The Final Act in a Terrible Play

If you don’t follow me on Twitter, you’ve been missing out on some good stuff. With the brith of our third child a couple of months ago, it’s been increasingly hard for me to find the time to sit down and write longer posts, so I’ve been putting more and more content on Twitter. Last Friday, Brent Johnson of Santiago Capital, asked me to provide additional thoughts on my recent turn to being far more bullish gold. Normally I would’ve written it in a piece, but being pressed for time I put together a Twitter thread.

There are 32 posts in there and I suggest you read the whole thing. More important than the thread itself; however, was the unprecedented and totally surprising response I received. As I explain in the tweets, I intentionally avoided talking about markets for nearly half a decade for a variety of reasons, and so I was blindsided by the enthusiastic and exceptionally positive response. It led me to do quite a bit of soul-searching, and ultimately convinced me that the time is ripe for me to start commenting about financial markets again. Not only because I think we’re at or very close to a major inflection point, but because people want to hear it.

For the record, I didn’t think central planners would be able to put Humpty Dumpty back together again ten years ago for as long as they did. I was simply wrong about that, but that’s how big changes in world history typically go. They tend to take a lot longer to reach the final tipping point than you think despite abundant evidence and signs point to something dramatic happening imminently. I often think back to 1830s America. If you were alive during that decade you’d have expected civil war to break out any moment, yet it took another three decades.

So while the prevailing establishment was able to keep a dead system on life support for an extra ten years to enrich themselves with some more corruption, it was not without consequence. People have not forgotten the unconscionable manner in which Wall Street’s professional white collar criminals were rescued and reward by the Federal Reserve and politicians in D.C.

Just a few months before the 2016 election CNBC published a piece titled, The U.S. Is Still Angry at Wall Street, and It May Be Hurting Recruiting, in which we learned:

Americans still hold big banks in low regard, years removed from the financial crisis. A SurveyMonkey poll of more than 10,000 U.S. adults calls Wall Street ruthless, and when people were asked which of the biggest U.S. companies named in the Fortune 100 were worst for the country, three of the top five names that came to mind were banks.

Survey respondents assigned “most ruthless” status to four banks — Goldman Sachs, JPMorgan Chase, Bank of America and Morgan Stanley. Goldman did not respond to a request for comment, the others declined comment.

I believe such an attitude played a material role in Trump’s win given Clinton’s well known intimate financial and personal relationships with mega-banks and other financial industry scoundrels. Which brings me to the main point about where we are, and where we’re headed. When Obama was elected in 2008, the country’s overall political environment was largely the same old rancid neocon/neoliberal consensus. You either voted for a Bush or a Clinton, or someone similar enough.

This has changed, and a big reason is due to how Wall Street was bailed out, while main street was left holding the bag. In other words, while the stock market and financial assets in general have been in a gigantic boom, the standards of living and opportunities to purchase a home and start a family have become prohibitive for a large percentage of the nation’s younger generations. Importantly, millennials are now the largest voting block as of 2018, an important distinction compared to the bailout period ten years ago. This will have enormous implications going forward.

While still very early days, the generational shift in Congress has already begun and will only accelerate from here.

Young people justifiably feel like they’ve been given the short end of the stick, and this is driving grassroots populism across the political spectrum. I expect this trend to continue.

As I noted in last year’s piece, Thoughts on the Leaked Google Video and Why Populism Is Just Getting Started:

The leaked Google video confirmed what many of us already knew, which is that these “don’t be evil” tech executives are a bunch of superficial phonies, cut from the same cloth as rapacious bankers or crooked politicians. The extremely powerful aren’t going to reform or fundamentally change the system that’s been so beneficial to them. It’s up to us to do that. This is why we’re in a populist period, and why populism won’t be going away anytime soon.

The only question is in what form will the next iteration of populism manifest. When it comes to U.S. politics, the actions of Donald Trump will be decisive. If he embroils the country in another war in the Middle East, or saves bankers from capitalism again, he will thoroughly discredit right-wing populism and open up a huge window of opportunity for leftist populism. On the other hand, Trump still has a chance to be the transformative president Obama refused to be, he just needs to avoid more war and make sure corporate crooks are held accountable in a future crisis. I continue to doubt he’s got the desire or disposition for all that, but you never know.

To summarize, I think the country will become even more populist in the years ahead (both left and right populism), and policy coming out Congress will ultimately reflect this reality on the ground. If it doesn’t, then we may see Yellow Vests style protests emerge here before too long. Either way, business as usual is ending and I think we’ve already seen peak corporatism in American culture. The backlash has started and will accelerate from here.

It’s important to understand that while financial market volatility was squashed and hidden for so many years, building tensions on the ground always find some sort of escape, and that escape largely manifested in the political arena. Actions have consequences, you just never know exactly where and how they’ll make their presence felt.

Therefore, the backdrop and mood of the American public is nothing like it was back in 2008/09. People were upset back then about the Wall Street giveaway, but the public generally had more confidence in institutions, government and the status quo than it does now. If you’ve only been watching stock market ticks for the last ten years, you’ve missed the really big story. We’ve got a major generational cycle only now coming into full swing, coupled with a far more populist mood on the ground. Pull a stunt like you did in 2008, and the U.S. could very quickly look a lot like France.

I think we’re close to the inflection point, but the whole thing will take time to fully play out. By 2025, the entire world will look completely different, and I think we’ll have a totally new global financial system, or possibly even a couple of competing financial systems (U.S. sphere and China sphere). The chickens will be coming home to roost sooner rather than later.

Good luck.

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13 thoughts on “The Final Act in a Terrible Play”

  1. Yep, it’s important to remember that the problems of 2008 were never solved, they were just papered over with TARP (which cost many times more than advertised) and more debt. No attempt was made to address the underlying structural issues. This is why an even bigger global crisis is in the cards. It’s a matter of when, not if.

    As a Gen X’er I usually stay out of the generational blame game, since the two primary combatants are Boomers and Millennials. They are mirror opposites of each other when you talk to them about the corrupt financial realm. Boomers will agree on a wide array of individual points that things aren’t as they should be, but balk when trying to tie it into a conclusion that the whole system is in great danger. They would much rather lie to themselves that all will be well, even if they base that conclusion on sheer hope.

    Millennials know things are not going well, but they don’t usually know why. They don’t have much opinion on the many individual points Boomers will agree with, but they’re far more likely to get the overall conclusion correct. They know what their eyes are telling them, whereas Boomers make Herculean effort to convince themselves not to believe their lying eyes.

    I don’t believe an influx of Millennials in Congress will fix much, simply because the banks are so out of control that only a collapse can stop them. That said, they have every right to go in and shake things up. We X’ers clearly failed to do that, with a guy like Paul Ryan being our most prominent representative.

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  2. I believe that among other functions the big banks are the nervous system of the economy and that their failure would bring chaos to the daily workings of society- payrolls, delivery of food and energy to the consumers and in spite of all their malfeasance and criminality demanded and got their astronomical bailouts. The politicians: “this stinks but I don’t want it to happen on my watch”. And now we go to the brink again. Is this simplistic?

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  3. As recent surveys show, Millenials have no problem with socialism, so hoping for ‘single payer healthcare’ and ‘universal basic income’ to provide a floor of security, such as every other developed country has. Then let’s see how long the oligarchs can foist ‘divide and conquer’ on us… even the ‘dimmest’ of us. Otherwise… the only option I see is secession … probably right up the under-40’s alley. (Mind I’m an apparently-rare Boomer.. born ’46.)

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  4. Comments from a 70 years old man for what it’s worth:
    ” I continue to doubt he’s got the desire or disposition for all that, but you never know.”,…We will know in Trump’s first term and surely if he’s re-elected.
    We will know if he serves the term without impeachment and for sure if re-elected.
    The Yellow Vests, well we had Occupy a almost a decade ago and it will return with support and a vengeance this time. I tried to support the movement with money not sleeping in a tent in the Fall, too old for that. But it was very loose in my town, Toledo, that I failed. I will be there the next time too.
    Finally, I’m another rare Boomer but see part of the fix is slowing down our earned income from SS as drawers gradually, upping the age for benefits a bit, and increasing contributions from employers, maybe 1 or 2 %, and moving the upper limit of contributions to maybe $200,000.
    I don’t see this as radical but realistic move to reality,
    Our Country has to turn around from the state and direction that we are heading for the future and those that come after, my grandkids.

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  5. Too mild–we are indeed nearing a huge sea change, but it is NOT gong to be peaceful, either here in the U.S. nor on the larger world stage. Exactly how the resentment of the dying American middle class is going to play out remains to be seen, but we just have to hope America is willing to be knocked off its pedestal as the global hegemon without trying to take the rest of the world down with it. Combine the global political instability with a rapidly warming climate and dwindling resources, and it is far from certain that civilization as we know it will still be in existence by mid-century.

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  6. Making the only variable Trump’s rentals then if rentals full and paying there will be no change. If rentals empty and not paying then change will happen. The rest is press coverage.

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  7. We have , ( for the most part ) become serfs to the banks . Fourteen years of zero intrest rates has destroyed, the market economy. We are beginning to often see ” no bid” on bond issues, and governments are worried .
    The only way out of this mess, is going to be to raise intrest rates , %25 .. or more ! You think that’s crazy ?? Tell that to the tens of millions of American pensioners who are going to get NOTHING if we don’t !!
    We have lived the high life , and now we are getting ready to pay for it , these young globalist know nothing about how a market economy functions .. it’s easy to sound virtues , unlit the bill comes in !!

    PS the best thing about the crash which is comming is it will give scociety a chance to break the shackles of the FED & bazillions of useless PUBLIC SERFS…. i mean servants !!

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  8. There can be no change if people do not have real conversations about how we got here – economic history has been co-opted to conceal what the bankers have done. Economic philosophers such as: Marx, Adam Smith, & David Riccardo realized that to have a working economy Banks must play a utility role and LEND into industry. When banks financialize an economy by using debt which is conjured up out of thin air and through which they receive interest payments they become a parasite that eventual kills the real economy. Wall Street is NOT THE ECONOMY – main street is and all one has to do is look at what has happened over the last 37 years to know that we have a major problem. The foundations of our banking system are built on sand – there is no way out and their will be pain. Forrest fires are good for maintaining a healthy forrest and when you do not let them burn (like in California) when they happen (which they will) you make them infinitely more dangerous and exponentially larger. The FEDERAL RESERVE created this and the first thing we need to do is END THE FED.

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  9. Change is inevitable – the winds of change are blowing. It will not be peaceful. Disruptive change is, by its very nature, disruptive. Plan accordingly.

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  10. Grifters call it a “reload”. The Fed and the central bankers have fully reloaded the same derivatives scam as the housing bubble. But this time it’s student loans and car loans.

    When this one implodes, the yellow vests will be worn by Americans, and all hell is going to break loose.

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  11. I suspect there is no ‘saving’ us, but I think it was the ‘1% vs 99%’ meme, from Occupy, that infected enough brains to get Bernie almost elected, and sabotaged by the DNC… the D/R oligarchs preferred Trump to Bernie. Next time…. where will the intimidating false flag attack come from, to scare us into line…?

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  12. Take a good look at the system. Many millions of people made a living from renting out their money. It just got too crowded. Wages have been stagnant for 40 years so, aggregate consumptive power was frozen. The pass-through of money from the productive class to the banks was falling. What the productive class couldn’t pass to the banks, the FED made up the difference. With 96.2 million of working age NOT in the labor force, it is taking an ever-increasing amount of money to keep all the money renters solvent.
    This may be construed as Marx’s “euthanasia of the rentier” but, I doubt it.
    I suspect that it is a result of the working man being displaced by cheap labor, aka, automation. Man is competitive. He will take all advantages. Automation is not going to go away.
    Previously, China and India set a ceiling on wages. Now, it is Viet-Nam, Bangladesh and, robby-the-robot.
    As crony capitalism and corporatocracy poison the good name of free market capitalism, more people are drawn to socialism.
    Socialism has never worked out by, neo-feudalism isn’t any future either. As people contemplate their future, they see that they are too poor for big-ticket items. Number one of big ticket items is,,, a family. As we are denied our future of a living wage, we refuse to procreate.
    The corporatocracy didn’t bargain on a steadily falling population. Japan shows that you can’t have debt money with a shrinking consumer base.

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