Stocks and Precious Metals Charts - Ship of Fools - Lingering at Another Minsky Moment

 

“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least to neglect, persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”

Adam Smith

"I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis.  Concepts including 'rational expectations,' 'market discipline,' and the 'efficient markets hypothesis' led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur.  Not all economists believed this – but most did.

Thus the study of financial fraud received little attention.   Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students.  Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble.

They continue to do so now.  At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word 'naughtiness.'  This was on the day that the SEC charged Goldman Sachs with fraud."

James K. Galbraith, Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy, May 16, 2010

"There is a kind of chronic complacency that has been rotting American liberalism for years, a hubris that tells Democrats they need do nothing different, they need deliver nothing really to anyone – except their friends on the Google jet and those nice people at Goldman.

The rest of us are treated as though we have nowhere else to go and no role to play except to vote enthusiastically on the grounds that these Democrats are the 'last thing standing' between us and the end of the world.   It is a liberalism of the rich, it has failed the middle class, and now it has failed on its own terms of electability.   Enough with these comfortable Democrats and their cozy Washington system.  Enough with Clintonism and its prideful air of professional-class virtue.

I think what we need in order to restore some kind of sense of fairness is not the final triumph of markets over the body and soul of humanity, but something that confronts markets, and that refuses to think of itself as a brand."

Thomas Frank, 2016

 

Stocks managed to shake off some early gloom and rallied in the afternoon.

The Dollar chopped sideways, finishing largely unchanged.

Gold and silver rallied sharply.

The VIX fell slightly.

Earnings continue rolling in, for what they are worth.

Did I mention that there will be a stock option expiration on Friday.

Have a pleasant evening. 

Stocks and Precious Metals Charts - Minsky Moment - Our Year of Living Dangerously

 

"In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance."

Hyman Minsky, The Financial Instability Hypothesis

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindelberger, Manias, Panics, and Crashes: A History of Financial Crises

"Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial web sites and in the reports of Wall Street analysts. Minsky’s hypothesis is well worth revisiting."

John Cassidy, The Minsky Moment, The New Yorker, 4 February 2008

"FDR came right at Wall Street and the Banks with serious reform that saved capitalism from itself, and worked for a generation to hold back its darker impulses.  This is a lesson that we have apparently forgotten.

If the Fed attempts their old fix [cheap money, financial asset inflation] once again, they may do what I thought was almost inconceivable, and go a step beyond mere stagflation which is bad enough, and cause an actual break in confidence, and the bond of their word, the currency. The people of the world will not be fooled forever.

As Hyman Minsky once said, and the moderns seem to have forgotten, 'Anyone can create money; the problem is in getting it accepted.'   He should have added, except by force [force is bad monetary policy by other means].  Reform goes hand in hand with recovery."

Jesse, Moral Hazard of the Fed's Current Policy: Fraudulent Paper, 24 January 2013


When a similar boom and bust, fomented in each case by Fed monetary policy, happens three times in 21 years, you may wish to consider that it is not an accident, or a coincidence, or addle-brained fat finger error, but something a little more purposeful, and at its heart more than mere careless incompetency.

The recent insider trading scandals in the Fed's highest ranks, and the ensuing cover-up and deflection, make our confidence a bit more strained.

Non-Farm Payrolls tomorrow.

Have a pleasant evening.

Stocks and Precious Metals Charts - "We Really Don't Have a Fear Trade Anymore" - Rounders of Finance

"In my club, I will splash the pot whenever the fuck I please." 

Teddy KGB, Rounders

 

"It hurts doesn't it? Your hopes dashed, your dreams down the toilet.  And your fate is sitting right besides you." 

Teddy KGB, Rounders 

 

"You're right Teddy, the ace didn't help. [pushes chips towards the center and flops down his cards] I flopped the nut straight." 

Mike McDermott, Rounders

 

Stocks were on another run higher today, as it was risk on de luxe.

Gold and silver continue to climb out of the hole that the bullion banks and hedge funds hammered them down into. 

Miners seem to be pacing the way up.

I would not rest too easy in any new long positions.

These jokers love to come back for seconds and thirds.  It's a sociopath thing. 

Rounders was one of my favorite 'gambling' movies.  

We used to go out to Las Vegas three or four times a year in the 70's and 80's. 

I liked to stay at the Frontier, so I could hang out in the Stardust Sports Book during the day.

But that was before they ruined the town, and turned the it into a corporate theme park.

It breathed easier when there were big stretches of desert between the clubs.

I got married in Las Vegas, in an actual church that used to be out in the desert all by charming self.

The last time I went out there that little Spanish style desert church was surrounded by condos and new houses.

Let's see how the rest of the week goes.

We are heading for a Minsky Moment.

Third time's the charm.  Or is it four now?

Timing will be everything. 

Just a series of booms and busts.

Who could see the next one coming?

The Fed reserves the right to splash the pot whenever they wish, on behalf of their benefactors.

But in this real life version of the film, Teddy doesn't pay off when he loses.  So grab it off the table while you can.

Have a pleasant evening.

 

Stocks and Precious Metals Charts - Who Could See It Coming? - Dead Reckoning the Minsky Moment

"In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance."

Hyman Minsky, The Financial Instability Hypothesis


"Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

Many of Minsky’s colleagues regarded his 'financial-instability hypothesis,' which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial web sites and in the reports of Wall Street analysts. Minsky’s hypothesis is well worth revisiting."

John Cassidy, The Minsky Moment, The New Yorker, 4 February 2008.


"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindelberger, Manias, Panics, and Crashes: A History of Financial Crises


"The sense of responsibility in the financial community for the community as a whole is not small.  It is nearly nil.  Perhaps this is inherent.  In a community where the primary concern is making money, one of the necessary rules is to live and let live.  To speak out against madness may be to ruin those who have succumbed to it.  So the wise in Wall Street [and in the professional and credentialed class] are nearly always silent."

John Kenneth Galbraith, The Great Crash of 1929


"People who lost jobs — and those are in the millions in 2008, 2009, and 2010 — have now gotten jobs, that’s true, but the jobs they’ve gotten have lower wages, have less security and fewer benefits than the ones they lost, which means they can’t spend money like we might have hoped they would if they had got the kinds of jobs they lost, but they didn’t...

The big tax cut last December, 2017, gave an awful lot of money to the richest Americans and to big corporations.  They had no incentive to plow that into their businesses, because Americans can’t buy any more than they already do.  They’re up to their necks in debt and all the rest.

So what they did was to take the money they saved from taxes and speculate in the stock market, driving up the shares and so forth.  Naive people thought that was a sign of economic health.  It wasn’t.  It was money bidding up the price of stock until the underlying economy was so far out of whack with the stock market that now everybody realizes that and there’s a rush to get out and boom, the thing goes down."

Richard Wolff, The Next Economic Crisis Is Coming

Bubbles most often resolve their imbalances irresponsibly and jarringly, with a correction that is sharp and destructive.  It is often triggered by some seemingly trivial event, especially if its predatory mispricing of risk has been allowed to fester for an extended period of time..  How can this be?

Credit cycles explain bubbles in modern finance, but the elite protect themselves and their banks from the effects. Hence, only the middle and working class loses. And this has been the case for many years now. Hence the growing unrest abroad, and the decisions by the electorate at home that seem to puzzle and provoke the very comfortable 'credentialed' class.

The reason for this is quite easy to understand. Those who benefit the most from the bubble both actively and passively help sustain it.   They are reluctant to surrender any potion of their enormous advantage and personal gains, even if it might be better for them in the long term.

They do not consider the damage that may be done to the underlying social fabric that supports and protects their wealth.  Contrary to all of the familiar assumptions, they are not acting rationally or prudently, even for themselves.  Their focus is short term and short-sighted.  They are drunk on their own success.

The interpreters and creators of the prevailing narrative are themselves beneficiaries of the bubble economy, and will go to great lengths to misdirect the public discussion from any root causes, and often from its very existence.  They will distract the public with inflammatory issues, economic fear,  stage-managed spectacles, and manufactured complexity.   And finally, in the extremes of their shamelessness, they will seek to blame the victims for their lack of sophistication and the government for its efforts to restrain their predatory frauds.

This enables the cycle of boom and bust to repeat and worsen beyond all reasonable expectations.

The lesson from history is that a system based on the ascendant greed of powerful insiders is rarely rational and self-correcting, and is often spectacularly self-destructive.  And those with the most power, in their wonderful self-delusion, simply do not care until it is too late.  They are blinded by the moment, in their competition with each other, and the insatiable nature of greed itself.  'Enough' is not in their reckoning.

To this end governments are fashioned, and people organize themselves from the damage that can be done to society as a whole by a few.   Unfortunately people forget, and it seems that at least once every generation or so the madness slips loose its restraints, and this sad lesson from history repeats.

And so once again the world must face its rendezvous with destiny.

The box scores for today's market action are shown in the graphs below.

Apparently rough weather is heading towards the east coast. The local grocery store was a nuthouse even in the early afternoon. I am making some chicken soup for myself and Dolly. Even if I could coax her out of her fuzzy blanket and pillows, Dolly would offer limited assistance.  She is clearly just in it for the chicken.

Have a pleasant evening.