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What Just Changed?
What Just Changed?
The illusion that risk can be limited delivered three asset bubbles in less than 20 years.
Has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing’s changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in a state of sustainable wonderfulness.
As for that spot of bother, the recent 10% decline in stocks: ho-hum, nothing to see here, just a typical “healthy correction” in a never-ending bull market, the result of flawed volatility instruments and too many punters picking up dimes in front of the steamroller.
Now that’s winding up, we can get back to “creating wealth” by buying assets–$2 million homes in Seattle that were $500,000 homes a few years ago, stocks, bonds, private islands, offshore wealth funds, bat guano, you name it. Just borrow whatever you need to borrow to buy more.
(But don’t buy bitcoin. No no no, a thousand times no. It is going to zero, Goldman Sachs guaranteed it.)
Ahem. And then there’s reality: something has changed, something important.What changed? The endlessly compelling notion that risk has magically vanished as the result of financial sorcery is now in doubt. If risk hasn’t been made to disappear, and even worse, can’t be corralled into a shortable instrument like VIX, then–gasp–every asset and instrument might actually be exposed to some risk.
As I’ve noted many times here, risk cannot be made to disappear; it can only be transferred onto others or off-loaded into the financial system itself. Risk can be cloaked or masked, and indeed, that is the beating heart of financial alchemy: we can eliminate risk by hedging via exotic instruments.
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Money Worries
Money Worries
The cynicism among the informed classes has never been so deep. Even the pompom boys in the cheerleading clubs like CNBC and The Wall Street Journal express wonderment at the levitation of stock indexes and bond values. They chatter about a “correction” of 20 percent being a healthful tonic that would clear away some dross and quickly usher in a new episode of “growth” — or growthiness, which, like truthiness, became an acceptable approximation of the real thing. The truth, as opposed to truthiness, is they no longer believe their own bullshit about growthiness.
The suppression of interest rates and pervasive accounting fraud has thundered through the financial system, and the deformities caused by it have emerged in currency war, currency instability, trade collapse, and political crisis. Years of central bank intervention have stolen the capital of the future to construct a Potemkin economy meant to conceal the sickening gyre of diminishing returns strangling business as usual.
Until it collapses by a great deal more than the wished-for mere 20 percent, more perversities will be piled onto the already existing burden. Is it not a wonder that professionalized interest groups like AARP have not screamed bloody murder over the suppression of interest rates which deprives its members of bank account and bond interest on savings? Instead AARP, like virtually every enterprise in America, has turned to racketeering. Don’t worry, they’ll be gone from the scene soon enough.
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