Capital markets are not ultimately governed by ‘reason’, any more than ‘God’ is explained by religion, or ‘human nature’ is controllable by political idiotology (stet). Neither, it seems, at least in the 21st century, are markets predictable by analysing a set of localised conditions, however scientific or persuasive the analysis looks on paper. No - the last word still belongs to Mr Market himself, as it always has…only now he’s also gone global.
Sentiment rather than fundamentals, emotion rather than logic, fear rather than reason…will be the force that decides if and when the stock market crashes, slingshots, or just goes vertical into a final blow-off top. Many analysts, particularly those who use a ‘fundamental’ approach, appear to believe that the stock market is headed for an imminent crash. Given the majority of the ‘fundamentals’ have been ‘in pain’ for some time, and are now ‘screaming blue murder’, I totally understand why they say that. But despite the fact that I am certain that ‘something wicked this way comes’…I’m just not convinced that the stock market is going to be the place where the guano makes contact with the turbine…
Maybe my blood sugar is too low…maybe I’ve read too much Russell Napier or Martin Armstrong recently…but I can’t help thinking that maybe this time it is different…but not in a good way…
I confess that I do not have a crystal ball, that I’ve spent thirty years in business rather than studying capital markets, and that I do not manage anybody’s money but that of my own family. So what the hell do I know? Well, I know this:
I know that governments are way over their heads in debt that they will never pay back, and that they cannot roll it over or add to it at ‘normal’ interest rates without imposing crippling tax rises. I know that they have made promises to current and future generations that they will not honour. I know that the conflict between the economic reality and the political charade will be resolved one of three ways:
1. Through an honest default (a monetary reset), or
2. Through a dishonest default (inflation), or
3. Through a financial and monetary collapse (deflation)
I also know that our political system does not incentivise politicians or government academics to tell the truth…and I know that the majority of them lack the personal courage and integrity required to speak such a truth off their own bat – because it risks their top priority – their own career. Finally, I know that the political backlash that we are experiencing around the globe right now, which the media refers to as ‘populism’ is bringing this problem to a head – it’s all connected.
Given this 'knowledge', and despite the fact that it is really only my ‘belief’…I think that we are arriving at the time when the bird has flown full circle…back to the place where it took off in the early seventies. The insolvency pigeon - intellectually, morally and financially bankrupt as it is - is finally coming home to roost in the loft it was released from when Nixon decided ‘we’re all Keynesians now’ – government. Ergo, and for what it is worth, I think the carnage will start in the debt markets.