The Final Act in a Terrible Play - Prologue to a New World Order
If you don’t follow me on Twitter, you’ve been missing out on some good stuff. With the brith of our third child a couple of months ago, it’s been increasingly hard for me to find the time to sit down and write longer posts, so I’ve been putting more and more content on Twitter. Last Friday, Brent Johnson of Santiago Capital, asked me to provide additional thoughts on my recent turn to being far more bullish gold. Normally I would’ve written it in a piece, but being pressed for time I put together a Twitter thread.
1/ Earlier, my friend @SantiagoAuFund asked me to expound on gold. I was a bit surprised by the interest the tweet generated, so I’ve decided to compose a thread on the topic and financial markets generally. There’s a lot coming, so apologies to those with no interest.
Curious to get your deeper thoughts on gold. I know bullish but curious why this time? You’re only person I’m interested in hearing on this topic as you are only one I know that is bullish now but was not constantly bullish for the last 2-3 years. What’s new?
There are 32 posts in there and I suggest you read the whole thing. More important than the thread itself; however, was the unprecedented and totally surprising response I received. As I explain in the tweets, I intentionally avoided talking about markets for nearly half a decade for a variety of reasons, and so I was blindsided by the enthusiastic and exceptionally positive response. It led me to do quite a bit of soul-searching, and ultimately convinced me that the time is ripe for me to start commenting about financial markets again. Not only because I think we’re at or very close to a major inflection point, but because people want to hear it.
For the record, I didn’t think central planners would be able to put Humpty Dumpty back together again ten years ago for as long as they did. I was simply wrong about that, but that’s how big changes in world history typically go. They tend to take a lot longer to reach the final tipping point than you think despite abundant evidence and signs point to something dramatic happening imminently. I often think back to 1830s America. If you were alive during that decade you’d have expected civil war to break out any moment, yet it took another three decades.
So while the prevailing establishment was able to keep a dead system on life support for an extra ten years to enrich themselves with some more corruption, it was not without consequence. People have not forgotten the unconscionable manner in which Wall Street’s professional white collar criminals were rescued and reward by the Federal Reserve and politicians in D.C.
Just a few months before the 2016 election CNBC published a piece titled, The U.S. Is Still Angry at Wall Street, and It May Be Hurting Recruiting, in which we learned:
Americans still hold big banks in low regard, years removed from the financial crisis. A SurveyMonkey poll of more than 10,000 U.S. adults calls Wall Street ruthless, and when people were asked which of the biggest U.S. companies named in the Fortune 100 were worst for the country, three of the top five names that came to mind were banks.
Survey respondents assigned “most ruthless” status to four banks — Goldman Sachs, JPMorgan Chase, Bank of America and Morgan Stanley. Goldman did not respond to a request for comment, the others declined comment.
I believe such an attitude played a material role in Trump’s win given Clinton’s well known intimate financial and personal relationships with mega-banks and other financial industry scoundrels. Which brings me to the main point about where we are, and where we’re headed. When Obama was elected in 2008, the country’s overall political environment was largely the same old rancid neocon/neoliberal consensus. You either voted for a Bush or a Clinton, or someone similar enough.
This has changed, and a big reason is due to how Wall Street was bailed out, while main street was left holding the bag. In other words, while the stock market and financial assets in general have been in a gigantic boom, the standards of living and opportunities to purchase a home and start a family have become prohibitive for a large percentage of the nation’s younger generations. Importantly, millennials are now thelargest voting block as of 2018, an important distinction compared to the bailout period ten years ago. This will have enormous implications going forward.
I don’t think younger generations care at all if stocks drop a lot.
At the same time, many would love real estate to drop a lot.
Boomers are in the opposite position. Many cannot handle expenses in retirement if stocks drop a lot.
These are overlooked dynamics.
If younger generations start to take over Congress and the political process (and they will), they’ll push policies that help them. Stuff that helps younger people will often not help older boomers. These interests are not well aligned. Be aware.
There’s also plenty of resentment out there. Many young people fell like older generations torched everything and left them holding the bag. This will be expressed politically as well in my view.
As such, I don’t think a thieving banker/oligarch bailout as we saw in 2008/09 can happen again politically. The young people who got really swindled were too young to know what was happening. Now they know, and they’re the biggest voting block.
While still very early days, the generational shift in Congress has already begun and will only accelerate from here.
Millennials in Congress just went up by 420%
Young people justifiably feel like they’ve been given the short end of the stick, and this is driving grassroots populism across the political spectrum. I expect this trend to continue.
As I noted in last year’s piece, Thoughts on the Leaked Google Video and Why Populism Is Just Getting Started:
The leaked Google video confirmed what many of us already knew, which is that these “don’t be evil” tech executives are a bunch of superficial phonies, cut from the same cloth as rapacious bankers or crooked politicians. The extremely powerful aren’t going to reform or fundamentally change the system that’s been so beneficial to them. It’s up to us to do that. This is why we’re in a populist period, and why populism won’t be going away anytime soon.
The only question is in what form will the next iteration of populism manifest. When it comes to U.S. politics, the actions of Donald Trump will be decisive. If he embroils the country in another war in the Middle East, or saves bankers from capitalism again, he will thoroughly discredit right-wing populism and open up a huge window of opportunity for leftist populism. On the other hand, Trump still has a chance to be the transformative president Obama refused to be, he just needs to avoid more war and make sure corporate crooks are held accountable in a future crisis. I continue to doubt he’s got the desire or disposition for all that, but you never know.
To summarize, I think the country will become even more populist in the years ahead (both left and right populism), and policy coming out Congress will ultimately reflect this reality on the ground. If it doesn’t, then we may see Yellow Vests style protests emerge here before too long. Either way, business as usual is ending and I think we’ve already seen peak corporatism in American culture. The backlash has started and will accelerate from here.
It’s important to understand that while financial market volatility was squashed and hidden for so many years, building tensions on the ground always find some sort of escape, and that escape largely manifested in the political arena. Actions have consequences, you just never know exactly where and how they’ll make their presence felt.
Therefore, the backdrop and mood of the American public is nothing like it was back in 2008/09. People were upset back then about the Wall Street giveaway, but the public generally had more confidence in institutions, government and the status quo than it does now. If you’ve only been watching stock market ticks for the last ten years, you’ve missed the really big story. We’ve got a major generational cycle only now coming into full swing, coupled with a far more populist mood on the ground. Pull a stunt like you did in 2008, and the U.S. could very quickly look a lot like France.
I think we’re close to the inflection point, but the whole thing will take time to fully play out. By 2025, the entire world will look completely different, and I think we’ll have a totally new global financial system, or possibly even a couple of competing financial systems (U.S. sphere and China sphere). The chickens will be coming home to roost sooner rather than later.
If interest rates are around the lowest they’ve been in hundreds, if not thousands of years, and central banks can barely raise them without blowing apart the financialized Potemkin Village economy, what does that mean?
Only question you should be asking yourself right now.
If there’s one data point and one chart you should be thinking about right now, it’s this one.
“Over past 10 years, value of financial assets held by US households has increased from roughly 3.4X to roughly 4.4X the size of the US economy…That could mean the fate of the US economy has never been more tethered to that of Wall Street” https://www.wsj.com/articles/among-the-growing-risks-investors-are-assessing-their-own-fear-11546786800 …
More great articles here: https://www.zerohedge.com
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