Just as there’s a scheme to pay old investors with new investors money (aka a Ponzi.) There’s another part of the scheme that rarely gets talked about: i.e.,The narrative that fuels the scheme to begin with.
Much like the original structure which involves money, this too needs an ever-growing amount of gullible, willing participants. However, the currency here is narrative.
And just like any Ponzi scheme once you lose the narrative – you’ve lost everything. One can not survive without the other. Yet, it is the narrative more often than not that is needed to drive the scheme ever higher. Without it, the scheme implodes via its own weight. The narrative regardless of how outlandish, bizarre, or full of nothing but outright lies must be maintained and vociferously defended by those who are already caught in the scheme.
In my view the reason why many are finding the greatest confusion, as well as complete consternation is this: Too many are forgetting the “investors” in this scheme are governments (or proxy) with unlimited funding resources, as well as: they also control the narrative. i.e., any data point they wish to convey as what “is” good or bad. I would imagine if Charles Ponzi were alive today he’d argue “And you sent me to jail for?” But I digress.
Why the scheme of today is far more troubling than those of any bygone era is as I iterated: the access to unlimited funds.
As has been stated ad infinitum – central banks have the ability to print money ex nihlo. And what people forget is that ability retards the process for the scheme to collapse under its own weight. Remember: a Ponzi scheme works until you begin running out of suckers. And it’s in that math of exponentiation where once you see “a crack” the crumbling comes with near immediacy. There are only so many people, with enough money to swindle.
However, if one has access to unlimited fund? “Cracks” can be repaired, hence the scheme can continue. The game is the same. The only difference with this one is the physical reality of needing more “bodies” with wallets is no longer a requirement. i.e., One central bank with the gumption to print equals how many investors wallets of yesterday? 10? 100? 10,000? 1,000,000,000,000? I hope you beginning to see my point.
As long as the central bankers of the world are holding the print button down with both hands and feet – the scheme is going to last a lot longer than anyone ever dreamed possible. But, as I said, the “money” is only half of the equation. This is where the narrative must also match if not supersede. And it is here where those “cracks” are beginning to widen at a dramatic pace, and “money” alone can’t abate the damage. In fact more “money” seems to be exacerbating the problem.
I have been inundated by notes from friends and family this past week as the “markets” once again hit never before seen in human history heights. However, this time was different from some of those in the past. I could discern two very distinct recollections as they tried to square a few circles. First: How can GDP be in the toilet at the same time they’re touting a “wonderful” employment report? And second: If the “markets” are a representation of the economy – then why does the economy stink? But it wasn’t only them…
More than likely if you are reading this you are probably one of the few that have concluded via your own observations that this economy is not in any way, shape, manner, or form what it’s being represented or heralded via the main stream media or financial press and are looking for other objective viewpoints. Or, you don’t truly know which side to take for everything seems contradicting. Regardless of which camp you fall into, I commend you for looking as to form your own conclusion. However, with that said, I would venture to bet dollars-to-doughnuts you’ve also come across a phenom that’s growing absolutely louder by the day: Utter contempt that it has yet to fall apart.
As usual I have been perusing many differing news sites, as well as financial blogs and more. What I’ve been noticing more, and more as of late is the utter despondence by some, and the absolute outrage by others that the markets are still being held captive by central bankers. i.e., “Why won’t this market go down?!”
Well, it’s quite easy really, and it’s these very same people who understand this point deep down yet, are the one’s losing their minds the fastest: e.g., It’s not a market.
For years now it’s been self-evident: market rules no longer apply. Technical analysis – useless. Fundamental analysis – useless. The only thing that now matters is whether or not a stock, bond, or ETF is favored by a central bank. Period. Yet, far too many veteran traders or seasoned business people are still viewing many aspects of these markets through a prism of 10 years ago. Those days are gone, long gone. Yet, people are acting (or hoping) that there is still some sense of normalcy still residing within. I’m sorry – there isn’t.
The issue here is we may indeed be in what some have described as a final turning, much like that described in the brilliant work of Strauss-Howe in their seminal work “The Fourth Turning.” Whether or not one prescribes to this theory is for one’s own counsel. However, if there is one factor which helps put weight into where we are one can’t leave out one of the other most prominent tell-tale signs. To paraphrase Robert Prechter “Governments are the ultimate herd mentality.” And this latest “bull-run” shows just how “more money than sense” this latest bull#### run has become.
The difference today is, where as in a traditional Ponzi like situation the narrative would break (i.e., people would begin openly complaining about not getting paid) where it would all but disintegrate overnight. That’s not going to happen with near unlimited funds. Even if the ruse is the same.
The key to watch for (in my opinion) is when the narrative (i.e., everyone’s getting paid) is believed less and less, coupled with: the longer it goes on – the less it’s believed. I feel we are in these stages currently. Which via my thinking is an end-of-game stage.
However, how long it can go on for is an open question. We’re now closing in on a decade, can it go longer? Again, who knows, but the issue is: if it does – how do you want to play knowing what you know?
The issue today is not to “blame” what may, or may not, be happening to your psyche as it pertains to the markets. For there aren’t any. Only “markets” now exist. And they are in a complete bizzaro world of their own. The “rabbit hole” central bankers of today have created make the world of Alice look down right normal as compared to the modern Keynesian markets of today.
The key to keeping one’s sanity (as well as account balance) is to stop waging a rational war with the irrational. Or, said differently: never try to teach a pig to sing. It will do nothing but frustrate you and annoys the hell out of the pig. Too many today are still trying to make this pig sing a tune of reality. It won’t – and it can’t.
During this period what any prudent individual or business concern should be focusing on is how can they take advantage of the current craziness, and how can they be in the most opportune position when that crazy does indeed come forth. For it is my contention – opportunities of generational proportions will make themselves available to the prepared. Here are a few examples…
If you are some form of a day trader in stocks you must know more about how to close and get paid on your position just as much, if not more so, than strategies for putting one on in the first place. If you own a business of any size what is just as important to understanding a competitor’s product strength is their strength or weakness should any disruptions within the “markets” occur. i.e., will they still be able to fund? Who is their funding source? Is their main supplier at risk if a currency move takes place in the Yen, Yuan, Dollar, etc., etc, overnight? And what can you do if so? Does it effect you?
During this central bank influenced “house of crazy” have you taken advantage of these low rates as best you could? Or, have you left that up to your competitor?
If you’re an investor – are you concentrating on gaining ever the more risk as these “markets” go higher? Or, are you pulling more and more off the table with a concern for the where’s and how’s to make sure there is a return “of” your capital as opposed to a return “on?”
If you’re in a business or even employed by one – have you taken note as to if your company or competitors are the current “buy, buy, buy” of some central bank portfolio? Do you even know? If you think it’s all about “superior product” only today. I’m sorry – you’re not paying enough attention. A superior product means little if the competition’s bonds are being bought hand over fist – and yours are left vying for scraps. Of course there are myriads more however, this is the way one needs to view today’s current environment.
As was stated many years ago but is now turned up to 11: The markets can stay irrational much longer than one can remain solvent. Add too that “irrational central bankers?” 11 goes to 11².
Time is of the essence to ensure one is planning for the correct probabilities, along with watching ever the closer for more tell-tale signs that things are getting closer to a conclusion rather than a continuation. And narrative is the thing to watch vigorously in my opinion. The money is no longer affording the continuation of near religious faith in the omnipotence of central bankers. For the higher the market goes – the louder the questioning is becoming.
The key today is to not think as Cypher (played by Joe Pantoliano) did in “The Matrix” (1999) when he longed for the option to change his decision and take the blue pill as opposed to the red. No, that’s not an option no matter how much one would like. You can’t un-know what you now know to be true. No, the trick to keeping one’s sanity, as well as wallet in tact is know what games are rigged and which are not. Then decide as in another movie tag line made famous by a computer named “Joshua” (depicted in the movie War Games 1983) when it stated…
“A STRANGE GAME. THE ONLY WINNING MOVE IS NOT TO PLAY.”
If you watch the ‘markets” closely what you’ll find is that line is picking up ever the more steam the higher these “markets” go.
That’s how you know the narrative is coming unglued. Just when it has a catastrophic failure event? That’s anyone’s guess. And it’s all a guess at this point.
© 2016 Mark St.Cyr