Financial Critical Mass
We must realize, and this is new as we now have experienced technocracy to its logical conclusion: focusing technological advancement on convenience and short-term profits leads to too much indolence
I would like to welcome many new subscribers from JMG’s forum. I enjoy many of the beautiful conversations that y’all have there, and it is such a privilege to have that same positivity flowing my way. Thank you.
There is a disturbing fusion of events taking place all at the same time. When I spoke with The Prudentialist on my podcast, we talked about there being a “critical mass” of many variables, spiritually, financially, politically, and it makes one wonder what this is all leading to. If you are spiritual in any sense, and have surrendered some level of pride, you probably recognize that there is an existential point to everything, and that all of the heartache and strife is for something bigger. There is a purpose to all of this societal dismay and division. That’s why it seems to all be happening at once, and leading to a great disruption, and some transition phase.
Even in just the last twenty-four hours, I have seen news coming out on Evergrande being the biggest default ever (that’s right, bigger than the Mississippi Company), Bank of America having balance sheet issues that could be a crisis of its own, Sen. Elizabeth Warren calling on the SEC to investigate all of the financial misconduct and insider trading of the Fed (she should probably talk about Pelosi’s great stock trades too, lol), the Pandora Papers coming out which hint at a possible $32 Trillion being hidden in offshore bank accounts, Facebook is currently down and apparently had the biggest hack of a century of people’s data, and worst of all, you won’t believe it - the stock market is finally reacting to persistently bad economic numbers. Well, might I even say that the economic numbers aren’t even that bad, lately (which is what I tend to focus on!), it’s just sentiment is bad.
“I’ve been trading stocks for a week and I’ll have you know they only go UP!”
That’s what most of us forget. The stock market no longer reflects anything macroeconomic. Well, you probably are well-aware of that, and it’s not like the average Joe looks at the tradingeconomics.com calendar on a regular basis. You’re typical good-natured, well-meaninged person who is just trying to save for the future throws their money into some type of pension that tracks the stock market, and they only realize that their retirement has evaporated when the news is flashing a bunch of warning signs at them. That can happen really in any financial crisis. Once the sentiment of big money is glaringly risk-off, and you’re having to foreclose on your mortgage, that’s when the typical American gets to finally see the writing on the wall - when it’s too late.
Like Jesse Livermore said:
“The nature of the game as it is played is such that the public should realize that the truth cannot be told by the few who know.”
I mentioned a couple of weeks ago, the S&P seemed to have been making a downward move away from its several month-long trend of going up in a straight line. Now, that has been pretty much solidified, along with other indexes doing just as poorly. What’s the hubbub? What was the magic piece of news; the special catalyst that has sent everyone selling?
Well, you are asking the wrong question. It isn’t your fault, however; as you have been conditioned to ask “why” rather than “who.” It isn’t about some piece of news causing people to sell, albeit, that can definitely happen, but unlike what many people think nowadays, there is a fundamental rule that will never change: stocks only do well when people prefer the stock that they are buying over the money burning a hole in their pocket. Even then, it isn’t like people are drowning in money to blow on invisible assets that they will probably lose money on if they keep treating it like gambling; which is why many of them don’t even care about stocks anymore, they have had time to lose money.
We understand that the market isn’t entirely event-based, but liquidity-based. More preference over money, means stocks sell off. That’s the end of it. Well, why is that? We can definitely see news stories affecting individual stocks, and sometimes whole indexes, but they are never consistent. They are emotional. They maybe even sentimental. You see, the market is simply a reflection of willingness, and that willingness is set by an almost inexplainable egregore of opinions set by recency bias. All recent times are telling people is that there is an increasing sense of dread and mistrust between governments and their peoples. When last year, you could almost bet that we’d be over this totalitarian coup d’etat, and yet we are living in the out-of-touch globalist NGOs’ cynical new world that’s already being heavily rejected by the public, then it’s obvious maybe the powers-that-be aren’t very keen on sticking to their word. Maybe, just maybe, when they say, “We’ll give you back all of your temporary privileges if you just kiss the ring and take your coof meddies!” that they are actually just lying. This new world we live in is actively antithetical to long-term investment, and so will only attract people who get in and get out. It is prone to volatility, and in my opinion, much as Dave Rosenberg and Lacy Hunt hinted at early this year, the manic euphoria will wear off later this year (now), and the onset of economic stagnation will be more recent in the minds of investors, retail and pro.
And, like I repetitively bring up, the money that matters isn’t risk-on either, and you can bring up the 10-Year Treasury going up twenty basis points all you like, it still doesn’t explain dozens of counterparties each putting tens of billions into reverse-repo everyday, and the Fed still buying mortgage-backed securities. We can pretend all we like that it is just the gosh-darned Fed who is keeping the economy down, but it is not; it is inherent deflation built into the system, and the population beginning to flatten out that is the source. Not the Fed playing mind games. It’s fundamental, not technical.
The debt market (corporate bond market, specifically), which is where the real money is made and where the most intelligent investors generally are, is much more reflective of market fundamentals. If a bond investor cannot get their interest payments on time, they are not interested in owning that bond. It says a lot when junk bonds are yielding some pitifully low rates, however, as there is literally nowhere else for investors to make a decent yield. Why is that? Well, growth. There isn’t enough wealth being created for that yield to be achievable. It is why, ultimately, rates on treasuries and corporate bonds will continue to stay low, unless there is some giant, panicky sell-off, which I just cannot see happening. Like JMG said in my podcast, those types of endings never happen except in Hollywood movies, and only because it is narratively-convenient.
In my opinion, the line could easily go back up and achieve all-time highs, I just have less hesitation in thinking that I’m wrong in being a bear. Why? Well, sentiment reflects that of absolute and utter uncertainty and frustration among average people. Why else are people, more than ever, wanting to leave their jobs? There is no giant risk-on moves, no one is eager to start businesses, the population is flattening out, and our political leaders are essentially psychopaths using whatever tools necessary to keep us from realizing the gravy train is losing momentum (and gravy). If you live in an ivory tower and take a private jet everywhere, it is very easy to separate yourself from how slimy things have gotten.
Price Inflection / Price Rejection
My buddy David Carlson (follow him @DavidNC__) sent me a great tweet thread from @Mssr_le_Baron perfectly outlining the issue with the current supply-chain mishap-begotten price conflagration. The issue with prices right now is so distended and maze-like that anyone can just make their guess as to what they want to call the source, but specifically the inflationists so hyperfocused on M2 Money Supply simply refuse to hear the other side. They do not realize what we are experiencing isn’t monetary; it is a slow and steady collapse of the post-WWII attempt at a global-economic regime. To, again, pull from Jesse Livermore’s illustrious, albeit brief, collection of quotes:
“A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.”
Ask anyone with boots on the ground, who see the supply-chain’s inconsistency day after day, and you will get abject confusion:
Lumber salesmen who dealt with mills not knowing how much they were going to need to cut down, so they overstocked, leading to the myth of inflation-induced lumber price spikes collapsing in on itself.
A friend of mine, who works in grocery, seeing the prices of strawberries collapsing, whereas tomatoes skyrocketing.
Mechanics having to pay exorbitant prices for once-basic parts that have now become bizarrely impossible to find. Nothing is better proof, however, than the, now going for several months, ships docked at ports because there aren’t enough truckers to take in all of this supply that, according to any Fed employee, is in just such high-demand from this Keynesian economic miracle!
It all comes back to the uncrackable, perpetual labor shortage myth:
This issue, which is extremely easy to explain, continues to puzzle modern economists. It’s really quite simple:
In an economy that now has less and less dollars floating around, with people who are saving more, and now have to deal with potential commodity price explosions while asset prices stagnate or fall, businessowners aren’t too savvy on raising their pay to accommodate for the lack of a workforce. Sure, they have raised it at a lot of places, but it is generally a sham, like McDonald’s putting up those signs that say, “Starting Pay: Up to $675 a week!” and sneakily putting the “Up To” part in smaller text. If the economy really was just heating up, or fixing to heat up, then wouldn’t these businesses be eager to pay the market-clearing wage?
For the average chronically-unemployed person (which, in the official numbers, doesn’t include people who have stopped looking for work, have been unemployed for longer than, if I recall correctly, a year, and people who are part-time) they aren’t normally the most industrious or bright people. If you took away the dole that they live on (and this is specifically talking about the people who have gamed the system, especially all the coof-era handouts), they would probably end up dead or begging on the side of the street. Sorry to be so blatant, but these people aren’t the types who work, and when they do, it doesn’t last too long. Ultimately, these jobs are late liberalism/late democracy hokum anyway. I will always be the first to say that we, as a society, have gone so far down the hypermaterialist, liberal rabbithole that there is literally decades of malinvestment, spiritual decay, and immoral rot that needs to be cleaned out of the system. That goes for a lot of jobs and lifestyles that are ultimately incongruent to real meaning and virtue; a functional society.
Asset deflation (and even everyday prices) is inherent, a natural law even.
What we are facing right now is the onset of high expectations not being met, or even can-kicked into the future. What we are encountering is exactly what your brain does when it sees a chart like this:
LIBOR (London-InterBank Offering Rate). This is the rate that foreign banks use when lending dollars. The more the rates go down, the more demand for dollars there are, and vice-versa. When there is more demand for dollar loans, that is more dollar-denominated debt being created.
What happens in times of loose money, AKA, economic expansionary periods? Well, people are less interested in having dollars, and more interested in getting rid of them. That means in good times, rates can go higher, because whoever is taking on this debt is able to pay it back (they’re creating wealth that was not there before). When there are times of tight money and investors are risk-off, they will prefer to have dollars (or other cash) as a safe haven. This is what LIBOR tells us. This is what, also, just so happens to predict where the 10-Year Treasury will end up going:
If the foreigners need dollars, then we will most definitely need them as well. There’s dollar demand being created, without the wealth part that makes that dollar demand warranted. We call that the Marginal Revenue Product of Debt, which continues to go down; more debt, especially foreign dollar-denominated debt, and yet less goods and services to make that debt valuable. And with our economy having been built on the Myth of Progress begotten from materialism, we have now reached the point where we no longer can create new things that will sufficiently add to the economy in a way that helps build it, but rather, these technological advancements actively make people more lethargic, more focused on convenience, and therefore, more indolent and stupid. Progress-worship has, ironically, been the ultimate destructor of the so-loved boomer fantasy of stonks doing well forever and housing prices going up in a straight line. We can’t have the Star Trek fantasy future when we’re majority obese and our average IQ is literally going down.
Technology has made our economy naturally efficient, naturally deflationary (prices of things like food have literally been going down until just recently, and even then, for me, it’s still relatively unnoticeable. Not to say that it won’t get much worse), and naturally nihilistic. Now please don’t go calling me an anarcho-primitivist. I’m just pointing out the facts here, and am making you very well-aware of the downsides, as well as the upsides. Everyone knows a boomer who just loves the new technoworld we live in, “Oh, I just love how I can order toilet paper without venturing over to Walmart and perchance seeing my annoying friend Wilma! What heaven!”
There are laws of democracy that seem to be inherent - it’s naturally entropic, naturally leads to extreme division and collapse, and naturally leads to lots of malinvestment. We must realize, and this is new as we now have experienced technocracy to its logical conclusion: hyperfocusing technological advancement on convenience and short-term profits leads to too much mass indolence, too little innovation, too little long-term ROI, and a giant amount of deflation on all asset prices as the system slowly caves in.
We are finally beginning to see this with asset prices rushing to highs as people buy out of fear and mania, and yet no long-term market fundamentals to keep these prices elevated. We are finally seeing this with China capitulating its economic expansion it can no longer maintain for a more totalitarian, but modest, empire. It may even use war to help keep the proles appeased and moralized. Finally, we begin to see the fall of the faux-free market, neocon world crumble, as the American High becomes a distant memory.
I think it is very pertinent we start thinking not in the vision of the future as this technocratic world, nor as a reversion to some glorified American High. Instead, we must realize the laws of nature that are at play here, and not try to disregard them, but rather, embrace the knowledge of how population is peaking, the climate is changing, the economy is and will continue to slow down, the globalized world will and must decentralize before it destabilizes, and that the Dollar Reserve Currency status is the source of so much foreign debt, a broken economic system, and the financial woes we are now facing today. Debt is bad. It is very bad. Get that in your head as soon as you can, because I can guarantee you one thing: any society that functions properly knows how to handle its finances, knows when a surplus is unmaintainable and sacrifices certain infrastructure to maintain its regime, and furthermore treats all of its citizens as one, and not as factions to appease or repel.
"In an urban society, everything connects. Each person's needs are fed by the skills of many others. Our lives are woven together in a fabric. But the connections that make society strong, also make it vulnerable."
The Opening Narration of Threads (1984)