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Musings Report 2018-12 3-24-18 The Cycle Has Turned, "Good Times" Are Ending
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
The Cycle Has Turned, "Good Times" Are Ending
Nothing goes up in a straight line, and nothing lasts forever--especially financial and economic trends. My gut feeling is the 9-year trend of unprecedented central bank-stimulus/debt expansion is ending, ushering in an era of uncertainty and volatility.
I see several primary drivers for this reversal.
1. I placed "good times" in quotes because the past 9 years of supposedly "good times" have only been good for those who own assets in hot markets; the tide has only raised the boats of the top 5%.
I also placed "good times" in quotes because this era of slow growth has been entirely dependent on unprecedented intervention by central banks: unprecedented injections of liquidity, asset purchases and debt expansion.
Minus the $21 trillion in central bank asset purchases and trillions more in liquidity/credit programs, would the global economy be growing? We all know the answer is "no."
In effect, the global economy is like a movie set: thanks to the efforts of the crew, something that is staged (fake) is made to look real.
For example, a new car is made to look used via the application of aging tricks. A crushing punch to the face is filmed so the audience doesn't notice there was no actual contact.
Central banks and governments have staged a "recovery" that looks like a real recovery but it's all fakery and artifice: bogus statistics, hidden manipulation, and a relentless PR campaign hyping simulated reality.
This coordinated trickery is wearing thin. People no longer trust the statistics and are questioning the "good times last forever" narrative.
2. The tech leaders are faltering. Much of the stock market's extraordinary gains have been led by big technology companies: the FAANG stocks of Facebook, Apple, Amazon, Netflix and Google.
Setting aside the collapse of Big Tech's "good guy" reputation--a reversal not just for Facebook but for Google and Amazon as well--all these companies have reached diminishing growth due to their vast scale.
For example, Facebook reportedly has 2 billion users. The 10-fold rise from 100 million to 1 billion was heady growth, the doubling to 2 billion less so, and now, what are the odds for a doubling to 4 billion? Facebook is running out of people with the time and access to join FB, and it's now running into a counter-trend (however modest it might be) of users abandoning Facebook, or curtailing the time spent on FB.
Apple, Google and Netflix all face similar issues of scale: Apple is running out of new customers to sell costly iPhones to, Google is running out of new places to insert adverts, and Netflix's growth may lag its monumental spending/cash burn as everyone who wants a Netflix account already has one.
So what sector will lead the next advance in stocks if Big Tech has reached the end of the "easy fast growth" era? Banks? Big Pharma? These sectors have also lost their sheen and have also run out of new areas for easy fast growth.
3. Debt saturation. As a general rule, "good times" depend on debt rising faster than income. At some point, there's no more income available for debt service, and the risks of making new loans to marginal borrowers exceeds the future gains, as these borrowers are the first to default.
The big story of this 9 years of "good times" is the incomes of the bottom 95% have stagnated or declined when adjusted for inflation. This reality limits how much more debt can be issued without raising the odds of cascading defaults to 100%.
4. Central bank stimulus is hitting the limits of utility, i.e. the stimulus has reached diminishing returns. Flooding the economy with trillions in new stimulus, liquidity and credit worked wonders in the initial stage, but after 9 years, the effectiveness has declined while the unintended consequences and costs are rising.
In response, central banks are finally raising yields/interest rates and trimming stimulus programs. But now that the global economy has become dependent on zero rates and massive intervention, can economic expansion continue as these props are withdrawn?
The conventional narrative says "yes," but the evidence says "no": the credit impulse (desire to borrow more) is faltering, sales and profits are stagnating and costs continue to rise, squeezing households and enterprises alike.
5. People are losing faith in institutions and in "democracy" that relies on manipulating/shaping public opinion rather than on solving pressing social/economic problems.
The Facebook scandal is just the tip of the iceberg. People are looking for evidence that structural problems are actually being solved and finding the problems are being papered over with more deficit spending and public relations.
In response, voters are seeking outside-the-status-quo candidates and parties, and pushing back against the leadership's penchant for substituting PR for actual problem-solving, which would require political pain and financial sacrifices.
As a result of these forces, the coming years will be characterized by volatile markets and politics as the status quo's narrative that all is well and "good times" are permanent unravels, and no substitute source of "good times" emerges.
Summary of the Blog This Past Week
Should Facebook and Google Pay Users When They Sell Data Collected from Users? 3/22/18
Solutions Only Arise Outside the Status Quo 3/21/18
Is Profit-Maximizing Data-Mining Undermining Democracy? 3/19/18
Best Thing That Happened To Me This Week
All our recently planted fruit trees seem to be thriving: orange, tangerine, avocado and mountain apple.
Market Musings: Gold's Big Pennant
Gold surged mightily in the past week, but if we pull back to the longer-term chart,. we see that the yellow metal has traced out a giant pennant.
Pennants tend to narrow into a point at which the asset breaks up or down in a major new trend.
Though gold and the US Dollar can rise or fall together, they are often on a see-saw, which has been the case since late 2016, when the USD topped and gold bottomed.
Since then, the USD has been in a precipitous decline while gold has moved higher. The USD seems to be forming a bottom, though a break below 88 would signal another leg down.
It's been reported that speculative long interest in the euro has reached unprecedented levels, meaning the majority of players are betting on further declines in USD and gains in the euro.
This is now a crowded trade, meaning that when the majority of bets are all on one side of the boat, the trend typically reverses.
Given the potential for a liquidity shortage of USD globally, there are fundamental reasons to anticipate a possible reversal of trend in the USD. If that occurs, it is likely to be negative for gold.
On the other hand, if the USD breaks down below its recent double bottom, gold will likely break out of its pennant to the upside.
From Left Field
Elderly people in Japan are getting arrested on purpose because they want to go to prison -- this trend has been in place for a few years...
The Digital-Military-Industrial Complex Exposed-- very insightful description of social media's role in centralized
Disasters, Arrogance and Greed: From The Titanic to Fukushima -- a few years old but worth re-reading....
A Universal Basic Income is capitulation to capitalism
Ultimate Indicator Shows US Never Recovered From The '08 Great Financial Crisis -- demographics matter...
For Two Months, I Got My News From Print Newspapers. Here’s What I Learned. (via GFB)
Obama's legacy: He sparked hope -- and got blindsided (via GFB)
The ‘Mona Lisa’ May Leave the Louvre for the First Time in 44 Years (via Nicole D.)
Trump Rollbacks Target Offshore Rules ‘Written With Human Blood’ (via Joel M.)
The Bumpy Road Down, Part 5: More Trends in Collapse
Order From Chaos: How Big Data Will Change the World -- or not....
How soaring U.S. oil exports to China are transforming the global oil game --
"Pleasure is often spoiled by describing it." Stendhal
Thanks for reading--
charles |
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