Blog Archives

Which One Wins: Central Planning or Adaptive Networks?

The global economy is in the midst of a grand experiment pitting centralization (Central Planning) against the evolutionary model of adaptive, self-organizing networks. Centralization is the dominant dynamic of the Status Quo everywhere: the economies of China, Japan, Europe and the U.S. are all dominated by Central Planning: central banks, central state agencies, and Deep State / private sector nodes of wealth and power that pull the systemic strings.

Central Planning–the concentration of power and wealth in the hands of the few–is presented as the “solution”: in China, the “solution” is a Total Information Awareness Social Credit Score system of centralized control of the populace. In the U.S., Medicare for all— the PR term for centralized cartel-state profiteering on a vast scale–is just one of many Central Planning “solutions” being touted by the “Progressives.”

Geopolitically, American “Progressives” and neoconservatives alike are enamored of the centralized Imperial Project as the go-to “solution” to any and every challenge.

As I explain in my latest book (now out as an audiobook), Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic, there’s one fatal flaw in Central Planning “solutions”: they run completely counter to the principles of evolution which guide all systems, natural and human.

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Is the Market Rational After All?

For the past decade, attempts to explain the psychology of markets have been dominated by behavioral economics: rather than being rational actors as presumed in classical economic models, humans are often profoundly irrational and prone to cognitive distortions and errors that render their choices anything but rational.

Even the wisdom of crowds–that in aggregate, crowds make better decisions than individuals–is being questioned.

Ironically, while the clinical focus has been on individual irrationalities and frailties, markets have been increasingly controlled by a handful of central planners: central banks and state authorities who are intervening in supposedly free markets (i.e. outright manipulation) to an unprecedented degree.

Central banks are buying trillions of dollars, yuan, yen and euros of assets such as mortgages, sovereign bonds, corporate bonds and stocks to prop up markets in these assets as a means of generating confidence and positive sentiment, and suppressing any downturns by selling volatility (the VIX index).

The VIX (volatility) and the stock market are on a see-saw: as volatility leaps higher, markets sell off, and as volatility declines, complacency enables markets to drift higher.

The VIX has been monkey-hammered lower for months. Every time volatility (as reflected by the VIX) starts creeping up into the danger zone, it is sold, effectively pushing the index back down to “safe” complacency (“no worries, mate”) levels.

So if individuals and crowds are delusional and irrational, how can a handful of central planners not be equally delusional and irrational? the key to understanding market behavior is not human irrationality. Rather, the key drivers in today’s markets are completely rational responses to the incentives created by central planners.

Only an irrational person who wanted to be fired would repatriate billions of dollars in overseas profits to the U.S. and pay 35% in corporate taxes. The only rational response to this disincentive is to find ways to funnel this money into corporate buy-backs that enrich CEOs and other top managers. To do otherwise would be irrational.

if central banks (i.e. central planners) have made it abundantly clear that they will intervene to keep markets aloft, regardless of cost, then the only rational response is buy the dips because central planners will stick-save markets from any panic declines and then push them to new heights.

If central planners routinely hammer volatility down with huge selling, then the only rational response is to align your trades to profit from this ever-present intervention.

This is the market we have now: dominated by delusional, irrational central planners with unlimited powers to create money out of thin air to fund their manipulations.

The only rational response is to trade accordingly: anticipate constant manipulation, anticipate constant bombastic propaganda of the “whatever it takes” variety, and anticipate massive selling of volatility to maintain the ever-so-important illusion that global risks have been disappeared by central banks and central planners.

Until the central planning madness destroys markets’ ability to discover price and allocate capital. Then you end up with Venezuela: a failed state and a broken economy that can no longer feed its people despite the nation’s vast oil wealth.

Volatility has been chosen as a “signaling device” by central planners. A low VIX signals all is well and risk is non-existent, so central planners suppress VIX.

In a world roiled by staggeringly large risks, can VIX be suppressed forever? That’s a difficult question in a market dominated by irrational central planners.

A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.

My new book is #3 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book’s website.

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When Authorities “Own” the Market, The System Breaks Down: Here’s Why

Panicked by the possibility of declines that undermine the official narrative that all is well, authorities the world over are purchasing assets like stocks, bonds and mortgages directly. Central banks are explicitly taking on the role of buyers of last resort on the theory that if they place a bid under the market to arrest any decline, private buyers will re-enter the market once they detect that the risk of a drop has dissipated.

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Here’s What I Recommend in the Stock Market: Zip, Zero, Nada

Timing matters, as fundamentals have no impact in a euphoric blow-off top or in a panic-driven, bidless crash.

I recently received an email from a reader suggesting I back up my opinions by publishing my own trading positions. The reader suggested that failure to put my money where my mouth is diminished the gravitas of the opinions published here.

He suggested that if I really believed in 
The Generational Short: Banks, Wall Street, Housing and Luxury Retail Are Doomed
, I should bet against these for however long it took the trend to manifest–decades if necessary.

I understand the credibility value of putting my money where my mouth is: without some evidence that the writer is walking the walk, then we assume he/she is merelytalking the talk or talking his book, i.e. supporting his positions publicly while he unloads the position in private.

There are fundamental problems with publishing one’s trading positions as a gambit for credibility, and it’s worth delineating them because they reflect the inherent uncertainties of trading and prognostication.

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After 6 Years of Unprecedented Central Planning, the Economy Is More Fragile Than Ever

We will all discover that the economy is much more fragile than advertised by the Central Planners and their media toadies.

This week I have made the case that the past 13.5 years have been the most destructive to the core values of the nation in U.S. history. The same holds true for the economy, which has been critically weakened by 6 years of unprecedented Central Planning.

What do I mean by Central Planning? Here are the key characteristics of Central Planning:

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“Buying Time” Doesn’t Fix Financial Crises, It Makes the Next One Worse

The strategy of “buying time so the financial system can heal itself” by protecting a systemically destabilizing financial sector has failed because it could only fail.

The core strategy of central states and banks to fix the Global Financial Meltdown of 2008 was to buy time: take extraordinary emergency monetary and regulatory measures to save the parasitic too big to fail banking sector and the rest of the crony-capitalist Wall Street parasites, and initiate an unprecedented transfer of wealth from savers and Main Street to the banks and Wall Street via zero-interest rates and credit funneled to the very players who caused the crisis.

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The Destroyer of Fake “Recoveries”: Unintended Consequences

Destroy the market’s ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions.

A correspondent recently summarized why unintended consequences eventually destroy all politically expedient strategies that temporarily prop up a systemically unsustainable Status Quo:

“Unintended consequences almost always equal or exceed the benefits of whatever your temporary gains were in a complex system. We see this over and over again, in all sorts of different complex systems.”

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The “Impossible” But Inevitable Solution: Decentralization

What lies beyond the current failing, unsustainable versions of Capitalism and Socialism? Decentralization.

Correspondent John D. recently sent in a link to an interview with energy expert and author Jeremy Leggett. The title, “Make no mistake, this is an energy civil war” is a bit sensationalist, but the gist of his point is that centralized control of energy (and the capital that controls the energy and distribution networks) are colliding with new models of decentralized, locally autonomous control and ownership of energy generation and distribution.

Given the immense power of the banking/energy/political Elites that directly benefit from centralization of energy, capital and political power, I term this decentralization solution “impossible.” Yet because it is driven by the diminishing returns of the centralized model and the emergence of the Web as an unstoppable force distributing decentralization and new models, the transition from ossified, failing centralized models to adaptive, faster-better-cheaper decentralized models is also inevitable.

This is the context of Leggett’s view that there is an ‘energy civil war’ between the powers defending centralization and those promoting community ownership and control of energy:

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