Stock markets begin the next painful reality-value adjustment
It will be a harrowing process because a great many humans are abandoning ownership of things that are rapidly losing value — e.g. stocks on the Shanghai exchange — and stuffing whatever “money” they can recover into the US dollar, the assets and usufructs of which are also going through a very painful reality value adjustment.
Of course this calls into question, foremost, exactly what money is.
And the answer is: basically a narrative construct. In other words, a story explaining why we behave the way we do around certain things. Some parts of the story have a closer relationship with reality than other parts. The part about the US dollar has a rather weak connection.
When various authorities — the BLS, the Federal Reserve, The New York Times — state that the US economy is “strong,” we can translate that to mean giant companies listed on the stock exchanges are able to put up a Potemkin façade of soundness. For instance, Amazon.com. The company continues to seem like a good idea. And it reinforces that idea in the collective imagination by sending a lot of low-priced goods to your door, (all bought on credit cards), which rings your (nearly) instant gratification bell. This has prompted investors to gobble up Amazon stock.
It’s well-established by now that the “brick-and-mortar” retail operations are majorly sucking wind. Meaning, fewer people are driving to the Target store and venues like it to buy stuff. Supposedly, they are buying stuff at Amazon instead. What interests me in that story is the idea that every single object purchased these days has a UPS journey attached to it. Of course, people also drive to the Target store, though I doubt they leave the place with just one thing.
That dynamic ought to call into question just how people are living in the USA, and the answer to that is: spread out all over the place in a suburban sprawl living arrangement that has poor prospects for being reformed or mitigated. Either you drive yourself to the Target store for a slow-cooker and a few other things, or Amazon has to send the brown truck to each and every house. Either way includes an insane amount of transport, and sooner or later both the brick-and-mortar chain store model and the Amazon home delivery model will fail.
Now I don’t believe that will be the end of retail trade, but it will open the door for a painful transition to whatever the next iteration of retail trade will be. Probably much smaller and more local with less stuff. Unfortunately, it is difficult to imagine a resolution of that without also imagining a transition away from suburbia. The loss of faith in the suburban disposition of things will probably represent the greatest loss of perceived wealth in human history — which is how it should be, since it also happened to be the greatest misallocation of resources in human history. It seemed like a good idea at the time, and now its time has passed.
I suppose the loss of faith in value of all kinds will play out sequentially. It is starting in financial “assets” because so many of these are just faith-based stories, and in this quant-and-algo age it has gotten awfully hard to tell what is good story and what is just a swindle. One wonders, for example, how many well-dressed young people at the bond desks have been able to pawn off sub-prime car loans bundled into giant, tranched bonds with attractive yields to hapless counterparts at the asset allocation desks of the pension funds and insurance companies. My guess is the situation is at least just as bad as it was 2007.
The problem is that when this sucker goes down, to paraphrase the immortal words of George W. Bush, you have to wonder how much other stuff of everyday life for everyday people it will take down with it. The discovery phase of our predicament began ever so crisply in the very first business week of the new year. I’m going to hazard to predict that the damage halts briefly in mid-winter and then resumes with a vengeance in March. This may give thoughtful people a chance to rest and assess.
(Originally appeared at Clusterfuck Nation.)