Sep 192017
 
 September 19, 2017  Posted by at 12:52 pm Finance Tagged with: , , , , , , , , ,
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Wynn Bullock Child on a Forest Road 1958

 

A few days ago, former Reagan Budget Director and -apparently- permabear (aka perennial bear) David Stockman did an interview (see below) with Stuart Varney at Fox -a permabull?!-, who started off with ‘the stock rally goes on’ despite a London terror attack and the North Korea missile situation. His first statement to Stockman was something in the vein of “if I had listened to you at any time after the past 2-3 years, I’d have lost a fortune..” Stockman shot back with (paraphrased): “if you’d have listened to me in 2000, 2004, you’d have dodged a bullet”, and at some point later “get out of bonds, get out of stocks, it’s a dangerous casino.” Familiar territory for most of you.

I happen to think Stockman is right, and if anything, he doesn’t go far enough, strong enough. What that makes me I don’t know, what’s deeper and longer than perennial or perma? But it’s Varney’s assumption that he would have lost a fortune that triggered me this time around. Because it’s an assumption built on an assumption, and pretty soon it’s assumptions all the way down.

First, that fortune is not real, unless and until he sells the stocks and bonds he made it with. If he has, that would indicate that he doesn’t believe in the market anymore, which is not very likely for a permabull to do. So Varney probably still has his paper ‘fortune’. I’m using him as an example, of course, of all the permabulls and others who hold such paper.

Presumably, they often also think they have made a fortune, and presumably they also think that means they are smart. But that begs a question: how can it be smart to put one’s money into paper that is ‘worth’ what it is today ONLY because the world’s central banks have been handed the power to save the ailing banks that own them with many trillions of freshly printed QE? And no, there can be no doubt of that.

And there are plenty other data that tell the story. The world’s central banks have blown giant bubbles all over the place. That’s where the bulls’ “fortunes” come from. They are bubble fortunes. It has nothing to do with being smart. And of course, as I’ve said many times before, there are no investors left to begin with, because you can’t be an investor if there are no functioning markets, and for a market to function you need price discovery.

Which is exactly what central banks have killed. No-one has one iota of a clue what anything is really worth, what the difference between ‘price’ and ‘value’ is. Stockman at one point suggests people should hold on to Microsoft, but does he really believe that Bill Gates will remain standing when everyone around him crashes? That tech stocks are immune to the impending crash for some reason? If true, that would seem to indicate that tech stocks represent real value while -virtually- no others do. Hard to believe.

Please allow me to insert a graph. This one is from Tyler Durden the other day, and it paints a clear picture as much as it raises a big question. It suggests that until December 2016 the S&P and the ‘real economy’ were in lockstep. I think not. But one thing’s for sure: ever since January, i.e. the Trump presidency, the gaping gap between the two has grown so fast it’s almost funny.

 

 

Not that I would for one moment wish to blame Trump for that; he’s merely caught up in a wave much larger than an election or a White House residency. What is happening to the US -and global- economy goes back decades, not months. Which makes the graph puzzling, too, obviously. Just ask the new-fangled platoons of waiters and greeters with multiple jobs in America. And/or the 50-60-70% who can’t afford a $500 emergency bill, the 97 million who live paycheck to paycheck.. America’s already crashing, it’s just a matter of waiting for the markets to catch up with America’s reality. That’s what price discovery is about. Here’s another, similar, graph. Note: I don’t really want to go and find the best graphs, we’ve posted and re-posted so many of them it would feel like an insult to everyone involved.

 

 

But I digress. This was to be about Stuart Varney and the platoons and legions of permabulls out there. As I said, many of them, make that most, will feel they’ve made their fortune because they’re smart. Even if riding a Yellen and Draghi and Abenomics wave has zilch to do with intelligence. But there’s another side to that supposed smartness. And Stockman is on to it.

The large majority of people who think they got rich because they’re smart will also lose their ‘fortunes’ because they think they’re smart. It is inevitable, it’s a mathematical certainty. And not only because the central banks are discussing various forms of tapering. It’s a certainty because those who think they’re smart will hold on to their ‘assets’ too long. Because the markets will become much less liquid. Because the doors through which people will have to pass to escape the fire are too narrow to let them all though at the same time.

Fortunes built on central banks largesses are virtual. You have to sell your assets to make them real. But the same mechanics that blew the bubbles in housing, stocks, bonds et al also keep people from selling them. Until it’s too late. It may seem easier to sell stocks and bonds than homes, and it is, but in a crash it’s harder than one might think. And prices can come down very rapidly in very little time.

So perhaps the right way to look at this is to tell yourself you were not smart at all when you made that fortune, but now you’re going to smarten up. There will be a few people who do that, but only a few. Most will feel confident that they can see the crash coming in time to get out. Because they’re smart enough. After all, they just made a fortune, right?

It’s not just individuals. Pension funds have been accumulating huge portfolios in ever riskier ‘assets’. Which of them will be able to react fast enough if things start unraveling? And for the lucky few that will, what are they going to buy with the money? Bonds, stocks? Gold perhaps? Crypto? Everyone at once?

Don’t let’s forget that one of the main characteristics -and its consequences- of the everything bubble the central banks granted us is far too often overlooked: leverage. Low interest rates have made borrowing stupidly cheap, and so everyone has borrowed. As soon as things start crashing, there will be margin calls, lines of credit will be withdrawn, people and institutions will have to panic sell (everything including crypto) just to try to stay somewhat afloat, it’s all very predictable and we’ve seen it all before.

But yes, you’re right. The rally continues. And we can’t know what will trigger the downfall, nor can we pinpoint the timing. Still, it should be enough to know that it’s coming. Alas, for many it is not. They’re blinded by the light. But even that light is not real. It’s entirely virtual.

 

 

 

 

 

Home Forums Bubble Fortunes

This topic contains 11 replies, has 9 voices, and was last updated by  justjohn 1 month ago.

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  • #36007

    Wynn Bullock Child on a Forest Road 1958   A few days ago, former Reagan Budget Director and -apparently- permabear (aka perennial bear) David St
    [See the full post at: Bubble Fortunes]

    #36008

    Dr. Diablo
    Participant

    100M not in workforce and 100M don’t have even $500. How’s that economy doing? Green Shoots! Fully recovered!

    In a way, be careful about being “in” and “out” of assets: you’re always “in” assets, just trading between types. Stocks to cash, cash to bonds, bonds to real estate, real estate to gold, gold to yen, yen to cryptos, cryptos to pork-n-beans. They are all “assets”. As many (Mish, Hussman) point out, there is no “cash on the sidelines” (well, not exactly), because cash and stocks are just traded back and forth between the same trading population. There’s never been less cash than today, as it’s all been borrowed into existence at interest, largely by MNCs.

    So what are we talking about here? Well, it would seem the “bubble” in loosely, “debt”, means the price of things you buy on margin have risen, along with the assets debt-bubble-money-margin-traders like to buy: stocks, bonds, real estate, but also cars, art, metro trophy properties, submarines, yachts, private islands, buying all of Greece by enslaving the Greeks to death — you know, that kind of thing. So what on planet earth HASN’T been bid up? The real world. Things that are real, useful, hard to store and financialize. You know, like food, water, raw materials. But…?

    But every stock bull ever has raised these same paper assets, and every bear market has savaged paper and sparked a commodity boom that’s savage but lasts 1/3 as long? That is, a whole bunch of promises go hollow and default, raising the relative price of the real things you would buy with those (pension, bond, stock earnings, crypto, speculative) promises? Yeah, something like that. Lies can only persist so long, and although this may be the greatest expansion of lies, murder, and self-delusion in human history, anyone can see that the U.S. is not paying back $20T in like kind, nor Europe, nor China, nor the suspected $4 quadrillion in derivative bets. Although copper or wheat may not “rise” in a sense, sitting on the ground it can certainly stay stuck at $4/bu. and $3/lb while Van Gogh falls 99% and UST’s fall 99 & 44/100%. Ironically, that makes them stronger, but it won’t be a picnic.

    It’s just a rotation of assets. Same as evermore.

    #36009

    seychelles
    Participant

    Wonderful photo!
    Most of the Zioglobalist-financiers are so unimaginably wealthy that they could lose 99.9% of their wealth and still live lives of luxury. Worries about popping bubbles are for the little people, especially those who depend upon eventuation of actuarial projections for pension funds and those who fantasize that they are “investors.” And we all have been perceptually conditioned that major stock corrections only last a year or two and then resume their inevitable upward trajectory, like trees growing to the Moon, right? Maybe the ZOG thinks that if the dollar stranglehold is seriously threatened that there will be enough fear to justify setting the nukes in motion. Just imagine how much easier it would be to control only 2 or 3 billion people? And all of the financial opportunities in the face of all that mayhem?

    #36010

    Professorlocknload
    Participant

    Then again, the Fed can likely guarantee it can provide how ever much money (Liquidity) it takes to keep this “Bubble” inflated for a very long time. They just can’t guarantee its future purchasing power.

    Another way of looking at it is, hey, you doubled the nominal dollar value of your stock, bond and Real Estate portfolios? Congratulations for having the foresight to not fight the Fed.

    However, given the books must ultimately balance, better figure on a 50% devaluation of those “nominal” bucks by the time the reset is complete, putting you back to square one. Of course, that’s still a better place to be than that of those who were too timid to drop their blind faith in the Fed maintaining any semblance of value in their Federal Reserve Note debt instruments, maybe?

    Unless, maybe one thinks it’s different this time, and somehow these maniacal money changers will find ethics? Good luck with that.

    #36011

    Professorlocknload
    Participant

    Look, the buck lost 44% of its purchasing power when Stockman and pals were at the helm of this Wurlitzer, from 1980 to 1988. So, who ya gonna call?

    #36012

    rapier
    Participant

    When the next market liquidity crisis hits or seems likely to I see no reason why the Fed cannot usher in another round of QE and successfully reflate the financial markets. I am not saying it will succeed. What I am saying is that it could succeed.

    #36013

    V. Arnold
    Participant

    Well, Ilargi; got to eat some crow re: Max and Rickards.
    Max interviewed Rickards and didn’t go all hyperbolic and Rickards isn’t stupid; a very good interview.
    Smart guys both, my stupid…
    But, I still think we will not attack the DPRK.

    #36021

    John Day
    Participant

    So what is the next game? Or, what are the next competing games? That’s a game, isn’t it?
    History gets very real periodically. Not a game. Live or die together. There’s no making-the-jump-to-lightspeed. You snap to awareness in a snail body, with the beak of a raven about to snap you up.
    Get ready. Plant your fall garden. http://www.johndayblog.com/2016/07/liberty-garden-central-texas-climate.html
    Save the last bullet, too…

    #36023

    V. Arnold
    Participant

    John Day
    Save the last bullet, too…

    Now that’s interesting, coming from you.
    What’s up?
    Anything change?

    #36044

    Doug
    Participant

    “Stockman at one point suggests people should hold on to Microsoft, but does he really believe that Bill Gates will remain standing when everyone around him crashes? That tech stocks are immune to the impending crash for some reason?”
    This is not how I interpreted Stockman’s comments. David often comments on the FANGs — Facebook, Amazon, Netflix, Google, regularly in his Daily Reckoning blog, and how their stock values are seriously bloated by ‘bubble finance’, and after the coming crash their stock prices will be … not worth very much, if anything. Microsoft stocks will still fall, but not in the same league as the FANGs.

    #36047

    John Day
    Participant

    @V.Arnold
    I perceive the average TAE participant to be a baby boomer, as I am. Considering one’s own passage out of life, in a sustained Limits To Growth economic decline, is an important part of planning.
    “Last bullet”, or “hemlock” could both be shorthand for that. We don’t contribute actual production in our last 15 years of life. The retired elderly are a group that gets culled early, and with a lot of mechanisms which are less visible, like just turning off the AC in summer for a couple of weeks.
    My comment was made to readers who appear caught in the doldrums of abstract consideration of whether a tsunami 15 feet high will be in the spot where we stand, in a few minutes.

    #36058

    justjohn
    Participant

    “Please allow me to insert a graph. This one is from Tyler Durden the other day, and it paints a clear picture as much as it raises a big question. …”

    Could you link to the original article, please? I spent about an hour looking at Zerohedge, trying to find it. Just curious what “hard economic data” is.
    thanks

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