Comparative Relativism is Failing Modern Day Market Analysis

by John Galt July 10, 2019 20:50 ET

For many months now, I have, along with numerous market skeptics have fallen into the “me too” trap set by using historical market analysis and the theories purported to apply to current market conditions.

Thus I have to ask the following questions:

Since when have we had a bull market last this long without massive, major market corrections?

In addition to that, when have geopolitical current events, both foreign and domestic, ever been applied in a logical or mathematical methodology which works for what we have witnessed since President Trump and the European Kleptocracy took office?

Lastly, when was the last time anyone can remember the so-called “experts” proclaiming, along with central banksters everywhere, usually implied, that they have ‘conquered’ the business cycle?

The answers?

Never, never, never, oh and if you have any technical analysis which you think applies, never to that also. By using history as a guide, it is my opinion that the average individual is walking into a delusional period of market invincibility and thus the greatest economic trap every laid in history.

I have read and researched as much within my library of American history as I could over the past 4 months starting with the period of President Andrew Jackson to the current era; nothing logically nor from a basic analytical perspective applies to what we are witnessing.

If one follows the logic of the 2007 bears, it is a repeat, yet based on the data available, it’s not even close. If one believes in the 1997-1998 or 2001 analogy, the idea of a bubble and foreign currency might apply but when and how? There is no evidence that the global powers will allow those to happen again.

The proverbial chicken little bears claims of 1929 or 1907 fail to fulfill the theory also. Logically speaking with financials unable to profit in the normal process of loans and credit expansion this chart should be death to half of our banking system:

This is why I think the world is approaching a potentially terminal economic crash which begins in the third quarter of this year:

  1. The trade war with China and other nations including the European Union and India will intensify.
  2. The political instability inside the United States will prevent the revised version of NAFTA to pass. This will further destabilize and already fragile economic relationship not just within North America, but globally. If the United States and President Trump can not cut a deal with our neighbors, why should any nation trust that he can succeed with the same for them?
  3. The financial industry is undergoing a restructuring with Deutsche Bank with reminders of the scenes from Bear Stearns and comparisons to Lehman stories flying like wild. A scared financial industry becomes a conservative financial industry which instead of loosening credit with lower rates, actually begins to restrict it; worse the irresponsible gamblers withing the group take wilder and more dangerous risks (see Citigroup 2006-2007).
  4. The wealthy are rapidly conserving and stashing cash, reducing their lavish spending and becoming much less adventurous with their investing portfolios.

In my opinion as a historian, not a so-called qualified economist, this is not a normal circumstance. The U.S. has near net NIRP rates at this moment if one is to believe the published inflation rates yet our central bank has been politicized and bullied into a potential rate cut at the end of the month. While consumer and government credit expansion appears unchecked, monetary expansion is declining since the “Great Recession” with no signs of abating.

Europe is engulfed in a full blown worse than Japan deflation with a central bank unable to manage the cause or effects of its actions since the last financial crisis. The result has been a promising return to nationalism that could save some nations, but which is dire because of a unified currency and bureaucratic ineptitude in Brussels which will probably be the primary trigger for the next great global financial panic.

Lastly there is no historical comparison available for China and Asia. While the crisis of the Asian Tigers and Japan in the 1990’s and 2000’s might look like a palatable case for comparative analysis, the reality is that the Communist Party in China has never had to deal with nor stifle a deflationary episode in its short history. Thus the infection will likely spread from Beijing to Hong Kong to Singapore, and on and on from there. Without the ability to export the deflation to the United States and other nations, China faces a crisis unseen in modern times under a centralized planned quasi-capitalist economy.

The models of the Federal Reserve and most modern era economists do not apply with what we are about to endure. I strongly advise those who have not read The Black Swan by Nassim Talib to do so immediately. Sometimes one can not prepare for the inevitable but one can prepare for the inevitable foibles of human fallibility to destroy current perception and the structures our civilization has become all to comfortable to enjoy.

Prepare accordingly.

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