“Oooh! Ahhh! That’s how it always starts. Then later there’s running and screaming.” – Lost World: Jurassic Park
What do you call a swimsuit a girl wears to an animal park? A Zookini.
One time, Pa Wilder told me he had been interested in buying Sears® stock in the early 1980s. In addition to growing, it also paid a nice dividend. He’d calculated that the dividend from the stock would have paid for the stock, and he could have sold it in the 1990s and been dollars ahead. He didn’t. Ma Wilder flatly refused. She didn’t like stocks during the day, and I know she would have hated bitcoin in the evening. I’m sure it would have been her crypto-night.
Ma’s philosophy was that hope isn’t your friend when it comes to most things in life. And especially the stock market. The stock market is really built on hope. Many stocks have projected growth “priced-in”. This means that they sometimes sell for many times their projected earnings.
Since 2008, the Federal Reserve® and the Treasury have done absolutely everything that they can to keep the prices of stocks up. The biggest thing they did was to cut interest rates to zero, on everything but dirt. On dirt, the Fed™ charges high-interest rates – I guess you could call them loam sharks.
In one sense, interest rates serve as an alternative to buying stocks. If I can park my money in Treasury bonds and make a few percent (essentially keeping up with inflation) then that’s a stable investment. Horses hate that as well – they often can’t invest because they don’t have a stable income.
I named my horse Mayo. Sometimes, Mayo neighs.
But when the interest rate is zero, the government is printing cash as fast as it can, investments are pushed toward stocks, and more and more cash piles in.
This makes the investments silly, as more and more cash chases revenues. In a world filled with eternal hyper-growth, this works. But that world doesn’t exist, so essentially the stock market becomes a Ponzi scheme or a cargo cult of prosperity.
It’s good if you get out on time. You get the upside of growth. You can get dollars out of the market that you can buy things with. Like me, I blew all my stock market gains on a limo without a driver. Spent is all and nothing to chauffeur it.
But eventually? The market falls.
Sorry if that joke didn’t land well.
Normally, that’s healthy. Falling markets weed out weak and bad companies. Falling markets are actually healthy since they clear out the junk. On top of that, CEOs will never be worthless, since there is a pretty healthy market for slightly used internal organs.
We live in a world, however, where the markets have been aggressively managed. The idea of a recession is scarier to a politician in office than almost anything. People without jobs look for someone to blame, and politicians will do anything to avoid blame. Heck, Joe Biden would do whatever he could to set Hunter up for life, that is if Joe was ever tried for murder.
The result is that the economic policy is aggressively tied to growth, regardless of the consequences. It’s like trying to keep a party going long after everyone should have gone home. The best way to do that? Switch from beer to wine. When people start to lag? Swap out to vodka. Then, for a final shot? Pure grain alcohol. Sure, that sounds like Nancy Pelosi’s breakfast routine, but when you’re trying to run an economy like Pelosi’s daily frat party, eventually it has to stop.
And the longer you’ve been drinking? The worse the inevitable hangover.
Did you know Helen Keller had a cat? Neither did she.
That’s where we are. The booze has been pulled away from the table. At some point, I’m certain, that the Fed® will run out of tricks to keep the party going – even they have a limited supply of cocaine, especially since Johnny Depp found the spare key they keep under the mat.
I’ve been wrong before. Perhaps the party isn’t over at this point. Perhaps there’s some adrenaline that they can inject in the eye socket of the economy to keep it dancing a few more years. Biden would love to kick the can down the road and have it keep going until at least 2024. I mean, he’d love that if he knew what day of the week it was.
But every party has an ending. And as long as this one has been going, it will be bad.
We never really paid for the party in 2008. Sure, the Great Recession was bad, but the housing bubble never really cleared. How can I tell? It happened again.
Right now the average rent in the country (I read in some disreputable source) is $1,800 a month. I’d say housing prices were so high that NASA put them there, but NASA can’t put anything nearly that high. If people didn’t learn the housing bubble lesson, the housing bubble never really popped.
I hear NASA wants the next person on the Moon to be a woman – so dinner will be ready when the men get back there.
The housing bubble pops when people start buying houses again – not as investments, but as places to live. The stock market bubble pops the same way – when most people don’t want to buy stocks.
And from May, 2022, there’s a lot of pain left before that happens. The way the stock bubble ends is with utter capitulation, with people being so disgusted that they ever thought that stocks were the road to riches.
Only when people stop thinking that houses and stocks are magic money machines, will it be over.
The reason Ma Wilder wouldn’t let Pa buy the Sears© stock is that she had seen the aftermath of the Great Depression, and had seen stock speculation ruin the lives of many, many people.
When we get there, we’ll know it’s over. Will it be this year? In five years? In ten?
Being a waiter might not be a glamorous job, but at least it puts food on the table.
I don’t know. But I feel the combination of debt, inflation, and the generally fragmented nature of society will bring crisis. The good news?
It’s still a beautiful night, and I think someone left a beer in the cooler.