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Page added on September 14, 2015
Lord Of The Flies: Dystopia Is Arriving
Paper money eventually returns to its intrinsic value – zero – Voltaire
I was driving around Denver yesterday doing my “boots on the ground” due diligence scouting of the local housing market. I continue to see some “sold” and “under contract” signs but I’m seeing a pile-up forming in new “for sale,” “price reduced,” and “for rent” signs. The traffic update on the sports radio reported a back-up at an intersection in Denver caused by a fist-fight that had broken out between two drivers. This country is sliding back into neanderthal times.
The U.S. economic system is slipping into dystopia and the Government/Fed is doing everything it can to try and prevent the process. The two most obvious signs of this are the perpetual market interventions by the PPT to prevent a stock market dump and the relentless propaganda flowing through the mainstream media which originates from the policy-implementing elitists (business and political). Both efforts are insidious attempts to force control over our system
Overnight this week, the S&P 500 e-mini futures were halted twice. The SPX mini is the Fed’s choice intervention tool because it can direct the market with minimal capital requirements. The e-mini is hyper-sensitive to big orders and tends to lead the big SPX directionally because of this. The emini trading was halted after a sudden plunge in the futures at 5:51 a.m. EST, after which a massive buy order (the PPT) hit the tape and spiked the eminis straight up. The market was halted again after the spike up stalled and the emini was about to plunge again. You can see the action here: E-mini Market Halt
The graphic linked above was provided by Nanex’s Eric Hunsader. Prior to the market’s first market halt, Hunsader tweeted: “emini getting tossed around like a rag doll:”
I found Hunsader’s allusion to “Lord of the Flies” to be quite haunting. For me it encapsulates the societal, political and economic direction in which the United States is headed. Rule of Law has been completely eroded by corrupt Presidents and citizen nonchalance. Many beside me have alluded to the fact that the U.S. political system now resembles that of a Central American Banana Republic. That’s no secret to anyone who cares to peek at reality.
But where this whole process starts to get scary is when that needle heads toward “Lord of the Flies.” That is the point at which we will see and experience the truly dark side of humanity. Too me the outbreak of fistfights at traffic intersections and the herds of panhandlers standing on busy urban and suburban corners reflects the movement of that needle past Banana Republic to the left…
I’m not an e-wave theory advocate but there’s merit to some of the analysis. Robert McHugh is probably the most skilled practitioner of it these days and he’s run 5 different “wave” scenarios – all of them suggest a high probability of serious market crash coming soon – he specifically references the August sell-off as “gentle” in comparison.
If this stock market does what we all know it will do eventually, which is seek a level that reflects its true underlying intrinsic value, all hell will break loose in this country and we’ll start hearing reports of much worse occurrences than fist-fights at traffic intersections.
What is the “intrinsic value” of the S&P 500? Based studying the earnings of enough S&P 500 companies using the GAAP accounting standards that were in place 20-30 years ago – vs. non-GAAP, adjusted-GAAP, and new GAAP accounting applications used today – I would suggest that S&P 500 has “fair value” around the 500-600 level. A large portion of reported net income/EPS is income that is non-cash and is manufactured by new accounting gimmicks.
The S&P 500 hit 666.79, which is in my “fair value” range, intra-day on March 6, 2009 (no, I don’t read any significance into “666”). We saw how the Fed and the Treasury responded: they began dumping trillions of printed dollars into the banking system and drastically altered some of the GAAP accounting rules – i.e. they changed the rules of the game. This was in response to the S&P 500 seeking fair value.
What is frightening to contemplate, in the context of Eric Hunsader’s haunting Tweet, is what the Government’s response will look like this time around when the PPT loses control – which I believe is occurring now – and the S&P plummets again in an attempt to seek it’s proper level. Remember: just like water, the stock market eventually always finds its own level.
21 Comments on "Lord Of The Flies: Dystopia Is Arriving"
Makati1 on Mon, 14th Sep 2015 6:27 am
And it’s level is way way down. Maybe DOW 5,000 or less? I read “Lord of the Flies” years ago and that is about where the US is headed soon. It is already in the Banana Republic range. Printing faux money to keep the whole charade going another day. A Zimbabwe future or worse, a contraction and the impossibility for anyone to ever pay their debts?
I want one of those billion dollar bills to put on my wall if it goes Zimbabwe. LOL
Davy on Mon, 14th Sep 2015 6:56 am
You know you are an obsessed doomer when sometimes you are lying in bed thinking about these things. I was wondering this morning around 3:30 (I am an early riser) how long this financial descent can go. My thoughts are it is a matter of cooperation and coordination of the elites. The fact that the alternative economic order of the Brics led by China and its rump Putin is dead in the water gives me the impression we will finally see the elites turn to cooperation.
The US knows it was and is in trouble. The Fed can’t make it happen. This has been demonstrated by its inability to normalize. No amount of jawboning a recovery or distorted economic indicators will do the trick. It does a good job of fooling the sheeples but those in the know, know, the ship is sinking. I imagine the last hope is a concerted effort between world elites that focuses on triage and core support much like a body in hypothermia.
This global arrangement is primarily an elitist system evolving from years of privilege and power concentration coupled with convergence of comparative advantage and borderless wealth that has maximized the concentration of power and wealth the world over. No country is without this arrangement. No country including the US and China can go it alone anymore.
The elites will have to cooperate and quick. We are at a critical point in this cooperation. How far will the great game between Russia, China, and the US be taken? They must have a new world order or all will fail. The global system has progressed to a point that counterparty economic and political risk has been dispersed globally. This current Chinese economic collapse may make the US flag waivers gleeful but it will surely destroy the US economy.
The US is in a codependent Chinese trade arrangement. The rest of the world is just the rump of this vital global arrangement. The US consumes Chinese products. Chinese consumes commodity driven countries products to produce her products. Europe and Japan are on the back teats but much like the US. That is generalized oversimplification but you get the point of a systematic codependency. The elites have one last chance to salvage a few years like the 08 central bank fiesta that was a defibrillation of the global economy. The new normal will have to be a political order with an economic order.
This political order will have to be cooperative wealth transfer and social disorder control effort. All efforts by the elites will have to be directed at maintaining their status quo of wealth and privilege. This will not last but it may buy them a few more years. It can only happen if the major power begin economic and political cooperation either overt or covert. If you see changes to foreign policy in the news soon you will know this is occurring. Secret agreements will manifest themselves as decreased global conflict. Maybe this is what we saw with Iran and the US?
The economic descent will not go away though. No amount of cooperation will save the global system from limits and declining marginal utility from entropic decay. Yet, the elites can buy a few more years of the status quo through mutual efforts. If this does not happen I forecast a quickening descent in trade and proxy wars to gain speed. Global markets will nose dive with a resulting global deflation. Bankruptcies and unemployment will skyrocket. Hot wars are likely. Bankruptcies and unemployment are going to increase with cooperation but not skyrocket from trade wars and resource disruptions.
Who here believes trade and resource wars will allow any of the major powers an upper hand? Ain’t gonna happin folks. There are no winners in this arrangement. The only winners left are the elites if they can band together in an evil band of brothers. The world is heading down an energy gradient with a population in overshoot. Consumption and population rebalance pressures are building and cannot be denied. This is Nature at work. It can only be reacted to. We are at a critical point where the old “new normal” of 08 is falling apart. Will there be a post “08 new normal” or a collapse of the status quo. Soon we will have the answer.
Dredd on Mon, 14th Sep 2015 7:32 am
That’s life, and death, On the West Side of Zero
Rp1grady on Mon, 14th Sep 2015 8:32 am
Doomer claims like the above are so ludicrous when one remembers what equity pricing is compared to….. U.S. dollars. Do you have more faith in the value of dollars vs. equities? Both are stores of value with intrinsic value. The decline of one means an increase in the value of the other.
To forecast S&P 600 means more than doubling the value of dollars – that is an absurd idea in the world we live in where paper currency is printed to infinity to support economy.
Makati1 on Mon, 14th Sep 2015 8:40 am
I just checked… the blood is running on the Market Casino floor again this morning, New York time. I wonder if the PPT will clean it up again or if it will be deeper when I get up tomorrow? LOL
onlooker on Mon, 14th Sep 2015 8:47 am
Which markets Makati?
Davy on Mon, 14th Sep 2015 9:06 am
Don’t worry Onlooker it was just a premature ejaculation from the dude from P. Markets Are lightly in the red. The real market activity will come once the Fed opens its suck and tells us fairytales.
MrNoItAll on Mon, 14th Sep 2015 9:42 am
Davy, couldn’t agree more. As I have previously posted two or more times here, we can think of the global powers as a bunch of thieves, each running their own fiefdom. When times are good, they operate more or less independently and not only plunder areas under their control, but compete against each other in frequently vicious and underhanded ways to grab more territory and resources. BUT, when threatened by outside forces, they drop their backstabbing differences and band together against the common enemy. Their survival depends on it. And right now, that common enemy is resource depletion coupled with unsustainable population explosion. As for me, I am certain that much of the conflict and chaos that we see in the world today is either being manufactured by TPTB (the band of thieves) — OR — they are harnessing global conflicts to further their aims — no doubt a combination of both. The “conflict” between Russia and America is one of those staged events if you ask me, just one of many. The war of words and diplomatic tensions between China and America is another — just a show for the masses while the real action happens behind the scenes. IMO, this has been going on for a long time. I do not doubt but that TPTB have a plan and that key players in world governments are all marching to the same beat. Watching it all play out is quite the spectacle, to say the least.
onlooker on Mon, 14th Sep 2015 9:45 am
You mean Davy, QE is once again on it’s way?
BC on Mon, 14th Sep 2015 10:03 am
No worries, mates. We don’t need no steekin’ growth of orders, sales, and freight. We have stocks, bonds, ETFs, and social mania distractions. It’s all good.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1O1X
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Pxp
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Pys
MrNoItAll on Mon, 14th Sep 2015 10:10 am
That’s right, BC. The illusion of all is well has never been sweeter. Too bad the termites of reality are gnawing away on the rotting pillars of support that the illusion rests on. But until it all collapses in a mushroom cloud of dust and debris, sure, it IS all good.
Davy on Mon, 14th Sep 2015 10:17 am
Onlooker, I think political QE is cooking. By this I mean a behind the scene cooperation between all major power’s elites to control and manage the masses who will be in distress and revolt as demand and supply destruction gathers speed. MR’s comment above covers this well.
We may very well see more economic QE and QT at the same time in desperate attempts to manage the markets. The primary tool of financial confidence at the moment is an appearance of market control. Normal price discovery and market mechanisms are no more. The investor masses are sheeples to this reality.
We are heading into uncharted waters. It is unclear whether political cooperation and market control will work. It is also unclear whether social control will work. Look at Europe right now with the Syrian migrations.
The key at the moment is political cooperation. Economic control will not work without political cooperation. Trade, currency, and hot wars will destroy ALL economies quickly in resource shortages and financial collapse.
BC on Mon, 14th Sep 2015 10:32 am
Davy, I anticipate the TBTE banks directing the Fed and BOE eventually to print to buy bank and insurer stocks, equity index futures, munis, dead pledge paper again, subprime auto loans, student loans, and Grandpappy’s 1930s-style kitchen sink in the corner of the shed behind the house.
The bankster oligarchs and their ministerial intellectual technocrats acting on behalf of the rentier Power Elite top 0.001% have no other solution to any and all problems but to print trillions in bank reserves and lend more debt-money at interest in perpetuity.
But with real GDP per capita at ~0% since 2007-08, more bank reserves to indirectly fund deficit spending will only reduce the money multiplier and velocity further, continue to distort market price discovery and settlement, reward non-productive hyper-financialization, and worsen the pernicious effects of wealth and income inequality.
But that’s what the rentier-socialists are good at; it works for them. 🙂
Davy on Mon, 14th Sep 2015 10:32 am
MR, I am seeing a game of chicken along with the desire for cooperation. Each side is jockeying for position with each side knowing there is no way to win a conflict of any kind that will disturb the status quo.
Who knows because I imagine there are super secret liaisons going on behind the scenes through back channels and dark alleys. One thing is for sure us mere sheeples are at the mercy of this great game. We are at a transition point in history of 200 years of status quo and something new but ugly.
How else can you describe a rebalance of population and consumption. Die offs and bottlenecks are ugly. This may start slow and proceed over time but it will still be ugly.
Davy on Mon, 14th Sep 2015 10:38 am
BC, good technical description of the mechanics of it all. This will be a political and economic managerial effort of the final phase of globalism. Many civilizations have gone into this phase where centralized power moves to secure its position in a decaying society.
Can it work in such a large and complex system at limits with population overshoot? I wonder if at some point they will even keep the lights on.
MrNoItAll on Mon, 14th Sep 2015 11:05 am
Yeah Davy. From my point of view, it has already started and it is ugly. It is slowly proceeding now but gaining traction, building momentum, picking up speed. There’s a steep ledge out there somewhere and we’re constantly, inevitably getting closer to it. It is going to be a triple black diamond mogul run on the fast ride down, speaking in downhill skier terms, and I predict pure mayhem once we hit that nasty slope.
shortonoil on Mon, 14th Sep 2015 11:36 am
Petroleum is no longer responding to market price incentives on the downward cycle:
https://www.iea.org/oilmarketreport/omrpublic/
Based on IEA demand estimates a 55% decline in price produced a demand increase of 0.8% per year in the 1’st and 2’nd quarters of 2015. If this trend is even approximately linear, the petroleum industry will expire before demand ever reaches an increase of 2 mb/d. It appears that petroleum production can never again increase, and is now going into catastrophic decline:
http://www.thehillsgroup.org/depletion2_022.htm
The negative impact that this will have on the world’s economies can not be over stated!
http://www.thehillsgroup.org/
onlooker on Mon, 14th Sep 2015 11:56 am
Wow, fascinating and illuminating analysis by all. Yes we truly are heading into uncharted waters. BC gave a detailed analysis of how it is looking. The key is illusion as I have heard say technically most of the system went bankrupt in 2008 but was just covered up with bailouts , further machinations ie. derivative ploys and of course printing fiat money. No more bubbles to inflate and it certainly seems that this illusory game of chicken must be dragged on as much as possible like the ponzi scheme it is lest it all collapse. At some point though I expect the highest Banks and Investors to call in all bets and illusions and basically clean the table at which time all hell will break loose in the world-wide markets that in turn will be a prelude to the realities of declining resources, geopolitical instability and aggressive jockeying by all for any branch to cushion the fall.
Truth Has A Liberal Bias on Mon, 14th Sep 2015 2:41 pm
As this article points out most ‘mericans can’t exercise enough cooperation to mitigate traffic problems. Based on the behavior I’ve seen between fellow ‘merikians in conflict over the last pair of tighty-whiteys at the Black Friday sale it doesn’t give me much hope you’ll all cope very well with food and oil shortages. Collapse of complex systems/society is one thing and the human response to it as another. Collapse in Syria due to peak oil and the worst few years of drought on record led to riots. The gov response was to shoot the rioters. This led to revolution and civil war. Now it’s a multi regional crisis of unregulated mass migration. The European response to that will make it worse not better. The dominos are falling. One by one they will tip. Egypt and Jordan are soon to go.
Davy on Mon, 14th Sep 2015 3:24 pm
I have been to Montreal and I am not impressed. You dumbasses aren’t even man enough to to break away and run your own country. A loser from a loser wanna be country.
Makati1 on Mon, 14th Sep 2015 9:28 pm
Onlooker, The US Stock Market Casino of course. I look at it when it opens, before I go to bed in the evening, and then in the AM after I get up and it is closed. A bit of entertainment for a non participant. And I like the limbo music being played by the orchestra from the Titanic. ^_^