by Charles Hugh Smith, Of Two Minds:
Basing one’s decisions on analogs from the past is entering a fool’s paradise of folly.
Like addicts who cannot control their cravings, financial analysts cannot stop themselves from seeking some analog situation in the past which will clarify the swirling chaos in their crystal balls. So we’ve been swamped with charts overlaying recent stock market action over 1929, 1987,2000 and 2008–though the closest analogy is actually the Oil Shock of 1973, an exogenous shock to a weakening, fragile economy.
But the reality is there is no analogous situation in the past to the present, and so all the predictions based on past performance will be misleading. The chartists and analysts claim that all markets act on the same patterns, which are reflections of human nature, and so seeking correlations of volatility and valuation that “worked” in the past will work in 2020.
Does anyone really believe the correlations of the past decade or two are high-probability predictors of the future as the entire brittle construct of fictional capital and extremes of globalization and financialization all unravel at once?
Here are a few of the many consequential differences between all previous recessions and the current situation:
1. Households have never been so dependent on debt as a substitute for stagnating wages.
2. Real earnings (adjusted for inflation) have never been so stagnant for the bottom 90% for so long.
3. Corporations have never been so dependent on debt (selling bonds or taking on loans) to fund money-losing operations (see Netflix) or stock buybacks designed to saddle the company with debt service expenses to enrich insiders.
4. The stock market has never been so dependent on what amounts to fraud–stock buybacks–to push valuations higher.
5. The economy has never been so dependent on absurdly overvalued stock valuations to prop up pension funds and the spending of the top 10% who own 85% of all stocks, i.e. “the wealth effect.”
6. The economy and the stock market have never been so dependent on central bank free money for financiers and corporations, money creation for the few at the expense of the many, what amounts to an embezzlement scheme.
7. Federal statistics have never been so gamed, rigged or distorted to support a neofeudal agenda of claiming a level of wide-spread prosperity that is entirely fictitious.
8. Major sectors of the economy have never been such rackets, i.e. cartels and quasi-monopolies that use obscure pricing and manipulation of government mandates to maximize profits while the quality and quantity of the goods and services they produce declines.
9. The economy has never been in such thrall to sociopaths who have mastered the exploitation of the letter of the law while completely overturning the spirit of the law.