February 5, 2018

Partying the crash

With the fake economy unraveling, everybody has plenty to celebrate tonight -- whether it's indulging in schadenfreude or numbing away the pain.

To keep the mood contemporary, let's return to the most recent peak in the 15-year bouncy music cycles, around 2012-'13. Here's "Take My Hand" from Charli XCX:

Listen to the whole album True Romance here.

In order for the economy to become real again, it must first be cleansed of its fake-ness. The evaporation of the Dow-S&P and crypto bubbles is unequivocal good news, so enjoy the mood!


  1. Despite the stock market crashing, we are coming to the end of the angsty period(which I think started in 2011-2012), and entering the upbeat period - so things will be becoming more optimistic and happier, hopefully.

  2. In fairness, this is still very, very far from a "crash". We're just back to where we were like a month ago. It would take 8-10 straight repeats of Monday to constitute a serious crash, but instead today we recouped half of yesterday's losses.

    The market is still massively overvalued, but it's very tough to say with confidence that this is the end of the bubble. February 2016 also looked like a pullback was forming, but a few central bankers started promising to support the market and it was off to the moon once again.

  3. Yeah but there's a Republican govt now, and that changes everything. Anyone who doubts whether the big-wigs in the finance sector are willing to rock the boat now that their party is no longer in power, just has to listen to Yellen's first interview after leaving the Fed.

    Would she ever have said, during her own tenure or Bernanke's, that everything's overpriced, and whether you label that a "bubble" or not is just quibbling on terms? And that the economy is looking strong enough for several rate hikes, etc.?

    She also said she was disappointed that she didn't get re-appointed for a second term -- Trump better hope she and her sector don't hold partisan grudges!

    The steep part of the crash will come when they jack up interest rates, but we're already seeing the irrational exuberance evaporating.

  4. And who says it'll take 8-10 bad days? It could take only half as many drops, if they were double the size of the most recent plunge.

    You're assuming things won't get worse. Just in the past week, who assumed that a few triple-digit down days would lead up to 666 on Friday? And after Friday, who thought that drop would double in size for Monday's down of nearly 1200?

  5. "Yellen's first interview after leaving the Fed"

    It's actually not that uncommon for Fed officials to be more honest about the state of markets once they retire. No more skin in the game, as Taleb would say. And that's the point: Yellen can say the stock market is overvalued now that everyone knows there's no risk of her actually doing anything about it.

    It's not that I'm assuming things won't get worse, it's that you're assuming they definitely will. I'm, well, agnostic. The Dow point drops of the last few days were big, but convert that to a more meaningful % basis and they were not impressive at all, especially in the context of the absurd rampfest from early January.

    The stock market is clearly being viewed as a political signifier now, but thus far I haven't seen any evidence of political manipulation of it. Monday's drop was caused by 3 things:

    1) Overcrowded short-volatility positioning leading to cascading sales and margin calls as vol crept up
    2) Concerns about rising interest rates (which have been inching up for a long time) finally coming to a head
    3) Smart money realizing the market was insanely overvalued/overbought and it was time to take some chips off the table

    None of those had anything to do with f*cking Trump over. I'm not at all saying the Fed/banks/deep state won't try to do that, but so far there's no sign that they have. It would also be a pyrrhic victory for them because a big market crash would be a golden opportunity for Trump to scapegoat Wall Street and break up the banks. It's an interesting theory but all I'm saying is that so far it remains a theory.

  6. It would've been a Pyrrhic victory for the Fed to pop the Clinton bubble that Bush inherited? No, they knew Bush would not break up the big banks, or even shame Wall Street and the Fed.

    Neither will Trump -- he did not even get the carried interest loophole closed in the tax cut bill. He keeps getting boarded by Goldman Sachs lieutenants, and even one of their generals from the outset (former GS President, globalist Gary).

    At best (for us), he would raise a hue and cry, but would eventually back off and do nothing as usual.

    By now the finance sector can expect to pop the bubble under his watch, stick him with the blame, and pray for the best treatment in the aftermath. Just like they did with Bush -- twice! First the tech bubble, then the real estate bubble.

    And certainly the broader GOP would not even criticize the finance sector in the wake of a crash, let alone do anything about it. Trump would be alone in his criticism. It would be good for fracturing the Reaganite GOP, but it would not be enough to deter the finance big-wigs from acting to get the bad stuff done under a Republican administration, and hope for the best treatment when their own party sweeps back into power.

  7. Aside from raising interest rates, the Fed has also begun to cut off its other arm of bailing out the asset bubble -- no more jumping on the grenade of toxic assets to the tune of $4 trillion (QE).

    Now they're doing the opposite, shrinking those balance sheets and flooding more of that toxic waste back into the ecosystem.

    The decision to perform QE was political (protect the finance party), and the decision to unwind QE is political (pin the blame on the rival to the finance party).

    Then when the finance party sweeps back into power, their best-case scenario is getting bailed out yet again, regardless of whoever else gets stuck footing the bill. Worst-case is some or even all of the big guys go under -- but at least their political operation, the Democrat party, is not stuck with the blame, and can live to fight another day for their interests in Washington.

    Unlike the GOP, who will be stained for years or decades after the bursting of the mother of all bubbles. They will have zero credibility.

  8. The surest sign that an attack on the GOP is coming from the finance sector is how weak, complacent, and eager to please the GOP is acting toward the finance sector. They're practically inviting the attack at this point.

    They still have that braindead Reagan-era conviction that because they're the party of commerce, they will be the darlings of the sector that finances commerce.

    Other way around, geniuses -- if you represent commerce, then the financiers are your rivals, trying to squeeze as much out of you and giving you as little as possible. Not to mention that the finance party also includes the labor unions as junior members, squeezing you from the other end.

    They still don't get that it's one elite sector vs. another elite sector (or elite coalition vs. elite coalition), rather than the GOP being the elite party vs. the Dems being the people party. There's only a little truth to that, and it's incidental.

    They're stuck in Reaganite class warfare on behalf of people who live in 1% zip codes, when the battle always has been, and has become even more of an intra-elite contest.

    Turning your back on a major elite rival, in the belief that you're all on the same side against the peons, is begging to get stabbed in the back by your elite rivals. What else do we expect from a moribund regime?

  9. Think of it this way: in order to govern over the peons and extract as much as possible from the peons, how many elite sectors need to be united against them?

    Today, when the peons are not organized at all as collective actors (unions, civic groups, populist political parties, etc.), it only takes half of the elites to govern and exploit them.

    That means the other half of the elites are expendable -- more feeders on the carcass. The elite winners want as few claimants as possible to divvy up the spoils of class warfare. More per person among the winners.

    So sabotage the other half of the elites, still win over the peons, and enjoy twice as much spoils per person.

    Only when the peons were highly organized was there a need for concerted elite warfare -- the Carter / Reagan revolution, coming after the New Deal / Great Society peak of the peons being collectively organized.

    A moribund regime is always fighting the last major war. In the GOP's minds, they're still the underdog revolutionary freedom fighters taking on the monolithic New Deal liberal Democrats. So hey, we elites need to stay united against the 47% who would never vote for Romney.

    The Democrats, having been out of the agenda-setting position since the end of the New Deal / Great Society, have had more need to figure out how conditions are changing in the short term, and exploit them however they can to get back in power.

    They've figured out that half of the elites can battle the other half of the elites, win an election, continue to govern and exploit the peons, and enjoy twice as much of the spoils per elite winner.

  10. OK, gotta snark a little here. Here we are a week later, the stock market is skyrocketing for the 5th day in a row, and has now recouped most of the early Feb losses. I guess helpless-babe-in-the-woods Trump somehow fended off this latest "attack from the finance sector"?

    I wholeheartedly agree with your conclusion in the OP that our economy is currently financialized and bubble-driven and that needs to change for real, broad prosperity to return. I also agree that it's shameful the way Republicans toady to our parasitic financial sector, and that it's dangerous for Trump to cheerlead the bubble (though I get why he does it: he wants to position himself as our cheerleader-in-chief and is constantly on the lookout for good news he can publicly tout). The bubbles must pop, that would be a long-term good thing even if it's short-term painful.

    But the facts remain: they haven't popped yet, it's very hard to predict what will finally do it and when, and it will eventually happen anyway regardless of how Wall Street or the Fed feel about Trump (this would still be true even if Wall Street darling Clinton had won). Inventing crazy-deep just-so stories to justify in hindsight every twist and turn of markets is another practice Taleb warns against.

    Also: the Fed has been raising rates for over a year now and running off its balance sheet for several months. Not only has this not popped the bubble, it actually seems to have accelerated it. Financial markets are complex and chaotic and even central banks have far less control over them than they would like us to believe (NB: the BOJ owns their entire government bond market and 75% of Japanese equity ETF's, but their stock market is still far, far below its 1980's highs). Citing recent Fed moves as examples of trying to "pin the blame" on Trump only makes sense if there's any blame to pin, and so far there just... isn't. By this theory the Fed is trying to mess with Trump but failing, which makes them pretty laughable (one might say Strzok-tier) as deep state opposition goes.

    In fact, if the theory is that "the Wall Street boarding party" has omnipotent control over markets, and they plan to crash them because this will somehow screw Trump rather than themselves, then thus far they have a very weird way of going about it; a couple days ago Powell even helped support the rally with comments about easing policy if financial stability is threatened... exactly like Yellen did 2 years ago. An ignorant observer who just looks at surface appearances might think that thus far the schemers have achieved the opposite of their stated objective, but I'm sure there's an ingenious Phase 2 that will kick in any minute now to make the whole thing clear.

  11. The Fed has not raised interest rates yet. Take a look at the slope of previous rate hike moves here:


    A couple hikes spread over a year means nothing, especially coming off of zero. They're predicting at least 3 hikes this year, maybe 4. Then there's 2019 and 2020 before the election hits.

    I've never claimed when the plummeting phase will hit -- I said, could be before the '18 mid-terms if they want to do enough damage to take back Congress, or they'll keep their rate hike powder dry and blow it all at the end of '19 and '20, to leave no doubt about taking back the executive branch in 2020.

    The finance sector, especially the Fed, has done this to every single Republican in the modern era, usually once per term, while leaving Democrats unscathed. The only jack-up in rates under a Democrat was in the mid-1990s, when debt/GDP was actually declining. It's the interaction of rising rates in the context of soaring debt that pops the bubbles (making the debt so much more expensive to service that it causes bankruptcy).

    Just as deliberate is their lowering of rates and QE under Democrats.

    You're acting like there's no track record going back decades.

    Obviously, the bubble has popped. How fast it deflates, and over what time frame until it plunges below a certain threshold, cannot be predicted in advance. Nobody was.

    Rather, the claim is that they will do so under a GOP president, which they are, so they can pin the blame on their rival party, which they are.

    They're already laying the foundation of this narrative -- the GOP passed a massing stimulus while slashing revenues, *not* to juice a flagging economy like the one Obama came into office with, but one with superficially wonderful statistics. They're no longer the party of fiscal responsibility, etc etc etc.

    Lloyd Blankfein was just on Morning Joe saying why do we need to spray lighter fluid on the already-hot economy? That leaves no fluid left for when the coals cool down into embers.

    Just because the Fed chair gave a tepid "Powell put" remark, and allowed the plunge to stall out rather than continue plunging, doesn't mean he's going back to ZIRP and QE 4, 5, and 6.

    When the equity people figure that out, they won't be as complacent as they've been this week, and it's downwards they go again.

    Meanwhile the background is getting much worse outside of equities -- bond rates are going way up, dollar's purchasing power is tanking, consumer and producer prices are up more than expected while retail and productivity are down. Meaning -- stagflation.

    Rising yields on treasuries has already removed one escape hatch for the perpetual low rate crowd. That makes their situation all the more precarious and sensitive to a rise in the Fed funds rate.

  12. Your basic confusion is between forecasters and money-makers. I'm not an investor or giving investing advice to make money in the markets, let alone at the time frame of days, weeks, and months.

    I'm making a longer-scale observation of when the finance sector jacks up interest rates, when they keep them low, how this pricks bubbles, and who benefits and who is harmed by political party.

    So while we won't know down to the month, week, or day, when the real SHTF, we know they will make it hit under a GOP president and spare a Democrat president.

    Especially now that the GOP controls both houses of Congress as well -- you saw how successful they were at destroying Bush / McCain in 2008, and that was when the Dems had already taken back both houses of Congress for two years. Imagine how much easier the blame will be cast on the GOP when it's in full control of the government.

    And especially when the braindead GOP has given the Dems the perfect set of policies to feed a narrative about spiking the debt, slashing revenues to pay it off, and doing so when the economy was "already so good". It'll be a slam-dunk.

  13. Nor did I say that the GOP will automatically be defeated in 2020 assuming a recession hits. I said that's one of the major factors included in the successful models in electoral prediction, like Allan Lichtman's "13 keys".

    Reagan got slammed by a double-dip recession in his first term, but won by a landslide in '84.

    W Bush got slammed by the burst of the Dot-com bubble, yet won re-election.

    But that doesn't change the fact that the finance sector saves its rate hike powder to try to take out Republican presidents, and sparing the presidents of its own party.

    Still, the GOP is not in the early days of leading a revolution like it did under Reagan, when voters are willing to cut it some slack in order to carry out its bold new vision of re-shaping society. And there's no 9/11 effect so far like there was to help out W Bush come back in '04.

    We're in the internal fragmentation stage of political regimes, as the Reagan coalition breaks down despite a would-be reformer trying to steer it in a new direction. People are sick to death of the GOP by now, after throwing it a lifeline in electing the would-be savior Trump, and them hijacking Trump's presidency to pursue their same old BS that their party's own hardcore voters decisively rejected in the 2016 primary.

    In that context, a recession striking will mean the end of cutting them any slack. There would have to be something 10 times the magnitude of 9/11 to create a "rally around the flag" effect to save their asses in 2020.


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