LONDON – Whew! The Dow shot up on Wednesday morning and fell in the afternoon. Not a good sign [ed. note: indeed, it wasn’t]. We have to be careful not to say anything controversial today. Otherwise, we won’t be able to keep up with the mail. (Catch up on our controversial essays about the Oregon situation here and here.)
What other people think matters. People get upset – even homicidal – over ideas and myths, not reality. Catholic, Protestant, Shiite, Sunni, Democrat, Republican, land rights in the West… captured U.S. soldiers… racial slurs… the master race…
Manifest Destiny… terrorism… global warming – there is no idea so bogus it can’t be the cause of a government program or a massacre. Thoughts – like viruses – enter the brains of humans and take control of them.
Then, acting as though they know what they are doing, people try to “improve” the world around them. They tax, kill, argue, torture, demonstrate, seize public land, write letters to the editor, and call up Rush Limbaugh. Ditto to that!
The cause is always a worthy one, of course. And there are always people to blame… people standing in the way of a better world. They must be forced to wear seat belts and sign up for health insurance – for their own good.
The Johnny Rebs must be kept in the Union. Incomes should be more “equitable.” Trade should be fair. Hey, what about the Declaration of Independence? And don’t forget to free the Holy Land!
What you think is what you get… no matter how absurd. And then, reality imposes itself, and you get something else altogether, often the exact opposite of what you wanted.
Reality doesn’t care what you think. Thoughts hardly matter. Reality happens whether you want it or not. Nobody threatens his weatherman when the temperature falls; everyone knows it’s not his fault. The sun shines. We grow old and die. Three aces beat two pair.
An extra-careful look at uncaring reality …
So, what are markets? Myth? Or reality? Answer: They are both. In the short run, they are myth spinners. If everyone believes the economy is healthy and prices will rise, they probably will rise… at least for a while. But in the long run, reality sets in. No matter how many people expect – and want – prices to continue to go up, at some point, they will go down.
No amount of wishful thinking can erase debt, create profits, or stop markets from going up and down. There is always some truth that overrides delusions, myths, and group-think.
Poverty, Misery, and Quasi-Slavery
Think back to the all the 20th century experiments with socialism and central planning; Russia, China, and Venezuela come to mind readily. Did they lead to the workers’ paradise that the proles were promised?
Did they create the rational, productive, and fair economies that people expected? Nope! They led to poverty, misery, and quasi-slavery for millions of people. Even the most fantastical myths have real consequences.
An uplifting image from the world’s last remaining Stalinist paradise.
Photo credit: gregandcathsadventures
Pity the poor virgin; she dismissed a myth as “superstition.” Then, they tossed her in the volcano anyway. Then when the grumbling volcano grew silent: “Look, it worked,” they said, giving each other high fives until the hot ash fell on their heads and the burning lava covered their feet.
One of the most surprising and disturbing myths today is the myth of “terrorism.”
This is not to say that there aren’t real flesh-and-blood terrorists. But they are hardly a serious threat to the U.S. or to its people. And “going after terrorists” doesn’t necessarily make you safer… as the invasion of Iraq proved in spades.
But the power of the myth is so strong that every Republican presidential candidate believes it will take him to the White House. The politicos ride the myth; then the myth rides them.
From Dream to Nightmare
Take Hitler’s myth that Germany had to build up its army to wipe out enemies on all sides and gain “living space.” At first, it seemed to make sense. Then the myth began a trend. And the trend took on a life of its own. Soon, there was no stopping the Nazis’ “security industry” – led by Hitler himself. His Thousand-Year Reich stormed over Europe for six years.
Then it met its own horrific apocalypse. The dream had brought its own nightmare. Germany was bombed, defeated, destroyed. The supposedly invincible Wehrmacht had provoked the Red Army; once roused, the Reds were unstoppable.
What the 1,000-year Reich looked like after six years (Nuremberg, Egidienplatz) …
Reality was grim. Roughly 1 out of every 10 Germans – more than 7 million of them – died in the war. The invading Soviet soldiers raped thousands of German women… and countless others committed suicide to avoid this fate. And Germany’s Jewish population was almost totally wiped out.
Investing in a myth can bring the same perverse results. Investors piled into stocks after 2009 because they believed a potent myth: The Fed had “saved the day.” Bernanke was a hero. We were on the road to recovery.
The more widespread the belief became (and let’s not forget that it was supported by the Fed’s EZ money), the more stocks rose… apparently confirming the truth of it.
But the higher the stock market went… and the more debt increased… the more the whole shebang wobbled and lurched. Now, investors may get what they least want: a deep and extended bear market.
Chart by: BigCharts
Chart and image captions by PT
The above article originally appeared as “The Hidden Reason Why Stocks Are Tumbling…” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Ganging Up on Gold
So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
- Gold Sector Correction – Where Do Things Stand?
Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit. Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India The commitments of...
- Australian property bubble on a scale like no other
Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs: Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included: the record run up in commodity prices and subsequent correction; the associated...
- Prepare for the Unthinkable
Red Ink Growth and profits mask a variety of problems. They hide business inefficiencies and the money suck of corporate adminis-trivia. They also conceal unproductive staff. The final career leap But most of all growth and profits obscure the extreme value subtracting forces of bloated management teams. During good times it is unclear what these smug fellows do. During bad times it is lucidly clear that most of them ain’t worth a darn. When the...
- A Looming Banking Crisis – Is a Perfect Storm About to Hit?
Andy Duncan Interviews Claudio Grass Andy Duncan of FinLingo.com has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove. Andy Duncan of FinLingo.com (left) and Claudio Grass of Global Gold (right) Andy Duncan: How do you see the...
- Pope Francis: Traitor to Western Civilization
Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis. At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”* Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
- US Stock Market - a Spanking May be on its Way
Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though. Time for some old-fashioned...
- Doomed to Failure
Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years. What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out. Unfortunately, this may not be possible the way things are going. As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
- Meet Your New Stimulus Allocation Czar
March Towards Midnight The march towards midnight is both stirring and foreboding. Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom. Thoughts of imminent mortality haunt each bite. Tic-toc, tic-toc... As far as the economy’s concerned, there’s no stopping its march towards midnight. The witching hour’s rapidly approaching. We intend to savor each moment and make the best of...
- Are the Deep State’s Drones Coming for You?
What’s Aleppo? Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP DELRAY BEACH, Florida – Biggest foreign policy blunder...
- Interview with Doug Casey
Natalie Vein of BFI speaks with Doug Casey Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
- The Bamboozled Middle Class
Gassy and Bloated BALTIMORE – What a great time for an observer with a sense of mischief! This year’s presidential campaign is the most absurd and remarkable we have ever witnessed. After more than two centuries, Americans are finally getting the democracy they deserve – one that is grotesque... slimy... and immensely entertaining, albeit in the mud-wrasslin’ genre. The mud-wrestlers – well, we did promise you in these pages it would be entertaining like never...