Woe to Markets
Between government and central bank interventions, accounting fraud, control fraud, the computer hugger-mugger of algorithmic trading, and AWOL rule of law, the financial markets have practically destroyed themselves.
They can’t be depended on to express the real value of things and capital formation struggles against the headwinds of peak cheap energy on top of massive fraud and swindling. The markets can only blow up.
When the wreckage clears and new, smaller markets form, as they will, they must operate differently, with new rules and restraints, because the blow up of today’s markets will be such a trauma that nobody will venture to engage with them if they don’t.
A world without simplified and honest capital, commodity, and equity markets would beat a quick path back to a dark age, and in the process a lot of people will die of cold and starvation.
That resolution may be some years further out, but the blowout will commence in 2013. The glue that held these markets together was faith that they meant something — and that faith has been pissed away by fools in high places who drained all the honesty out of them. It was a classic case out of the Joseph Tainter playbook: diminishing returns of ever-increasing complexity addressed with ever-more layers of complexity, larded with systematic lying based on mystifying, opaque jargon, sanctioned statistical misreporting, felonious cronyism, and scuttling of the rule of law.
In short, the markets have been taken over in effect by a criminal racketeering syndicate. In doing this, so much resilience has been removed from these market structures that they are riddled with rot, like a mansion infested with carpenter ants. In other words, borrowing a term from Taleb, they are hopelessly fragile. Any little vibration could reduce the whole creaking arrangement into a heap of rubble and ashes.
There’s plenty of vibration available out there. Events are humming.
The debt mountains in the USA and elsewhere far overshadow the equity and commodity market molehills, and unpaid debt will eventually overcome all the forces of untruth.
Debt is a subsidiary of the force known as reality. Its will cannot be denied, even by Goldman Sachs, JP Morgan, the US Treasury, and the Federal Open Markets Committee.
And the unwinding of unpaid debt, honestly acknowledged or not, will thunder through the system sucking wealth out of advanced societies so efficiently that it will make the Seven Plagues of the Bible look like a flat tire on a sunny day.
So, finally my picks for 2013:
— Dow 4000 (What!? Did he say that!? Again!?). Even the algos will run squealing into the underbrush this time.
— Gold $2500 by 12/31/2013 (and headed higher) after a Q-1 deleveraging swoon. Silver $125. Uncertainty trumps greed and fear.
— Two-way Stagflation — massive asset deflation combined with high energy and food costs. Americans go broke fast, go hungry, go nowhere.
— California, Illinois, and New Jersey beg the broke federal government for bailouts. The federal government pretends to bail them out. Austerity has a field day.
— Despite willingness to do so, the Federal Reserve can no longer “print” money to overcome the deflationary contraction of wealth. They are finally “out of ammunition.” They will try nonetheless. Consequently some nations will stop accepting dollars for trade, possibly the Middle Eastern oil exporters. That would be very bad news.
— Shale oil and gas production stop increasing, possibly turns around to decline. The event hugely demoralizes “energy independence” cornucopians.
— Gasoline shortages return to the USA on a scale last seen in the 1970s. Cause: broken oil market allocation system. Some regions suffer more than others.
— Drought continues in the US heartland. The grain belt withers in 2013. Dixieland cooks like a chicken-fried steak. Food costs go crazy. The American public finally begins to freak out when confronted with $9 boxes of Cheerios.
— A major earthquake hits the West Coast.
Have a nice year everybody.
Apologies for any typos.
The Kunstlercast podcast resumes in January!
(Originally appeared at Clusterfuck Nation)