The week just ended laid bare any pretensions that there is not something wrong (seriously wrong) within the natural world of both the macro underpinnings of business as well as finance. Unimaginable just a short 6 years ago the U.S. equity markets closed at a height once again never before seen in human history highs, (it has more than tippled from the 2008 bottom!) but has done so solely on Keynesian fairy tales. The issue now is: does the fairytale end in a nightmare?
Nearly every recently released metric (consumer sales et al) that should at the very least showing signs of steady improvement helping bolster the argument as to why the markets are continually rising, are not only contracting; rather – they’re falling off a cliff.
This is amplifying the evidence that at the very least the U.S. capital markets are experiencing a bubble dwarfing the dot-com mania of the late 90’s. Quite possibly having more in common with the peak of the tulip mania of the 1600’s than the former. The reason? It’s not just one area of a market any longer. It’s now the entirety of the markets as a whole.
Preposterous you say? Fair enough. So let’s think this through since it’s a long weekend for pondering such hypotheticals via the proverbial 50,000 ft. view from above.
During the dot-com boom you had insane valuations and metrics that perpetuated the narrative of “this time it’s different.” In some ways it was, for as I sit here typing away both the machines I use as well as the delivery channels were truly revolutionary. Yet, as far as the business models that came along as it progressed; anyone with commonsense could see it wasn’t that different. Bubbles are bubbles and are easy to see. The hard part is convincing people they’re in the midst of one. Till they pop.
Currently we are within proximity of surpassing those very lofty dot-com highs. For all intents and purposes based on the recent markets behavior we could eclipse it within a week. (we are less than 5% away via the latest NASDAQ™ close)
Remember, this was a contemporary “mania” high. And should not be viewed in the same context as previous so-called “mania” points that eventually get surpassed via the monetary evolutionary process of inflation or time passed. i.e., The value of the markets in 1929 as compared to today.
No, this high watermark is well within recent memory and applicable to today for statistical comparison. So let’s take this comparison – and compare it shall we?
It is widely accepted the culmination of the bubble bursting dot-com era took place in the early months of 2000. Let’s forget charts as a comparison for they really don’t fit the purpose for analogy. But we can use one that’s simple in terms as well as understandable.
At that time the tech laden index NASDAQ was considered to be a rocket-ship soaring to newer and ever-increasing heights in ways either not equal to, or, as in the acceleration as compared to the other main indexes.
One could use the visual as the NASDAQ embodying the description for a modern glass skyscraper adding floors at a blistering rate while towering above the older more masonry styled counterparts. i.e., As compared to the industrial averages or other aggregates.
Today, not only are we about to either match or surpass that once dizzying height but (and it’s a very big but) we have already done the equivalent in all those other major indexes in resemblance of the NASDAQ of the 90’s. The NASDAQ when it matches or breaks its past mania high will be: the laggard!
And why have we set these new records? Has it been an expanding economy since the Great Recession? Have we expanded businesses and innovations, and industrial output and might that would rival a revolution comparable to the tech of 90’s fame? Nope. Not even close.
The only revolution that has taken place is in the adulteration of the markets DNA (i.e., the business cycle) via Keynesian experiments of money printing and injections creating a newer version or hybrid of tulips. And It would appear as long as there are flowers too be seen from the windows of the hallowed halls; it is assumed by dint whether they are real or plastic: Everything is coming up flowers. So why mess with such Keynesian beauty? Be “patient.”
Problem is this current tulip covered island being created and perpetuated will have less in common with a fantasy island, and more with the one borne by the infamous Dr. Moreau if the current Dr.’s at the Eccles building orchestrating this experiment of monetary policy don’t grasp just how much of an abomination they’ve created.
Just what rationality (unless you’re an “everything is awesome” ostrich) could possibly explain markets inching ever higher into record extremes when economic drivers such as retail sales, household spending, home sales, and more are falling off a cliff?
What’s even more troubling is the only metric rising in comparison are social programs such as increased rolls on food-stamps and others! Tag onto this the possibility of escalation or other unforeseen incidents causing an uncontrollable spiral for, or into conflict whether it be in Ukraine or Middle East.
All this while simultaneously our embassy in Yemen was over-run needing to be abandoned and is now flying the flag of an adversary. And the markets tick higher, and higher relentlessly and irregardless of any possible danger.
Military personnel as well as officials had to be scrambled out as well as evacuated in ways harboring back memories not recalled in decades. And the markets not only don’t retreat or even stall in any fashion, but rather – push once again to even higher highs. Sorry, somethings wrong. Terribly wrong with this picture.
As if the above isn’t enough to make one shake their head in disbelief. It doesn’t even take into account the possible catastrophic overhang currently taking place in Europe. e.g., Greece.
As we sit here in the U.S. during a holiday weekend resulting in an abbreviated session for our equity markets it is quite possible while our markets are closed, we may find that Greece has unequivocally decided to exit the Euro-zone. And in so doing completely repudiate any, if not all, former agreements as to how (or if) loans currently being serviced will be paid.
The contagion risks to such an event are at best market disrupting. And at worst a “Minsky moment” once again in the making reminiscent of 2008. And the markets interpretation of all this as expressed via the VIX™ as well as other fear gauging or protection buying indicators? (insert crickets here)
The silence is so deafening all that one can infer is that many still truly believe “everything is awesome” buy, buy, buy! For the Fed must surely “have their back” as now documented by the once again record high closings.
Who needs to understand economic indicators, profits or losses, and all that old tired drivel once used in days of yesteryear as to gauge the health of an economy or company? Does one any longer need to understand stock picking? Forget-about-it! All one needs to know is which company is currently in the index of choice implied by the Fed. and lo and behold – you too can make a killing in stocks! Can I get a sock-puppet with that?
Want to know how the economy is performing via an indicator such as the Baltic Index? Who cares! Its fallen off a cliff so much so it’s at levels not seen in decades. “Buy. buy, buy!” How about that stalwart of domestic companies with indicative international sales Caterpillar™? A company touted by some as such an insightful indicator it’s “the only conference call you need to listen to” as to show the health of the global economy. Their own assessment via their latest earnings release? Terrible. Again who freakin’ cares! BTFATH!
What does it matter when an indicator such as the most recent 2015 report for consumer spending shows it’s the worst back to back report since 2009! Repeat after me: Who cares! Or, you can do as reportedly was stated by CNBC’s Jim Cramer after reviewing the report: “I am no longer using these aggregate retail sales reports.” Now that’s what I call “insightful analysis.” Only thing more moronic is there was a time moments like that were actually viewed as insightful.
Is it any wonder insights like this are what’s responsible to their cliff diving viewership numbers? For they’ve fallen so much so the entire channel has decided they will no longer report their numbers to Nielsen™ for review or comparison. What an example of tulip induced mania that smells like _________. (insert your choice of animal manure here.)
As far as the political ramifications are concerned, as I’ve stated more often than not this tulip styled mania taking place within our financial markets gives the illusion that reforms in policies across the business sector, as well as others, either have time to be addressed in a laissez-faire attitude, or at worst: needn’t be addressed at all. i.e., tax policies, regulations, trade agreements, social reforms, et al.
For if money has the ability to be created via a keyboard attached to nothing more than the (hope) “promise” that it’s worth its value. Why fix anything? Just print – consequences be damned. Just look at these markets! Buy, buy, buy and buy more! And don’t forget to vote and vote often!
But there are consequences, Serious consequences. And they become manifest when they enter the realm of national solvency as opposed to an arbitrary index in a stock market of record. i.e., The current calamity of debt issues revolving around Greece in particular and the ancillary countries that will follow if Greece does what it has implied it will do. e.g. Leave the Euro-zone. (EU)
Currently the battle lines in the EU and Greece is of course over debt. Without getting into the specificity of the details the underlying issue is what they owe, how much, and how will it be repaid.
However, in this Keynesian “new world order” of implied moral authority as to both the ability, as well as the efficacy to print money via keystrokes. Why should there be any discussion of “irreconcilable” circumstances when for all intents and purposes the ECB could basically buy all of Greece’s debt, put it in an imaginary account, and hold it ad infinitum with nothing more than a series of keystrokes?
Again, if one accepts the premise which began and has been implemented going on in perpetuity by Federal Reserve and currently being emulated by the ECB. If I were one of the Greek heads of state, I know what I would be arguing to the ECB: “How come you’ll print money for, or to help __________ (fill in any expressed reason you wish via Mario Draghi) and not this or, to help us? Why should we live in a form or manner of destitution when you could solve everything by means of keystrokes?”
Exactly what is “debt” currently? It can be argued it is now nothing more than what a current body with the ability to print says it is. i.e., It declares by fiat (both dictum as well as money) who it decides is a “winner” or a “loser.” For if money is now only based via a construct rather than tied to a real thing. e.g., gold, precious metals, commodities, et al. Why should one play by rules based on sound money policies when the actual current policies or exchange rate for debt is fiat? One should not gloss over the intrinsic argument inherent in that last line.
Welcome to a point in the road that has finally arrived where real arguments based in factual constructs meet the fantasy of monetary policy perpetuated via Keynesian interventions. Suddenly the all too real circumstances arrive where someone decides to pick that flower growing in the snow and express to all those watching. “They’re fake. And they’re not paying for them!” When this happens – All bets are off.
For if it is exposed the tulips are neither fragrant, or real while trying to force Greece to pay as to bask (as in pay) in the faux garden created by central bakers the ending result will be nothing less than outright rebellion and repudiation of all of it. And that’s just the beginning. For once the other peripheral countries realize the same? I’ll state it again: All bets are off.
All of the above should cause great concern within the markets. Yet, we grind ever higher in a way reminiscent of manias past. Nothing seems to deter or phase our markets currently. Not the threat or the potential outbreak of war. Nor, the near cliff dive in economic activity now being expressed since the ending of QE. Not the collapse in the price (as well as plausible breakup) of the Euro. Or the export killing implied move in the rapid strengthening of the U.S. Dollar. None of it has measured so much as a hiccup.
U.S. Treasuries have soared and interest rates plunged within viewing distance of heights or depths not seen since the panic days of the financial crisis in ’08. All are warning signs to anyone with the slightest modicum of financial or business acumen.
And I have yet to even mentioned the current concerns emanating from the one place every “analyst” on the planet would jump on a television desk proclaiming this new economic “super-power” was going to save the economic world in a way mimicking a Tom Cruise interview with Oprah: China.
Nearly every report coming out of China detailing their current economic activity has shown to be troubling as to just how quickly things have slowed. Remember, this is a regime where the reporting of government based economic data are notorious for reporting disingenuous “rosy” figures. And their current reports are reporting ever-increasing contraction.
The figures extrapolated by others relating from key factors outside not controlled by the body politic are showing an even more stunning contraction in economic activity. In just one example; if commodities are still to be used as a basis for an assessment on exactly what is taking place there – proceed with caution with be an understatement. Yet, our own financial markets post ever higher, and higher records.
In my opinion this is a direct causation or “mania” expression and has been brought forth and fueled by what myself and others have been warning about since the inception of quantitative easing aka QE. There is just no other way to justify or quantify the true underlying reason as to why or how the markets could currently be ascending.
Day after day they continue upward to even greater dizzying heights. They now sit at levels with the lack of (or unwillingness) to show any signs of legitimate concern for an out-of-the-blue event especially with everything currently taking place.
Without the overwhelming (actual Trillions!) amount of money printed via the Fed. sloshing around from one potential crisis point or area to another this unsettling calm being displayed within the markets would not be so prominent. Let alone possible. Yet: here we are. For what could produce these recent perilous highs posted in the equities without the economic activity to express it?
Only one thing can – a mania or bubble fueled by free money. Period. Which like many of us said would be its expression.
It has become ipso facto all this money printing never found its way into the economic channels implied by the Fed. (of which we were chastised as “incapable of understanding monetary policy”) It would instead create financial bubbles and misallocation on par with manias of yesteryear. To which it is now self-evident. (that is – to those who truly wish to look)
Now it is the Fed. for all to see that has indeed walled itself off in some secret garden. It is now not only tasked with the daunting provisions of exactly what it will (or can) do next. But Valentines day has now come and past and the need for flowers has also gone with it. So what, or better yet, exactly; how will it deal with what it has produced? And who will buy what they’re selling? Will “words” help or hurt?
Their answer as of late to be “patient” does not quite have the needed gravitas one would think they tried to express when first stated. For around the world patience of all types is running very thin.
Just to give some more color unto this whole idea of having plenty of time, or one being patient. All the above manias have another historical coincidence. They all culminated their bursting in the month of March.
I would remind one that history waits for no one. Whether ready, or not. History marches regardless. Patience be damned.
© 2015 Mark St.Cyr