Monday, May 25, 2020

An Economy That Cannot Allow Stocks to Decline Is Too Fragile To Survive

The fragile ice shelf of speculative bets and debt clinging to the mountainside is making strange creaking sounds-- will you listen or will you ignore it because 'the Fed has our back'?
Feast your eyes on the chart below of the Nasdaq 100 stock market Index, which is dominated by the six FAAMNG (rhymes with "famine") stocks: Facebook, Apple, Amazon, Microsoft, Netflix and Google which now account for over 20% of the entire U.S. stock market's capitalization.
Notice that despite the global economy sliding into a debt-bust depression, the NDX is within kissing distance of new all-time highs. You're joking, right? Sales and profits won't slide as the depression steps on the neck of hundreds of millions of households?
As you've probably heard by now, sales don't matter, profits don't matter, costs don't matter, and indeed, nothing matters but the Fed has our back so buy stocks, never mind the valuations. In other words, the U.S. stock market has reached the spiritual level where the corporeal tangible world no longer matters: in a word, Nirvana, or Heaven if you prefer.
If we set aside the satire and the absurd justifications of the financial punditry ( "we see a V-shaped recovery of profits in 2023, or was it in 2032? Never mind, doesn't matter..."), we discern a reality that should worry us: America's economy and financial system cannot allow the stock market to decline because any sustained drop will pop the debt-bubble and bring the entire rickety, rotten, corrupt structure down.
Erecting $100 trillion of phantom capital on speculative bets and disconnected-from-reality valuations was always doomed: piling one layer of debt and speculative excess on top of another while the actual collateral supporting the first layer of debt didn't actually change steadily increases the fragility of the entire pyramid.
Now the system is too fragile and brittle to survive even a modest drop in the stock market. Since the Federal Reserve and other tools of the financial-political elites can't increase the productivity of the underlying collateral of the economy, they're forced to manipulate the one signaling device they can control, which is the stock market.
And since they can't actually improve the productivity or prospects of several thousand companies, they've poured their conjured trillions in six mega-stocks to drag the entire market higher. The more money they pour into the Big Tech Six, the greater the market capitalization of these companies and therefore the greater their influence in the stock indices: the Dow Jones Industrial Average, the S&P 500 and the Nasdaq / Nasdaq 100.
It's a self-reinforcing set-up: dump another trillion in the six mega-cap stocks and this pushes the entire market higher. The influence of the real world has been reduced to zero. Nirvana indeed.
The problem is that any system this fragile and brittle cannot survive the slightest contact with reality. The system's stability is an elaborate illusion maintained by the Big Con of the Federal Reserve: we can create as many trillions as we need to prop up the stock market.
This is the hubris and arrogance of mortals claiming god-like powers. As the Fed and other central banks buy every over-valued financial asset in sight to prop up over-valued markets, eventually they will own the majority of the markets (as per the Japanese bond market). At some point there won't be any assets left for private capital to own that actually earn a return. With interest rates at zero or lower, private capital has no way to earn a return--an outcome that collapses the entire rickety, rotten, corrupt structure anyway.
Extreme concentrations of wealth and power, extreme speculative risk, extreme over-valuation, extreme central bank manipulation--all increase fragility and brittleness. America's financial system is the classic tightly bound system with all the lines of dominoes intersecting each other: any one domino will take down the entire system because it's all tightly connected and dependent on extremes of risk, speculation, debt and manipulation (stock buybacks being Exhibit #1).
The Gods of Finance are chuckling as the Fed's trillions push the system ever closer to collapse. No matter what the Fed does, no matter how many billions Apple borrows and throws into the putrid sewage of its endless stock buybacks, the market, the financial system and the economy that has become dependent on those speculative pyramids of debt are doomed to collapse for profoundly systemic reasons.
The fragile ice shelf of speculative bets and debt clinging to the mountainside is making strange creaking sounds-- will you listen or will you ignore it because the Fed has our back? The avalanche will catch everyone by surprise when it finally breaks, and the consequences will be non-linear and therefore disruptive in ways few anticipate.
But in the meantime, please enjoy the cosmic joke of the Nasdaq 100 and Jay Powell's deadpan comedy routine. But be careful that the joke doesn't end up on you: an economy that cannot allow stocks to decline is too fragile to survive.
Of related interest:
Why Assets Will Crash May 4, 2020
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Sunday, May 24, 2020

TINA's Orgy: Anything Goes, Winners Take All

What nobody dares whisper is 'there is no alternative to collapse' because the system is now too fragile and brittle to survive.
TINA--there is no alternative--is throwing an orgy of money-creation, and it's one for the ages: The Federal Reserve has created over $3 trillion out of thin air in a few months and invited all the usual parasites, predators and speculators to the orgy.
You and I, mere taxpayers? We get to watch as our "betters" feast on the Fed's limitless bounty of free money for financiers and other parasites and predators. Of course we don't get a clear view of the proceedings; the orgy is all behind closed doors.
What we see is the threadbare comedy of Fed Chair Jay Powell coming out of the orgy to assure us that the orgy is all for the good of the country--ha-ha-ha. Those gorging on the Fed feast inside are in danger of laughing so hard at Powell's comedy routine they might choke.
Your share of the orgy is a bowl of thin gruel: $1,200. That wasn't distributed out of kindness or generosity; like all federal giveaways, it's real purpose is to give you enough cash to make your loan payments so all the parasites and predators in the Fed's orgy won't experience the terrible suffering caused by debt-serfs defaulting.
The excuse for the orgy is always the same: there is no alternative. We have to bail out the greedy corporations that borrowed billions to buy back their own stocks, the corporations that sold junk debt to finance their bonuses and dividends, the financiers who bought the risky debt, the speculators who front-run the Fed's purchases of assets and on and on in an endless parade of fraud and corruption--because if we don't bail out the speculators and other parasites, the whole financial system will implode and that would be terrible.
Terrible for who? To answer the question, we need to ponder the fundamental nature of the Fed and our financial system, which can be summarized in one line: anything goes, and winners take all.
Anything goes, because money buys political influence and so what was once illegal--buying back your own stock, advertising medications directly to consumers, etc.-- are not just made legal but normalized by constant propaganda in the corporate media that these forms of legalized looting are good for the nation because... well, that doesn't matter, just take our word for it.
When anything goes, the winners take all. This is how we've ended up with a unstable, fragile economy dominated by a handful of corporations in each sector whose sole purpose is to maximize profits by any means available, and it just so happens the most profitable arrangements are monopoly and cartels, and so that's what we have: an economy of high costs, enormous profits, low-quality goods and services for the bottom 95% and an extreme concentration of wealth and income in the hands of the winners.
This dynamic also characterizes the public sector, where anything goes if you can get away with it has generated a few winners-- employees of small school districts getting salaries of $350,000 and pensions to match, and so on--and a multitude of losers as actual services for the public decay even as costs soar. Naturally, questions about this are dismissed with TINA: there is no alternative.
The fragility of such a system is so extreme that the winners' only hope to hold onto their booty is to persuade us that the simulations of open markets and democracy they conjure up are "real" in the sense that we can't really see the Emperor's fine clothing but we accept that this must be a flaw in our own sight, rather than what it really is: self-serving institutionalized delusion: believe us when we assure you that there is no alternative.
So as the greediest and most parasitic few gorge on TINA's orgy, try not to bust a gut laughing at Jay Powell's comedy act justifying the orgy because really, there is no alternative other than a collapse of what deserves to collapse and what will collapse despite (or as a result of) the Fed's manic money-printing.
What nobody dares whisper is there is no alternative to collapse because the system is now too fragile and brittle to survive. TINA may get the last laugh after all.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Friday, May 22, 2020

Opting Out, American Style

Virtually nothing in America's top-down financial and political realms is actually transparent, accountable, authentic or honest.
Opting out will increasingly be the best (or only) choice for tens of millions of people globally. Opting out means leaving the complicated, costly and now unaffordable / unbearable life you've been living for a new way of life that is radically less complex, less costly and less deranging.
Opting out is as diverse as the individuals who choose to opt out. For many people in China, for example, the obvious choice when you've lost your job and can no longer afford expensive urban life is to return to your ancestral village, where you're likely to have grandparents, parents or aunts / uncles with a house and a patch of agricultural land.
Since urbanization has been a feature of American society for generations, this is not an option for most Americans, who are by and large rootless cosmopolitans who rarely even know their neighbors, as they move around the country out of necessity or ambition.
Just as "capitalism is no longer attractive to capitalists," (per Wallerstein), urban living has lost its luster in ways few dare even discuss. Urban centers on the Left and Right Coasts have been magnets for jobs and capital, drawing in hundreds of thousands of new residents seeking higher paying employment. This vast influx pushed rents and housing valuations to nosebleed heights, and as a result all the local governments reckoned tax revenues would skyrocket every year like clockwork and all the developers building tens of thousands of over-priced rental units also assumed the trend would continue forever.
Too bad they didn't read Laozi and learn that The Way of the Tao Is Reversal: whether you call it the Tao or merely reversion to the mean, demanding $3,000 a month for cramped apartments and $1 million for decaying bungalows were extremes that begged for a reversal.
The federal unemployment payments and bailouts make it easier to extend the delusion and denial for a few more months, but eventually the gravity of reality will overpower magical thinking and everyone counting on overvalued assets and overpriced rent, healthcare, childcare, college tuition, etc. remaining at pre-pandemic levels will have to start dealing with deep, permanent declines in sales, employment, income, asset valuations, tax revenues, etc.
The higher the costs and taxes, the greater the sacrifices that will be needed to slash and burn budgets and spending. For high-cost, high-tax urban areas, it's unlikely the political leadership will be able to force such sacrifices on self-serving insiders and government clerisies. The only real force for evolution / adaptation will be collapse and bankruptcy, which are already baked in as the end-game for every high-cost, high-tax urban region.
The Axis of Easy Triumvirate (Mark, Jesse and I) discuss opting out of urban decay in our new salon / podcast: Will "The Great Opt-Out" be able to scale? As Jesse noted, a necessary part of the solution is to make robust broadband Internet connections a predictable feature of rural living, as reliable bandwidth is a necessity for those working remotely in rural areas-- an attractive opt-out option I've covered for years: Degrowth Solutions: Half-Farmer, Half-X (July 19, 2014), in which X is remote online work.
Lacking any rooted family place to return to, Americans will have to do what they do best when there's no other option: re-invent themselves, and in pursuing this, they will re-invent small town and rural living as a by-product of opting out of what's no longer affordable or bearable.
In my view, the author who best understood the American process of re-invention is Herman Melville. Though famous for his sprawling novel of the sea and whaling, Moby-Dick, my favorite novel of Melville's is his under-appreciated classic, The Confidence-Man, a book I discussed in Do We Actually Want To Be Conned? All Too Often: Yes (September 3, 2008).
Every con depends on trust, and as trust and confidence are lost, cons become more difficult. Part of the process of re-invention is to find places, people and processes you can trust because they continually demonstrate their authenticity via transparency, accountability, reliability and honesty.
Virtually nothing in America's top-down financial and political realms is actually transparent, accountable, authentic or honest. Everything in these realms is a simulated, completely self-serving projection intended to fool us--The Big Con.
In re-inventing themselves via opting out, Americans will have to learn to contribute productively to small, localized beach-heads of trust, transparency and accountability that function on the local level in an anti-fragile fashion, meaning that they actually improve and get stronger as the top-down Big Con collapses under the weight of its own lies, frauds and corruption.
The Savior State's promises to maintain your private status quo regardless of reality are false promises, delusions based on the Big Con that we can create trillions of dollars out of thin air and give them to the top .01%, and this will magically prompt an unsustainable system to keep issuing false signals of stability.
The promises are on permanent back-order, along with trust, transparency and accountability. The choice isn't whether to opt out or continue hoping delusions and denial will work some sort of magic, but to choose whatever form of opting out works best for you and your household.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Thursday, May 21, 2020

The Pandemic Gives Us Permission To Get What We Always Wanted

Dear Corporate America: maybe you remember the old Johnny Paycheck tune? Let me refresh your memory: take this job and shove it.
Put yourself in the shoes of a single parent waiting tables in a working-class cafe with lousy tips, a worker stuck with high rent and a soul-deadening commute--one of the tens of millions of America's working poor who have seen their wages stagnate and their income becoming increasingly precarious / uncertain while the cost of living has soared.
Unemployment and the federal stimulus bonus of $600 a week are far more than your regular wages, including tips. Exactly why do you want to go back to your miserable job and low pay? Why wouldn't you take time off and enjoy life a little, which is what you've been wanting to do for years?
Indeed--why not? The pandemic is giving many permission to get what they always wanted. Consider these examples:
1. The Federal Reserve has always pined for the power to bail out the top .01% / the New Nobility the way they deserve, with unlimited money-printing and the Fed being able to buy every rigged, fraudulent asset spewed by the New Nobility's financial and corporate predators and parasites.
Yee-haw, the pandemic genie granted your wish: there's no limits on how many trillions you can shove into the greedy maw of the top .01%, and bail out every single one of their predatory, exploitive, legalized looting bets that went south.
2. Local officials always wanted to commandeer some motels and shove the homeless into them, to clear the sidewalks and parks and then claim "homeless problem solved." Presto, your wish has been granted.
3. Central government authorities have always resented all those pesky civil liberties restraints on their unquenchable desires to control every tiny aspect of life, public and private, and now--voila, the doors to Petty Authoritarian Heaven have opened. Question our authority? A tenner in the gulag for you, Doubter of All That Is Great and Good.
4. Restaurant owners who on camera always have to say how much they love their customers and business, never mind the money, who secretly have come to loathe their over-entitled, self-absorbed, dilettante customers and are sick and tired of the soaring rent, business licenses, insurance, payroll taxes and costs of ingredients.
You know what, pal? Here's the keys, you can re-open whatever the heck you want, I'm outta here. I've been secretly wishing I could get out from underneath this crushing burden and get my life back. Yes, it was exciting way back when, but now it's nothing but an endless grind that wasn't making money even before the pandemic.
5. Since the financiers, Big Tech mini-gods and stock buyback crowd have looted and pillaged their way to immense fortunes by lying, cheating, conniving and gaming, why not follow the money just like the predators and parasites at the top of the heap?
Indeed, why not fudge the application for a federal small business loan and use the "free money" to lease that shiny new Rolls Royce you always desired? Well, haven't the authorities been begging us to borrow and spend like there's no tomorrow?
6. Dear Corporate America: maybe you remember the old Johnny Paycheck tune? Let me refresh your memory: take this job and shove it, I ain't working here no more. If there's a will, there's a way, and I'm stepping off the rat race merry-go-round, thank you very much. You can find some other sucker to do your dirty work and BS work, all for the greater glory and wealth of your New Nobility shareholders. I'm outta here. So I won't get rich, that dream died a long time ago. What I'm interested in now is getting my life back.
The pandemic might not follow the Central Casting script of a V-shaped return to debt-serf, BS-work wonderfulness. Everyone who was sick and tired of their pre-pandemic life and the endless exploitation has had time to think things over, and some consequential percentage of them will welcome "good-bye to all that" and others will decide not to go back, even if that is still an option.
It's called opting out, and it has always characterized the end of imperial pretensions, pillaging, propaganda and predation. Financial parasites, beware the second-order effects of your overweening dominance and limitless greed.
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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Thank you, Unai G. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
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