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Making Sense Of The Sudden Market Plunge
Submitted by Chris Martenson of PeakProsperity
Making Sense Of The Sudden Market Plunge
The global deflationary wave we have been tracking since last fall is picking up steam. This is the natural and unavoidable aftereffect of a global liquidity bubble brought to you courtesy of the world’s main central banks. What goes up must come down - and that's especially true for the world's many poorly-constructed financial bubbles, built out of nothing more than gauzy narratives and inflated with hopium.
What this means is that the traditional summer lull in financial markets has turned August into an unusually active and interesting month. August, it appears, is the new October.
Markets are quite possibly in crash mode right now, although events are unfolding so quickly – currency spikes, equity sell offs, emerging market routs and dislocations, and commodity declines - that it’s hard to tell for sure. However, that’s usually the case right before and during big market declines.
Before you read any further, you probably should be made aware that, at Peak Prosperity, our market outlook has been one of extreme caution for several years. We never bought into so-called "recovery" because much of it was purely statistical in nature, and had to rely on heavily distorted and tortured 'statistics' to be believed. Okay, lies is probably a more accurate term in many cases.
Further, most of the gains in financial assets engineered by the central banks were false and destined to burstbecause they were based on bubble psychology, not actual returns.
Which bubbles you ask? There are almost too many to track. But here are the main ones:
- Corporate bond bubble
- Corporate earnings bubble
- Junk bond bubble
- Sovereign debt bubble
- Equity bubbles in various markets (US, China) and sectors (Tech, Biotech, Energy)
- Real estate bubbles, especially in the commodity exporting countries
- Central bank credibility bubble (perhaps the largest and most dangerous of them all)
What’s the one thing that binds all of these bubbles together? Central bank money printing.
Passing The Baton
Operating in collusion, the world's major central banks passed the liquidity baton back and forth between them, first from the US to Japan, then from Japan to Europe, then back to the US, then over to Europe again where it now resides. Seemingly endless rounds of QE that didn’t always do what they were supposed to do, and plenty of things they were not intended to do.
The purpose of printing up trillions and trillions of dollars (supposedly) was to create economic growth, drive down unemployment, and stoke moderate inflation. On those fronts, the results have been dismal, horrible, and ineffective, respectively.
However, the results weren’t all dismal. Big banks reaped windfall profits while heaping record bonuses on themselves for being at the front of the Fed’s feeding trough. The über-wealthy enjoyed the largest increase in wealth gains in recorded history, and governments were able to borrow more and more money at cheaper and cheaper rates allowing them to deficit spend at extreme levels.
But all of that partying at the top is going to have huge costs for ‘the little people’ when the bill comes due. And it always comes due. Money printing is fake wealth; it causes bubbles, and when bubbles burst there’s only one question that has to be answered: Who’s going to eat the losses?
The poor populace of Greece is just now discovering that it collectively is responsible for paying for the mistakes of a small number of French and German banks, aided by the collusion of Goldman Sachs, in hiding the true state of Greek debt-to-GDP using sophisticated off-balance sheet derivative shenanigans. As a direct result, the people of Greece are in the process of losing their airports, ports, and electrical distribution and phone networks to ‘private investors’ -- mainly foreigners harvesting the last cash-generating assets the Greeks have left to their names.
Broken Markets
As we’ve detailed repeatedly, our “markets” no longer resemble markets. They are so distorted, both by central bank policy and technologically-driven cheating, that they no longer really qualify as legitimate markets. Therefore we’ve taken to putting double quote marks around the word “”market”” often when we use it. That’s how bad they’ve become.
Where normal markets are a place for legitimate price discovery, todays “”markets”” are a place where computers battle each other over scraps in the blink of an eye, ‘investors’ hinge their decisions based on what the Fed might or might not do next, and rationalizations are trotted out by the media for why inexplicable market price movements make sense.
Instead, we view the “”markets”” as increasingly the playgrounds of, by and for the gigantic market-controlling firms whose technology and market information have created one of the most lopsided playing fields in our lifetimes.
Signs of these distortions abound. One completely odd chart is this one, showing that the average trading range of the Dow (ytd) was the lowest in history as of last week (before this week’s market turmoil hit). And that was despite Greece, China, QE, Japan, oil’s slump, Ukraine, Syria, Iran and all of the other ample market-disturbing news:
(Source)
Based on the above chart, you’d think that 2015 up through mid-August was the most serene year of the last 120 years. Of course, it's been anything but serene.
The explanation for this locked-in trading range is a combination of ultra-low trading volume and the rise of the machines. There have been times recently when practically 100% of market volume was just machines playing against each other…no actual investors (i.e, humans) were involved.
As long as there was ample liquidity, then the machines were content to just play ping pong with the “”market””. Which they did, crossing the S&P 500 over the 2,100 line 13 times before the recent sell-off took hold.
But that’s not the most concerning part about having broken markets. The most concerning thing centers on the fact that things that should never, ever happen in true markets are happening in todays “”markets”” all the time.
One measure of this is how many standard deviations (std dev) an event is away from the mean. For example, if the price of a financial asset moves an average of 1% per year, with a std dev of 0.25 %, then it would be slightly unusual for it to 2%, or 3%. However it would be highly unusual if it moved as much as 6% or 7%.
Statistics tells us that something that 3 std dev movements are very unlikely, having only a 0.1% chance of happening. By the time we get to 6 std devs, the chance is so small that what we’re measuring should only happen about once every 1.3 billion years. At 7 std dev, the chance jumps up to once every 3 billion years.
Why take it to such a ridiculous level? Because those sorts of events are happening all the time in our “”markets”” now. And that should be deeply concerning to everyone, as it was to Jamie Dimon, CEO of JP Morgan:
'Once-in-3-Billion-Year' Jump in Bonds Was a Warning Shot, Dimon Says
Apr 8, 2015
JPMorgan Chase & Co. head Jamie Dimon said last year’s volatility in U.S. Treasuries is a “warning shot” to investors and that the next financial crisis could be exacerbated by a shortage of the securities.
The Oct. 15 gyration, when Treasury yields fluctuated by almost 0.4 percentage point, was an “unprecedented move” that would have serious consequences in a stressed environment, Dimon, the New York-based bank’s chairman and chief executive officer, said in a letter Wednesday to shareholders. Treasuries are supposed to be among the most stable securities.
Dimon, 59, cited the incident as he waded into a debate about whether bank regulations implemented after the 2008 financial crisis exacerbate price declines by limiting the ability of Wall Street banks to make markets. It’s just a matter of time until some political, economic or market event triggers another financial crisis, he said, without predicting one is imminent.
The Treasuries move was “an event that is supposed to happen only once in every 3 billion years or so,” Dimon wrote. A future crisis could be worsened because there “is a greatly reduced supply of Treasuries to go around.”
(Source)
While Mr. Dimon used the event to suggest that bank regulations were somehow to blame, that explanation is self-serving and disingenuous. He'd use any excuse to try and blame bank regulations; that’s his job, I guess.
Instead what happened was that our “”market”” structure is so distorted by computer trading algorithms, with volume so heavily distorted by their lighting-fast reflexes, that one of those ‘once in 3-billion years events’ resulted.
This simply wouldn't have happened if humans were still the ones doing the trading, but they aren't. All the colored jackets have been hung up at the CME, and human market makers on the floor of the NYSE are rapidly slipping away into the sunset as algorithms now run the show.
The good news about computers is that they allow our trading to be faster and cheaper, presumably with better price discovery. The bad news is that nobody really understands how the whole connected universe of them interact and that, from time to time, they go nuts.
As Mr. Dimon hinted, they have the chance of taking the next financial downturn and converting it into a certified financial meltdown
How common are these ‘billion year events’?
They happen all the time now. Here’s a short list:
(Source)
All of this leads us to conclude that the chance of a very serious, market-busting accident is not only possible, but that the probability approaches 100% over even relatively short time horizons.
The deflation we’ve been warning about is now at the door. And one of our big concerns is that we’ve got “”markets”” instead of markets, which means that something could break our financial system as we know and love it.
From the Outside In
One of our main operating models at Peak Prosperity is that when trouble starts it always begins at the edges and moves from the outside in.
This is true whether you are looking at people in a society (food banks see a spike in demand well before expensive houses decline in price), stocks in a sector (the weakest companies decline first), bonds (junk debt yields spike first), or across the globe where weaker countries get in trouble first.
What we’re seeing today is an especially fast moving set of ‘outside in’ indicators that are cropping up so fast it’s difficult to keep track of them all. Here are the biggest ones.
Currency Declines
The recent declines in emerging market (EM) currencies is a huge red flag. This combined chart of EM foreign exchange shows the escalating declines of late.
(Source)
Since last Monday, here’s the ugly truth:
Many of these countries have been using precious foreign reserves to try and stem the rapid declines of their currencies, but I fear they will all run out of ammo before the carnage is over.
What’s happening here is the reverse part of the liquidity flood that the western central banks unleashed. The virtuous part of this cycle sees investors borrow money cheaply in Europe, the US or Japan, and then park in in EM countries, usually by buying sovereign bonds, or investing in local companies (especially those making a bundle off of the commodity boom that was happening).
So on the virtuous side, a major currency was borrowed, and then used to buy whatever local EM currency was involved (which drove up the value of that currency), and then local assets were bought which either drove up the stock market or drove down bond yields (which move as in inverse to price).
The virtuous part of the cycle is loved by local businesses and politicians. Everything works great. The currency is stable to rising, bond yields are falling, stocks are rising, and everyone is generally happy.
However when the worm turns, and it always does, the back side of this cycle, the vicious part, really hurts and that’s what we’re now seeing.
The investors decide that enough is enough, and so they sell the local bonds and equities they bought, driving both down in price (so falling stock markets and rising yields), and then sell the local currency in exchange for dollars or yen or euros, whichever were borrowed in the first place.
And thus we see falling EM currencies.
To put this in context, many of the above listed currencies are now trading at levels either not seen since the Asian currency crisis of 1997, or at levels never before seen at all. The poor Mexican peso is one of the involved currencies, which has fallen by 12% just this year, and almost made it to 17 to the dollar early this morning (16.9950). Battering the peso is also the low price of oil which is absolutely on track to destroy the Mexican federal budget next year.
Stock Market Declines
In concert with the currency unwinds we are seeing deep distress in the peripheral stock markets. There are now more than 20 that are in ‘bear country’ meaning they’ve suffered declines of 20% or more from their peaks.
Here are a few select ones, with Brazil being in the worst shape:
All of these signs reinforce the idea that the great central back liquidity tsunami has reversed course and is about to create a lot of damage and suck a lot of debris out to sea.
The Commodity Rout
A lot of EM countries are commodity exporters. They sell their minerals trees and rocks to the rest of the world, by which we mean to China first and foremost.
Commodities are not just doing badly in terms of price, they are absolutely being crushed, now down some 50% over the past four years.
(Source)
Commodities tells a number of things besides the extent of EM economic happiness or pain – they tells us whether the world economy is growing or shrinking. Right now they are saying “shrinking” which is confirmed by all of the recent Chinese import, export and manufacturing data, along with the dismal results coming out of Japan (in recession), Europe and the US.
Conclusion Part I
As we’ve been warning for a long time, you cannot print your way to prosperity, you can only delay the inevitable by trading time for elevation. Now, instead of finding ourselves saddled with $155 trillion of global debt as we did in 2008, we’re entering this next crisis with $200 trillion on the books and interest rates already stuck at zero. We are 30 feet up the ladder instead of 10 and it’s a long way down.
What tools do the central banks really have left to fight the forces of deflation which are now romping across the financial landscape from the outside in?
If the computers hiccup and give us some institution smashing or market busting 8 sigma move what will the authorities do? Shut down the markets? It’s a possibility, and one for which you should be prepared.
Where are we headed with all this? Hopefully not the way of Venezuela which is now so embroiled in a hyperinflationary disaster that stores are stripped clean of basic supplies, social unrest grows, and creative street vendors are now selling empanadas wrapped in 2 bolivar notes because they are, literally, far cheaper than napkins. Cleaner? Maybe not so much. I wouldn’t want to eat off of currency.
(Source)
But make no mistake, the eventual outcome to all this is captured brilliantly in this quote by Ludwig Von Mises, the Austrian economist:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
The credit expansion happened between 1980 and 2008, there was a warning shot which was soundly ignored by ignorant central bankers, and now we have more, not less, debt with which to contend.
Venezuela has already entered the ‘total catastrophe’ stage for its currency, but Japan will follow along, as will everyone eventually who lives in a country that finds itself unable to voluntarily abandon the sweet relief of booms enabled by credit creation.
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Hahaha, Its nice to see ZH quoting von Mises again when you realize that the current 1980-2008 spiral is an expression of Friedmanite monetarism gone wild in petrodollar print followed by Reaganomics and Hayek's "guided cybernetic hand" strategy; aka QE + ZIRP + Outsourcing to "liberate" those Oligarchs on their milky highway of perpetual growth.
What you sow you now reap; false noses of gold buggery.
Ayn Rand would say : Where is John Galt (not who) to that display.
Calling John Galt desperately. He must be hiding in the interstices of a derivative algo somewhere!
It's time for SLAUGHTER.
laughters...
A guy who would really have loved the coming times : He was born with the gift for laughter and a sense that the world was mad...
Hint : And it wasn't Von Mises the father of Austrian austerity. He wouldn't know when to laff.
Make sense of this . . . real business sales, YoY change:
https://research.stlouisfed.org/fred2/graph/?g=1FNh
SHOW ME THE PROOF!!
Of what?
Chris Martenson lost me when he stated:
The purpose of QE was to transfer all the world's wealth to the top 0.0001%. Pure and simple theft. QE will continue until there is no more wealth to confiscate.
Then you must have missed the word in brackets: (supposedly).
"Oops, I'm an idiot." --Stuck on Zero
Hmm. Added SP500 yoy to that to get this:
https://research.stlouisfed.org/fred2/graph/?graph_id=251363
SP500 not adjusted for CPI goes up move, exaggerates adjusted sales number, as it should. If you also adjust the SP500 it's a bit hinky, but is basically at zero right now.
You might find this view more informative - ratio of W5000 to Total Business Sales:
https://research.stlouisfed.org/fred2/graph/?g=1FOu
Is that productivity or what?
All ZHers should be familiar with Von Mises! The father of Austrian economics. If not, time to read up!
Technically it would be Menger and his understanding of marginal utility from which Mises got his start. But it was most certainly Mises who took that idea and crafted it into an economic framework, with Rothbard expanding upon it afterwards.
One thing's for sure, these men were some of the finest minds of the 20th Century that barely anyone has heard of.
I look at what people do not what they preach. And the von Mises strain is Friedman and Hayek. (and Rueff, the only one who actually did what he said).
You are so wrong it hurts. Von Mises is totally different from Friedman and Hayek. Von Mises was a capitalist, F and H were socialists (if you actually read their stuff). So stop insulting Mises.
Dont mind him. He is a well known idiot around here.
The PPT is making a point here. Once us 'Merikans get the point, we return to the regalarly scheduled program.
Wow, a Mises-triggered troll.
Notice the four irrelevant people plugs combined with a similar number of diversionary concepts.
This is quality stuff.
Is he paid to do this or is he just a passionate socialist out to educate us?
QE4 won't happen. Collateral shortages.
Neg me. The shit aint happening.
What I've been saying here to these QE-4-tards for months.
WTF is wrong with these QE-4 shit heads?
I think we'll see one more heroic effort to prop it all up, but the markets have built their edifice to their hubris on soft sand that is washing away completely....
Agreed.... there is too much liquidity in the system. So how do you destroy it? Well, you evaporate a few trillion from the equity and bond markets like 2008. If, and only IF, they start talking about QE4, it's because they've hiked in Sept, leading to a massive parabolic move in the DXY (to 120-140) that absolutely demolishes $9Tn in foreign currency carry trades and fixed income securities (system margin call) -- which leads to a massive 50-70% correction in the domestic equity markets. Once they've accomplished that -- then, they'll consider QE4. Which will destroy the USD and send all asset values to the fukking moon (Weimar). Hello SDRs (end 2016-2017).
Good luck, schmucks.
Lol like there was ever any collateral to begin with.
student loan backed securites, sub-prime auto loan securites, pay-day loan backed securities
/s /?
@chunga: you racist turd, stfu and ditch the inbred flag.
menstral musa Fuck You !
If a flag really bothers you that much, you are an insecure pansy ass as well as being stupid. Kill yourself and do the world a favor.
How long until a gentle whisper of more free money sends all these ZH raging boners back to limp? You know it's coming! They won't let it all implode when it's just too damn easy to manipulate the "markets". (Doesn't mean I'm buying into this abortion either. Just an observation.)
The Fed has already admitted it doesn't work. I submit their credibility is more important to them than a rising stock market. Besides, they'll be fine. They all invest in the money making on the way down. All their buddies work at GS.
QEinfinity will happen. They will just change its form. My guess it will include something direct to the people. As always won't work.
That will take an act of Congress. Ain't happening.
QE started and never stopped. WTF are you guys talking about.
That act took place prior to WWI, dufus.
"will include something direct to the people"
bail in?
brilliantly played, sir
QE4 will happen. Lies will be told, statistics will be massaged, dissidents disappeared, and CBs lionized by a desperately afraid media. Collateral is digital too. There is no longer anything solid on which to stand in the world of finance and economics.
Gird yourselves ZHers, This may not be the big one, but it is certainly a precourser...
;-D
ZHers are wrong about everything, and what actually happens in the market is the exact thing that would piss off ZH the most. QEInfinity is a win for the ZHer. The Fed and their egos won't allow it.
No we're not.
Ok, exceptions granted.
<Morpheus meme>
What if I told you...
...that posting on ZH makes YOU a ZHer?
</Morpheus meme>
Nah, I'm Mr. Smith.
Nah, you're Mr. Moron.
Wow, that is some brilliant insight! Please enlighten us mortals with your knowledge so that we may pluck the fruit from the tree of enlightenment.
Oh..that's right. You are just a shit throwing douche nozzle with nothing to add.
Douche nozzle. Brilliant!
Chickesns coming home to roost. The US will experience the roosting as well. Hell of a ride as it's pucker up time.
Krugman wants even more debt.
Peter Schiff and Richard Duncan say QE4 is a certainty. It's 0% and QE until it blows,
Already a debt of $18.355 trillion and incresing by the second. Plus 10,000 baby boomers per day calling on those unfunded liabilities (SS IOUs).
None of the US debt will be paid back. Want US treasuries that pay essentially 0%?
The models are wrong. Some of these events are far from unusual.
Sell the rips time folks.
Don't jump too fast into catostrophic conclusion. All CBs can still co-ordinate to save their corrupt elites at the cost of their savers.
This should get very interesting. As Adam said when he first saw Eve, "Stand back. I don't know how big it gets."
“is a greatly reduced supply of Treasuries to go around.”
Well, me thinks the FED has plenty of Treasuries to unload. Balances their sheet and places the counrty's debt into the hands of the people. What better way to have a giant Treasury sale than a giant stock market crash? Where else will the sheeple run to?
Er, yeah. I don't really get this panic about supply of Treasuries. Why exactly does that matter? People have cash, and they just go nuts trying to buy Treasuries, and they bid them sky-high, crashing rates? And we get in a no-win race between holding depreciating cash and overpaying for Treasury bonds - that also depreciate faster than their nominal interest?
Is that the problem, no mechanism for holding or recycling cash?
Not only are there bubbles in all asset classes, but leverage was never reduced although 2008 was plainly a credit crisis.
What we have now is the balloon about to burst as a result of excess leverage once again
. Things are precarious. Doesn't now take much of a scare in faith or policy move to crush markets.
What we need is to disband the Federal Reserve and return the coining of money to the Federal Government. The totally wiping of debt off all the books. Put bankers on trial for crimes against humanity. The sending of illegals back to below the border and if the one who hired them protest too much to send them with the illegals. The United States would be a much better place and the economic mess would clear up in a few years. No one has the courage to do this in America. So enjoy the whirl wind of disaster.
If wishes were horses, beggars wouldn't have to walk.
Come Monday: How high can a dead bull bounce?
I'm the optimist in the crowd. Since numbers are infinite - I believe this shit can just go on FOREVER. Awesome right?!?!?
Maybe.
Maybe numbers are infinite but the Universe is not.
Excellent article and 100% right on. Everyone f***ing knows without the Fed’s constant intervention, Dow 6k is inevitable. The bulls have been betting the Fed will do QE infinity, if needed, and it will be. BUT, if faith in Fed is truly dead with rates at zero, the slide will be spectacular as the bubbles deflate. If the Fed were to announce QE4 instead of a tiny rate hike, we would likely see a 300 point instant rise, and then a 500 point tumble…it would mean the bankers have completely lost control and a deflationary depression is coming.
All they did was push demand forward hoping that millions of immigrants would become new consumers and create “growth”. Instead, they accelerated the collapse with their social demands. The present level of entitlements is unsustainable. It can’t be done even with more and more debt. Only Donald has the courage to tell everyone the truth, we are bankrupt. Time for Uncle Sam to file chap 7.
Silicon Valley is the most over-hyped property mega-bubble in history. It is unsupportable with all the new jobs at Wal-Mart as tech collapses. It will get real ugly…and it won’t be stoppable…the cities will burn, as the oligarchs and banks demand bailouts. Millions of overbuilt houses and condos will go into foreclosure…rinse, repeat. We have learned nothing.
I hear grandma yellen, makes a good chicken soup..as far as running an economy well not so much.
scape goats everywhere call her one of us.
I wonder, should I start stacking at these prices or will they go lower and I should save cash or will that hyperinflate and be worth not so much? Questions, questions and no one knows the answers. All we know is the SWHTF and get all over most of us (young, old, boomers, retired).
I guess if you even ask the question you are way ahead of the Kardashions.
To answer your question in a word; yes.
the credit expansion since 1980 has taken a number of forms, in the period between 80 and 00 the discussion was pro forma earnings. companies were reporting operating earnings, and using the one time charge to off balance events which compromised their earnings. there was some talk that the S&P was 20% over valued at 2000 according to earnings. then QE arrived and companies borrowed money to buy back their shares and increase their market cap and use that to write down debt. through all this you have to think the central banks at least have the right idea, the world population is going to double in a hundred years since 1950, you either have to print money and add that to the system or risk hyperinflation. the difficulty has been in getting the new population into the global economy, most of them are poor uneducated and live in repressive government regimes. china is the poster child, the average chinese is not enjoying the wealth, (you would think communists would know how to do this) is there going to be social disorder, well first a capitalist revolution in china, that will spread like wildfire. the us has become energy self sufficient, more than we need actually, we can now ship LNG to Japan and cut their energy costs by more than half. the US can reflate energy, and raise the global economy. first a lot of malinvestment has to be cleared out
Human Nature yearns to see order and hierarchy in the world. It will invent it if it cannot find it. Mandelbrot
The eventual outcome to all this is captured brilliantly in this quote by Ludwig Von Mises, the Austrian economist:
A typical Mises Monk genuflect
I tend to believe Craig Hulet: http://www.eliasound.biz/hulet/mp3s/2015/07.21.15.mp3
"Many of these countries have been using precious foreign reserves to try and stem the rapid declines of their currencies, but I fear they will all run out of ammo before the carnage is over."
Some things to ponder:
If the whole system of grift is owned, run, and controlled by Zion and their banksters and streeters, that many countries are bankrupting themselves spending their foreign reserves in an attempt to keep their currency down, what does that mean?
What especially does it mean if the dollar is really up on "exit" by the connected and "chosen?"
Zion is a scheme, not an ethnicity.
It would be very hard to place all the blame on Central Bankers when bankers are so good at messing things up all by themselves.
Bankers don't understand their product, debt.
“What is wrong with lending more money into the Chinese stock market?” Chinese banker before last month
“What is wrong with lending more money into real estate?” Chinese banker last year
"What is wrong with lending more money to Greece?" European banker pre-2010
"What is wrong with a NINA (no income no asset) mortgage?" US banker pre-2008
“What is wrong with lending more money into real estate?” US banker pre-2008
"What is wrong with lending more money into real estate?" Irish banker pre-2008
"What is wrong with lending more money into real estate?" Spanish banker pre-2008
"What is wrong with lending more money into real estate?" Japanese banker pre-1989
"What is wrong with lending more money into real estate?" UK banker pre-1989
“What is wrong with lending more money into the US stock market?” US banker pre-1929
We need to teach bankers the lost art of prudent lending and the importance of fundamentals, eg. ratio of mortgage size to income; ratio of national debt to GDP and age old metrics for valuing companies based on performance.
It is NOT possible for there to be "prudent lending" when the "lender" gets to make that "money" out of nothing when someone else agrees to "borrow."
Your notions of "fundamentals," Batman11, are nowhere remotely close to actually being fundamental, because you continue to operate within the wide-spread and almost ubiquitous views based upon human arrogance, that provide totally anthropocentric views of economics, in ways which deliberately ignore and deny the surrounding environmental realities as much as possible, because that human world is actually controlled by systems of ENFORCED FRAUDS, which require almost everyone to deliberately ignore the conservation of energy as much as possible, and also understand the concept of entropy in the most absurdly backward ways possible.
"Lending" money into the market was making that "money" out of nothing as debts, in order to "pay" for strip-mining the natural resources of the planet. What was wrong with that was that it was always a fundamentally fraudulent financial accounting system. That system was actually based upon enforcing frauds, but it was most socially successful when it deliberately denied that. Rather, the established systems developed elaborate systems of bullshit to discuss what what happening, and inside of those systems the best available professional liars and immaculate hypocrites became the most socially successful people.
Those kinds of people include the various controlled opposition groups, just as much, if not theoretically more so, as the core organized crime gangs. Within that context, it is NOT possible to use any "age old metrics for valuing companies based on performance" because ALL of that was always operating inside of fundamentally fraudulent financial accounting systems. The basic language of economics has become totally bullshit. For instance, the term "production" is not properly regarded as being the transformation of energy, which it actually must be. Rather, there tends to be an anthropocentric view that energy did not exist until it entered into human systems, whereupon it was "produced" and given monetary values. The "age old metrics for valuing companies based on performance" are based upon human values, in paradoxical ways that deliberately ignore and pervert the laws of nature as much as possible, in order that ENFORCED FRAUDS can continue to be socially successful, at least in the short to medium term.
The bigger picture is that the abilities to continue to strip-mine the planet's natural resources at an exponential rate are running into finite limits of diminishing returns, which are showing up first and foremost in the fundamentally fraudulent financial accounting systems. The "age old metrics for valuing companies based on performance" have ALWAYS been fundamentally fraudulent, since the entire history of Neolithic Civilizations was based upon being able to back up lies with violence. Actual fundamentals are intensely paradoxical, because those have to include how and why natural selection pressures drove the creation of human selection systems that operated through the maximum possible deceits and frauds.
The human species faces extreme challenges because human intelligence has been primarily applied within human societies to become better at being dishonest and backing those lies up with violence. The human species should go through dramatic changes in its human ecology, which would be integrated with better industrial and natural ecologies. However, the currently existing human ecology is based upon the intense paradoxes of consistent contradictions, due to it NECESSARILY operating as manifestations of organized crime, which are most socially successful by NECESSARILY lying about that as much as possible, while those frauds continue to be enforced.
The actual fundamentals are that human beings and civilizations operate as entropic pumps of energy flows, BUT, that those fundamentals themselves drove civilization to become based on integrated systems of legalized lies, backed by legalized violence, which were the most socially successful when those systems deliberately ignored the principle of the conservation of energy as much as possible, as well as deliberately misunderstood the concept of entropy in the most absurdly backward ways possible.
"Age old metrics for valuing companies based on performance" have a basis in companies being entities that also act as entropic pumps of energy flows. However, those operated within the overall context of fundamentally fraudulent accounting systems, which also were based upon acting as entropic pumps of energy flows. The "fundamental fundamentals" are that human civilizations operate as entropic pumps of energy flows, which became based upon the maximum possible deceits and frauds regarding how they were really doing that.
The BIG PROBLEM that human civilization faces is how to develop better death control systems, in the context where the currently established systems are based on a long history of being most successful by being most deceitful. Given that the current civilization is almost totally dominated by a core of organized crime, surrounded by controlled opposition groups, both of which continue to operate within the same frame of reference of the maximum possible deceitfulness about the death control systems, it now appears to be politically impossible that human civilization could adapt to change its political economy and ecology in any genuinely better ways.
Your comment, Batman11, was quite typical of the kinds of bogus "solutions" which are based upon grossly superficial analysis of the problems, which then are leading to grossly superficial suggestions regarding how to resolve those problems. All private property is based upon backing up claims with coercions. There is no private property outside of some system of public violence. That is why the trends towards the privatization of the planet are so problematic. The "fundamentals" regarding political economy tend to deliberately ignore the "fundamentals" regarding human ecology. There tends to never be proper attention paid to the death controls that back up debt controls, or to the force that backs up the frauds. As soon as we define human beings as separate from their environment, then they must live as robbers in that environment. There is nothing else than the dynamic equilibria between different systems of organized lies operating robberies, with the banksters pulling off the supreme symbolic robberies, in the forms of frauds enforced by governments.
Those have become so supremely successful for so long in the public spaces that they almost totally get away with presenting themselves as being the opposite of what they actually are. Hence, we are living inside of Wonderland Matrix Bizarro Worlds, that pretends to present the dichotomies of "governments versus organize crime," when actually governments are the biggest forms of organized crime, effectively controlled by the best organized gangsters, the banksters, and the other big corporations that have grown up around those banksters controlling the public "money" supplies.
Of course, it continues to be true that the weapons businesses are overall the biggest, and there is a long history of civilization being driven by militarism. However, all of that is presented in public in the ways which express the maximum possible bullshit regarding what is really being done. Moreover, that kind of core of organized crime is also surrounded by controlled opposition groups, which also still think and communicate in the same bullshit-based ways. Given the degree to which the banksters control their apparent opposition, it seems political impossible to change anything in any good ways. We are already trapped deep within the vicious spirals of the FUNDING OF POLITICS, providing the maximum leverage.
I agree that there ARE "fundamentals." I agree that we ought to understand those better. However, nothing in human history of Neolithic Civilizations was not fundamentally based upon backing up lies with violence. Hence, all of the "age old metrics for valuing companies based on performance" INCLUDED most of all the armed forces, as the most important of all the "companies," the same as the most important of all human labour was when some men killed other men. The currently established civilization is controlled by the men that prey upon men, who are primarily the international banksters, that effectively control governments. By and large, in the public spaces, that is deliberately misunderstood in the most absurdly backward ways possible. No only do the human beings who act as the top carnivores tend to publicly present themselves and wolves in sheep's clothing, but also, their controlled opposition promotes the views that the bogus "solutions" are for everyone to become better sheep.
Attempting to understand the political economy inside of the human ecology, within social pyramid systems, is extremely difficult and dangerous, due to the pyramidion people not wanting that to be done, as well as that most of those who are ruled over by those rulers also do not want that to be done, because doing that would reveal that almost everything they believed in was based upon bullshit, which tends to not to be the kind of severe cognitive dissonance that they want to suffer through. The intense paradoxes continue to be that the MOST FUNDAMENTAL are the human murder systems, as the most extreme form of the human death control systems, which are NECESSARILY central to everything else, while those developed to actually be most socially successful when done in the most deceitful and treacherous ways.
Hence, the "age old metrics for valuing companies based on performance" should include those "companies" which are the armed forces, and those forms of labour which are some people killing other people. Of course, that has always been the case, and still is the case now. However, the progress in physical science has enabled those systems of enforced frauds to grow an exponential rate, until the strip-mining of the planet's natural resources is running into real limits of diminishing returns. Ideally, civilization ought to adapt to those limits. However, since civilization is controlled by the established systems of enforced frauds, operated by both the core groups of organized crime, as well as by their surrounding controlled opposition groups, it appears to be politically impossible for that civilization to adapt within its currently existing frame of reference.
Theoretically speaking, to develop better integrated human, industrial and natural ecologies would require better understanding of those general energy systems. However, at the present time, those are deliberately ignored and misunderstood in the most absurdly backward ways possible, since everyone who is socially successful must necessarily have accomplishing that within the systems based upon enforcing frauds, where the debt controls are backed by the death controls. The most important concepts, the fundamentals which should be better understood, are NOT understood, and do not want to be understood, by almost everyone. Most of those who were socially successful within the established systems tend to take those systems for granted, rather that recognize that they were participating within those systems.
Of course, as my comment below reviewed, that includes guys like Chris Martenson. Although, more than most, he examines the intersections of the issues regarding the economy, energy and environment, he manages to do so without going through profound paradigm shifts. About all he achieves is to idly mention that we should go through paradigms shifts. However, he does not actually do so in any more significant ways, which is why he can continue to regard Mises' insights as being "brilliant," rather than actually too superficial.
"Age old metrics for valuing companies based on performance" should include the military systems that back up the monetary systems. However, nothing like that is being publicly done, other than to maintain the MADNESS of MAD Money As Debt, backed by MAD Mutual Assured Destruction. While weapons of mass destruction have become trillions of times more powerful than ever before in human history, social pyramid systems continue to be based on backing up lies with violence, or enforcing frauds, which are mostly cruising on the autopilot of morbid habits learned by imitation, within both the ruling classes, and those they rule over.
Despite that there now EXIST globalized electronic frauds, backed by the threat of force from atomic bombs, mostly the "solutions" are promoted within the same old-fashioned DUALITIES of false fundamental dichotomies, and related impossible ideals, which enable the anthropocentric biases to continue operate through the maximum possible mistakes regarding how human beings and civilization actually FIT into the natural world, and its natural selection pressures. Ideally, a better understanding of the fundamentals ought to be embraced by enough people. However, doing that would require enough people facing the facts regarding how and why civilization NECESSARILY operates according to the principles and methods of organized crime, with its death controls being central to everything else.
There is only one energy, and therefore, we should start using unitary mechanisms more to better understand how political economy, inside of human ecology, fits into the overall emerging industrial ecology, as well as the ancient natural ecology. A better use of the actual fundamentals would depend upon taking the conservation of energy far more seriously, as well as recognizing the degree to which we have inverted the concept of entropy, in order to make that become consistent with the biggest bullies' bullshit world views. Of course, human beings have never really violated the laws of nature, simply because human laws were based upon being able to back up lies with violence, or enforce frauds. But nevertheless, civilization is getting itself deeper and deeper into serious troubles due to the degree to which the established systems, based upon enforcing frauds, require that almost everyone continue to deliberately ignore and misunderstand the laws of nature as much as possible.
It is NOT an accident that we are seeing what should be once in 3 billion year events. The progress achieved in physical science at an exponential rate has nothing to compare it to in any previously known period of human history. The only thing that compares to what is happening now was the development of photosynthesis, which drove the previously greatest revolutions in the history of life, where those revolutions were creative convergences of previously adapting radiants, whose convergences then became the basis for another prolonged evolution of more adaptive radiants.
Meanwhile, my pet peeve continues to be that despite prodigious progress in physical science, enabled by series of profound paradigm shifts, political science continues to be stuck in the doldrums, suppressed by the established systems of enforced frauds not wanting those to become better understood, while civilization digs itself deeper and deeper into those ruts based on enforcing frauds. The vast majority of the content on Zero Hedge provides superficially correct analysis of those problems with our political economy. However, by and large, there still then follows bogus "solutions" based upon "fundamentals" which are not really remotely close to the actual fundamentals.
That article asks: "What’s the one thing that binds all of these bubbles together?"
The answer is that civilization NECESSARILY operates according to the principles and methods of organized crime, while a corollary of that is that civilization NECESSARILY develops to be as dishonest as possible about what it is really doing. Those are the underlying mechanisms that are driving "once in three billion year events to become common."
"Sudden market plunges" are due to that the entire political economy became based upon governments enforcing frauds by privately controlled banks. However, there are no genuine solutions to those problems which do not face what those problems actually are, namely, that money is measurement backed by murder, because the debt controls are backed by the death controls. "Central bank money printing" is an expression of the biggest form of organized crime, governments, being controlled by the best organized gangsters, the banksters, who were thereby able to dominate the political economy. However, the few people that superficially perceive that then tend to promote bogus "solutions" which would be based upon there no longer being any death control systems. Such absurdities ensure that the actually existing systems will continue to operate in the most deceitful ways. The more that the established systems get away with operating the NECESSARY death control systems in the most deceitful ways, then the more those will drive the manifestations of death insanities as their final result.
The quote featured in the end of the article above from Mises was another ridiculously superficial view of the problems, which is only regarded as "brilliant" because Chris Martenson also maintains a ridiculously superficial view of the problems. Using the absurdly euphemistic phrase "credit expansion" enables not facing the facts that those were expansions of enforcing frauds. The intense paradoxes respecting our political economy are due to that it exists inside of human ecology, which developed civilization through the history of warfare, whose successes were based upon deceits and treacheries. Upon that basis, in turn, were constructed the systems of enforced frauds, which are euphemistically referred to as the issuing of "credit," as a form of "money," which has amounted to legalized counterfeiting. Primarily, that "money" created out of nothing has "paid" to strip-mine the plant's natural resources.
Neither Martenson, nor Mises, provide better approaches toward the human ecology, inside of which the political economy exists. The deeper reasons for that are the death control issues. After human life exists, then the death control system direct the development of that life, and do so in the ways that the debt controls are backed by the death controls. There are combined money/murder systems that NECESSARILY come as a package deal, which has the NECESSARY corollary that those have developed to be done with the most social success through the maximum deceits and frauds. That includes how and why guys like Martenson and Mises operated as controlled opposition, which were superficially correct, but otherwise profoundly wrong.
"The absolute best controlled opposition is
one that doesn't know they are controlled."
-- Cognitive Dissonance
P.S.
I elaborated on my point of view in comments under these articles:
http://www.zerohedge.com/news/2015-08-20/welcome-feds-theater-absurd
Welcome To The Fed's Theater Of The Absurd
http://www.zerohedge.com/news/2015-08-21/federal-reserve-not-your-friend
The Federal Reserve Is Not Your Friend
http://www.zerohedge.com/news/2015-08-15/why-next-round-crisis-will-be-exponentially-worse-2008
Why the Next Round of the Crisis Will Be Exponentially Worse Than 2008
& I repeat a slightly deeper understanding of the realities:
The established debt slavery systems have driven their numbers to become debt insanities, which are going to provoke death insanities. The only realistic resolutions to those real problems are for PERHAPS new death control systems to emerge out of those developments, which MIGHT be possible if more people understood better how and why civilization NECESSARILY operates according to the principles and methods of organized crime, because its death control systems are and must be central to everything else.
Given that what now exists are globalized electronic frauds, backed by the threat of force from atomic bombs, it is becoming more and more imperative for there to be series of intellectual scientific revolutions regarding the ways that the death control systems are perceived and operated. However, since there is almost nothing but a core of organized crime, surrounded by controlled opposition groups, that both stay within the same deceitful frame of reference regarding the death control systems, we continue to watch and wait as those rush towards manifesting death insanity situations.
Great article that is written very well. Scary.
"There is no means of avoiding the final collapse of a Ponzi Scheme brought about by credit expansion."
Especially one where the numbers of people paying in are rapidly reducing......aka, the (falling) employment participation rate.
One item not listed above is the interest rate swaps "market?" That "market" was recently highlighted by Janet Tavakoli on Max Keiser as being the next likely source of real problems. The episode has not been uploaded to his site (as at midnight 23/08 GMT.)
Spoon boy: Do not try and bend the spoon. That's impossible. Instead... only try to realize the truth.
Neo: What truth?
Spoon boy: There is no spoon.
Wages no longer are sufficient to drive demand particulary when suppressed by global mercantile economic strategies. Therefore, QE must be undertaken, no matter how ineffective, combined with deficit spending on a permanent basis or Possibly until emerging market domestic demand (China) grows to restore balance. And even then, the shift from labor to capital (machines) may require permanent QE and deficit spending.
Only question is how long will it take for governments and central banks to reach this conclusion and how much carnage will the regular folk have to endure in the meantime.
I don't know if my crazy comments stay around or not but if so someone can look back and see I was saying the markets will stop trading when TSHTF a long time ago. That is mostly why I'm not too concerned making money on the downslide. How do you know you will be able to get it out?
GOING DOWN. Next floor kitchen utensils. down, down, Mens & Women's clothing. DOWN, DOWN, DOWN, basement next folks Garden Equipment, Shovels (for digging up your SHINY) _JOHNLGALT. By the way WHO IS JOHN GALT?