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:
- A Striking Chart
The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth. What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson Contrary...
- Trump and Putin Narrowly Escape Assassination Attempt
The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one. The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
- Why the Fed Destroyed the Market Economy
What Have You Done for Me Lately? Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon. The primacy of the wallet. They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care. What’s important to the...
- Janet Yellen’s Shame
Playing Politics In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers. In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers...
- Donald’s Electoral Struggle
Wicked and Terrible After touting her pro-labor union record, the Wicked Witch of Chappaqua rhetorically asked, “why am I not 50 points ahead?” Her chief rival bluntly responded: “because you’re terrible.”* No truer words have been uttered by any of the candidates about one of their opponents since the start of this extraordinary presidential campaign! Electoral map (note that the coloration may no longer be applicable...) That Hillary Clinton is...
- Get Ready for a New Crisis – in Corporate Debt
Imposter Dollar OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page... learning together... connecting the dots... trying to figure out what is going on. The new three dollar bill issued by the Apprehensive States of America. We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
- The Economy, the Stock Market and the Fed
John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices. The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
- Hanjin Marooning in San Pedro Bay
Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years. The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years. In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations. A map of the main ancient Silk Road - click to...
- Great Causes, a Sea of Debt and the 2017 Recession
Great Cause NORMANDY, FRANCE – We continue our work with the bomb squad. Myth disposal is dangerous work: People love their myths more than they love life itself. They may kill for money. But they die for their religions, their governments, their clans... and their ideas. Famous French hippie and author Voltaire. He wears the same sardonic grin in every painting, whether he's depicted at a young or an old age, doesn't matter. His real name was François-Marie Arouet; he...
- The Donald Versus Killary: War or Peace?
War: A Warning from the Past Although history does not exactly repeat itself, it does provide parallels and sometimes quite ominous ones. Such is the case with the current U.S. Presidential election and the one which occurred one hundred years earlier. The Donald probably has the better slogan... The dominating question which hung over the 1916 campaign was whether the country would remain neutral in regard to the horrific slaughter which was taking place on the...
- A Rift in the Space-Time Continuum
Weird and Unnatural NORMANDY, France – First, a quick look at the markets. The Dow bounced on Monday, recovering 239 points of the nearly 400 it lost on Friday. Why the comeback? FOMC member Lael Brainard: her comments on Monday were touted as the “reason” for the stock market recovering half of Friday's losses. We suspect the real reason is the triple witching on Friday... Photo via twitter.com The financial press has a ready answer: “Stocks gain...
- Crimea: Digging For The Truth
Renewed Escalation This summer witnessed a renewed escalation between Russia and Ukraine after Russian President Vladimir Putin accused Ukraine of sending saboteurs to attack Russian troops, targeting “critical infrastructure”. Kiev denied the allegations and claimed Russia’s “fantasy” was nothing but a false pretense to launch a “new invasion”. August 10: Russian president Putin announces that there was an altercation involving a group of Ukrainian saboteurs at...