The ready way to make a mind go awry
is to lace it too tight.
—Coleridge, Notes, Nov. 1801
Well, it looked like the market was going to the moon. Gave hope to the bulls. Worried the bears unless they had the E-Wave analysis, which allowed for one last new high, but gave it low probability.
I like E-Wave analysis. It is based on human behavior, an immutable part of nature. The road to higher prices in investments proceeds apace until large segments of the population get habituated enough with abundance that they don’t mind borrowing to own and maintain more stuff than they need. The move up ends when the debt crushes them.
One of my favorite readers recently said, “Nothing is certain.” My take is that there is a good deal of certainty in human behavior. If something outta happen, it will. Not necessarily on anyone’s timetable, but happen it will.
For some time, the stage has been set for investment values to collapse. We understand that there is no such thing as investment value. There is only the perception of value. For reasons I’ve detailed ad nauseum in earlier postings, no asset class extant will be unaffected.
The proper attitude, it seems to me, is to be open to an economic situation that no one born after 1940 has any familiarity with.
My pastor does not like apocalyptic talk. This is not a forecast of end times. It is an expectation that a hurtin’ is going to be put on the prices of all asset classes globally because the demand for cash will soon have everything for sale.
You will ask why cash will be in such demand. For food, mainly. To service debt, to help neighbors out of work.
Speaking of work, most of the jobs added in the recent employment reports have been for waiters and bartenders. Manufacturing, the mainstay of the nation’s middle class for fifty years is net losing jobs. And, while fast food workers are striking for higher wages, Mickey D. is busy replacing them with self service ordering kiosks and automated hamburger makers.
You will appreciate lower gas prices unless you work in the nation’s oil patch. Worked, I should say. Fracking is rapidly coming to an end, resulting in massive layoffs.
The Fed has just published a report condemning the bank industry’s bad lending practices, stating that Banks have over $3.9 Trillion in risky loans. Most of them will go bad. Before long, most banks will not pass a solvency test. You might have thought that 2008 would have made bankers more cautious. Apparently not, but then, this is all part of the behavior at big tops.
The market action in the recent rise was consistent with a bear rally, which may have ended last week. But, even a rally to one more high will not change the outlook for a full on bear market over the balance of the decade.
In short, there is just no reason to think we get a pass here. Best thing is to be prepared.