The surreal sense that we are living through a moment that will, in retrospect, be seen to be the lull before an enormous economic storm keeps hitting me.
As the FT has reported this morning, stock markets were jittery about share evaluations yesterday:
Tech shares led a slide in US stocks as rising concerns about highly valued companies collided with growing doubts about whether the Federal Reserve will cut interest rates next month.
The tech-heavy Nasdaq Composite closed 2.3 per cent lower and the S&P 500 lost 1.7 per cent. Asian markets followed the US lower in early trading, with Japan's Nikkei 225 index sliding 1.7 per cent and South Korea's Kospi falling 2.2 per cent.
As I have said for some time, they are entirely right to be so. And, I now note from another FT article that even the more serious market players share this view. This comment was reported by that paper yesterday afternoon:
Michael Burry, the investor made famous for his bet against the US housing market ahead of the 2008 financial crisis, is closing his hedge fund as he warned that market valuations had become unhinged from fundamentals.
Unhinged is a strong word, but in this case, it appears to be entirely appropriate.
If, as has been the case, some markets have seen increases in value of 50% over the six months since April, it is only possible to reach one conclusion, which is that markets have lost complete touch with reality. There is no prospect whatsoever of returns being earned that could possibly justify the current prices being paid for shares.
What is more, the correction, when it comes, will not be subtle; it will be violent.
The scale of regret will be enormous.
The losses, particularly to those punters who have taken part in this process for fear of missing out, might be considerable, and the anger of many will be heard, even if it has been obvious throughout this period that almost anyone hanging onto their shares has been doing so without justification.
The problem is that there will, of course, be what might be politely called collateral damage, which might also be called real-world harm. If markets collapse, and they will, without serious government action there will be significant consequences in the real economy because:
- state revenues will fall,
- bank stability might be under threat,
- credit will be rationed,
- demand will fall,
- employment rates will decline,
- unemployment will grow,
- bailouts will be required.
As worryingly, the small-minded politicians that we now have will believe that austerity is the only thing they can deliver in such situations, with consequences that could be absolutely dire.
It does not help that the UK now has a collapsing government, in which even its own cabinet has no confidence.
Meanwhile, neo-fascists are waiting to exploit every opportunity with which they are presented to undermine and destroy democracy, and will not hesitate to take them even though they have not a clue what to do in the situation that is going to develop, except to do anything they can to benefit the wealthy.
I feel like I did in late 1999, when I was quite sure a stock market collapse was coming, and as I did from late 2007 onward, most definitely early 2008 onwards, when it was apparent the economy was going to fall apart very badly. It is going to do so, again. There is virtually nothing we can do to prevent it. All we can do is argue that this time, the restoration of the status quo is the last thing that we need.
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Why are share owners not taking their profits?
ie selling shares whose value has already increased significantly
FOMO
Fear of missing out
Exactly. Guilty as charged.
P/Es are looking very “fancy” for some of the tech stocks (i.e. x40 or more) – which assumes a great deal of growth (mostly A.I. focused).
Even utilities look a bit over the top x20 – where x10 to x15 was the norm. Stock markets have always been nonesense – they contribute nothing to society, but had it not been for them, I would not be sitting here now, in comfort, writing. Whih begs the question – have they passed their sell-by-date and if they have – repalce with what?
Good question
“The problem is that there will, of course, “you” might be politely called collateral damage”
“you” should not this be “what”?
Did I mess up the British to Yank translation??? LOL! LOL!
I should not write before breakfast…
Edited, and thank you
The US tech bros have seriously over borrowed. Open AI has repayment obligations of $1.4trn on revenues of $13bn.
Any wonder that they are pressing for a Federal guarantee that their lenders will be paid because their AI work is of national importance.
What could possibly go wrong?
The idea seems to be that a storm is coming, one which cast a dark shadow over Great Britain and Europe for many years. A storm created by a force which has been allowed to grow and to usurp democracy by enabling more power to the centre but without democratic accountability. In the coming one the lights may even go out and people patrol the streets with torches through the rubble of civilisation.
I have to say that it’s good to see a classic mentioned again.
So why is the financial train hurtling towards the cliff? I think there are two reasons:
1. Those who believe that austerity will eventually pull through and save the day.
2. Those who know austerity will not pull through, but it will enable the corporate neoliberals to buy up the market at low prices.
It’s the same playbook we’ve seen in this country over the last 40 years.
And the same playbook we’ve seen in many other countries around the world where the USA/CIA have toppled governments.
https://worldpopulationreview.com/country-rankings/how-many-countries-has-the-us-invaded
I can not recommend highly enough, the book: The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein, https://amzn.eu/d/6MlIdTf
Video documentary: https://www.youtube.com/watch?v=aL3XGZ5rreE
Thanks
My view is that if we are hurtling towards another crash, then this cannot be an accident; in can only be by design. This is because chaos obviously benefits someone. That ‘someone’ is the rich. The state is a partner in this crime and has been for some time.
The ‘freedom’ the extreme liberals have sold us is actually the freedom desired of the rich – it is their freedom to build their security – at the expense of ours. Tony Judt offers this quote from Karl Popper (2010, p. 217):
“The alleged clash between freedom and security…….turns out to be a chimera. For there is no freedom, if it is not secured by the state; and conversely, only a state which is controlled by the free citizens can offer them any reasonable security”.
The nail in the coffin of Neo-liberalism therefore is simply this and it is an extremely powerful thought:
Freedom has been effectively privatised. It is no longer a ‘public good’. It has been appropriated increasingly and exclusively for wealth and capital only.
I think you overstate the intelligence of the rich and powerful. Many in finance are really rather stupid and dedicated to what they know, and not thinking. There is a video coming on this.
I can quite agree with that, look at the last crash.
Basically finance is a posh bookies
I agree in one sense. I see a lot of very capable people doing stuff in all walks of life very well, but have very little sense of anything beyond that, the bigger picture. I see those people all of the time. And you try having a grown up conversation with them about politics or whatever. It’s very difficult – but talk to them about their job…………..
But OTOH I profoundly disagree with you. There is a form of intelligence in circumnavigating democracy by funding political parties; by the rich sticking together and funding think tanks from The Mont Pelerin upwards and parties like Reform.
I have always preferred that phrase ‘the cunning of unreason’ coined by John Dunn. Basically Dunn’s book is a treatise on partiality that resonates with me even today.
For me being cunning is a form of intent-ful intelligence. The fact that I happen to think it a rather negative and narrow use of intelligence does not matter for intelligence it still is. Why else would they seek to control what control us and them?
I am not convinced. But it is a small issue and no big deal.
If we don’t disagree on some issues it wouild be very strange
People who are selfishly devoted to their own ends will ignore the health of the whole system. Systems require the cooperation of the parts to run efficiently. Or have a method of receiving new perspectives and evaluating them as part of the system.
IMHO Evil tends to be selfish and contains the seeds of its own destruction. But it is necessary for forces of ‘good’ to be able to understand and act or we are all dragged down together.
I have that strange sense of deja-vu……
“Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay. First published in 1841
“Where Are the Customers’ Yachts?” by Fred Schwed. First published in 1940