Thursday, August 06, 2020

If the "Market" Never Goes Down, The System Is Doomed

The reliance on "good news" narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria.
"Markets" that never go down aren't markets, they're signaling mechanisms of the Powers That Be. Markets are fundamentally clearing houses of information on price, demand, sentiment, expectations and so on--factual data on supply and demand, shipping costs, cost of credit, etc.--and reflections of trader and consumer emotions and psychology.
If markets are never allowed to go down, the information clearing house has been effectively shut down. Whatever information leaks out has been edited to fit the prevailing narrative, which in this moment is "central banks will never let markets go down ever again, so jump in and ride the guaranteed Bull to easy gains."
The past 12 years offer ample evidence for this narrative: every dip draws a near-instantaneous monetary-policy response that reverse the dip and gooses markets higher.
That permanent monetary intervention distorts markets doesn't matter to participants. Who cares if markets have become "markets," simulacra of real markets that are now nothing but signaling mechanisms that all is well so buy, buy, buy? If gains are essentially guaranteed, who cares that markets are not longer information clearing houses?
Indeed. There's no reason to care until the fatal spiral downward surprises us all. Here's an analogy of what happens when real information gets edited to fit a convenient narrative.
Unfortunately, the patient has cancer which is starting to metastasize, i.e. spread to other organs in the body. But unbeknownst to the patient, this accurate information is considered "bad news," so the test results and other information is carefully edited to show the cancer is actually shrinking--the exact opposite of what the actual facts reflect.
The patient is naturally delighted with this false data because it appears he's on the mend and doesn't need any surgery or other drastic treatments.
If participants don't have information that reflects actual conditions, they cannot help but make disastrous decisions. Falsified or heavily edited information is misleading, and so all decisions made on the assumption this information is accurate will be fatally skewed.
Symptoms of the fatal spread of the disease are masked by stimulants that not only mask the spread but give the patient a sense of euphoric power and supreme confidence.
Imagine the patient's terrible dismay when symptoms break through the euphoria and he learns his cancer is now terminal. Increasing the tragedy is his awareness that had the authorities in charge of his care given him the real-world data instead of the carefully edited "happy story" version, treatments could have been undertaken that might have extended his life. Now those options have been lost forever.
That's the situation in our economy and financial system. The information cleared in markets has been suppressed, distorted and edited for 12 long years of permanent and ever-increasing monetary interventions, as the "doses" of intervention required to maintain the cocaine-like euphoria and supreme confidence in central bank manipulation of "markets" so they always signal the "good news" of guaranteed gains ratchets higher on every intrusion of reality.
The reliance on "good news" narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria. Our last chances to clear the financial cancers eating away at our economy are slipping away forever, masked by the "market's" cocaine-like euphoria and supreme confidence in central-bank guaranteed gains.
If the stock market is never allowed to go down, this is the equivalent of telling the cancer-riddled patient that their cancer has disappeared, even as the disease is leading inexorably to the patient's needless demise.
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
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Posted by Charles Hugh Smith at 12:50 PM

Wednesday, August 05, 2020

The Bogus "Recovery," Stress and Burnout

We have three basic ways to counter the destructive consequences of stress.
We have all experienced the disorientation and "brain freeze" that stress triggers. The pandemic and the responses to the pandemic have been continuous sources of stress, i.e. chronic stress, which is the pathway to burnout, the collapse of our ability to cope with the burdens pressing on us.
Authorities keep promoting a bogus "recovery" narrative. The disconnect between what the authorities are claiming and what people are actually experiencing is widening, and these unbridgeable contradictions lead to meltdown. No wonder more and more people are "losing it" as their neural circuitry melts down under the strain of synthesizing what they experience (crisis) and what they're told (the "recovery" is already glorious and getting better every day).
In Survival+ I call this process derealization as our lived experience is derealized (dismissed as not real) by official spin and propaganda.
Research has illuminated how stress disrupts the default hierarchy of the brain. In the absence of stress, the neocortex-rational-mind functions suppress the more primitive subconscious signals of aggression, hunger, etc. in order to concentrate our effort to complete some planned activity.
Everyday Stress Can Shut Down the Brain's Chief Command Center. Neural circuits responsible for conscious self-control are highly vulnerable to even mild stress. When they shut down, primal impulses go unchecked and mental paralysis sets in. (Scientific American; subscription required)
This helps explain the natural "fight or flight" response we feel when suddenly confronted with danger or potential danger, but more importantly it illuminates how we lose the ability to analyze circumstances rationally when we are "stressed out." Once our rational analytic abilities are shut down, we are prone to making a series of ill-informed and rash decisions.
This has the potential to set up a destructive positive feedback loop: the more stressed out we become, the lower the quality of our decision-making, which then generates poor results that then stress us out even more, further degrading our already-impaired rational processes. This feedback loop quickly leads to "losing it" and/or burnout.
In pondering human development over the past 20,000 years of the transition from hunter-gatherer groups to modern life, it seems self-evident that stress was likely to be resolved in relatively short order in the hunter-gatherer lifestyle: everyone was known to everyone else, conflicts had to be resolved simply because the group survival depended on it, and most threats could be fended off with vigilance, weapons or left behind by a few hours of fast walking.
Contrast the ancient environment that selected for this stress/conscious self-control feedback with modern life: in the modern urban life and work environment, stress is more or less constant and our ability to resolve stressful situations is limited because we control very little about the macro social-economic waters we're navigating.
Though this particular article focuses on short-term stress, there is growing body of evidence that chronic stress has a number of subtle and destructive consequences. In addition to the common-sense connection between chronic stress and hypertension, there is evidence that obesity is also related to stress-caused conditions such as inadequate sleep and chronic inflammation. This makes sense as the stress hormones erode the immune system's responsiveness.
Behaviorally, stress breaks down self-control, so it is no surprise that stress leads to bingeing, addictive behavior, impulse buying, etc.--all "knock-on" effects with negative consequences.
Chronic stress permanently degrades our ability to rationally analyze and plan, and so we act irrationally or erratically, as we are no longer able to stick to a conscious plan of coherent action. With the rational mind and self-control centers permanently suppressed, we are prone to withdrawal and passivity, "sleepwalking" though life. This may help explain Americans' remarkable passivity as their civil liberties are taken away and their financial insecurity increases.
Many of the features of post-traumatic stress disorder (PTSD) are now visible in "everyday Americans," and an understanding of how stress erodes rational thought and self-control helps explain why.
Even before the pandemic, over half of Americans reported that their stress level was usually high. (see chart below) We can guess that this already high percentage is now considerably higher, given that 32 million people are receiving some form of unemployment and thousands of small businesses have closed.
Medical professionals were already burning out before the pandemic. (see chart below) What the status quo must cover up is the reality that the structure of our winner-take-most socio-economic system makes it unlivable, even for professionals (or especially for professionals, in many cases).
We have three basic ways to counter the destructive consequences of stress:
1) Develop positive physical and mental responses via discipline, habit and practice (for example, regular exercise, gardening, etc.).
2) Turn off the mainstream media and social media (i.e. eliminate deranging, destructive distractions).
3) Stay focused on our plans. The simpler and more positive the plan, the more likely it is we can stay focused on it in stressful circumstances.
I laid out a context for my own planning in May.
Why Assets Will Crash May 4, 2020
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Jessica S. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.
 
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Posted by Charles Hugh Smith at 11:01 AM

Tuesday, August 04, 2020

TikTok and our Last-Ditch Desperation for Social Mobility

Social media offers hope of achieving higher social status, something that is increasingly out of reach in our winner-take-most economy.
I've often addressed the decline of social mobility and the addictive nature of social media, for example, Why Is Social Media So Toxic?
I have long held that the decline of social mobility--broad-based opportunities to get ahead financially and socially--is part of a larger dynamic I call social depression: the social decay resulting from economic stagnation and the decline of social mobility and financial security. America's Social Depression Is Accelerating.
Japan offers a real-world 30-year lab experiment in the negative social consequences of economic stagnation, a topic I've addressed since 2010: The Non-Financial Cost of Stagnation: "Social Recession" and Japan's "Lost Generations"
The conventional explanation of social media's addictive hold is that it activates the human brain's reward circuits much like an addictive drug: in effect, we become addicted to being "liked" and to checking our phones hundreds of times a day to see if we received any "likes".
FOMO, fear of missing out on some emotion-stimulating "news" or a "like" from someone in our network also feeds the addictiveness.
The innate addictive appeal of social media is pretty clear, but that's not all that's at work here. Being social animals, humans naturally seek to identify their status in the pecking order and improve their position by whatever means are available as a way of increasing their reproductive success and their relative share of resources.
Traditional societies were bifurcated into a small elite and a much larger mass of commoners. As a general rule, social mobility was limited to those extraordinary commoners who were especially valuable to the ruling elite as soldiers, scribes, etc.
From its inception in the early 1800s, the American Dream was to acquire the "good life" via mass produced luxury goods via conventional employment or entrepreneurial drive--two avenues available to the masses. This access to the social mobility of higher earnings enabling the purchase of status symbols that boosted one's social status has been the mainstay of the modern consumer economy.
The downside of mass-produced luxury items (status symbols) is that in a credit-based economy, just about everyone can afford to own them. Thus just about anyone can qualify for a mobile phone plan that offers a status-symbol iPhone as part of the multi-year contract.
As a result, the upper classes have been forced to greater extremes in cost and scarcity to differentiate themselves from the masses. For example, now that exotic travel is a affordable to anyone with credit, travel has little status value, unless it's extremely costly or difficult to duplicate.
The same is true of the arts and other cultural status markers, along with the traditional markers such as yachts and second (or third) homes.
As the underlying economy has stagnated, access to higher social states via earned income has decayed, and so commoners have been forced to find some other non-financial means to improve their social status.
Social media fits the bill perfectly: it's essentially free (since everyone has to pay for Internet service anyway) and the only "investment" is in time: time snapping and posting photos on Instagram and Facebook, time posting comments and links designed to attract tribal "likes" and so on.
A commoner with essentially zero social status economically can with enough effort become a "big shot" in some social media platform.
The bar is low enough to attract millions of players: a few dozen "likes" is still a potent reward to most people, as are having a couple hundred followers / readers.
Social media superstars with millions of followers on YouTube have cult-like groupies and all the other social status rewards of recognition and fame.
Social media offers hope of achieving higher online social status without having to succeed financially in a winner-take-most economy or having any of the conventional attributes of becoming famous: physical beauty, extraordinary talent, etc. These attributes are of course helpful in attracting a social media following, but they are not essential.
As a result, everyone wonders "how did so-and-so get hundreds of thousands of followers?" The answer varies, of course: a viral video, a high level of marketing moxie, an engaging style, charismatic presence on camera, a knack for something others admire, etc.
If we understand social media as a new and accessible-to-everyone way to improve our social status, its tremendous grip becomes less of a mystery.
As Jesse explains in our Salon #15 podcast, Toxic Tech Platforms and Disposable Social Media Stars, TikTok's explosive popularity is the direct result of its ease of access and promise of social mobility. TikTok's model bypasses the laborious process of gaining social status via collecting masses of followers/friends and offers an instantly accessible version of semi-celebrity via the number of people viewing one's videos-- a semi-celebrity that can be monetized once the numbers get big enough.
Achieving social status through social media is the last-ditch desperation of a society that has lost all other meaningful social mobility ladders. Conventional wages have stagnated for decades and unconventional wages (gig economy, etc.) are generally low and insecure. Credential pathways that once led to secure, high paying, high-status jobs have crumbled; legions of PhDs who were told their years of sacrifice and effort would lead to tenure-track faculty positions or secure positions in government or industry are academic ronin, wandering from temporary position to temporary position, in effect highly credentialed gig-economy workers.
The rungs of the ladder of entrepreneurial drive have decayed as the costs and risks of starting a business have soared, crowding the get-rich-quick hopefuls into the insanely over-crowded casinos of venture-capital funded tech start-ups, all of whom hope to reach the pinnacle of going public and skimming instant wealth--the tech version of a kid dreaming of becoming an NBA star.
A winner-take-most economy is the only possible output of our corrupt financial/political system which has systematically stripmined all sources of social mobility, leaving the masses with little hope of escaping debt-serfdom / just getting by. In this bleak landscape in which the masses constantly lose ground, TikTok and other social media platforms offer a rare beacon of hope to those who have little chance of winning recognition or riches in our winner-take-most economy.
TikTok and other social media reflect the last-ditch desperation of a society stripped of economically meaningful social mobility and positive social roles. Unfortunately the social media platforms are toxic to both their enthralled users and society at large.
Of related interest:
Recent Podcasts:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, James C. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your longstanding support and readership.
 
Thank you, James Y. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your steadfast support and readership.

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Posted by Charles Hugh Smith at 11:02 AM

Sunday, August 02, 2020

A Vaccine May Not Be the "Magical Cure" Everyone Anticipates

Few appear willing to follow the probabilities of a future in which a vaccine cannot possibly be the "magic cure" everyone wants.
Let's attempt the impossible and set aside all preconceptions we might have about a vaccine for Covid-19, and think it through somewhat dispassionately. Let's start by stipulating that dispassionate analysis is as rare as anti-matter, as everyone's barely-cloaked self-interest and ideological biases demand an indignant, rabid response to any challenges to the one true faith, i.e. whatever they believe.
Speaking of self-interest, we would blind not to notice the rapacious interest of Big Pharma in reaping billions of dollars in profits from a vaccine or vaccines. What could be better for obscene profits than a vaccine everyone must have to participate in the conventional economy, a vaccine the federal government will let the "owner" price at "market"?
"Owner" is in quotes because the federal government is funding much of the research expenses yet the Big Pharma corporations retain ownership of the results--such a deal for Big Pharma! The gummit puts up the money but Big Pharma gets 100% "ownership" and the right to price their vaccine at "market," which is whatever the government is willing to pay for the vaccine it funded.
We would also be remiss not to notice that Big Pharma's track record of releasing medications with glossed-over side-effects and poor efficacy is not exactly spotless. Horrendously costly meds have been passed out like candy with claims of efficacy that have later been shown to be unsubstantiated and side-effects that have been under-reported or otherwise marginalized.
We've all heard the comedic fast-talking voice talent listing the horrific side-effects in a blur during Big Pharma's ceaseless adverts--adverts that were illegal not that long ago. Side effects include hallucinations, dizziness, heart failure, seizures, warts, temporary blindness, compulsive spending sprees, fear of people in white coats, obsessions with travel to Mars, imaginary super-powers, itchiness in the cranial cavity and shortness of breath when eating ice cream. This parody is not far off the actual listings of side-effects.
Yes, it was illegal for drug companies to advertise directly to the public not so long ago. That impediment to additional billions in profits disappeared when the bribes, oops I mean campaign contributions became large enough for politicos to sell the public interest down the river.
Thus a bit of cautious skepticism about Big Pharma's claims and pricing is in order. The list of people who are now dead after believing Big Pharma's claims that its opioids were "safe" and "non-addictive" is tragically long.
Then there's the pesky issue of reliability: can any corona-virus vaccine achieve 99% effectiveness? And for how long? There is some science-based skepticism that a corona-virus vaccine that works for virtually everyone and is effective for a year or longer is even achievable.
If the reliability/effectiveness is significantly less than 99%, that introduces a Russian-Roulette type risk calculus in those getting the vaccine. What if I'm one of the unlucky folks who get the virus despite getting the vaccine?
If the duration of efficacy is variable--maybe it works for a year for most people but considerably less for a significant percentage of those who get the vaccine--then that also introduces the same risk assessment: how can I know if the vaccine will protect me for a full year?
Since Nature often tracks a Pareto Distribution--the 80/20 rule--let's make some preliminary estimates based on that. Let's say that the vaccine is 80% effective, and 80% of the populace agrees to get the vaccine. (Let's set aside the reasons why 20% of the populace might decide not to get the vaccine regardless of its purported effectiveness or the penalties placed on those who refuse.)
The U.S. population is around 330 million, and let's estimate that institutionalized residents might not be given a choice about getting the vaccine--ot if there are recognized risks, some at-risk institutionalized residents might be refused the vaccine as a matter of caution.
So perhaps 10 million people won't have a choice in the matter. That leaves 320 million with a choice. If 20% refuse for various reasons, that's 64 million who will be unvaccinated and 256 million who choose to get the vaccine.
If the vaccine is effective in 80% of these 256 million people, then 205 million will receive the benefits of the vaccine and 51 million might come down with the virus (perhaps in milder cases, perhaps not--that will have to be determined by large-scale double-blind studies).
Again following the Pareto Distribution, let's estimate that 20% of the 256 million people who get the vaccine will choose to avoid higher-risk settings such as cruises, concerts, etc., even though they've been vaccinated, because the uncertainty increases their caution. This would be entirely understandable and prudent in at-risk populations such as those older than 60, those with pre-existing conditions, etc.
As I explained in Consumer Spending Will Not Rebound--Here's Why (May 18, 2020), this older, at higher-risk cohort happens to collect the lion's share of household income and own the lion's share of household wealth. Their decisions to limit participation in riskier activities have an outsized economic impact because they collect almost half the income and own about 85% of all household wealth.
Following the 80/20 rule, we end up with 64 million unvaccinated and 51 million vaccinated who choose to avoid higher-risk activities. That's 115 million people who will not resume their pre-pandemic lifestyles either because they may be barred from activities because they're not vaccinated or because their at-risk profile and the inherent uncertainties of the vaccine cause them to avoid higher-risk activities.
Those assuming that requiring vaccination to board a airliner will boost vaccination to nearly 100% could be underestimating the strength of the motivations of those who decide not to get the vaccine. It would also be unwarranted to assume that everyone who chooses not to get the vaccine is a rabid anti-vaxxer.
Given the latent uncertainties and the self-interest of those pushing for a rapid approval of a vaccine, it would be entirely prudent to choose to let the first wave of residents get the vaccine and then await the results of large-scale studies of efficacy, duration, etc.
Given the rapacious greed of Big Pharma corporations and their track record of playing fast and loose with claims of safety and efficacy, we can also anticipate multiple vaccines battling for market share, a struggle that will create incentives to inflate claims of efficacy and marginalize side-effects.
As for bans on air travel, concerts, etc. for the unvaccinated, many people will simply drop out of the mainstream economy. The wealthy will book seats on private charter aircraft and hire performers in open-air venues, etc., the unwealthy will seek unconventional options and give up flying, going to sports events, etc.--activities they may no longer be able to afford anyway.
What kind of economy will we have if a third of the populace--100+ million people--are no longer participating at pre-pandemic levels for one reason or another? An accurate description might be The Greater Depression.
Few appear willing to follow the probabilities of a future in which a vaccine cannot possibly be the "magic cure" everyone wants. Some percentage of the populace will not be participating in the economy at pre-pandemic levels for one or more of these reasons:
1. They choose not to be vaccinated.
2. They choose to be vaccinated but remain cautious in their activities and spending.
3. They no longer have the income or wealth to resume their 2019 level of borrowing/spending.
Lastly, imagine the impact if a few people die of the virus after getting the vaccine. Human risk assessment does not necessarily track probabilities like a computer. Assuring everyone that only 1% of the recipients of the vaccine become ill or die within a year will not be as reassuring as proponents hope.
Recent Podcasts:
My COVID-19 Pandemic Posts


My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Victoria S. ($50), for your splendidly generous contribution to this site -- I am greatly honored by your longstanding support and readership.
Thank you, John O. ($5/month), for your magnificently generous pledge to this site -- I am greatly honored by your support and readership.

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Posted by Charles Hugh Smith at 1:25 PM
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