Mark Spitznagel Warns "A Reckoning Always Follows"

Authored by Mark Spitznagel via The Mises Institute,

Bob Dylan As Economic Prophet

We have a habit on our trading floor of playing Bob Dylan whenever the markets start selling off. We hardly ever play Dylan these days. Though I consider the Nobel Laureate something of a personal classical liberal icon, I don’t remember exactly how this office tradition ever started. But the connection is appropriate, a nod to the enigmatic genius who wrote anthems for freedom, against power and coercion, and, most relevantly, on change—irrepressible, revolutionary, and sometimes catastrophic change.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180117_dylan.png

Change is the defining feature of our modern age, from science to business to politics, both in its extraordinary speed and magnitude. But you would never know it when surveying today’s financial market landscape. We are also living in the age of government-mandated financial repression - which has created a forced, false financial stability.

These exist like two contradictory, parallel universes.

Thanks to almost a decade of unprecedented market interventions by global central banks (which have collectively acquired assets totaling over $20 trillion), everywhere you look there is repression of yields, repression of market volatility, and their side effects of exploding asset valuations (to heights not seen since shortly before past historic crashes), financial-engineered debt, leverage, stock-buybacks, cryptocurrency-insanity, “short volatility” and all manner of reckless yield-chasing investment schemes.

This is an age of massive artificial economic imbalances and systemic risks.

Such powerful interventions hurt the weakest and benefit the strongest (the holders of assets) as they create unsustainable, destructive distortions that ultimately lead to catastrophe. This is a universal historical theme, perhaps nowhere better chronicled than by Bob Dylan starting back in the early 1960s. And underlying Dylan’s theme has been a prophetic message, one that speaks uncannily to today’s incoherently changeless and riskless market climate: Change is irrepressible, whether we accept it or (especially) even if we do not; “the times they are a-changin’.” It is fundamental to life; “he not busy being born is busy dying.” And it is often revolutionary, even appearing apocalyptic; “a hard rain’s a-gonna fall.” The examples could go on and on, as the message runs deep through his work.

This has similarly been a central message of the great free-market Austrian School economists, most notably Ludwig von Mises (another personal classical liberal icon), who in his 1949 magnum opus “Human Action” claimed:

“Human action originates change. As far as there is human action there is no stability, but ceaseless alteration. The historical process is a sequence of changes. It is beyond the power of man to stop it and to bring about an age of stability in which all history comes to a standstill.

The market is a process of change and discovery, innovation and adaptation, destruction of the old and growth of the new, as winners become losers, on and on. And it is entirely facilitated by the information always being conveyed by price changes. They are the market’s lifeblood, moving capital from the less to the most efficient players—propelling civilization’s relentless progress. All of this is the very meaning of price changes - of market volatility.

Repress change, and you repress all that it means. Repressing it is sheer hubris and, in Dylan’s words, “beyond your command.” You can only defer it, not stop it. (Juxtapose this view with outgoing U.S. Federal Reserve Chair Janet Yellen’s ambitious claim that there will not be another financial crisis “in our lifetimes.”) When we try enforcing stability by decree, a reckoning always follows. An unsustainable boom leads headlong to an inevitable bust. A hard rain falls.

Rather than fear it, we should “tell it and think it and speak it and breathe it.” This is Dylan’s resolve. Something really big is coming. Let the central bankers try to keep standing in its way, but as investors we need to recognize and accept its logical consequence of a return to the meaning of volatility. Change and volatility are good. “There is nothing perpetual but change”—according to Mises, who surely must have loved Dylan just as much as I do.

Dylan obviously wasn’t writing about central bank interventionism or market crashes - at least not specifically. But it’s a universal enough theme for him to have made the point, whether he knew it or not. In my view, it’s but another feather in his cap, this time as economic soothsayer.

So think of Dylan’s prophetic message the next time the markets start to fall, whether it be in days or years. He reminds us that times change, prices change, and progress, though sometimes hard and catastrophic, is irrepressible.

Comments

MortimerDuke yogibear Wed, 01/17/2018 - 11:29 Permalink

No part of that article indicates Mark is "wishing" for anything.  He's explaining.  Isn't it foolish to not know the difference?  You've just got to love the anonymity of internet website comments sections.  It allows the nobodies of the world (you and me) to call the somebodies (Mark Spitznagel) a fool and suffer no reprisal against our personal psyches.  Only our avatars can be ridiculed.

In reply to by yogibear

bobdog54 Wed, 01/17/2018 - 10:05 Permalink

Nailed it, the human condition... we have seen the enemy and they are us.

 

Bob has it right - unless we “tell it and think it and speak it and breathe it”,  “a hard rain’s a-gonna fall.”

bobdog54 Wed, 01/17/2018 - 10:11 Permalink

P.S. To quote another famous guy, Isaac Newton - "for every action, there is an equal and opposite reaction" (paraphrased)

Although meant on a physics level by Newton, it applies to all things in life just harder to measure in the short term mathematically.

flyonmywall Wed, 01/17/2018 - 10:16 Permalink

You have huge amounts of what passes for money, created by central banks, sloshing around the world right now. Some of it has been put to good use, but a lot of it has been used to prop up failing industries and corporations based on old business models.

Some of it has flowed in to the stock markets, while some of it has flowed into over 1300 cryptocurrencies. And people wonder if bitcoin is a bubble. Of course it is.

All enabled by your friendly central banks.

 

MusicIsYou Wed, 01/17/2018 - 10:34 Permalink

Yes "A reckoning always follows" because a reckoning must follow to create the facade that banks really can't print as much as they want and to make it appear like it's not really a money printing club for those in the club. Therefore what elites are gonna do is cause much much pain for Americans to be the reckoning. But make no mistake, the reckoning will be engineered. I know it's hard to accept but the truth is the people running the show really are that evil. And really, there's nothing more unmotivating than to realize elites in charge of the money printing just dive into trillions of dollars like Scrooge McDuck and just randomly plug billions of dollars into their buddies bank accounts. Gee it just makes you want to work a 40 hour week for $10 per hour doesn't it?

BarkingCat bobdog54 Wed, 01/17/2018 - 12:42 Permalink

And I down there with him. The concept that the top-tier Psychopaths can keep on cooperating with each other for eternity is absurd.

 They bid their time until there was a chance to strike and fuck over the other psychopath competition. Look how Lehman Brothers got fucked over. The competition so a chance to take him out and descend upon its remains like vultures and so they did.

 These people are psychopaths. They have no morals, no principles, and no remorse,

In reply to by bobdog54

rrrr Wed, 01/17/2018 - 11:08 Permalink

If Dylan deserves a feather in his cap it should be for providing a foundation on which many millions could build emotionally-based delusions.

rrrr Yukon Cornholius Wed, 01/17/2018 - 13:30 Permalink

Not really. But it does take time to figure out what to do about it. Many possibilities exist. And right now a new generation is trying one possibility that won't work out the way they would prefer. After them another generation will also deal with the problem. In the meantime, more and more will recognize the truth of the matter. A solution has been found. It is subject however to a lot of criticism, so they continue to search for a different solution. It's not for me to decide. But it seems clear that one question will have to be: What length of time is necessary in finding other solutions, and is it worth it. This is a long world. It is important to find the solution that works best. Meanwhile we observe. I am not silent. Call them what you will, the others are.

In reply to by Yukon Cornholius

rrrr Consuelo Wed, 01/17/2018 - 13:19 Permalink

Einstein's work contributed to the worst weapon of mass destruction ever devised on our planet. That is what he should be remembered for. Regarding marketing genius, "masters of sharp practice" would be more accurate.

In reply to by Consuelo

nuerocaster rrrr Wed, 01/17/2018 - 11:54 Permalink

Diamonds and Rust anyone? You just can't beat narcissistic, messianic, holier than thou boomers for investment analogies.

But what about an objective historical view of command economics? An objective guess(and it really is guessing)on how and when costs are realized?

To be sure there are costs(high costs)for corruption and misallocation of resources. And those costs absolutely will be realized.

But who pays, how they pay, and when is way way more complicated than people trying to monetize their tiny intellectual abilities.

The most important part of any sales pitch is what isn't said. AUM I WIN, AUM I WIN, AUM I WIN

In reply to by rrrr

sunny Wed, 01/17/2018 - 11:15 Permalink

Yep.  And the big one will hit SF, and an asteroid will hit the planet and the sun will burn out, and.....  It's only a matter of timing -- when.

wdg Wed, 01/17/2018 - 11:57 Permalink

“the times they are a-changin’.” It is fundamental to life; “he not busy being born is busy dying.” And it is often revolutionary, even appearing apocalyptic; “a hard rain’s a-gonna fall.”

The times haven't changed that much. The same banksters who created the privately owned Federal Reserve (and central banks of the world) are playing the same diabolical game of bubble creation and then bursting by reducing liquidity, as they did in the roaring 20s which was followed by the 1929 crash and Great Depression. This was all created by the unconstitutional and criminal Federal Reserve.

samsara Wed, 01/17/2018 - 12:38 Permalink

"...

You lose yourself, you reappear
You suddenly find you got nothing to fear
Alone you stand with nobody near
When a trembling distant voice, unclear
Startles your sleeping ears to hear
That somebody thinks they really found you

A question in your nerves is lit
Yet you know there is no answer fit to satisfy
Insure you not to quit
To keep it in your mind and not fergit
That it is not he or she or them or it
That you belong to

Although the masters make the rules
For the wise men and the fools
I got nothing, Ma, to live up to

....

My eyes collide head-on with stuffed graveyards
False gods, I scuff
At pettiness which plays so rough
Walk upside-down inside handcuffs
Kick my legs to crash it off
Say okay, I have had enough
What else can you show me

And if my thought-dreams could be seen
They'd probably put my head in a guillotine
But it's alright, Ma, it's life, and life only

 

It's Alright, Ma I'm Only Bleeding

Bob Dylan

baldknobber Wed, 01/17/2018 - 13:36 Permalink

Once upon a time

you invested your dime

in companies

that made things

didn't youuuuuu

 

now it's fast cash

you got your

crypto stash

You think hating

makes you cool

 

Don't youuuuu

 

Fuck it Dylan sucks

 

 

 

william114085 Wed, 01/17/2018 - 14:06 Permalink

The lyrics to "Slow Train Comin'" and "When You Gonna Wake Up" are pretty damn good..... 

 

God don't make promises that He don't keep
You got some big dreams baby, but in order to dream you gotta still be asleep.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Counterfeited philosophies have polluted all of your thoughts
Karl Marx has got ya by the throat, Henry Kissinger's got you tied up in knots.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

You got innocent men in jail, your insane asylums are filled
You got unrighteous doctors dealing drugs that'll never cure your ills.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

You got men who can't hold their peace and woman who can't control their tongues
The rich seduce the poor and the old are seduced by the young.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Adulterers in churches and pornography in the schools
You got gangsters in power and lawbreakers making rules.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Spiritual advisors and gurus to guide your every move
Instant inner peace and every step you take has got to be approved.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Do you ever wonder just what God requires ?
You think He's just an errand boy to satisfy your wandering desires.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

You can't take it with you and you know that it's too worthless to be sold
They tell you, 'Time is money' as if your life was worth its weight in gold.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

There's a man up on a cross and He's been crucified for you
Believe in His power that's about all you got to do.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

____________

 

 

Sometimes I feel so low-down and disgusted
Can’t help but wonder what’s happenin’ to my companions
Are they lost or are they found
Have they counted the cost it’ll take to bring down
All their earthly principles they’re gonna have to abandon?
There’s a slow, slow train comin’ up around the bend

I had a woman down in Alabama
She was a backwoods girl, but she sure was realistic
She said, “Boy, without a doubt
Have to quit your mess and straighten out
You could die down here, be just another accident statistic”
There’s a slow, slow train comin’ up around the bend

All that foreign oil controlling American soil
Look around you, it’s just bound to make you embarrassed
Sheiks walkin’ around like kings
Wearing fancy jewels and nose rings
Deciding America’s future from Amsterdam and to Paris
And there’s a slow, slow train comin’ up around the bend

Man’s ego is inflated, his laws are outdated, they don’t apply no more
You can’t rely no more to be standin’ around waitin'
In the home of the brave
Jefferson turnin’ over in his grave

Fools glorifying themselves, trying to manipulate Satan
And there’s a slow, slow train comin’ up around the bend

Big-time negotiators, false healers and woman haters
Masters of the bluff and masters of the proposition
But the enemy I see
Wears a cloak of decency
All nonbelievers and men stealers talkin’ in the name of religion
And there’s a slow, slow train comin’ up around the bend

People starving and thirsting, grain elevators are bursting
Oh, you know it costs more to store the food than it do to give it
They say lose your inhibitions
Follow your own ambitions
They talk about a life of brotherly love show me someone who knows how to live it
There’s a slow, slow train comin’ up around the bend

Well, my baby went to Illinois with some bad-talkin’ boy she could destroy
A real suicide case, but there was nothin’ I could do to stop it
I don’t care about economy
I don’t care about astronomy
But it sure do bother me to see my loved ones turning into puppets
There’s a slow, slow train comin’ up around the bend