February 18, 2022
A Crack in the Dam
There are a number of threatening situations that have all been building up since the beginning of this Global Darker Night starting with Covid and now there's a treat of Russia invading Ukraine which has stirred up thoughts of a possible World War III starting ("The spark for a wider war? Why Americans should care about Russia's aggression against Ukraine"). To keep the economy going when the lockdown took place, the government started the handouts to companies and individuals which turned into an unprecedented amount of welfare-like money, handouts, going into the economy. But the negative side of the economic laws of the value of the dollar becoming less when there is more of it, which is see by inflation starting, wasn't happening and on and on the creating and handing out of new money went, and is still going on, because inflation is not matching the unprecedented amount of money being created. Addressing the inflation issue has been held off until March and meanwhile, what causes it continues.
In an article yesterday, "Billionaire investor Carl Icahn predicts the Fed's money-printing party will end badly because the government can't control inflation", "Carl Icahn warned of an ugly end to the Federal Reserve's money-printing spree." "I think it's economics 101 in high school," Icahn said. "You can't just keep pushing out money ... because that money will definitely lose its worth, like anything else."
“'Whether it’s geopolitics, whether it’s the labor market, whether it’s supply disruptions — no matter what you look at, everything is pointing to inflation being front and center,' Rich Bernstein, Richard Bernstein Advisors CEO, told 'Closing Bell' on Friday."
All religions have their pictures of the time of an apocalypse overturning the Earth, removing negative things of this life and a new life starting. In the last chapter of the Bible, the book of Revelation, there are images representing the things that happen during the Global Darker Night. One of the images is bowls being filled up but not emptied right away. This is what we have been experiencing and it's allowed the government to keep printing more money resulting the the pary we've been having. But at this moment, there could be a crack starting and the money party ending. Carl Icahn did not commit to the timing. He knows that no one can predict whether or not we have entered a bear market. But he followed these words with, "Sooner or later, a situation like this is going to end relatively badly." An unprecedented money-printing spree could possibly end with unprecedented inflation, an unprecedented stock market crash, an unprecedented recession or depression - any of the above.
As part of this inflation bowl being filled up there has been a bubble in the stock market. The government has made people and companies rich. It's been what is being called "a party". Part of this party started with tech companies being way overvalued and their stock way oversold their CEOs hyped the investors with the latest greatest in their innovative endeavors. The stock market goes up on greed and falls because of fear. Over the past two years the investors greedily looking for where to pull out their money and were to put it has dramatically grown in a way never seen before. And we've been in an unprecedented bull market, growing over 50% during the Global Darker Night.
"Stock market is starting to ‘show signs of cracking and bursting’: Harvard lecturer
"... the author who made a name spotting market bubbles in his book "Boombustology: Spotting Financial Bubbles Before They Burst," says another one may be about to pop.
“'I believe a passive investing bubble has been brewing and may, in fact, have started showing some signs of cracking and bursting here,' Mansharamani said, speaking on Yahoo Finance's Future of Finance. 'We've had flows driving prices, more than fundamentals in many sectors. And part of that's being driven by just the massive amounts of money flowing into some of these indexes.'
"'Passive investing, which tracks a market-weighted index or portfolio now accounts for more than half of all U.S. publicly traded equity index funds, according to Bloomberg Intelligence. The funds have seen explosive growth in part because they charge much lower fees, by virtue of the way they are managed. But Mansharamani, who is also a lecturer at Harvard University, argues the outsized influence of passive investing has led to price distortions in stocks, with the market increasingly driven by capital flows and momentum-driven algorithms.
"The stock market is increasingly driven by capital flows and momentum-driven algorithms, says one expert. [Credit: Getty]
As an example, he points to the growth in funds focused on environmental, social, and governance (ESG) issues. Driven by an increasing awareness of climate-related issues, a near $650 billion poured into ESG-focused indexes through the end of November last year, according to Refinitiv Lipper data, leading to a record 2021. But Mansharamani argues the demand hasn’t necessarily matched the supply in the market.
"'As a result, capital inflows from funds with ESG mandates have largely concentrated in a handful of stocks, leading to inflated valuations of firms deemed sustainably investible,' he said.
“'Those funds didn't have many places that they could park as much money as they were receiving. And so those flows drove stocks to levels perhaps that they might not have had, had they not had this ESG style mania bubble, if you will, that was brewing on the side,' he said.
"Mansharamani said valuations have been compounded by a fear of missing out, and the 'power of storytelling' by celebrity CEOs, singling out Tesla (TSLA) as a prime example. CEO Elon Musk’s outsized influence in the company and his ability to sell potential investors on a 'fantastic new world' has fueled the stock higher, creating a disconnect between the firm’s fundamentals and the price with which investors value the company, he said.
"Social media has only elevated that.
“'There's this visionary logic, which is, it's all in the future. It's all coming. We've got full self driving, we've got robo taxis, we've got solar zones, we've got batteries... we're going to Mars, and sending a car into Mars. Whatever it is, it all is believable to those who want to believe in the hill. The minute sentiment shifts, you can see sentiment shift quickly,” he said. “I think if you got rid of some of these pressures, as they've been supporting the stock, that maybe the stock wouldn't be where it is.'"
The other bowl, a brewing pot that has being filling up for decades, is everything involved in creating an unprecedented war. Whoever would have thought a civil war in the US could start with Trump's actions, first with wearing a mask, and then concerning what he believed to be the re-election to President being stolen from him leading up to the riot at the Capitol, and would still be going on? That's as far as a visible war leading to deaths happened but now that civil war continues in its disturbing ways that have been tearing apart the country from politics down to the family unit. And while that war is brewing, now the decades old "The Russians Are Coming" has heated back up. Only it's not just the Russians looking for an opportunity to be the modern day Roman empire of the world, it's also the Chinese waiting on the sidelines looking for an opportunity to seize full power. However there is a difference now from decades ago. To start a war doesn't just kill people and destroy property, it dramatically disrupts the economic state of a country, and brings about economic sanctions messing up their economy, meaning it would not make sense financially as they are very economically dependent on, and invested in, the other countries. To harm them, would be shooting themselves in the foot. The struggle for supremacy has to happen without setting off any kind of nuclear bombs of mutual self-destruct. This brings in the issue of sanity as another source of 'fear'. We know there have been leaders who were greedy for more power, who've been paranoid or held wrong ideologies causing them to want to wipe out other people, leaders who sat on the edge of insanity until their outward actions became irrational.
The Russia Ukraine drama has sent the stock market down. Normally, the dramas that do this stop and everything goes back to normal. What we are looking at right now is how Putin let his desire for more power lead him into a corner where his "ego" might cause him to start a war to save face. Biden thinks the invasion is going to happen. Is it just another drama that amounts to nothing and will fizzle away like they always do?
This is the big picture. Within the big picture are the very complex details of our present day economic state, the corner the Feds backed themselves into or the fine line they built and are now having to walk on that only gets more difficult and impossible looking the longer they continue doing what they are doing, briefly outlined in this interview with the president of Queens College, Cambridge University, and Allianz Chief Economic Advisor.
"Mohamed El-Erian on the market: ‘We have lost our most important anchor’"
These are real bowls or pots filling up that are showing signs of being poured out. What exactly will happen and the timing happen can't be known because of how complex the economy is, a very large, advanced and sophisticated network with many moving parts. But pulling out to the big picture, we do know that, according to the fundamental law of economics which states that the amount of dollars in circulation determines the value of a dollar, because the amount of money the Feds been poured into the economy over the past two years is unprecedented, the resulting inflation would be unprecedented. And it's taking place in the setting of potentially huge 'fear' components - Covid and insane rivalry - which have also been brewing in pots. The unprecedented party is ending and an unprecedented recession or stagflation will be taking over.