Tuesday, October 29, 2019

Has California Lost The Mandate of Heaven?

At that point, it's too late: there's no bid for overpriced decaying bungalows, overpriced tech stocks, etc.
In Chinese history, natural disasters were viewed as portents that the The Mandate of Heaven (tianming or "Heaven's will") had been withdrawn from the ruling dynasty. Broadening this concept a bit to regional dominance and power, we might ask: has California lost the Mandate of Heaven?
How many conflagrations does it take for it to sink in that the Golden State has lost its lustre in some profoundly karmic fashion?
How many messes of human excrement on our doorstep does it take to realize the situation will never get better, it can only get worse--much worse?
How many power blackouts, traffic gridlocks and mandatory evacuations does it take for those in denial to accept that the Mandate of Heaven has been withdrawn?
Young residents of the state have never experienced the velocity and depth of California's famous busts. The last real spot of bother in California's economy occurred almost 30 years ago in the early 1990s. Since then, it's been one boom after another.
California's cycles of enormous booms followed by equally gargantuan busts date back to the first Gold Rush. The eventual collapse of mining shares and overpriced real estate in San Francisco was epic, and Mark Twain's account of his chest full of mining shares going from a tidy fortune to zip-zero-nada is a rueful reminder of how quickly fortunes can turn in the land of boom and bust.
It's deceptively easy to take a pencil and ruler and extend a boom into infinity: the number of iPhones sold (always up), Apple's quarterly earnings (always up), property tax revenues (always up) stocks' multiple expansion ((always up) and so on.
California's vast chattering class has ridden the IPO/VC/tech-monopoly/ stock buyback bubble for so long that it can't believe the bubble could ever burst. This class lives in enclaves protected from human excrement, the addicted and the deranged, and in an information enclave of me-too tech/entertainment boosterism.
But as Benoit Mandelbrot showed in his book The (Mis)behavior of Markets, markets and human behavior are inherently fractal, i.e. chaotic, which means there are limits on the predictability of markets and economic trends.
Thus the chattering class has no inkling that the masses can cancel their Netflix, Disney and Apple subscriptions as easily as they signed on. Once jobs, tips, bonuses and gigs dry up, the tech-entertainment giants will find expenses are still rising while revenues are cratering. Once revenues and profits crater, it's harder for management to justify borrowing billions more to fund more stock buybacks.
Extending booms into infinity doesn't track reality. The last real recession circa 1990-1991 blew a $20 billion hole in the California state budget, and accounting for inflation and growth since then, we can expect a $35 - $40 billion hole being blown in the budget once the IPO / tech bubble collapses, as the state is heavily dependent on capital gains taxes for much of its income tax revenues. (There is no long-term capital gains rate in California; all capital gains are taxed as ordinary income, a rate that quickly hits 13.3%.)
Once capital gains dry up, the state is in a fiscal crisis with no solution.
And if the state can't solve the homeless crisis with current spending in the hundreds of millions, then what will happen when the revenues dry up? What will happen if the homeless population doubles or triples? Look at the social havoc generated by the homeless population in San Francisco, which is roughly 1% of the total populace (around 9,000 homeless and a total population of 860,000.)
Phase transitions are intrinsic to systems displaying self-organized criticality such as markets and human behavior. Everything seems fine on the surface, and there's no pressing need to sell the house and move away; there seems to be plenty of time until the phase transition kicks in and suddenly everything has changed for the worse, and so much faster than anyone expected.
At that point, it's too late: there's no bid for overpriced decaying bungalows, overpriced tech stocks, etc. Just like Mark Twain's chest of mining stocks, the transition from being worth a fortune to no-bid near-worthlessness can be sudden indeed once California loses the Mandate of Heaven.
Beneath the surface, pressures are building and resilience is eroding, and when the tipping point is reached the transition will not be gradual and controllable, it will be non-linear and uncontrollable.



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, Hugh M. ($100), for your outrageously generous contribution to this site-- I am greatly honored by your steadfast support and readership.
 

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP