of Exter’s pyramid.  Instead, think of more highly leveraged instruments and markets having the capital in them running scared to lower, safer levels.   As financial positions are de-leveraged, that money tends to seek safety at lower levels.

[XizangMember]

When the SHTF, tangible gold and sliver will trump everything else.   Even the beautiful young bimbos will think you’re hot stuff!

You can’t take your real estate with you when you escape to Panama.  And your stocks will be worth cheap toilet paper.

[durentuMember]

@
hunkered_down

Yeah, that makes more sense.

I remember during the Y2K scare, people had the impression that it was an instantaneous event, not a 24 hour event. This meaning that there will be signs of warning beforehand..

It was something that Harry Browne wrote/said in regards to his permanent portfolio (PRPFX) (specifically designed for the passive, or lazy investor). The permanent portfolio is equal parts stocks, bonds, cash and gold (not silver). And through the 4 stages of the business cycle, 3 of the 4 asset classes will be in trouble, but the 4th will boom and carry the portfolio through. 

One of his arguments is that all phases except the recession, money will be kept somewhere so the flow will keep going towards the most returns depending on the cycle. The only cycle he cannot find an asset class where it was fundamentally linked to the cause of that stage was the recession. His argument was that recessions are inherently self extinguishing.

This concept of “money has to be somewhere” makes sense with exter’s pyramid. Aside from money being in the most lucrative areas, in times of trouble, money will seek the most stable or the most safe.

Something to consider in regards to exit strategies

thanks for the explanation.

[hunkered_downMember]

This concept of “money has to be somewhere makes sense with exter’s
pyramid. Aside from money being in the most lucrative areas, in times
of trouble, money will seek the most stable or the most safe.

Something to consider in regards to exit strategies

thanks for the explanation.

Another concept that is helpful when thinking about Exter’s pyramid is leverage.   Yes, ‘The money has to be somewhere!’   But consider this:  At the higher levels, especially with the updated pyramid with derivatives, there is a huge amount of leverage. 

In the case of CDS’s (Credit Default Swaps) the counter parties don’t have reserves in place to back the contract.  Those banks are considering these things as ‘Assets’ even though there is very little cash there.   As the higher levels of the pyramid vaporize, large amounts of credit are destroyed.   This credit (prior to the vaporization) trades as a money good asset and in a sense is part of the money supply. 

The collapse of Exter’s pyramid is inherently a deflationary event.   But we know the powers to be will get out the fire hoses and spray money anywhere they can to prop things up.   So it gets harder and harder to predict what happens next as the collapse gets more and more disorderly. 

• This reply was modified 10 months, 2 weeks ago by  hunkered_down.

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