Have We Forgotten What An Authentic Market Is?

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Have We Forgotten What An Authentic Market Is?  

Everyone who feels forced to play along plans to exit before the whole rotten structure implodes, but that's not how collapses work.

Identifying the erosion of authenticity is intrinsically difficult for two reasons:

1. The erosion happens slowly over years or even decades, so it's difficult to recall the authenticity of a previous time as anything other than easily dismissed nostalgia.

2. The Status Quo--the state, authorities and the mainstream media--naturally claim their narrative is authentic, lest it be rejected by the public as self-serving propaganda.

When I survey the present markets for stocks, bonds and other financial securities, I am reminded of a church in which all the members espouse their faith's noble-sounding values but none actually act on these fine values.

I don't mean a church congregation beset by petty jealousies and gossip--these are characteristics of all human groups and we can't expect any congregation to be entirely free of these oh-so-human failings. In a similar fashion, any market will have companies issuing fraudulent earnings and balance sheets, etc.

The point is that an authentic system doesn't have to be perfect--it has feedback mechanisms and transparency that enable participants to sort things out because the system itself has integrity, even if all the participants do not.

A system, market, congregation, etc. claiming integrity should actually act on its principles rather than just mouth the principles as a form of perception management and self-congratulation.

According to the government, central banks and financial media, the stock and bond markets are free-market engines of capitalist growth. Yet in contrast to this fine-sounding rhetoric, the state and central bank act as if their Proper Role Is to Counteract Market Turbulence Before It Happens.

In other words, the gap between the fine-sounding free-market values and the actions of central states and banks is widening.

Does this chart of the Dow Jones Industrial Average reflect an authentic market? It looks more like a market addicted to monetary heroin, bubbles and crashes:

The more inauthentic, self-serving and manipulated the market becomes, the greater the necessity to maintain the illusion of authenticity: if the public truly understood how managed the markets really are, they would awaken to the consequences, which are all negative: once capital markets have been captured for purposes of perception management, they cease being able to discover the price of assets and risk, and allocate capital accordingly.

Simply put, capital markets that are managed to reflect positively on the current regime are intrinsically inauthentic, and incapable of performing their authentic functions of discovering price and allocating capital.

The "market turbulence" that so frightens central authorities is simply markets discounting unrealistic valuations by rediscovering the price of capital and risk. Markets in which turbulence has been unofficially banned as counter to the desired perception of the economy is a market in name only, a fake that has been stripped of the power to discover price and risk.

The systemic damage wrought by manipulation in service of "counteracting market turbulence before it happens" is two-fold: trust in the market's basic functions is eroded, and the market's self-correcting dynamic is crippled. The erosion of trust in the market's transparent functioning is reflected in the decline of trading volume generated by humans (as opposed to software trade-bots skimming pennies in millions of trades) and the abandonment of the stock market by retail investors--Mom and Pop investors.

There is no other plausible explanation for the remarkable decline in trading volumes other than an erosion of trust/participation.

Once markets have been distorted for self-serving perception-management and to enrich insiders, their ability to self-correct, i.e. re-establish equilibrium when they break down has been lost. This how manipulation of markets leads to collapse as participants--knowing the market is rigged/gamed--flee when the facade of authenticity finally crumbles.

The irony of maintaining a veneer of authenticity over a fundamentally inauthentic market is rich: the more the authorities manipulate the market to maintain high valuations and suppress turbulence, the greater the odds of a collapse of trust as inauthentic markets cannot self-correct or discover the price of assets, capital and risk. Once risk has been effectively hidden by perception management, participants lack the essential information they need to make informed decisions.

And so their decisions will be catastrophically mis-informed. This is how declines morph into crashes.

Anyone who hopes to earn a return of some sort is forced to participate in the inauthentic financial markets of today. Everyone knows they're disconnected from the real world, but they feel they have no choice but to play along.

Everyone who feels forced to play along plans to exit before the whole rotten structure implodes, but that's not how collapses work. The phantom assets have to be re-set in price and risk, and the depth of that decline will be based on the level of inauthenticity the market has reached.

The good thing about the collapse of trust and participation in phony markets is that it will clear the way for a return to markets that actually reflect fundamentals and honesty rather than perception management.

It is peculiar, isn't it, that we avoid inauthentic, phony people as dangerous to our well-being, but we are willing to place our capital in inauthentic markets, even though we are aware that they pose a great risk to our well-being.

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QEternity's picture

What happens to the faith and credit currency when both disintegrate?

saveandsound's picture

Land, Gold and Stocks survive. Mark my words.

techstrategy's picture

No net equity left.  Stocks are junior claimant.  Stick with real assets and invest in private companies.

Vampyroteuthis infernalis's picture

The good thing about the collapse of trust and participation in phony markets is that it will clear the way for a return to markets that actually reflect fundamentals and honesty rather than perception management.

The only way we are going to have a market with true fundementals is one that is not manipulated by the banks and our gubbimint or Fed. Even if it crashes, I don't see this changing anytime soon.

James_Cole's picture

That chart of the DJIA is interesting in terms of monetary experiment, but can also be seen through the lens of quants. I'd bet there's a high correlation between proliferation of computational finance and the giant rise in that chart.

Certainly the timeframes match. Monetary easing is one thing, but I'd doubt you could see exponential-ish rise without the out-of-control math algorithms. 

In the 20s before crash there was a ~7x rise, this recent run reflects ~30x. 

nasdaq99's picture

Well, if nobody else is going to do it, i'm busting him out for using an arithmatic chart instead of a log chart.  MOST arithmatic charts look like that.

Mentaliusanything's picture

The only thing the first chart shows is Nixon's removal of the Gold Standard allowed an explosion of unsound money printing. It was and remains an outstanding destructive weapon for real savings, fruitfull work and freedom from debt. It's demise will shock all who measure wealth by $value. Can we understand that if Rome had a printing press it would not have lasted as long as it did.

TVP's picture

Correction:  Land, Gold, and Fine Art survive.  Tangible assets with intrinsic value.  Stocks do not fall into that category.  Although if you have a 401k, that might be kind of hard to stomach.  



dearth vader's picture

Correction square: Land, Gold, Fine Art survive only if the basics are in place: water, food, energy and the rule of law. Without any of these, every tangible asset will be worth, well..., what do you think.

Truthseeker2's picture


"It has been obvious to many that each of these markets have operated according to the whim of a very few individuals with extremely concentrated power to manipulate.  Therefore, all markets can be, and are routinely, artificially inflated as we have seen time and time again.  Likewise, they can be artificially deflated, sometimes rather quickly for effect, as we have seen.  ’The Invisible Hand‘ of the market is just that – a very carefully HIDDEN HAND that makes a complete and total mockery of virtually every economic and financial theory ever advanced.  Time for a lot of us to accept this fact of modern economic life."

Conor's picture

i haven't thought about that, but it makes sense.

just because the government sucks and the bonds are worthless, it doesn't mean that great companies aren't great. 

Got lots of land. No gold, yet.

All Risk No Reward's picture

The Banksters (that finance government and politicians) bust the debtors.

Isn't this obvious by now?

It is really nice to have a Debt Money Monopoly over society, isn't it?  Especially for the criminal minded.

One And Only's picture

The way I see it is that the stock market is really correlated to the Federal Reserve's balance sheet. As such - under a fractional reserve banking system - the amount of credit has to be adjusted to the size of the population; the more people - the more credit needed. Because debt = money (what we call FRN's) more money has to be printed to accomodate the growing population, which in this case seems to be exponential. If you look at a chart of population growth and juxtapose it against money created you'll see the correlation. So all macro fundamentals are really rendered moot when trying to compare the stock market to the health of the economy. The more the population grows -> the more money printed -> the higher the stock market. This is all obviously at the expense of diluting the value of money and results in a lower standard of living for the majority.

In a world in which the money supply is tied to gold this isn't neccessarily the case. However, we don't live in that world. 

mvsjcl's picture

Really? Well, that explains it all!

ebworthen's picture

Unhinging the currency from tangible value (Gold and Silver), repealing Glass-Steagall, the theft of the Public Treasury, and the Federal Reserve serving the banks while punishing savers has led to our debt Ponzi economy.

You might have a point if the labor participation rate was not at historic lows, income inequality were not at historic highs, and debt + unfunded liabilities were not at un-payable stratospheric levels.

One And Only's picture

"This is all obviously at the expense of diluting the value of money and results in a lower standard of living for the majority."

What I was trying to say is that in a fractional reserve system money has to be created out of thin air in proportion to the size of the population. As it is created out of thin air everyone gets screwed - in particular the savers (if they are saving in the currency being inflated).

In a system where money is backed by gold this is not the case. Currency can still be created but there has to sufficient tangible reserves (money) which creates incentive to save and benefits the majority. I said this above just in a different way.

Spastica Rex's picture

What I was trying to say is that in a fractional reserve system money has to be created out of thin air in proportion to the size of the population.

Clearly that's not happening; money is being created out of proportion to the size of the population, if one correlates population growth with money growth, as you did above.

If this correlation is important to your argument, your argument is weak.

Mentaliusanything's picture

FV=PV+I  it is the I that determines Future value as Present value is fixed at point of time. Currently they are "Painted into a corner" and are shitting pineapples

Marc To Market's picture

The real irony is that the Tylers still romantize markets free of governments--as if the two have been truly separate since well before they were born. And favor posts that support such quaint notions.  Authentic markets?  Really?    

w00dmann's picture

MTM - I can only partially agree with your observation.  But I think there is a big difference between past vs. present.  Yes, some people / brokerages / big players can manipulate prices of certain equities, and yes da gubbamint will do their best to jawbone markets (and accompanying public sentiment) higher with comforting words that wash bad thoughts away, like Cottonelle rubbing your ass on a soft summer's day.  But there is a big difference between that vs. the Fed actively buying up the entire fakking market.

TheRedScourge's picture

"The real irony is those crazy utopians still romanticize a world where agriculture is not carried out by slaves - as if the two have been truly separate since well before they were born."


Said about 99% of people 200 years ago, but who would today all look like assholes.

barre-de-rire's picture

LONDON SILVER PRICE ! whouhwou !!!! now a computer rigg the system, banks keep doin it hands free, matrix revolution ! less accusations !


i can't wait october the US announcing LONDON GOLD FIXING system to be presented to avoid gold skyrocketing , WHOUHOUUUUU



whouuuuuuuuuuuuuhouuuuuuuuuuu tinntlinnilniitinnntinnnnnnnn.....


/psycho instant off

hmm hmm, sorry, well, cya tomorrow.

Keltner Channel Surf's picture

Was in a flooring store earlier today and the salesman, with a background in interior design, after learning I was a trader, offered an impromptu critique of the Fed (“the government”) that contained at least 75% of the points in this article.   Though officials often assume “Joe Public” is an idiot, I wonder if Fed members were elected, rather than appointed, and well-written commonsense articles like this were provided, whether we’d get Chair Richard Fisher, Chair Feldstein or Chair Yellen (?)

JulienFR's picture

Gold is the currency of Kings, Silver is the currency of Gentlemen, debt is the currency of slaves...

FinalEvent's picture

You forgot: Bitcoin is the currency of the future

debtor of last resort's picture

Gold is MONEY, silver is MONEY. Fiat is debt based CURRENCY.

techstrategy's picture

Exit all financial assets.  Let the Fed and its owners hold all the garbage.

PeeramidIdeologies's picture

That long term DOW chart is a beauty. Unfortunately in the days of programmed trading robots, which can produce fiat profit by the close of every session, a market crash is not inevitable. In fact, if there is a market crash it will surely be by design. It will provide the necessary cover for someone wealthier and more powerful then you to confiscate what they have a deeper stake in. Remember that in a debt based monetary system everything is essentially on loan, on purpose.

A strange notion Charles, if that is your real name, that one should choose the "phoney" market, over "phoney" people. I would extend that thought. In a time of electronic misconceptions and deception, only what is present in the flesh should be trusted.

Midnight Rider's picture

Who exactly designed the crash of 2007? And who exactly benefitted from it? Is it the same person or persons who designed it? And who are they again? Now let's go back to 2000. Who exactly designed that crash? Same people? And benefitted from it? Don't forget, just like all the others, the full cycle of the 2007 crash is not over yet. We haven't yet borne the pain of the inevitable unwind. Not everyone is going to walk away with their chips. And these few weathier and more powerful that are are who again? I mean after the unwind...not in the current artificial mis-priced bubble world. We are a car out of control on an ice covered highway in a fishtail trying to keep it between the lines. Each swerve brings us closer to the edge just as with the Dow chart. Believe me, we will end up in the ditch. And those few who may retain their sliver won't have much of a world left to spend it in. The entire planet has become a giant ponzi scheme and those never work out in the end. Never in history. 2008 gave us a chance to get off the merry-go-round. But not. Buckle up and get ready for the next coaster down. When? Who knows? If? No doubt.

By the way, the Fed is not in the middle of 100 year old grand design originally intended to create massive economy destabilizing bubbles. It is an originally unrecognized (by the Fed anyway) consequence of an economic philosophy of control thought ironically to do the opposite. Just shows how leaving the second half of an equation out of your calculations can cause your world to eventually become completely unsustainable.

PeeramidIdeologies's picture

It's not that complicated. Contrary to the back bone if this article, these occurrences are much simpler than anyone here would like to admit. How many times in this year alone have we seen exchanges shut down when large downward moves have taken place? It doesn't happen unless "they" allow it to happen. Surely you can grasp that concept.

It seems as though you are implying that no one benefits from these "crashes". Have you missed the numerous articles posted here, let alone else where, displaying the development in the distribution of wealth in modern economies? Do you believe this to be an American phenomenon? Don't tell me your one of those who believe the history of the world began 150 years ago with the beginning of the good ol USA? This is not new, it is not uncharted, the car is in fact traveling strait down the road that was paved for it over 100 years ago.

I see your account is new, but I doubt that you are. I'm sure you have a more engaging argument you would like to put forth. Don't be shy.

Midnight Rider's picture

Not shy and the argument is there if you look deep enough. It appears you are one who subscribes to the notion that there is an all powerful inner circle that has been in complete control of all the world's financial markets since the beginning of time. If that is the case, there is no need to continue the discussion. If it isn't, then nothing of what you've said makes any sense. Yes, there are winners and loosers in every crash. The contention, however, is that there is no one all powerful group controlling every move of every global market, themselves personally winning with every move, up, down or sideways from the beginning of time. Again, if you believe this, the conversation can end. On your way out, however, you might just clarify who "they" are who allow this all to happen. I would assume you may mean the world's central banker cabal. And yes, I can grasp how someone might be deluded into thinking there is a super-god who has pulled the string on every single market move over the past century. Who has controlled the world's markets and economies through world wars, depressions and recessions making them happen at will and never in doubt that their car is headed straight down the middle of the road, and right over the next cliff which we will be seeing shortly around the next curve. Yes, those that are smart are positioning themselves for that cliff. But no, there is no group in control of the entire planet's economies timing every move. It's not "that simple" as much as you would like to believe it is. But make no doubt, the ownership class is definitely benefitting from the current redistribution of wealth . But just as with every other civilization that's met is demise over the history of the planet, there is only so far that redistribution can go before there is a revolution or outright collapse. Again, when will it happen, who knows. Will it happen, if we don't change course, no doubt.

PeeramidIdeologies's picture

So if I may clarify. You admit there is a cabal of banking elite. You also concede that recorded history is cyclical although slightly off axis, in nature. And there are undoubtedly winners and losers in each "collapse" no matter how "unexpected" it may be? You are aware that the TBTF banks regularly record near perfect trading records annually right?

I'll will admit I can not specifically name "them". Just as I can not name the richest person in the world, nor the most influential. If you are looking to Forbes for these answers, then this argument, and this website are lost on you.

You see to influence humanities direction, one does not need to micromanage every moment in every situation. In fact if one was able to control 5 elements specifically, then the rest of the dominos fall into place as per the human condition. Which is given certain parameters people will generally react in similar fashion. Again history will support this claim. Anomalies and outliers tend to be wild cards (sometimes accepted) but often smothered when they do not conform.

For the record, civilizations do not demise. They adjust, reshape, evolve. In nature when a species over capacitates it environment it opens the door for two conditions. Depletion of necessary resources, and an increase in competition, both predatory and spacialy. Being that humankind has been able to overcome these challenges thus far, we have not become extinct as many other species have. Due to our intellectual capacity we have been able to recognize our environmental shortcomings and invent new methods to control our threats. This isn't only an external reaction. It also unfolds within societies boundaries. Hence your central bank cabal, and their need to maintain control of the situation. The option is that they become extinct.

Humankind is not on the eve of extinction. We are on the cusp of evolution. It may be significant to identify what cause calls to you.

Midnight Rider's picture

Completetly useless gibberish. Yes, some banks have had perfect trading records for a period of time of late. But this is not proof any any over-riding control or masterplan for the entire planet's markets or economies for the last century which you seem to want to prove. I'm not here to debate evolution or your definition of the meaning of life. If, however, you were able to prove any of the giberish in your post, you wouldn't be posting here on this website. That's proof enough for me that it it's not worth the pixels used to write it, including there being quite a number of factual errors in your information. Believe what you want to believe. Rest in peace that the cental cabal can't take that right away from you.

PeeramidIdeologies's picture

I can "prove" every word of it. Unfortunately I only have so much time to spare and posting hours of back ground research for a) people who already understand, and b) people who are clearly attempting to remain ignorant classifies as a waste of time.

If you want proof, confirmed fact, and the practical knowledge that comes with such things, you may send me your mailing address.
I've already prepared an invoice.

As a side note, when debating points of contention it is not enough to state that "something" is wrong. You must identify exactly which statement is incorrect. Otherwise you are arguing with yourself.

w00dmann's picture

Stock market crash??

I would give my left nut if some sooth-sayer could accurately predict that date and whisper it to me.  In the meantime, the markets remain shamelessly abused.

I wonder what future generations will say about this in-your-face disgrace?

Skateboarder's picture

There are no future generations. Sheesh, when do people get this stuff? :-)

p.s. every Uranium reactor nuclear facility becomes a Fuku when the power is cut to the spent fuel cooling banks.

PeeramidIdeologies's picture

The markets whisper their sweet nothing's through out each breathe they take. You need only to learn to listen and override your personal impulse.
There are no accidents.

TVP's picture

Wonderful article, illustrating the futility of attempting to predict ANYTHING in this unprecedented, never-before-seen global monetary experiment.  

Of course, as many ZH readers know, it's not an experiment as much as a controlled demolition...

As to when the whole thing collapses into its own footprint Tower 7 style, nobody really knows...

Bluntly Put's picture

The Austrians have seen the result of collectivist manipulations in the markets well since Menger right? This quote is appropriate of not only our money, but our capital markets since credit fabricates currency which is used as "money" in our economy.

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved. - Ludwig Von Mises


PeeramidIdeologies's picture

Bullshit. As the events develop they continue to rule out possible scenario's until there is only outcome left. You will see, it will be painfully obvious a moment before if you have been paying attention. A moment after if you have not.

DOGGONE's picture

The Public Be Suckered is the status quo.
Show/tell everybody!

Inthemix96's picture

Authentic markets?  Are you taking the fucking piss?

Money printed from thin air with interest added that was never printed is not a fucking authentic market you cunt, its a bastard rigged casino, and you are the mark.

How can that be authentic, nothing is.

Its a continual nightmare you cant wake up from.



Minge's picture

You, sir, are a cunning linguist.

Mentaliusanything's picture

What we have is an English person, probably a real English person who has maintained brain health with a deep understanding of how it feels to be an Island on an Island that is slowly being taken to the Slaugther House. I would cuss as well. Yes I still owe you a pint.