by John Ward
If you can see a mistaken logic in all ten of the catalysts presented hereunder, then let us all dismiss this talk of economic, financial, fiscal, social and sovereign disaster. Let us instead keep rowing towards the Paradise of the Eternal Growth paradigm. If not, be prepared for “Buddy can you spare a dime”.
I was reading several business/financial sites yesterday afternoon on the subject of economies, stock markets, pensions, real estate and how much further the World’s Longest-running Bull Market has to go before it spirals into a crash.
Not only did most of them agree, they did so with such amazing consensus (even using the exact same phrases on occasions) I was immediately alarmed. Six out of seven used the phrase ‘by the mid 2020’s’; on tracing back their quoted sources, four were going on something Bloomberg had written, and the other two from CNBC posts.
In short, this is clearly the Fed/Wall Street narrative – ie, That Which Must be obeyed by the mainstream media.
I long ago abandoned those sites trying to sell one advice, because every week they say the crash is coming next week, and their rationales don’t begin to add up. But the thing that worries me about “there’s still six years to go” is that the advice being peddled almost never takes account of those factors rendering comparisons (of where we are with where we’ve been before) utterly pointless.
The key point I’m making here is that several blindingly obvious realities make this business environment historically unique.
An endless variety of “laws” and “general rules” are taking the name of Now in vain…and all are being used to say “this is what it means, don’t worry”.
Harken unto the words of one who has paid dearly for both believing the balm and looking at data linked to various pasts: there is only one future, and it is always different.
This has never been more true than it is today, because so many things exist today that didn’t exist in 2008, in 1988 and 1973. I have been posting about Crash2 here since 2014; whenever what I expect to happen gets kicked down the road, there will be naysayers in The Slog’s thread saying “hahaha you got it wrong”. Well, my shoulders are broad, and my answer is always the same: if you think what we have now is free and natural markets, then you’re asleep having the American Dream. Artificial manipulation is what keeps the fine tableware spinning in the air….but gravity is a universally applicable rule.
Let’s depart from the throat-clearing and get down to the nitty-gritty:
- Social media were in their relative infancy in 2008. Today, the use of such media to radiate everything from false feelgood to facile fear is maturing into a monster. The élites have no desire to control them – beyond puerile discussions about “fake news” designed to shut down opposition. Their own use of new media is continuous and often undetectable. In the late 1950s, Vance Packard wrote about The Hidden Persuaders in advertising agencies, but the truth is that, by today’s standards, they were obvious and regulated. In 2018, at the slightest sign of unease in the markets, the Alt State trolls swing into action, rubbishing contrary voices and pouring scorn on reasoned warnings. It works for a while….but in the end, it’s a Band Aid being applied to a plague pustule.
- In 2008 China enjoyed a massive monetary surplus based on low-price exports. Today, other tigers are cutting Beijing up, and now it too has a huge debt. But in 2009, China’s ability to throw money at problems and invest in infrastructural imperialism was an undoubted plus for a globalism gone wrong. Today, there is nobody who can fulfill that role. There is only Japan (biggest per capita debt in the world) the US (biggest debt, period) the EU (dysfunctional currency and most rapidly growing debt) and Russia (infrastructurally weak and dangerously overdependent on energy exports). None of this necessarily points to a global crisis: but with every currency now a fiat – and central banks connected as never before – it certainly increases the likelihood of consumer monies being devastatingly revalued.
- Not even those consumer monies being threatened are, however, real: the debt dependence of conspicuous consumption is insanely leveraged compared to the last century or 2008. The amount of bourse trades utterly dependent on cheap credit is – thanks to QE and Zirp – a completely new factor that barely existed ten years ago. And the globalist corporations have in turn used cheap money to pay dividends, up the stock price to unreal levels, and buy their own stock with similarly borrowed money. Assumptions about citizen purchasing levels, bourse stability and quoted company valuations are all based upon money that none of them have.
- All of the buy now pay later fantasies described in 3 have also led to vastly overblown asset bubbles. Because borrowing is so cheap, every major metropolitan area in the Western World and around the Pacific rim has corporate and domestic price levels that bear less and less relation to real buying power. When both these and the credit-driven auto markets peak out (at around 5% commercial borrowing rates) their maxed-out plastic owners will face the kind of equity more negative than Michel Barnier having a bad day. When the keys start rolling into the lenders’ offices, the lenders will become Zombies on a scale to make Spain’s caja disaster seem a mere blip.
- Every rate rise the US Fed dictates will exacerbate the fragility of “worth” based on borrowing. Every rate rise the US Fed dictates aleady exacerbates the dependence of Third World Development on Dollar-denominated debt. Note how Trump is being vocally excoriating about Fed policy: of course he is – it threatens his reelection chances in 2020.
- A recurring Establishment narrative about rates is the one of “a gradual return to normal”. Do the maths: there can be no return to anything approaching normal. The abnormality of Zirp is unique. Taking a mean between extremes, a “normal” interest rate average across all forms of borrowing is about 6%. The rate at the US Fed Reserve after the June hike was 2%. It may or may not be 2.25% after September. The Fed Treasury’s bond yields go from 1.9% to 3.1% (1 year to 30 year repayment terms), and this year just managing the yield cost will come in at $310 billion. In 2016 it was $203bn. At 6% it would be close to $1trillion, because a higher proportion of the issue will have to be long term in order to sell out. Spending one tax Dollar in 3 on debt management simply isn’t sustainable. Other economies like Italy, India and Argentina would be facing social collapse, higher taxes and hyperinflation to stay afloat. If borrowing rates return to normal, then universal debt and valuation ‘forgiveness’ would be obligatory. The average citizen would not find the experience forgiving on the whole.
- Ten years ago, Dollar hegemony in general (and the petrodollar in particular) were treated by traders, influencers and heads of State as an unassailable given. The amassing of gold by Russia and China – and the number of signees to their Yuan-Rouble settlement ‘alternative currency’ – suggest very strongly that America can no longer expect to dictate commodity price valuations with such gay abandon.
- Looking at specific panic catalysts in the context of sovereign bond yields, in 2008 the eurozone and the EU itself also looked stable: Greece was a problem not yet on the horizon, migration hadn’t happened, Viktor Orban was in Opposition, and both Spain and Italy were regarded as solid Brussels allies. Now the EU faces rebellion and disobedience in all those places, plus a United Kingdom potentially ready to starve the European Commission of trade profits and member contributions….and a migration issue that is changing European politics across the board.
- Even during the eternal growth optimism that preceded 2008-9, the Dow Jones, the FTSE and other leading bourses still held a relatively sane relationship to the economies upon which stock, energy and commodity prices were based…precisely because QE and Zirp didn’t exist. Yet during October 6th–10th 2008, the Dow fell over 1,874 points, or 18%, in its worst weekly decline ever on both a points and percentage basis. The S&P 500 fell more than 20%. The level of selling volumes was unprecedented. Today, there is no correlation at all between underlying economic health and the bourses: any genuine sense of valuation has been first clouded and then erased by can-kicking. Once the realisation of this sets in, the Crash will not be a downwave: it will be a Tsunami drowning all economic output, most clearing banks and several Sovereigns as unrepayable debt, negative equity and corporate failure lead to the swamping of all consumption levels…..and a global slump into the residue of deep mud.
- Ah but ah but ah but say the Bloombergs and Wall Street Journals and FTs and other Uncle Toms implicated in the scam, the banks now have stress tests, fewer mad financialised packages, and are far better equipped to handle such a thing. It is all denialist nonsense. Barack Obama bottled out of the reforms suggested during 2009-11, and the banking lobby diluted the tepid regulation that resulted until it was unrecognisable. US banks are still churning out packages (one is based on high risk downmarket auto-debt) that are toxically subprime, while their asset to leverage levels are both higher than ever and based on some exceedingly dubious definitions of “asset”. Trump has since reduced the regulation still further. In the eurozone, non-performing commercial and domestic loans are far worse than the pre 2010 levels, and the ECB has considerably less gold with which to defend itself. As for the Chinese banks and bourse traders, they are much bigger than they were ten years ago, and riddled with corruption relating to loan targeting, debt levels and embezzlement.
From about 2001 onwards, I prepared for the Crash I expected. Property debt was paid off, I began investing in gold, and during 2006 I reduced the SIPP’s exposure to stock markets in favour of gilts very rapidly. My investment managers told me so often I was being silly, I fired them.
So I was two years early. Better early than late – I came out of the correction better than most. But when the dust settled after 2009, I made three terrible mistakes: I believed that reform was coming: that stock markets would be left to fend for themselves. I believed Scottish Widows when they said my fixed income bond was cast iron, and I believed firmly that none of Libor, the Fed Reserve, the ECB and the Bank of England were lying crooks. That plus Zirp slammed my pension fund by 40%, reduced my ex-fund capital by 30%, and reduced my total interest income by £37,500.
Now I no longer assume anything, expect the worst, and thank God for gold, without which I’d be in queer street. I’ve been calling Crash2 since 2014, and being “wrong” about the levels of mendacity involved in keeping the false boom going has, in the short term, reduced my standard of living further. Once the great debt, asset valuation, gold worth and currency fiddles are completed, I may still be behind the game.
But investment is no longer about growth, because while the existing “rules” apply, such is anything from horribly dangerous to impossible. Managing one’s net worth from here on is about protecting what one has to the maximum extent possible. The Day of Reckoning will come. The investment billionaire Jim Rogers thinks it will arrive by Autumn 2019 if not earlier. Rogers has tended to get the talk right (and also walk the walk) over the last forty years. He always seems to me to make sense. I’d rather take his a advice than listen to a bunch of Big Hair goforits at Bloomberg.
We shall see.
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