Use access key #2 to skip to page content.

"Why would anybody not heavily medicated stay invested in the stock markets? "

Recs

60

May 11, 2010 – Comments (20) | RELATED TICKERS: CEF

And Chicks for Free? By James Howard Kunstler


XXX     The European Union came up with a trillion dollar bail-out for itself at the dawn's early light. Plus, each member gets a Latvian prostitute, gratis. The Germans will love this. It already goosed the Euro back above $1.30 -- just when they hoped a lower Euro would help them move a few more export goods off the shelves. I expect that Mrs Merkel is already catching an earful. A few hours earlier, her coalition of Christian Democrats and free Democrats got their joint a-s kicked in a North Rhine - Westphalia local election....    

I mention these events reluctantly, knowing how averse we Americans are to news out of Old Europe, that boring backwater of sclerotic cafe lay-abouts, socialistic train service, and less-than man-sized portions of things that real men don't eat anyway    

The question begging itself here, of course, is how Europe intends to come up with roughly a trillion in bail-out money. Sell Portugal to China? Cut Greece up into bait and catch whatever fish are left in the Mediterranean Sea? Frankly, I'm stumped. Talk about robbing Peter to pay Paul.... All the European nations are already so hopelessly enmeshed in chains of unfulfillable counter-party obligations that the bail-out might as well be a game of musical chairs played in the Large Hadron Particle Collider, set to the tunes of Karlheinz Stockhausen. The European bail-out is, in fact, an absurdity. I predict that the effect of the announcement will last all of one trading day on the stock markets.XXX     

The truth is that the imbalances of global finance are so grotesque now that the whole money system is hanging together with nothing but spit and prayer. I get rafts of e-letters every week warning of a supposedly-coming global currency -- a companion idea to the notion of a one-world government. Both are idiotic fantasies. Events are taking the nations of the world in the other direction: towards break-up, down-sizing, down-scaling. Likewise, if major currencies such as the Euro and the dollar blow up, they're much more likely to be replaced by more local bank-notes backed by gold than by some hypothetical Amero or Globo-buck.  

At seven a.m. Eastern time, the European stock markets were zooming, and Bloomberg even carried a wonderfully mysterious headline saying Greek Bonds Rally. That was especially rich -- like, who in the f-ck is going to load up on Greek bonds now? Is there a pension fund somewhere run by such dimwits that they would sell their positions in the Goldman Sachs issued Timberwolf CDO in order to get in on the new bargain in ten-year Greek sovereigns? I hope those pensioners are prepared to spend what remains of their lives selling chestnuts from pushcarts on the streets of Oslo, because they sure won't be clipping coupons in front of any World Cup telecast.    

     As if life in the USA wasn't surreal enough last week. Once upon a time, the stock market was a  place where people with capital went to look for productive activity to invest in -- say, a company devoted to making soap flakes, an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops.  Thursday's still-baffling fifteen-minute "crash" was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment -- they're just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in... math! This is truly quant heaven, a place where only numbers matter and there is no correspondence to anything in the real world. In other words, last Thursday's bizarre action was a warning that the American stock markets have flown up their own aggregate a-s.   

   These algo-robots may be elegantly complex, but they are really no more than triggering mechanisms, and Thursday's -- whatever it was -- glitch, let's say, ought to be regarded as a mere preview of coming attractions for a full-on feature clusterf-ck in which the putative contents of these stock markets get sucked into a black hole so vast that the trading desks will have to find a way to arbitrage infinity to ever again catch a glimpse of America's receding wealth. And it could all happen in a finger-snap.

      Why would anybody not heavily medicated stay invested in the stock markets? Well, the answer must be that they're not. The few still hanging around are the institutionals with nowhere else to go, the pitiful pension funds or the pathetic college endowment funds desperately chasing "yield" in a world where once-sturdier instruments yield zirp-o -- and these poor chumps are getting played and played out. The only other remaining marketeers are -- you guessed it -- the too-big-to-fail banks, the Federal Reserve, and possibly the US Treasury itself playing front-running games and algo stunts and black box buy-ups, and carry-trade rackets, and -- let's not forget -- outright swindles.    

We tend to forget that all this hugger-mugger once had a relation to real economies. The basic truth about real economies -- at least the industrial-strength ones -- is that they cannot be successfully managed on the basis of revolving debt in the context of no growth -- and no growth is exactly the bottom line of the peak oil story so revolving debt is finished for now. Speaking of oil, the Deepwater Horizon disaster (still ongoing) has gotten so boring to the editors of The New York Times that further news about it has been banished from the front page of the paper. Too depressing, I guess.

      In the meantime, though, rest assured that whatever else is going on out there, credit default swaps never sleep.

20 Comments – Post Your Own

#1) On May 11, 2010 at 2:50 PM, ChannelDunlap (< 20) wrote:

Wonderfully written.  Really.  How much I agree is up for debate, but needed to rec for the eloquent writing.

Report this comment
#2) On May 11, 2010 at 3:01 PM, Griffin416 (99.98) wrote:

Why stay invested, hmm, I don't know...to make 80% on your money in a year. Getting 1% interest in my bank doesn't quite cut it.

Everytime stocks go down 5-10%...the world is ending, there is a perfect storm, quick sell everything, run for your life. Jeez, these people are stupid. Buy LOW sell high. Not sell low. Ugh!

The public does not realize that these articles come out so the under invested funds can get back in at lower prices due to retail panic.

Report this comment
#3) On May 11, 2010 at 3:01 PM, blueberrygoo (73.48) wrote:

This article (along with recent events) make me want to cash out my 401k and convert to gold (and booze)

Report this comment
#4) On May 11, 2010 at 3:23 PM, 4everlost (29.46) wrote:

aggregate as$ - love it!

Report this comment
#5) On May 11, 2010 at 3:24 PM, mtf00l (44.89) wrote:

This is all fine and well.  How do I get my High Frequency Trading algorithm.  I already have a server connected to the internet.  I just need the software.  I have a brokerage account.  What more do I need? 

Report this comment
#6) On May 11, 2010 at 3:25 PM, mtf00l (44.89) wrote:

If this is the game...

Game On! 

Report this comment
#7) On May 11, 2010 at 3:37 PM, davejh23 (< 20) wrote:

griffin - I think Thursday's "crash" proved that there is no "retail investor" of significance.  The HFT firms shut down, and there was no bid.  Do you think it was retail investors that swooped in and bid up stocks to reverse the collapse?  No.  Investor sentiment is still extremely bullish, even after last week.  The VIX fell back sharply, even though nothing really changed...the idiotic plan out of Europe is bound to make things worse.  Is it retail investors that are bidding stocks back up after the news?  I don't think so...it's just WS playing the news...

Report this comment
#8) On May 11, 2010 at 3:40 PM, YodaBuffett (< 20) wrote:

Conversely, you could say that before last week, heck before April even, that nothing changed to give rise to the Vix...

 

Report this comment
#9) On May 11, 2010 at 3:44 PM, dpdoor (28.88) wrote:

the title says it all, +1

Report this comment
#10) On May 11, 2010 at 4:15 PM, TMFCrocoStimpy (94.91) wrote:

mtf00l,

Unfortunately, a connection to the internet is far to slow to do high frequency trading - you need close physical proximity to the exchange computers because the network latency is far to long if you are trading from anywhere else.  A 10 or 20 msec  lag will leave you trailing in the dust even if you had the cpu horsepower and algorithms to go with it.

-Stimpy

Report this comment
#11) On May 11, 2010 at 4:15 PM, alstry (35.49) wrote:

You know how I feel.......................nice work.

Report this comment
#12) On May 11, 2010 at 4:45 PM, cbwang888 (25.98) wrote:

Rec +1

Report this comment
#13) On May 11, 2010 at 4:52 PM, russiangambit (29.31) wrote:

>  Once upon a time, the stock market was a  place where people with capital went to look for productive activity to invest in -- say, a company devoted to making soap flakes, an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops.  Thursday's still-baffling fifteen-minute "crash" was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment -- they're just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in... math!

Exactly.

Report this comment
#14) On May 11, 2010 at 8:54 PM, falang1 (95.96) wrote:

+1 for using hugger-mugger in a sentence...

Report this comment
#15) On May 11, 2010 at 10:45 PM, vriguy (74.12) wrote:

You may be right, though the end of the world financial system seems a low likelihood to me.  Most of our assets are in retirement accounts, with the options of bonds or stocks.  We have no choice but to stay in the market or in cash. Should the system as a whole crash and flame out, my Plan B is to keep working till I die or rebuild my assets in time for the next crash.

Report this comment
#16) On May 12, 2010 at 2:04 AM, uclayoda87 (29.28) wrote:

You answered your question in your related ticker:  CEF.

You can add to this:  SLW, AZK, TGB,...

The market still remains the most convenient method of converting fiat currencies into hard assets like miners and metals.

Report this comment
#17) On May 12, 2010 at 2:10 AM, topsecret09 (36.26) wrote:

ECONOMISTS AND DEFICITS

Economists are believers in the marginal decision. No decision short of suicide is final. No decision short of suicide is total. All decisions are trade-offs between a little of this for a little of that.

Economists are therefore advocates of marginal solutions for all economic problems. There is no such thing as cold turkey for economists. There is no moment of truth that offers a way out, but which, if it is ignored, leads to death. There are no life-and-death decisions for economists, other than suicide.

This is basic for properly understanding economists. If you do not understand this, you will not understand why economists, who should see the devastating cumulative effects of government debt, invariably say that things are not beyond the point of no return. For an economist, now is not the day of salvation. That day is always in the future. For an economist, there is always enough time for getting government debt under control. For an economist, there is no day of national judgment, no day of national reckoning. A business can go bankrupt. An individual can go bankrupt. But a government need not go bankrupt if it has a cooperative central bank or foreign central banks to buy its debt. Such is the teaching of economists, except for Austrian School economists, who know a government drunk when they see one.

For an economist, economic growth will enable government debt to be marketed at some rate of interest. At some rate, there will always be investors. But then, whenever interest rates climb so high as to create a recession, the vast majority of economists demand that the government sell debt to the central bank, which will create fiat money and thereby force down interest rates.

Economists – except for Austrians – hold this view of capital pricing: "The free market is all we need to estimate a return on investment, but whenever a major crisis hits, the government and the central bank must violate the free market principle of competitive bidding."

For the economist, the free market is what we need when government debt does not drive up interest rates, but whenever it does and the economy tanks, the solution is more government debt, higher deficits, and more fiat money. So, on this basis, government debt is not a threat, because the solution to the high interest rates created by government debt is not reduced government debt but rather increased government debt.

For all but the Austrian School economists, government debt must enjoy only positive feedback. No negative feedback is allowed to reduce the level of government debt. Why not? Because such negative feedback produces recessions, which are defined as reduced economic growth, and economic growth is the way that governments are enabled to continue to increase government debt.

Try to find a non-Austrian School economist who calls for the elimination of government debt. You cannot find one. The economist treats government as he treats the individual or business. Debt is seen as a way to gain benefits. People make cost-benefit analyses to decide whether debt will be an advantage. The economist pretends that a government is the same as an individual or a business. It – a collective it – makes cost-benefit analyses for the nation, another "it." But no such being exists. Politicians decide what is good for their careers, and then vote to spend or not to spend billions of dollars. No one can mentally calculate or imagine a billion dollars. No one has seen a billion dollars. But politicians vote to spend trillions each year. The estimated Federal deficit in fiscal 2010 is about $1,500 billion.

Politicians see immediate benefits: the purchase of votes at the next election. They discount future liabilities: the loss of votes, which will occur, if ever, only after they have retired on huge pensions that they have legislated for themselves. High personal benefits in the short run and highly discounted personal long-run costs: Here is how government budgeting works.

Economists believe that government budgeting is essentially the same as personal budgeting. If pressed, they may admit that a Congressman does not calculate costs and benefits as the economists (or their wives) do with their household budgets. Economists rely on the "bond vigilantes" to do this heavy lifting of assessing debt risk and putting limits on it. But bond vigilantes do not have a central bank on their side, which can reduce short-term interest rates and provide stimulus benefits. They have to take on the central bank on the other side of the futures contract – a bank with unlimited money and a government monopoly over money.

Then there are credit-rating firms. We know what kind of job they did with sub-prime mortgage risk, 2004–2008. They do just as good a job with government debt.

The economist spins a child's tale about risk assessment in the capital markets, and then, like a child when the tale turns out poorly, cries for his mother to kiss it and make it all well. The Federal Reserve is one big mother.
       TS

Report this comment
#18) On May 12, 2010 at 10:04 AM, dwot (72.34) wrote:

Funny title, lol.

Report this comment
#19) On May 12, 2010 at 10:18 AM, mtf00l (44.89) wrote:

Stimpy,

Good call.   I guess I would need to start a Holding/Hedge Fund/Insurance company and then set up the Cray's to play the game.

Thanks for your reply. 

Report this comment
#20) On May 12, 2010 at 1:22 PM, EnigmaDude (94.52) wrote:

You can crawl back into your cave now...

Report this comment

Featured Broker Partners


Advertisement