QE explained, and panic ahead of Fimbulwinter

SuFimbulvetrmmary: summer is coming, yeah! But there is an economic fimbulwinter lurking beyond the current monetary madness.

How does QE work? What does it mean for your investments? Focus on skills and gold, but don’t worry about war, pestilence and famine.

Length: 2679 words

What is QE, and how does it cause a Fimbulwinter?

I’ve got a private holding company called Fimbulvetr (which means fimbulwinter; the 3 consecutive winters without summer that are harbingers of Ragnarok=Armageddon).

As of now Fimbulvetr Invest doesn’t really hold anything, except my VC consultancy start-up and miscellaneous blog and podcast revenues.

In the last annual report (which was written by hand on just half an A4 paper) I wrote “The basis of Fimbulvetr Invest is to profit from the coming economic meltdown. Since no profitable doomsday investments have presented themselves, the company has not had any operations in 2014”.

Buckle up, winter is coming, season 6

It started in 2011, with the first serious consideration of the Euro crisis. It had by then been clear for some time that Greece never should have joined the Euro, that easy money in an economy used to, addicted to, a depreciating currency had created all kinds of problems, not least too much bad debt and unsustainable bank bubbles.

The same things were going on in Spain and Portugal.

Winter kept coming, with season 2 in 2012 and season 3 in 2013. Every time, Goldman Sachs the ECB stepped in with increasingly retarded monetary measures to “save” the Euro. We’ve now reached the premiere of season 6 of the pan-European tragicomedy and nothing has changed, except that the wildlings have breached the wall and the whitewalkers are drawing closer.

Why worry?

The head of ECB, Mario Draghi has entered the realm of imaginary (negative) interest rates, increasingly large money printing schemes. Meanwhile, the European periphery, as well as the center, are burdened by ever more debt, while growing ever slower. As a twist to the story an army of migrants are crossing the narrow sea, despite lack of adequate experience and ships , while increasingly extreme leaders are gaining power throughout the continent.

We’re even talking seriously about a Brexit from the European Union instead of a Grexit from the Euro. Well done, script writers; very creative plot. Maybe we’ll see the strong countries exit instead of the one’s who never should have been allowed to join the EU or Euro.

The euro and the EU will not stay the same for another decade, the question is only in which season the seven kingdoms will split apart.

But should you be worried?

Should you fear war, pestilence, famine and death (of money)? Should you hoard gold and construct a Bug Out Location (BOL) where you can barricade yourself? Let’s briefly examine the four horsemen one at a time.


Well, it’s not a good thing that low oil prices are pressuring states like Russia and the middle east. What’s worse is North Korea’s insistence on testing nukes. On the other hand, Iran seems to be reforming for the better and IS has started to lose ground. In addition, terrorism in general seems to have flattened out, so all in all, the risk of war perhaps hasn’t increased lately, even if it’s about time now for a large conflagration.


Ebola, Zika and various swine and avian influenzas are sure to find their pandemic way sooner or later, but I wouldn’t worry about that anyway. When it happens it happens; the risk of airborne mutations is about the same at all times.

Sure, it’s not discounted in stock prices, but the risk hasn’t changed meaningfully. Multi resistant bacteria is probably a much bigger threat, but there are promising solutions (bacteriophages, e.g.). In other words, no need to worry about going back to pre-antibiotics times (before WWII).


The bees are dying, but there are other ways to pollinate (other insects, insect robots etc.). Climate change is disrupting some food production, but there are ways around that too, thanks to wild strains of various food crops, not to mention artificial biology and GMO. Fresh water is becoming more and more scarce…

However, all of the above is really ‘just’ an energy problem. With cheap oil and progress within solar (and possibly nuclear; both fission and fusion), as well as various water filtering technologies, including nanotechnology and graphene based, I’m not worried.

As an energy aside, I recently learned that Lene Hau (famous for stopping light in a Bose-Einstein condensate) has turned to improving photosynthesis, by manipulating various enzymes on a graphene plate. There are many other projects working on clean energy, carbon capture and biofuels, so I’m not worried.

Death (of money)

With zero or negative interest rates, infinite QE (money printing), outlawing cash (large bills to start with), what will happen to your savings? Should you go into Bitcoins or some other cryptocurrency?

Should you buy gold? Physical?

Are stocks, real estate, commodities or bonds your best bet?

Do you need to go as far as to build a BOL, complete with weapons, physical silver and gold, and food stocks?

Economic darwinism is dead, due to fiscal policies protecting misbehaving companies and private individuals, with central banks as the key enablers. In addition, low interest rates promote malinvestment and speculation, instead of skill acquisition, savings and growth, in a vicious cycle with increasing fervor that is all but impossible to back out of.

Despite all that’s been done, including printing trillions of dollars (and all the unintended consequences, seen and not yet seen), there is no escape velocity. And now rates are lower, debts higher and growth slower, making the system even more vulnerable.

After the initial bounce in 2009, there was a chance to step back and let the market clear, let insolvent banks and badly run companies make place for more viable alternatives, to prevent moral hazard, increasing leverage and speculation. But now, there are no good choices left. A normalization would be devastating, and more of the last 7 years’ policies will make the situation and eventual outcome even worse.

In any case, don’t hope for easy employment opportunities but prepare to create your own.

Why do they do it? Why are central banks printing money, when they should know it will all end in tears? My best guess is that they have studied the same simplifications (lies) of economic theory for so long they have lost touch with reality.

If they actually do understand what is happening, they are willing to push the system further toward ruin for just another round of bonuses for them and their friends in politics and investment banking.

Power corrupts, and the absolute power to print money corrupts absolutely.


Quantitative Easing

How does it work, where does the money go? Why are asset prices rising but there is no official inflation? Is QE and NIRP (negative interest rates) any different from very low rates and no QE?

At least we know QE and NIRP haven’t had any effect. Given other variables since 2008, the economy is basically at the same level as would have been expected without QE and NIRP.

The only discernible effect has been fanning the willingness to accept risk and to speculate on rising asset prices. Mechanistically, the central bank buys government debt on the market. The cash is then passed around the system like a hot potato, driving up bond prices and, on the margin, through cross asset allocation, stock prices and other asset classes as well. Eventually the cash finds a home with somebody willing to hold it at zero or negative interest.

Funny thing now is that some savers are paying interest to hold an account or a bond, while some mortgage borrowers in Denmark and Belgium are getting paid to borrow money on their house. Tell me that that is the hallmark of a sound economy…

Remember that all cash, all stocks, all bonds are always held by someone. All cash is always on the sidelines if you will, ready to buy other assets if the risk appetite is there. All stocks are also always held by someone, ready to be sold at lower prices if risk aversion increases.

QE creates more cash, which needs to slosh around the system for a while before it finds that marginal owner who accepts zero interest (for the time being). On the way there it drives higher asset prices (and lower prospective returns on those assets – that is an important point, the higher and faster an asset rises, the lower its future returns will be).

This process in itself has fueled risk tolerance the last 7 years (rising asset prices made marginal investors believe QE “works”), creating a positive feedback loop of rising asset prices, belief in the omnipotence of central banks, and increasing risk tolerance.

It’s not clear how long this process can continue. On the one hand it takes ever larger interventions to stop a collapse. On the other hand, in theory central banks can print infinite amounts of money and buy the entire bond and stock markets at current or higher prices.

Then what?

That would certainly be the death of money, so I don’t think they’ll go there, but who knows… As long as Yellen and Kuroda get one more paycheck they just might do it. On the other hand, financial markets are showing signs of distress, in terms of increasing variability between and within asset classes; e.g., junk bonds are signalling increasing fear of losses, even if (U.S.) stocks are close to all time highs.

Don’t forget that the Fed was fighting the bear markets of 2002 och 2008 throughout the entire halvings of the stock market. Unless central banks go full retard QE, I don’t think stock markets will do any better this time. The alternative is even worse, but impossible to analyze, so let’s hope it’s not too different this time.


Inflation & deflation

Should you fear inflation or deflation? Will debts be forgiven?

The economy is deflating. The reason is that too low interest rates for decades have pulled forward productive investments, leaving only poor alternatives and thus low growth going forward. In addition, more and more resources have been reallocated toward financial innovation and speculation. And yet other resources spent on bridges to nowhere, a.k.a. malinvestment. That’s why economic growth is so anemic, and real jobs are scarce. In fact, malinvestment initially shows up as positive GDP growth, before the wasteful truth is revealed.

At the same time inflation is higher than official gauges tell you. Asset price inflation has been very high. Sooner or later that money will find other places to go, perhaps real assets like commodities, precious metals or real estate. Once stocks falter, we might get a scenario of falling stocks, rising commodities and rising consumer prices, forcing central banks to raise rates just when stocks have already started falling from historical all time high valuations. Demands for higher wages just may make matters worse, when increasing loan service costs and other expenses eat into budgets, thus increasing measured inflationary pressure.

Anyway, I think, we’ll first see continued deflation, then inflation, perhaps very high inflation. That in turn could disrupt productivity further and cause all the extra money printed over the last few years to chase fewer goods (leading to yet higher inflation, despite a recessionary environment). The scenario is all too similar to that of the stagflation in the 1970s, which ended with Volcker having to raise rates well into the double digits, and stocks being the only asset class you couldn’t invest in.

What happens if central banks suddenly cancel the government debt they are holding? Then governments will be debt free and have room to spend freely on welfare again, as well as lower taxes. Is it possible? Is it legal?

Never mind legal, if there is a will there is a way. The question is would it “work”? Could you in fact run a country without collecting taxes, living on QE and forgiven debt? It doesn’t make any sense, and it should destroy all confidence in authorities and money, but I don’t see exactly how.

Anyway, if that happened, real assets should benefit, i.e. commodities, real estate and precious metals, but possibly stocks as well, even if they already are 100% overvalued in current currency terms. There would be chaos of course, but owning companies with good cash flow should be better than holding cash. Holding debt with fixed interest could mean that debt will be more or less erased.

Sometimes I consider borrowing as much as I possibly can, and hope for the death of money… But, then again, I have a hard time believing this time is that different.


What’s the point?

Is there any reason to worry, i.e., can you do anything about it?

The authorities seem hell-bent on going full retard; what does that mean? Can they prevent a market melt-down or will we see a repeat of 2002 and 2008, just worse?

Will there be skills barter (instead of using official state currencies) in the future and more or less a restart of currencies, rendering bank savings worthless (and debts erased)?

Are stocks still the best bet?

I don’t hold the answers to these questions. Actually, I’m betting that this cycle will be more or less similar to all other cycles in modern financial history, rather than a new era of infinite QE and erased debt and (major) new currency accords.



Hence, I’m not advocating BOLs with weapons and physical gold, or preparation for the four horsemen of the apocalypse.

I’m content with waiting out a profit recession, a significant stock market correction and maybe even rising interest rates and a break-up of the euro, while speculating on paper gold, silver and oil, as well as select small, public or private companies and my own ventures.


Always be investing

Most importantly though, just in case the feces really hits the AC system, I focus on keeping healthy and my skill set up to date, not least the skill of being able to focus, do deep work and learn new things quickly.

I’m always investing in myself, and so should you, no matter what money illusions the central bank charlatans are attempting.

By all means, keep speculating on all time high valuations rising even further, thanks to exponentially increasing QE, but remember that only the first ones to panic will get out of the door. I think there will be better times to invest in stocks than 2016, and don’t think it’s a big deal if I miss one year of returns if I’m wrong.

You missed the stock market during your first 18 years of life, and you’re still standing, aren’t you? Future generations will miss the coming decades of stock returns. Do you think they are forever doomed because of that? On the other hand they have more time on their hands than you.

In addition, even if there are better and worse times to start buying stocks, buying and holding does work if you’re patient enough. Sure, your stock portfolio just might not go anywhere between now and 2040, but after that things should look brighter. What’s a few decades between friends? It evens out over a century anyway, and you don’t have to spend any time on research and timing.

My bet is firmly in the bear camp for now, with most of my liquid funds invested on the short side, as well as in (paper) gold and silver, though I am carefully investing on the long side in select private and small, forgotten, public companies as well, such as Opus, BrainCool, Peptonic and Stockwik.

I’ve got no oil related investments for the time being, but I plan to buy in the next significant downturn.

Stay tuned by subscribing to my free newsletter. There is a free e-book in it for you as well.

25 Replies to “QE explained, and panic ahead of Fimbulwinter”

  1. Excellent Article Micke!
    Perfect explanation and conclusions of the QE and NIRP situation all around the world. :)

  2. Hyphotetically; what will happen to the concept of money if the margin price of energy approaches zero, incl logistics, etc.?

    (You can think of it as every person on the planet having it’s own private cheap super efficient mobile solar panel – a 20kW iEnergy-gadget (20kW covers most cars on average as well)

    I mean today a lot of “money” is invested in resources producing energy, distributing it, growing foods, heating/cooling stuff, running stuff. etc. etc. More or less everything we do to fulfull our basic Maslowian needs and some more. And a lot of us are also occupied by working this out on daily basis.

    My take is that if energy is really cheap, value of money will be all about control. Control of transactions, taxation (gov cash flow), information, etc. Keeping individuals in debt would be a good way to keep this control. And printing new money to keep asset inflation up would be a tool to do this. Still haveing energy deflation.

    People in general will still buy scarcities, like prime real estate, status symbols, gadgets, etc. to increase self esteem and other higher level Maslowian needs that are not meassured in energy but are in relation to other people.

    Is this what we are seeing looking at stuff happening in surveillance, regulations etc.?

    What is your take on it?

    1. Energy cost at 0 sounds like very close to the Singularity. At that point we would all be creators and barter stuff with each other for kicks…, since all reasonable living costs would be essentially zero.

      Interesting thought experiment but I don’t really have a real world, practical take on it

  3. Amazing article like always Syding !

    Looking forward to the IPO of Fimbulvetr Invest :)

    What instrument do you prefer if you want to short the S&P? (Avanza)

  4. Börsen fortsätter att ticka upp och detta var precis vad jag behövde läsa! :)
    “Vad gör det om du missar ett år eller två med avkastning?” Bra skrivet Micke!
    Är lite nyfiken, dom som du körde Futuris med innan du slutade. Delar dom din syn på världsekonomin eller vad gör dom idag? Alltid intressant att se båda sidorna av myntet som du nämnt förut.

    Ser oxå fram emot att se hur de går med Sheiko programmet när du ska maxa på slutet.. :)

    1. Tjena

      Jag vet inte vad Mattias och Arne gör eller tänker om börsen i stort. Jag tror att de är lite negativa, men jag vet inte.

  5. Great article explaining QE and what it means for global economies! Looking forward to reading more in the future

  6. Fascinating article Mikael!

    Really clarified a few thoughts i had.

    The only area i have [or more precisely had] expertise in was civil nuclear energy sector, which i like to tell everyone i know to go hard and heavy in if they really want to buy time for alternatives for energy generation and also tackle the impending liquid fuel crisis.

    1. Any particular ideas about public companies to buy? Construction, uranium producers, power operators, utilities?

  7. “Sometimes I consider borrowing as much as I possibly can, and hope for the death of money… But, then again, I have a hard time believing this time is that different.”

    I’ve had this thought as well. I can see the chatter about helicopter money from Bernanke and Dalio and I expect it to be only a few years away. If I remember correctly in Lords of Finance the author discusses how the Weimar inflation was a huge boon to those who had financed the purchase of real productive assets and were essentially given factories for free when the inflation hit. It’s tempting. And given that countries are biggest debtors it makes sense to align my interests with theirs. I think for now my plan is to wait/hope for a deflationary crash, then leverage up as much as possible with some real estate and then make my foray into equities. By whatever legal or extralegal means our rulers will try some form of debt jubilee/inflation.

      1. Thanks, Mike. I always enjoy reading your stuff. Do you know of any resources that argue that after the deflationary crash there wont be an inflationary rebound? That we’re simply doomed to be Japan, trying furtively to generate inflation but unable to? I’m trying to challenge my own opinions.

        1. Was thinking about this more. Do you have any advice on how a more normal investor with around $100k in investable assets could pursue such a plan? The best way to lever up at that moment? I’ll have to do my research but any thoughts you have would be appreciated. Thanks!

          1. Not sure I understand what plan you’re talking about. How to use 100k to bet on inflation?

          2. Yes. I’m just thinking of ways the average investor could lever up if they wanted. The idea certainly needs more research.

          3. Options and futures provide more leverage than anybody could need. The difficulty lies in restraining and pacing oneself.

        2. Well, I certainly hope we never have to see high inflation again. I don’t think anybody can say how the economic future will play out. Too complex… Like Newton’s 3-body problem. Impossible.

  8. Great article Mikael!

    I was wondering if you ever looked into this ETF (OUNZ), where you can get delivery of the psychical gold if wanted. Whats your opinion?

    1. No, I haven’t.

      I would like to have some physical gold, but just a little – maybe for a year’s living costs. Other wise I’m speculating on paper gold.

  9. Hej Micke.

    Tack för all användbar information du publicerar här på bloggen!

    Jag tänkte tacka och uppmärksamma dig för dina pricksäkra uttalanden i Börspoddens avsnitt 92(?). Du sade något i stil med att “jag skulle bli förvånad om vi klarar oss över sommaren innan det vänder ner ordentligt”. Kollar man på den svenska marknaden så hade du rätt och det efter ca sju års uppgång beroende lite på hur man räknar. Imponerande!

    Med bland mycket annat analyserna från det podd-avsnittet och din e-bok i ryggen tog jag beslutet att lägga mig nära 100% likvid förra sommaren. Jag köpte lite guld och senare lite olja.

    Ser fram emot mer intressant läsning här framöver!

    1. Tack själv

      Tajmingen våren 2015 var mest tur – och det är förutsatt att vi faktiskt ska ned härifrån…

      Det gläder mig hursomhelst om du hamnade rätt med att gå likvid och även med dina guld- och oljeköp.

      Härifrån tror jag själv mest på guld och på att inte äga aktier.

  10. “Remember that all cash, all stocks, all bonds are always held by someone. ” AND is somebody elses liability. And you probably hold it through a third person in this interconnected world with too much debt and leverage and with no way of even sustaining that debt since lower yields spur more savings and.., etc..,

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