Friday, December 31, 2021

2022: The Year of Breakdown

In other words, our economy and society have been optimized for failure.

If we look at the fragility and instability of essential systems, it's clear that 2022 will be the year of breakdown. Let's start by reviewing how systems break down, a process I've simplified into the graphic below.

1. Regardless of whether it was planned or not, all systems are optimized to process specific inputs to generate specific outputs. Each system is pared down to maximize efficiency as the means to maximize profits. This efficiency in service of maximizing profits requires trade-offs that only become visible when some key part of the system fails.

The system that ships containers around the world offers a useful example. Shipping containers revolutionized shipping and reduced costs by commoditizing containers (all standard sizes), container ships (specifically designed to carry thousands of containers and container ports with specifically designed cranes, docks and truck lanes / queueing.

It's possible to load a container on some other craft with a jury-rigged crane, but the efficiency of that is essentially a fraction of the optimized system: the jury-rigged crane will only be able to load a handful of containers, the ship will only be able to carry a few containers, and the likelihood of the containers shifting increases.

The infrastructure and labor are both highly specialized. Calling out the National Guard to speed up container offloading is a useless gesture unless the Guard can deliver more cranes and experienced operators.

The greater the optimization, the greater the fragility as the breaking of any one link brings the entire system to a halt. Throwing in equipment and labor that the system isn't designed to use will fail.

Virtually every essential system has been stripped of redundancy, resilience, reserves and adaptability as the means to fully optimize inputs, processes and outputs. The system works well if every link in the dependency chain is working perfectly. Should one link go down, the entire system goes down.

2. Cost-cutting has stripped systems of back-up staffing and expertise. Full-time workers have been replaced by gig workjers, contract workers, part-time staff on call, etc. Experienced staff cost too much so they've been let go as well, so there is no depth in numbers or knowledge.

3. Management is top-heavy with MBAs and bean-counters with little pragmatic experience or knowledge of the systems they're managing. Management is optimized to advance those who can generate big profits, not those with experiential skills needed to meet crises in real-world dependency chains, production, breakdowns, etc. So when the system comes apart, managers simply don't have the knowledge or skills to solve real-world problems.

The skills that are most desirable when everything is running smoothly are useless in crisis. Who do you want to go into combat with, the continuously promoted officer who won high marks for filing reports on time or the officer with actual combat experience who got passed over for promotion because he/she didn't devote the proper attention to paperwork, meetings, virtue-signaling and derriere-kissing?

Unfortunately the vast majority of our systems are managed by people who lack the long experience and hands-on skills needed to meet cascading crises.

4. Systems are now so complex and opaque that they are in effect optimized to fail in ways that are impervious to quick fixes. Bureaucratic mission drift, virtue-signaling, the erosion of accountability, multiplying platforms and software and the endless expansion of compliance and regulatory burdens have loaded every system with numerous points of failure and procedural friction that contributes little or nothing to the organization's core mission. As resources are devoted to make-work procedural black holes, the mission decays and collapses at the first crisis.

Stop me if you've heard this before: contacting essential services (tax payments, etc.) rarely generates a timely reply, much less a solution; a new bridge or subway line takes decades to build and is billions over budget; software projects intended to streamline complex regulatory processes (building permits, etc.) never work right and end up slowing the whole system down, fraud is rampant, software security is laughably poor....the list is almost endless.

5. Once the system has been stripped of resources, experienced staff, back-up equipment and supplies and loaded with unproductive friction, even a small crisis will bring down the entire system. In the graphic below, all of these resources are the buffer that enables systems to respond to the pressing demands of crises. Once these are gone, the only possible result is systemic collapse.

6. We've collectively lost the ability and willingness to deal with crises for which there is no happy-story ending. We only want to hear the optimistic story, the glimmers of hope, the miracle cures, the painless tech fix, etc., and if we get a dose of reality instead, we're quick to dismiss the bearer of inconvenient news as an alarmist, a doom-and-gloomer, etc.

In other words, our economy and society have been optimized for failure. Drifting along in a daze of disconnected-from-reality complacency we are completely unprepared to deal with realities that don't respond to magical thinking, optimism, hope and tech fantasies.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

The Central Bank System Has Failed, It's Time To Redraw America’s Grand Strategy (39 min)

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become a $1/month patron of my work via patreon.com.




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Thursday, December 30, 2021

Last Chance to Get Out Before the Crash

The interesting feature of the 'last chance to get out' is nobody sees it until after the crash has done its damage.

Every asset bubble has a last chance to get out before the crash point that becomes obvious in the aftermath. But at the time, this last opportunity to exit before the wipeout is difficult to identify for a number of reasons.

One is the general mood at the top of bubbles is extreme confidence that there are further gains just ahead. Everyone who attempted to identify the top of the rally has been proven wrong, and everyone who shorted the rally (i.e. bet on a decline) has been wiped out.

The most anyone is willing to say publicly is that risk is elevated, some day there will be a reckoning, etc., all of which is boilerplate everyone has heard for months or even years.

The last chance to sell doesn't give itself away; technically it's at best ambiguous as all the conventional topping signals tend to be muddied, enabling Bulls to declare the top is far from in and bearish signals have been nullified.

The classic last chance follows an apparent breakout to new highs that exceeds previous resistance. In retrospect, the breakout proves to be false, but at the time it's clear to Bulls that this is yet another breakout and therefore a reliable signal for more gains ahead.

Everyone who sold on downlegs is anxious to get back in and so every dip is reversed by buy the dip buyers who have been handsomely rewarded for buying previous dips.

Technically, traditional signs of a top such as double tops and head and shoulders are mooted by the advance. The rally exceeds whatever levels were considered bearish triggers and so the consensus that further advances are essentially guaranteed finds sufficient technical support for even skittish traders to continue to be all-in the market.

The first decline off the last chance to exit is bought, but the rally falters. The buy-the-dippers dismiss this as an anomaly and buy this second dip. That too falters and once the third buy-the-dip has failed to rally back to previous highs, many buy-the-dippers have been wiped out and the momentum of buying slackens.

When it's clear buy-the-dip has failed, the selling becomes a self-reinforcing avalanche and the market crashes.

None of this is visible until it's too late to exit with profits in hand. By the time the banquet of consequences has been cleared, the majority of the believers in the inevitability of more gains just ahead have been wiped out by the crash that they reckoned was impossible.

Is this the last chance to get out before the crash? Bulls are confident for reasons that have worked astoundingly well ("It's all about flows, nothing else matters," "because the Fed," etc.) and Bears have been reduced to mumbling about elevated risk.

The interesting feature of last chance to get out is nobody sees it until after the crash has done its damage. Only when it's too late does it become painfully obvious.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

The Central Bank System Has Failed, It's Time To Redraw America’s Grand Strategy (39 min)

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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.

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Saturday, December 25, 2021

Sleepwalking Into the Abyss in 2022

What would be truly optimistic would be to surrender our dependence on asset bubbles and malinvested debt to prop up an unstable delusion of effortless "wealth."

The most sacred liturgy of American culture is to always be positive and optimistic. The greatest taboo is breaking this sacred duty to say something upbeat and optimistic; it is acceptable (barely) to make awkwardly negative observations, but only if you immediately follow up the negative comments with a treacly, double-serving of sugary optimism: for example, inflation is transitory, the economy is growing strongly, wages are rising, etc.

And so we sleepwalk into 2022, ill-prepared to deal with reality which most annoyingly continues responding to systemic dynamics no matter how much sugary optimism is spread around.

The endless servings of sugary optimism serve several purposes:

1. They create an appealing illusion that systemic problems can be solved without materially changing the status quo or demanding any sacrifices.

2. They mask the inconvenient reality that the status quo is incapable of solving systemic problems because doing so would demand sacrifices of those skimming the vast majority of the benefits of the status quo, i.e. the wealthy and powerful.

3. They mask the enormous sacrifices being imposed on the bottom 90% to keep the status quo unchanged, i.e. benefiting the few at the expense of the many.

4. The demand to always be sugar-high optimistic is a handy tool to bludgeon critics who point out the systemic failure of the status quo as alarmists, doom-and-gloomers, etc.

In other words, you're only allowed to point out a critical systemic flaw if you also parrot a completely unrealistic, impractical "solution" that fits the sugar-high optimism requirement: fusion: unlimited energy for everyone forever! Modern Monetary Theory: free money for everyone forever! And so on, in an endless gush of detached-from-reality "solutions" that all magically solve all problems without changing anything in the power structure of who benefits from the existing arrangement or demanding any reduction in our waste is growth Landfill Economy.

We no longer solve the hard problems because they require changing a system that benefits the wealthy and powerful to the exclusion of everyone else. Only the debt-serfs and tax-donkeys suffer, but since they're passive and powerless, who cares?

The sugary optimism also masks the destructive nature of the easy fixes that are so beloved by the political class: debt, inflation and narrative control. All are politically and economically painless at first, and but the systemic consequences eventually erode the entire status quo, which collapses in a putrid heap of lies, artifice, fakery, profiteering, delusion and deception.

Making everyone feel warm and fuzzy by borrowing and distributing "free money" works wonders more or less like a sugar-cocaine speedball. The cost of the new debt is spread over years in the future, and a Federal Reserve beholden to those reaping the profits from debt (banks, financiers, the wealthy) is always ready to lower interest rates to ease the pain of servicing debt as a means of enabling ever-greater borrowing going forward.

What could be better? Borrow and spend now, pay in installments stretching far into the future. Alas, the advance of time is inexorable, and the future soon becomes the present. And despite the declining rate of interest, all that rapidly expanding debt is now sucking the income well dry, leaving insufficient income to borrow more or spend more.

Oops. Don't you hate it when the system works so well and then it suddenly implodes due to its self-reinforcing, self-destructive structural incoherence? A system dependent on debt for "growth" is self-liquidating, meaning that the debt eats the system alive by siphoning off income while malinvestment, waste and speculative gambling destroys the "capital" funded by the debt.

Inflation is equally beloved by the political class for the same reasons: it's painless at the start and everyone loves the illusion that assets are rising without anyone actually creating any additional value or productivity--it's all magic. Just print a few trillion dollars and pump the "free money" into stock buybacks and speculative bets, and voila, everyone who already owns assets gets richer without doing anything but being a genius.

All the fun stuff eventually generates real-world inflation and inflates assets into insane bubbles that eventually pop at the least opportune time, right when everyone watching their wealth swell like clockwork starts believing not just in their own genius but in the perpetual-motion machine of Fed-printing and rapidly expanding debt.

Those expecting assets to bubble higher forever and real-world costs to deflate have it backward: it's the assets which have inflated that will deflate back to starting levels of valuation and it's real-world inflation that will gather momentum and shred the economy and political structure.

Those depending on earned income will see the purchasing power of their earnings drop precipitously while those who were counting on their vastly enlarged unearned "wealth" in asset bubbles to fund their lifestyle and lavish retirement will experience 80% declines in the "wealth" they presumed was permanent.

It will be a great shock to the political class, but controlling the narrative to protect your interests won't actually stop the systemic momentum careening over the cliff. Demanding that everyone disavow problems doesn't actually solve the problems.

Alas, expedient speedball fixes to systemic problems only create new instabilities while fueling the instabilities of the problems left unsolved. Sleepwalking in a fantasy-dream of free money forever, free energy forever and endlessly expanding asset bubbles of "wealth" will take us to the edge of the cliff and then into the abyss.

What would be truly optimistic would be to surrender our dependence on asset bubbles and mal-invested debt to prop up an unstable delusion of effortless "wealth" and an unsustainable waste is growth Landfill Economy.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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.

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Thank you, Elizabeth N. ($15), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

 

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Friday, December 24, 2021

My Christmas Eve Song: You Owe Me

Christmas Eve seems like a good time to release my anthem for 2022, You Owe Me.

Christmas Eve seems like a good time to release my anthem for 2022, You Owe Me. I know that a song about debt is a lump of coal in the stocking, so to speak, but if we look at one person's debt as somebody else's asset and income source, then all the debt that's being taken on to fund Christmas (and stimulus, tax subsidies, university degrees, gambling chips in the stock market casino, etc.) is very cheery indeed for the somebodies who own all that debt.

I know it's taboo to mention that we live in an era of indulgence in which Christmas is 365 days a year for those with the cash / credit to enjoy treats and luxuries all year, just as it's taboo to mention that much of this lavish and often wasteful 365 days of Christmas spending is borrowed.

It's also taboo to mention that all debt ends up in the same place: You Owe Me: Christmas year-round for those collecting the income from debtors, penury for those owing the debt.

Wishing you a debt-free, waste-free, worry-free holiday season.

I want to thank Jimi Juju for doing all the heavy lifting on this tune (playing drums, bass and rhythm guitar, engineering and recording) while I'm to blame for the vocals and lead guitar bits. Here are the lyrics for those who want to follow along.

You Owe Me

You tell me that you can't afford the rent
the student loan or your truck
I don't care about your problems pal
just do what it takes to get me the bucks

You owe me
You owe me and I'm gonna tell you how it's gonna be

You say that you did everything you were told
Got your degree and a gig
Now you lost your job and can't pay what you owe
Because your debt is too damn big

You owe me
You owe me and I'm gonna tell you how it's gonna be

I'll be just fine
I've made up my own mind
To make a big wild bet
That'll pay all my debt

You tell me that I can't get blood from a stone
I hear that all the time
But let me tell you, buddy how it is
I can cut flesh from the bone

You owe me
You owe me and I'm gonna tell you how it's gonna be

(lyrics, music and arrangement copyrighted 2021 charles hugh smith, of course)




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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.

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Wednesday, December 22, 2021

Watch the Top 5%--They're the Key to the Whole Economy

Go ahead and become dependent on asset bubbles and the free spending of the top 5%, and optimize your economy to serve this "growth," but be prepared for the consequences when the costs of this optimization and dependency come due.

Here's the problem with concentrating most of the income and wealth in the top 5%: the whole economy now depends on their spending and "the wealth effect" of bubbles driving that spending. As the charts below show, the top tier of households own the vast majority of the wealth and take home roughly half of all income, including virtually all (97%) the income derived from capital.

By inflating an enormous everything bubble, the Federal Reserve and other central banks have inflated the "wealth" of this top tier. This was of course the plan: by artificially inflating asset bubbles, the central bankers believed that those seeing their net worth expand would loosen their purse strings and borrow and spend freely: the wealth effect.

The problem with relying on the the wealth effect is that if wealth has concentrated in the top, then only the top will benefit. The bottom 50% own virtually no capital (see chart below) and the modest wealth owned by the bottom 90% generates a mere 3% of all income derived from assets (stocks, bonds, real estate, etc.).

Monopoly Versus Democracy: How to End a Gilded Age (foreignaffairs.com):
Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans.

In other words, the Fed has made the rich much, much richer not for being more productive but simply for being rich to start with. Trends in income and wealth inequality (pewresearch.org):
For the top 5%, it increased by 4%, to $4.8 million. In contrast, the net worth of families in lower tiers of wealth decreased by at least 20% from 2007 to 2016. The greatest loss -- 39% -- was experienced by the families in the second quintile of wealth, whose wealth fell from $32,100 in 2007 to $19,500 in 2016.

As a result, the wealth gap between America's richest and poorer families more than doubled from 1989 to 2016. In 1989, the richest 5% of families had 114 times as much wealth as families in the second quintile, $2.3 million compared with $20,300. By 2016, this ratio had increased to 248, a much sharper rise than the widening gap in income.


Since virtually all the wealth effect is concentrated in the top tier, it only affects the spending of the top tier. Spending by the bottom 95% has stagnated, and so the policy "fix" to this monumental inequality generated by inflating asset bubbles is to give cash to the bottom 90% via various "stimulus" programs.

The bottom 90% promptly spent the free money but since neither their wealth nor their stagnating income increased, the spending boost from this snort of fiscal cocaine has already faded.

What happens when you concentrate half of all income and the vast majority of all wealth in the top tier? Your economy become completely dependent on 1) keeping that asset bubble expanding forever and 2) the spending of the top 5%.

The problem in making your entire economy dependent on spending generated by asset bubbles is that all bubbles pop. Strangely enough, printing trillions of dollars, borrowing additional trillions and blowing trillions on stock buybacks have consequences beyond just further inflating asset bubbles, systemic consequences which eventually deflate all the bubbles.

The top 5% are now the key to the entire economy. If they start selling assets to lock in profits or reduce risk, the asset bubbles will pop because the bottom 95% don't have the wealth or income to buy tens of trillions of assets from the top 5%: the top 5% buy and sell to other 5%-percenters because no one else has the income or wealth to buy tens of trillions in assets.

If the top 5% reduce spending for any reason, then the economy craters.

The logic can't be revoked by magical thinking:

1. Since all asset bubbles pop, this asset bubble will pop.

2. Once this bubble pops, the spending of those seeing their "wealth" diminish will decline.

Since the spending of the top 5% has been the only source of higher consumption, the economy has been optimized to serve the top 5%. Hence the proliferation of fine-dining restaurants, pricey AirBNB rentals in exotic destinations, luxury brand boutiques, etc.

Once the top 5% no longer have the means or desire to spend freely on discretionary purchases, a huge swath of the U.S. economy falls into an abyss. And since we've structured our system to make the rich richer so they can spend more, there is no substitute source of spending to replace the collapse of top 5% spending.

Optimization and dependency have consequences. Go ahead and become dependent on asset bubbles and the free spending of the top 5%, and optimize your economy to serve this "growth," but be prepared for the consequences when the costs of this optimization and dependency come due.










My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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, Claus H. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your support and readership.

 

Thank you, Bobby R. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your support and readership.


Thank you, Naomi S. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

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Sunday, December 19, 2021

How Vulnerable Is Your Personal Supply Chain?

How vulnerable is your personal supply chain? For the average American, the answer is: very.

Americans consider abundance and ready availability as birthrights so basic they're like the air we breathe. The idea that shelves could become bare and stay bare is incomprehensible. yet that is the world we're entering, for a number of complex reasons.

One is that the world added not just another billion humans (now 7.9 billion), but one billion middle-class consumers, consumers who use about 100 times more energy per person than poor people. These additional billion middle-class consumers doubled the number of high-energy consuming humans in a few decades, and this enormous expansion of demand has consumed all the easy-to-extract resources of the planet. There are no cheap, easy-to-extract resources left; all that's left is expensive to reach, extract, transport, etc., and since energy is the master resource, as its cost rises, so does the cost of literally everything that depends on energy.

Consider a poor person in a rural village. Most of their food is grown locally, and their income is so limited they do not have the means to consume much energy or items shipped halfway around the world via the global supply chain. They might have a cheap mobile phone and a few consumer items gifted to them by relatives working in the developed world, but very little of their consumption depends on long global supply chains. If those chains break, the impact on the poor villagers is relatively modest.

Compare this relative self-sufficiency to the extreme dependence on long supply chains of the average American. Very little, if any, of their everyday consumption is sourced locally, i.e., within walking distance. Every item on the shelves requires immense consumption of energy to be manufactured / produced and shipped to the shelf, and every item has a long dependency chain of intermediaries, each of which is dependent on numerous components, specialty materials, machinery and processes.

Every intermediary, and every process and source used by each intermediary, is a potential source of failure of the entire supply chain.

Complexity and supply chains are abstractions. To understand the intrinsic fragility of global supply chains, we must count the number of intermediaries in the chain from the resources extracted from the Earth to the end customer in the store aisle, and then count the intermediaries in each of those links.

Counting the intermediaries in every dependency chain between the source of what we need / want and the item on the shelf (or in the UPS / FedEx / postal service vehicle) is a measure of our dependency: the more intermediaries, the greater our vulnerability and the greater the fragility of the dependency chain.

This chain of dependencies is poorly understood outside each specialized industry. Consider semiconductors, widely touted as "the new oil," i.e., the essential component in global production. The process of manufacturing semiconductors is extremely complex and resource-intensive, and many of the solvents, machines and components are only manufactured by one or two firms globally. If any of these links are disrupted, the entire chain of production breaks, as each is irreplaceable.

If one firm produces 80% of the global supply of a specialty solvent, the smaller firm producing the other 20% cannot quadruple production for many reasons: its facilities are limited, adding capacity is a multi-year project, the equipment to expand isn't available, the supply of the petrochemical feedstock cannot be increased due to limitations in the storage and delivery chain, and so on.

There are many limits which are excluded from consideration when the supply chains are functioning. If we consider a system Americans take for granted--the ample supply of gasoline and diesel fuels--there are many unseen limits in the delivery system: the number of tanker trucks is limited, the number of drivers credentialed to drive the trucks is limited, intermediate storage of fuels is limited, and so on.

The system is optimized for the average driver to have less than half a tank of fuel. Should the system break down and drivers start hoarding, i.e., constantly topping off their fuel tanks, then the system cannot recover its previous stability: the system has been optimized to a narrow range of storage, tanker trucks, drivers, etc., and once the system breaks out of that narrow window, the entire chain collapses.

This is the reality of long global supply chains with dozens or hundreds of intermediaries: every supply chain has been optimized to function within a narrow window, and once any intermediary is disrupted, the entire chain breaks and cannot be restored once hoarding (at the wholesale level, over-ordering) begins. Hoarding is our instinctive response to shortages, and once the awareness of systemic fragilities and vulnerabilities rises, so too will hoarding.

There is another source of fragility in long supply chains with many irreplaceable intermediaries. Each intermediary must make a profit or it will shut down. If price increases passed along to an intermediary cannot be passed along to the next link, then the firm absorbing the increase will lose money. Since many intermediaries are small, marginally profitable firms, they cannot absorb losses for long. Once they shut down, the chain cannot be restored without replacing them, and that is a major project, as many intermediaries have specialized skills and trusted networks which cannot be replaced without local connections and sources.

Lastly, many of the global supply chain's numerous intermediaries depend on credit markets to function, as their receivables often exceed 90 days. In other words, they often receive payment months after they delivered the goods or services, and so they rely on credit to fund day to day operations. Should credit markets seize up--a typical occurrence in crises--these intermediaries will shut down due to lack of funding.

The price to be paid for stripping the domestic economy of productive capacity will be far higher than proponents of trade can even imagine, much less calculate. The price to be paid for becoming dependent on long, complex global supply chains with hundreds of intermediaries optimized for a narrow window of functionality will also be far higher than conventional analysts can imagine, much less calculate.

How vulnerable is your personal supply chain? For the average American, the answer is: very.

How do we reduce that extreme vulnerability? One way is to consume less. Another is to reduce the number of intermediaries between the source of our essentials and our household. For example, a barrel that collects rainwater off your roof is a source of water that has no intermediary. Vegetables collected from your home garden have limited intermediaries (sources of fertilizer and seeds). A solar panel that can charge your mobile devices in daytime has no intermediary once the panel has been purchased and installed.

All the items that become sources of essentials--water barrels, solar panels, fertilizers--could become costly or scarce, as each requires massive amounts of energy to produce. Obtaining sources is different from stockpiling the end products. Both are worthy of consideration. So is moving to a less dependent locale and reconfiguring one's life to consume less and reduce the number of intermediaries between your household and the sources of what you need.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

Jay Taylor and I discuss why Inflation is a Runaway Freight Train (21 minutes)

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become a $1/month patron of my work via patreon.com.




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Friday, December 17, 2021

One Chart Traders Might Want to Ponder

But when the Fed's fundamental powerlessness is revealed and the buy-the-dippers have been forced to liquidate, the true meaning of "mild" contagion will become apparent.

Since I'd rather not be renditioned to a rat-infested, freezing cell in an unnamed 'stan, I'm circumspect about viruses in general. (The WiFi signal is probably weak due to all the masonry walls and metallic torture devices, and as for the food--grilled rat, anyone?)

My essay Virus Z: A Thought Experiment (July 1, 2021) encapsulates my thoughts on viruses (reading between the lines recommended).

But as a punter--oops, I mean investor--I'm free to discuss risk and consequence in markets. Yes, yes, I know there's there's no risk "because the Fed," but last I checked the Fed's god-like powers didn't extend to the natural world, and so the chart below of how viral contagiousness can affect the consequences as measured in hospitalizations and deaths may be worth a glance.

Note that the chart explicitly states that the data is a simplified, hypothetical scenario that isn't based on any specific viral variant. It is a generalized depiction of the consequences of big numbers: a virus that is terrifically contagious but not terribly lethal (i.e. "mild") still ends up killing far more people than the more severe but less contagious variants because the number of infected people becomes consequentially large very quickly.

To demonstrate the basic concept, consider a hypothetical Variant A that is only mildly contagious, i.e. each infected person ends up infecting 1.2 other people, but with high lethality, i.e. 1% of those infected die within a few months of contracting the pathogen.

If 10 million people eventually contract the disease, 100,000 (1%) will lose their lives.

Now consider a severely contagious Variant B, i.e. each infected person ends up infecting 3.5 other people, that is "mild" in terms of lethality, killing 0.5% of all those infected.

If this far more contagious variant eventually infects 100 million people, 500,000 will die--five times the number of those who died from the much more lethal variant A.

These outsized consequences of a highly contagious "mild" virus manifest not just in deaths but in hospitalizations and long-term disabilities generated by the viral disease.

Right now the stock market is wafting gently on the feel-good buzz of the word "mild", which is taken to mean not just mild consequences of the illness on individuals but near-zero consequences for the economy and markets.

It doesn't take much imagination to project human behavior should a highly contagious variant start spreading with alarming speed through a population. Traveling in sealed metal tubes and ships and joining indoor crowds loses appeal, and risk-off precautionary behaviors take precedence over risk-laden "fun," especially should the body count start climbing a few weeks into the "mild" contagion.

Any systems-level analysis should incorporate three principles: 1) ask cui bono, to whose benefit? For example, does what passes as "public health" in the U.S. actually benefit the many or does it mostly benefit the few reaping gargantuan profits from the system? 2) does maximizing the private gains of the few at the top of the power pyramid trigger immense losses for the powerless majority? and 3) what are the system's constraints?

In healthcare, one constraint is the number of hospital beds and ICU facilities, and another is number of healthcare staff who have the requisite experience and energy to treat not just those suffering from the viral disease but all the patients with other conditions which can no longer receive care due to overcrowding.

Once the staff is burned out or ill themselves and the beds are filled, the system cannot treat any other patients, and care for those patients drops to near-zero. As I have noted many times here, the Fed can conjure dollars out of thin air but it can't conjure well-trained doctors and nurses out of thin air, or new ICU units out of thin air.

Put another way, risk-off is also contagious and can spread very quickly, with very large consequences for assets based on the permanence of risk-on euphoria. Consider a simple example: passive index funds start getting redemptions, i.e. owners start selling the funds and ETFs.

Index funds and ETFs that hold a basket of stocks must sell all the equities that make up the index or ETF by proportional weight, so the most heavily weighted (i.e. Mega-Tech) stocks get hit the hardest by selling.

Since margin debt is at nosebleed levels, and much of this debt is leveraged on risk-on meme stocks and "can't lose" Mega-Tech stocks, as these start slipping, margin calls start hitting punters who have only experienced brief dips that generate Pavlovian buy the dip recoveries within hours. Selling at a loss--and being forced to liquidate positions that one intended to hold with diamond hands--will be a new experience.

Since the smart money already liquidated their positions while touting stocks at all-time over-valuations, there's nobody left to buy as over-margined and over-leveraged retail punters are forced to sell.

Screaming that "this is the greatest company in the world" won't stop that company from losing $1 trillion in market cap as its outsized heft in passive funds and ETFs causes mass liquidation as everyone tries to lock in profits at the same time.

As for the Fed, rising supply-side inflation is a systemic constraint for which the Fed has no answer, supply-side inflation which will only increase should harbors, etc. close down under the relentless spread of a highly contagious variant. If supply dries up faster than demand, inflation can double overnight and the Fed has zero power over the supply-chain constraints.

Those slavishly worshiping at the altar of the Fed will discover they have been worshiping false gods, and the karmic reversal of all that falsity and fraud will be both monumental and richly deserved.

The political blowback as the bottom 90% are eviscerated and hung out to dry by inflation will put the Fed's usual financial trickery (free money for financiers and corporations) on the chopping block, and everyone who thought they had an easy field goal of gains will realize they're now deep in their own end zone and several large, fast and very aggressive linebackers are chasing them down.

Risk off begets risk off, and once the "buy the dip" crowd runs out of cash and gets hit with margin calls, the leak of selling turns into a flood. Those with no experience of cascading declines will naturally hold on as their margin calls pile up, expecting the Fed to save the day or the buy-the-dippers to rescue everyone with yet another manic rally.

But when the Fed's fundamental powerlessness is revealed and the buy-the-dippers have been forced to liquidate, the true meaning of "mild" contagion will become apparent, too late for those who thought being fully invested was a can't-lose strategy.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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.

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Tuesday, December 14, 2021

Smart Enough to Get Rich, Not Smart Enough to Keep It

Are we smart enough to keep our oh-so-easily conjured riches? If we continue to believe that doing more of what's failed spectacularly will deliver permanently expanding riches, then the answer is no.

Near the end of his monumental 400+-page analysis of the notion that alternative energy sources can replace hydrocarbon fuels, (Energy and Human Ambitions on a Finite Planet), Thomas Murphy discusses the really big picture: mass extinction events and species' role in mass extinctions.

So here's the thing. The first species smart enough to exploit fossil fuels will do so with reckless abandon. Evolution did not skip steps and create a wise being -- despite the fact that the sapiens in our species means wise. (Self-assigned flattery) A wise being would recognize early on the damage inherent in profligate use of fossil fuels and would have refrained from unfettered exploitation.

Not only is climate change a problem, but building an entire civilization dependent on a finite energy resource and also enabling a widespread degradation of natural ecosystems seems like an amateur blunder.


In other words, humanity was smart enough to exploit the natural riches of hydrocarbons but not smart enough to figure out what to do after we've consumed all the easy-to-extract wealth or how to deal with the consequences of the profligate use of all the riches.

I think the same can be said of the immense financial (i.e. phantom) wealth that's been generated in the past 20 years: we were smart enough to generate all these hundreds of trillions of dollars of "wealth" but we aren't smart enough to keep it or manage the consequences of our profligate use of the magic of money-creation.

This dynamic is scale-invariant, meaning it applies to individual investors, organizations and nations / empires: each is smart enough to get rich but not smart enough to keep it.

There are many reasons for this inability to convert intelligence into wisdom, but chief among them is the conviction that doing more of what worked in the past will eventually produce the desired results. I call this doing more of what's failed spectacularly, and we're remarkably adept at doing so. (I know I am, and I observe this on a systems-wide level.)

So the investor who minted riches flipping houses will keep flipping houses even after the cycle has turned, eventually losing the fortune. The investor who minted riches buying call options on meme stocks will keep buying call options on meme stocks until the fortune has been lost. The investor who minted riches by maintaining a balanced portfolio will keep maintaining a balanced portfolio until most of the riches have dissipated. And so on.

On a larger scale, central banks that managed a spot of bother by printing trillions of dollars and buying bonds will keep doing so until the system unravels. Central banks are blind to the consequences of their "success" and confident that doing more of what worked in the past is the key to permanent success. It looks like it is until it isn't.

This confidence that doing more of what worked in the past will work once again slips very easily into magical thinking. Here's an analogy: the water well has run dry, and so the central bank prints money and gives it to the thirsty people standing around the empty bore hole and drilling rig in the belief that demand creates supply: if you give people money to buy water, the water will magically appear because somebody somewhere will figure out a way to supply water at a profit.

This is a nice idea but the water has to be available at a sustainable cost. Dropping water bottles from helicopters can be done for a time, but eventually the $1,000 cost for each liter of water has consequences, and printing trillions of units of currency to pay for this profligacy has its own consequences.

Recall that actions have consequences (first-order effects) and consequences have their own consequences (second-order effects.) We're smart enough to exploit first-order effects (drill an oil well and get rich, print money and get rich without even bothering to drill the well) but not smart enough to anticipate all the second-order effects or change course before our heavily loaded galleon of riches has crashed onto the razor-sharp rocks and been smashed to bits.

It turns out there wasn't much selective advantage 200,000 years ago to converting intelligence into wisdom. The key advantage was cooperating with other humans to strip all the low-hanging fruit from the tree and then move on to the next exploitable resource.

In the modern analogy, we stripped all the low-hanging hydrocarbon energy and exploited the magic of money-printing and its sibling, debt, and now we're ready to print another couple hundred trillion magical dollars and buy a replacement global energy system.

All these newly conjured trillions have boosted the market value of assets. This first-order effect is simply marvelous: just buy the asset with borrowed money and sit back and get rich by doing absolutely nothing and creating zero value. (If necessary, borrow more money to buy back your company's shares, reducing the float--this drives up share prices like magic. Hey, magic! Why not use this magic to get richer?)

But this conjuring trick has consequences which then generate their own consequences, one of which is all the phantom wealth suddenly evaporates. It can evaporate in various ways, but the result is the same, and doing more of what worked so wonderfully in the past (creating trillions out of thin air and speculating on asset bubbles) stops working, to general astonishment and anguish.

One consequence is extreme wealth inequality as this money-conjuring / asset bubble trick works extremely well for those at the top, who end up owning most of the wealth and virtually all the income derived from that wealth. But it works very poorly for the bottom 90% who don't own enough wealth to benefit and are too far from the central bank money spigot to get much of the free money. (Here's a $250 per child tax credit--enjoy your riches!)

As I describe in my new book, inequality and scarcity bring down nations and empires. The past 50 years of cheap, abundant goodies (now mostly made overseas) and money-conjuring have generated a compelling illusion that conjuring more money via printing and debt solves all supply issues and keeps asset bubbles expanding forever.

Those who believe that doing more of what worked in the past will always be successful are not looking beyond the first-order effects they desire. Anticipating simple cause and effect--get richer by printing more money and speculating more wildly--may appear intelligent while it works, but it isn't wisdom.

Wisdom, if it is ever gained at all, is only attainable after the second-order effects collapse all the conjuring.

Are we smart enough to keep our oh-so-easily conjured riches? If we continue to believe that doing more of what's failed spectacularly will deliver permanently expanding riches, then the answer is no.




My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

A Grand Strategy to Address the Global Crisis (54 min., with Richard Bonugli)

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



Become 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.

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Sunday, December 12, 2021

Get in Crash Positions

When the market goes bidless, it's too late to preserve capital, never mind all those life-changing gains.

Everyone with some gray in their ponytails knows the stock market has ticked every box for a bubble top, so everybody get in crash positions:



Let's run through the requirements for a bubble top:

1. Retail investors (i.e. dumb money) are all in and buying the dip with absolute confidence. As the gray-ponytail traders know, there are many moving parts to the retail dumb money going all in:

-- The pain of the last bubble bursting has finally faded and been replaced by greed as retail punters watch everyone else mint fortunes by buying the dip and gambling with abandon at the casino's trendy tables: crypto, NFTs, Mega-Tech, EVs, uranium, etc.

-- Prudence and caution (i.e. holding cash in low-risk accounts) are thrown to the wind as the more money you put into the bet, the bigger the rewards.

-- Punters realize the key to the really big gains is maxing out margin and leverage, preferably by foregoing owning the underlying equity in favor of options and futures contracts.

-- Confidence in the Federal Reserve's god-like powers and determination to never let stocks decline more than a few percentage points over a few hours or days is off the charts.

-- Confidence that this is a new era and so old rules no longer apply is in the stratosphere. Retail punters believe that cryptos, NFTs and blockchain are can't-lose bets as these are A) unstoppable and B) revolutionizing finance and the economy. As for stocks, retail traders have discovered the power of the herd: if the herd all buys call options by the thousands, this forces market makers to buy the underlying stocks, pushing the price higher in a self-reinforcing feedback loop that is guaranteed to succeed.

-- Retail investors view all these bets as extremely low risk and so there's no financial sense in hedging bets or limiting margin debt, leverage or risk, because risk has been abolished by the Fed Put.

2. Insiders (i.e. the smart money with asymmetric knowledge of what's actually going on beneath the surface PR) are selling with unprecedented enthusiasm: Ponzi? Insiders Dump Stocks To Their Own Companies At Record Pace.

The gray-ponytail traders know the only way to anticipate the next trend change and benefit from this knowledge is to follow what the smart money (insiders) are doing, not saying, because they know the smart money will always talk their book, i.e. promote a confident happy story about future prospects even as they're dumping their own shares as fast as they can without crashing an increasingly precarious market.

3. Market leadership shrinks from 50 to five companies even as the majority of stocks are faltering. The absolutely classic sign of a bubble top is the indices continue rising even as the majority of stocks stagnate or enter Bear Market territory with stairstep declines.

How can indices continue marching higher if 80% of stocks are falling? Easy: big gains in a handful of mega-cap stocks. The current concentration of market-moving heft in a few mega-tech stocks is unprecedented. Last week all three market indices--Dow-30, S&P 500 and the NASDAQ--were all led higher by one company, Apple, which added hundreds of billions of dollars in capitalization in a few days.

When the market depends on a Nifty Fifty for the vast majority of its gains, it's already getting toppy, but when it's entirely dependent on a Fabulous Five for gains then the top is in.

4. Short sellers give up and short interest falls to multi-year lows. The gray-ponytail traders can savor the irony: as short-sellers give up and the percentage of shares sold short dwindles, the retail Bulls declare victory: haha, we've wiped out the shorts and Bears! We won!

What the jubilant Bulls don't understand is the hated short-sellers were the last line of defense against a market decline gathering momentum into a crash, as shorts covering their bets by buying stocks are a reliable source of buying when greed turns to fear. Wipe out the shorts and there's nobody left to buy as stocks tumble and margin calls proliferate.

5. Buy-the-dip euphoria continues sucking in money even as market internals weaken and extremes of risk are ignored. When gamblers are putting all their capital on the table and boosting the bets with margin and leverage, the dumb money is all-in; not only do they not have any cash left, their sky-high margin debt guarantees even a modest dip will result in margin calls and forced selling: the self-reinforcing momentum everyone assumed could only be bullish reverses into selling that begets more selling.

6. Punters are confident that the Federal Reserve will manage to tamp down inflation while keeping the stock market at a permanently high plateau. Never mind rising real rates, never mind the need to reduce monetary stimulus as the only means to take the air out of inflation--the Fed will never let stocks decline. The Fed Put is unbreakable.

And so here we are: every box of a bubble top about to burst with unimaginable force is ticked. Traders sporting gray streaks in their ponytails know from experience that every bubble pops, and all the endless analysis after the fact boils down to: things changed.

Timing is everything in a crash: as Thomas Hobbes is reputed to have observed, "Hell is the truth seen too late." Well said, T.H.: when the market goes bidless, it's too late to preserve capital, never mind all those life-changing gains.


My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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.



Recent Videos/Podcasts:

XI's GAMBIT: A Bridge Too Far? (41 min, with Gordon Long)


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free



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

 

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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: Do Not Sell My 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.

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