Insight and inspiration in turbulent times.
Small investors, emboldened by an online Reddit group called WallStreetBets, have so far inflicted nearly $20 billion in losses on their arch short-selling foes as the stock price of GameStop has rocketed from about $17 a share on January 4 to $325 a share on Friday. Will WallStreetBets show itself to be a liberating force? Will it spawn a worldwide movement that demands a rethinking and restructuring of our financial system?
The financial mindset has come to so dominate our approach to broad societal problems that it stands in the way of clear thinking about effective approaches to the challenges humanity faces.
There are few things more insane than the terminal phase of a stock market bubble. It is worth noting that from the bottom of the Great Depression it took 20 years to reach new highs in the stock market. We may not even be at the bottom of this depression and one market index has already reached a new all-time high. Is this investor insanity or the beginning of the next glorious economic expansion?
For some reason people and governments have chosen not to insure themselves (individually or collectively) against two catastrophes that have been much in the news lately: pandemics and large investment losses.
All was calm when I predicted in February 2018 at oil-price.net that mid-June 2018″ would see an upsurge in oil price volatility. Four months later, on June 26 2018, a volatility spike in West Texas Intermediate crude oil spot price marked the beginning of the turbulent phase in the oil markets that we are now experiencing.
A consistent theme in my articles is the charts reveal that economic disruptions, such as ructions in the stock market, tend to follow periods of marked instability in the price of oil, and further, that the economy at large appears to be acutely sensitive to sudden changes in the cost of energy – as mirrored by the longest lines on the chart above.
Whenever we seek to reduce volatility in our lives, we should ask whether the result will be volatility transferred elsewhere. And, we should ask whether we are merely postponing volatility that will occur later and more violently in ways that could disable us.
Nassim Nicholas Taleb describes option sellers as people who are picking up nickels and dimes in front of a steamroller–and don’t know it. They are selling options–sometimes for mere pennies–when they are risking dollars if they are wrong. Such events, they reason, are so rare that these events won’t happen to them.
The illusion that we can control the world financial system is just one more illusion we share in an increasingly unstable world. Once that illusion is shattered, we will have to rethink carefully our assumptions about our lives, financial and otherwise.
It is a testament to the psychological power of financial bubbles that people who know and trust me and generally accept the analysis I’ve put forth in my writings over the last decade are jumping into the stock market again with a pledge that they are in for the long term–no matter what.
What appears to be masking the ongoing emergency is the rise in stock and bond markets. The disconnect between the still sluggish economy and the stock market which keeps hitting new highs is one indication that dangers lurk in the world economy.
