Killer Waves and Moments of Truth

To anyone who has been exhibiting even the remotest signs of intelligent life, the last few weeks of stock market ups and downs are clearly not normal.  

To all higher beings, this understanding has been in situ for much of the last decade and a half. 

Unfortunately “understanding“ now belies the insanity of the moment: manic, mania, madness may be more appropriate, followed by a deep intake of breath.

Whereas the late 1990s was more a speculative market folly, with a mild loitering on the upper boundaries of serious excess, which gave a rationale expectation of a very long period of stock market under performance and a short but serious period of economic decline, the present moment in time is closer to one of darkness and an inability to parse the detail of consequence from the confluence of grave economic risk.

The underlying tone of market and economic fundamentals should be clear to all: a global financial and economic framework perilously close to collapse for nigh on close to 4 years, being kept alive by vast central bank and government stimulus. 

Yet still the patient is not out of life support, is suffering a relapse, and the hospital is running out of medicine.  Worse the doctors that treated the patients, the wards and the operating rooms have become infected with the same virus.

For too long we have been putting off the moment of truth, a truth that had first threatened to arise during the late 1990s (Tech bubble, Asian and Russian crises, the post 2000 recession and market collapse and 9/11), and each time we keep putting off the inevitable, the weight and momentum of the excess accumulates and worsens.

The decision to support European debt, debt that has no economic foundation, will not solve the growth problem and the accumulating structural economic imbalances: the world is living beyond its current means and has been for some time.   

There is no doubt that there was and still is a need to support the operation of the financial system, but there is no longer a rationale to support the excess around it.  It is plausible that we have lost an opportunity to rebalance and restructure, but have chosen to support the status quo (debt holders and shareholders that would have been wiped out) and cling to a belief that we could grow at a rate that would put sufficient space between the past and the present. 

There is only so long you can delay the inevitable.  We do not need to look at killer wave formations to work out that something deeply unsettling is afoot and that extremely large financial and economic imbalances remain unsettled.

Stop monkeying around!

The following is an excerpt from BMO’s September Bottom Line:

“Policymakers and analysts alike have been stymied by the continued weakness in economic activity and the ineffectiveness of even record-low interest rates to spur demand. The mistake is the presumption that we have experienced a relatively normal, albeit deep, recession that will respond to standard monetary and fiscal stimulus.”

Personally I do not know which is the more scary: is it the fact that these policymakers and analysts have only just worked this out, or that they were incapable of spotting the stresses as they built up? Victims of linear group think or is it something much more primitive?

Financial services sell either products or management, but whatever they are selling few would willingly pull the rug from under their very own feet: can you imagine a fast food empire closing shop because their food is bad for you.   And so it is with telling you the truth about what is really going on in the economy and what you should really be doing with your assets.

It is clear that there is little to separate the financial services mindset of today from early primates: at the end of the day the punter is the food on the table, no matter how you cut it.