I think many of these challenges are different faces of the same philosophical problem. especially in the US. Things have been getting progressively more reliant on more complex and less robust systems.
That came to a head in the supply chain in Covid where all of a sudden "just-in-time" became "no-idea-when-or-how-it will-get-here". All that cheap manufacturing in Asia that lead to rampant profit growth suddenly became something preventing sales. Government bail-outs to the rescue. Now we are on-shoring, which should lead to a more robust supply chain over the next decade.
The financial sector has become addicted to the Fed's crack cocaine of Fed puts whenever the markets had a hiccup. That works when inflation is largely non-existent. At 8% inflation, the Fed put has to vanish. These rallies are showing that the financial sector still thinks the Fed is in a Roadrunner-Coyote cartoon where the coyote immediately recovers from the disastrous accident he inflicted on himself. Meanwhile, Jerome Powell and other governors keep saying they are driving a convoy of 18-wheelers over the coyote inflation roadkill on the interstate to make sure it won't bounce back up. I don't think the bond and stock markets will get resolved until those conflicting market and economy images get resolved.
The current generation on Wall Street has been trained by the Fed since the late 80s to expect the Fed Chairman to kiss the boo-boo and make it better. The problem is that leads to Rube Goldberg financial theories for trades that create instability due to the false sense of security that the Fed imparts. The result has been two stock market crashes of over 40% over the past 22 years in 2000-2002 and 2008-2009. We are currently seeing the equivalent of one of those crashes in the bond market (14% one-year total return drop in bonds is similar to 40% in stocks) and we might still see the current 22% S&P 500 YTD loss turn into 40%+. If we have three stock market drops greater than 40% in 22 years, that would be the first time since the 1920-1938 time frame. Most market analyses are presented post-WW II because the markets got so much more sophisticated since then. We are showing that the current approaches are creating instabilities unseen since the New Deal was enacted and the 1870s to 1930s may be better market analogies.
Corporate profit margins have been above 10% post-tax for several years. Historically, the high end was 6%-8% post-tax. Companies have to do a lot of work to keep those profit margins elevated so high. Some if it is good management but some of it is Jack Welch style financial shuffling that eventually runs out of time and space. When that unstable corporate finance can't be sustained, lots of bad things happen that usually involve a cascade of workers losing jobs that then feeds back through the economy. We don't know how much of that is out there, but it is another non-robust complex Rube Goldberg device waiting to have a minor breakdown sonehere that brings it all to a stop.
The Fed pumped financial steroids back into the systems after the dot.com, GFC, and Covid crises. The intial response is very good, but they have a habit of keeping it going for an extra year or so causing complexity and instability to build. They don't have the humility to think that they don't really understand how ti may end up and so they think they can keep tinkering to maintain stability as it builds instability. There is an economic Nobel Prize sitting out there for whoever figures out how the central banks can figure out when they have passed the mid-point of the teeter-totter and their continued actions would cause it to flip down on the other side.
Do you think it’s really about a breakdown in trust in institutions? Isn’t it more that institutions are not serving the purpose they are expected to serve in competent ways?
For example, the public health establishment has seemed more interested in playing three-dimensional chess with public opinion in order to influence the behaviors that they want to see people engage in rather than, you know, just trying to protect the public health. You could make a similar point about lots of different institutions.
Also it seems that some institutions thrive more on satisfying some emotional need for some segment of the population or scoring points against a perceived opposition than they do on adhering to some sort of principle. See for example the ACLU. Also see many institutions on the right who’ve compromised a lot of principles they seemed once to have held to become Trump supporters.
I think the point is that the “breakdown in faith” is perhaps a rational response to the institutions not deserving any faith!
I think many of these challenges are different faces of the same philosophical problem. especially in the US. Things have been getting progressively more reliant on more complex and less robust systems.
That came to a head in the supply chain in Covid where all of a sudden "just-in-time" became "no-idea-when-or-how-it will-get-here". All that cheap manufacturing in Asia that lead to rampant profit growth suddenly became something preventing sales. Government bail-outs to the rescue. Now we are on-shoring, which should lead to a more robust supply chain over the next decade.
The financial sector has become addicted to the Fed's crack cocaine of Fed puts whenever the markets had a hiccup. That works when inflation is largely non-existent. At 8% inflation, the Fed put has to vanish. These rallies are showing that the financial sector still thinks the Fed is in a Roadrunner-Coyote cartoon where the coyote immediately recovers from the disastrous accident he inflicted on himself. Meanwhile, Jerome Powell and other governors keep saying they are driving a convoy of 18-wheelers over the coyote inflation roadkill on the interstate to make sure it won't bounce back up. I don't think the bond and stock markets will get resolved until those conflicting market and economy images get resolved.
The current generation on Wall Street has been trained by the Fed since the late 80s to expect the Fed Chairman to kiss the boo-boo and make it better. The problem is that leads to Rube Goldberg financial theories for trades that create instability due to the false sense of security that the Fed imparts. The result has been two stock market crashes of over 40% over the past 22 years in 2000-2002 and 2008-2009. We are currently seeing the equivalent of one of those crashes in the bond market (14% one-year total return drop in bonds is similar to 40% in stocks) and we might still see the current 22% S&P 500 YTD loss turn into 40%+. If we have three stock market drops greater than 40% in 22 years, that would be the first time since the 1920-1938 time frame. Most market analyses are presented post-WW II because the markets got so much more sophisticated since then. We are showing that the current approaches are creating instabilities unseen since the New Deal was enacted and the 1870s to 1930s may be better market analogies.
Corporate profit margins have been above 10% post-tax for several years. Historically, the high end was 6%-8% post-tax. Companies have to do a lot of work to keep those profit margins elevated so high. Some if it is good management but some of it is Jack Welch style financial shuffling that eventually runs out of time and space. When that unstable corporate finance can't be sustained, lots of bad things happen that usually involve a cascade of workers losing jobs that then feeds back through the economy. We don't know how much of that is out there, but it is another non-robust complex Rube Goldberg device waiting to have a minor breakdown sonehere that brings it all to a stop.
The Fed pumped financial steroids back into the systems after the dot.com, GFC, and Covid crises. The intial response is very good, but they have a habit of keeping it going for an extra year or so causing complexity and instability to build. They don't have the humility to think that they don't really understand how ti may end up and so they think they can keep tinkering to maintain stability as it builds instability. There is an economic Nobel Prize sitting out there for whoever figures out how the central banks can figure out when they have passed the mid-point of the teeter-totter and their continued actions would cause it to flip down on the other side.
Do you think it’s really about a breakdown in trust in institutions? Isn’t it more that institutions are not serving the purpose they are expected to serve in competent ways?
For example, the public health establishment has seemed more interested in playing three-dimensional chess with public opinion in order to influence the behaviors that they want to see people engage in rather than, you know, just trying to protect the public health. You could make a similar point about lots of different institutions.
Also it seems that some institutions thrive more on satisfying some emotional need for some segment of the population or scoring points against a perceived opposition than they do on adhering to some sort of principle. See for example the ACLU. Also see many institutions on the right who’ve compromised a lot of principles they seemed once to have held to become Trump supporters.
I think the point is that the “breakdown in faith” is perhaps a rational response to the institutions not deserving any faith!