Source: Tyler Durden
One year ago, when looking at the 20 most popular stories of 2018, we admitted that perhaps as a result of too many conflicting narratives and storylines that emerged in 2017 and earlier in the decade, it was difficult to find a coherent theme to the key events that shook the world, and which you, our readers, found most interesting and notable.
Indeed, we said that “it is difficult to say that 2018 provided much needed closure to many of the themes and narratives that emerged in the previous year and earlier, most of which played out in the political arena, where for the first time in decades the non-establishment president of the world’s biggest superpower, a manifestation of the “protest vote” that had built up over the past decade, shook to the core everything that the world had taken for granted, setting the stage for a dramatic revulsion from widely accepted norms and principles.”
As we had warned for years, the vast if silent majority, feeling snubbed and neglected by the political oligarchy and the world’s central bankers, decided to take the power back which they did within the confines of the democratic process, sending the establishment reeling, by rejecting years of legacy narratives by replacing decades of a failed, and flawed, political regime in the US with something… different. And yet, looking back over the past 12 months, and in fact past decade, it remains to be seen if these changes will be successful and bear fruit, or if they will be a change for the worse.
However, amid this confusion, some clarity did emerge: as we look back at the past year, and past decade for that matter, the one thing that becomes clear amid the constant din of markets, of politics, of social upheaval and geopolitical strife, in fact a world that is so flooded with constant conflicting newsflow and changing storylines that some say it has become virtually impossible to even try to predict the future in a world bombarded with a relentless stream of flashing red headlines, that despite the people’s desire for change, for something original and untried, the world’s established forces will not allow it and will fight to preserve the broken status quo at any price, which is perhaps why it always boils down to one thing – capital markets, that bedrock of Western capitalism and the “modern way of life”, where control, even if it means central planning the likes of which have not been seen since the days of the USSR, and an upward trajectory must be preserved at all costs, as the alternative is a global, socio-economic collapse.
And since it is the daily gyrations of stocks that sway popular moods – and why none other than the US president is now tweeting almost daily on how the S&P closed on any given day to boost his approval rating and bolster his credibility – the interplay between capital markets and politics has never been more profound or more consequential. Indeed, in a historic moment when the president was impeached by the House (if not the Senate), Trump’s natural response was to point to the record high hit that very day in the S&P500. To be sure, so far Trump has been successful – although the correct word is lucky – in that the stock market cooperated in 2019 when it returned an impressive 28.50%, just shy of the best annual return in the past 22 years when it posted a slightly higher return in 2013. Indeed, the S&P has returned more than 50% since Trump was elected in 2016, more than double the 23% average market return of presidents three years into their term.
The more powerful message here is the implicit realization and admission by politicians, not just Trump but also his peers and challengers, that the stock market is now seen as the consummate barometer of one’s political achievements and approval. Which is also why capital markets are now, more than ever, a political tool whose purpose is no longer to distribute capital efficiently and discount the future, but to manipulate voter sentiments far more efficiently than any Russian election interference attempt ever could.
Which brings us back to 2019 and the past decade, which is best summarized by a recent Bill Blain article who said that “the last 10-years has been a story of massive central banking distortion to address the 2008 crisis. Now central banks face the consequences and are trapped. The distortion can’t go uncorrected indefinitely.”
That, in a nutshell, is what every decade introspective boils down to (or should): we had a decade in which the excesses of the past were not only not corrected, but swept under the rug… and under a mountain of debt. Because the tradeoff of pulling years if not decades of growth from the future means that we ended 2019 with global debt of a record $255 trillion, up from $185.4 billion at the start of the decade, and a staggering 330% of global GDP, a level which not even the most liberal economists harbor any belief will have a happy ending.
And while helicopter money, or MMT, is likely the next and final stop for a world careening into the fiat money abyss, for now the music is playing and everyone must dance, to quote Chuck Prince.
Which, in turn, brings us back to the point how 2019 did tie a lot of loose ends: you see, in many ways the transition from 2018 to 2019 was a neat recapitulation of some of the core themes of the past decade. When the S&P briefly entered a bear market – one which literally lasted just a few seconds on Dec 24, 2018 – central banks threw in the towel on any attempt to renormalize monetary policy. As a result first the Fed, then all of its central bank peers, proceeded to ease massively in order to avoid a catastrophic market crash, one which would undo a decade of central bank interventions and the injections of over ten trillion in newly-created liquidity, and went all in on perpetuating a failed status quo. The best summary of this came from Bank of America which in a moment of striking honesty, said that “central banks are cutting like it’s a crisis” and indeed, the number of rates cuts into late 2019 matched those last seen during the 2008/2009 financial crisis when the global financial system was on the verge of collapse. And yet, this time the global economy was growing at a solid, if not stellar pace (or so we were told), there was no imminent crisis on the horizon with global stocks already trading near all time highs.
Amusingly, it was in our year-end recap from last year published exactly one year ago when we said that “the question we have: how far will the tide be allowed to recede before central banks step in again.” We now know the answer: it was just a few months.
What happened? Simple – in late 2018 central banks panicked that they had lost control – and credibility – and they not only reversed all their “renormalization” success, with the Fed going from predicting two rate hikes in Dec 2018 to cutting three time in the summer of 2019, while also launching QE4 (under the pretext of fixing a repo system which was brought to its knees by none other than JPMorgan, which just happens would benefit greatly from a new round of QE), even as the ECB both cut rates deeper into negative territory as it also restarted its own QE less than a year after it ended it.
One explanation for this “crisis” response: China, which over the early part of the past decade had emerged as the world’s emergency economic kickstarter, has by now accumulated too much debt to provide the spark needed to reflate the global economy, and drowning under a mountain of (increasingly bad) debt, Beijing was relegated to the economic sidelines unable to trigger another massive debt injection into the domestic economy already suffering from record debt defaults and bank failures, and forcing the Fed and other central banks to take its place. Ironically, the Fed did so even though as former NY Fed president (and ex-Goldman Sachs economist) Bill Dudley admitted in an scandalous op-ed in August, that the Fed could effectively crash the market to secure a recession and prevent a Trump re-election, and it should think hard and deep if it shouldn’t do just that. In the end, however, Powell – who had emerged as the target of Trump’s angry tweets about the market and economy, sparking debate whether Trump would tell him “You’re fired” next – picked kicking the can, even it meant 4 more years of Trump.
And so, with the Fed fully behind Trump and helping the S&P return nearly 30% in 2019, 4 more years of Trump is now virtually assured (barring some unexpected calamity in 2020) because while Nancy Pelosi’ crusade to impeach the president ended up being a massive dud, one which has backfired spectacularly with Trump only benefiting from even more moderate support as a result ahead of an inevitable acquittal in the Senate, it was the impressive market performance and resilient economy that won Trump the 2020 re-election one year before the vote even took place. And no, the outcome of the 2020 presidential election has nothing to do with the motley crew of Democratic presidential candidates, ranging from ultra-billionaires to raging socialists who literally are pushing for helicopter money and MMT, or the endless noise that was the “made for popular consumption and flashing red headlines” trade war spectacle between the US and China that bored traders for over 560 days (as the two sides had long ago agreed on the “trade war’s” amicable resolution behind closed doors). So for all those Democrats tearing their hair out why Trump is an odds-on favorite to win next year’s presidential election, the answer is simple: the Fed, and the Fed’s realization that it must capitulate on its renormalization ambitions if it wishes to preserve the artificial levitation of US and global capital markets.
In other words, going back to what we said above, 2019 helped crystalize the realization that politics is now markets, and markets have become political weapons, and why the past decade was, as Bill Blain put it, “a story of massive central banking distortion to address the 2008 crisis.” The problem is that this distortion has only made the mess even greater, and the only hope central banks have – in their own words – is if government fiscal stimulus takes over where monetary stimulus ends. Only there is just one problem, or rather 255 trillion problems as shown above, because whereas one could argue that fiscal stimulus is a credible option if the world’s wasn’t drowning in debt, when global debt to GDP is 330%, it is tantamount to saying that only more debt can fix a debt crisis. Which is effectively what the world’s smartest people are saying.
That said, whether the story of 2020, and the next decade for that matter, is one of fiscal or monetary stimulus is of secondary importance: what is key, and what we learned in the past decade, is that the status quo will throw anything at the problem to kick the can. And while many already knew that, the events of 2019 made it clear to a fault that not even a modest market correction can be tolerated going forward. That in turn may explain why the last quarter of 2019 was a mirror image of events from the fourth quarter of 2018. After all, if central banks aim to punish all selling, then the logical outcome is to buy everything, and investors, traders and speculators did just that armed with the clearest backstop guarantee from the Fed in the form of both rate cuts and QE 4.
Meanwhile, for all those lamenting that relentless coverage of politics in a financial blog (which sadly also includes every tweet from Donald Trump), why finance appears to have taken a secondary role, and why the political “narrative” has taken a dominant role for financial analysts, the past year showed vividly why that is the case.
Ironically, if there was one event in 2019 that threatened the status quo, it had nothing to do with capital markets, Trump, the Fed’s balance sheet, or the repo market, and everything to do with the repeat arrest of Jeffrey Epstein. Having been unexpectedly arrested for the second time for his involvement in a giant child prostitution ring, one which threatened to take down some of the world’s most powerful people, Epstein’s incarceration proved extremely uncomfortable to those same people… and then Epstein simply “committed suicide” despite constant surveillance. And just like that the risk that he may name names disappeared forever.
What about China? After all when looking ahead last year, we said that “another assumption that will be tested in the coming year is whether “China no longer matters” for US markets, something which was certainly not the case in 2018.” We added that we “have a nagging suspicion that whether or not the US manages to avoid a recession in 2019 any global shock will ultimately come out of Beijing, regardless of whether Trump and Xi manage to find a common language and put the trade war between the two nations aside.” The answer is that despite much speculation that 2019 would be the year that China’s economic and financial bubble (at $40 trillion, the country’s financial system is double that of the US) finally bursts, Beijing managed to once again avoid a hard landing. Ironically, it did so on the back of the trade war with Trump, which provided Xi Jinping with just the right amount of scapegoating on which to blame not only China’s economic slowdown, but the complete failure of its credit impulse to rebound from cycle lows, and the sharp spike in both bank failures and record corporate defaults. After all, who will pay much attention to the underlying Chinese economy is Beijing can blame the US trade war for all its ills? And that’s precisely what happened in 2019, a year when China blamed Trump for all its woes, even if in reality China’s slowdown started years ago, and will only accelerate in the coming year, especially if much of the “trade war” is now resolved.
Ironically, as China’s Xi Jinping blamed trade war with Trump for its slowdown, Trump in turn used the buoyant US economy and record US stock market to redirect public attention from the 3-year long attempt by democrats to overthrow the sitting US president. As a reminder, 2019 was the year when the Mueller probe into Trump “collusion” with Russia crashed and burned to the chagrin of much of the liberal “fake news” propaganda; however, just months later the narrative was reborn when a “whistleblower” triggered in a carefully staged script which saw Trump become only the third US president to be impeached by the House over what Democrats claimed was an illegal attempt to force Ukraine to “interfere with US democracy.” The end result was twofold: the House, where Democrats have had a majority since the midterm elections, impeached Trump and… the nation yawned, realizing that the GOP-controlled Senate would nullify the impeachment especially since the Democrats failed in their primary mission: to convince moderate voters that Trump indeed deserves to be thrown out.
And yet, with the 2020 elections looming, it is certainly true that anything can still happen, only as with all true “black swans”, it won’t be what anyone had expected. And so while many themes, both in the political and financial realm, did get some closure, dramatic changes in 2019 persisted, and will continue to manifest themselves in dramatic, often violent and unexpected ways – from the unprecedented obsession with everything Trump does, says and tweets, to “populist” upheavals in Europe and around the developed world, to China’s fight with soaring food inflation in a time when the central bank desperately needs to ease financial conditions.
As always, we thank all of our readers for making this website – which has never seen one dollar of outside funding (and despite amusing recurring allegations, has certainly never seen a ruble from the KGB either, although now that the entire Russian hysteria episode is over, those allegations have finally quieted down), and has never spent one dollar on marketing – a small (or not so small) part of your daily routine. Which also brings us to another amusing topic: that of fake news, and something we – and others who do not comply with the established narrative – have been accused of. While we find the narrative of fake news laughable, after all every single article in this website is backed by facts and links to outside sources, we find it a dangerous development, and a very slippery slope that the entire developed world – is pushing for what is, when stripped of fancy jargon, internet censorship under the guise of protecting the average person from “dangerous, fake information.”
To preserve its counter-establishment aura, it goes without saying that the current administration should overturn this blatant attack on the First Amendment, and let people decide for themselves what is and isn’t fake news. If anything, it is the conventional, mainstream media, most of which is owned by a handful of corporations with extensive ties to the government, that demonstrated on many occasions not only in 2019 but in the past decade that it is the primary creator and distributor of “fake news”, something which has not escaped the broader US population the majority of which no longer trust conventional news media.
In addition to the other themes noted above, we expect the crackdown on free speech to accelerate in the coming year, especially as the following list of Top 20 articles for 2019 reveals, many of the most popular articles in the past year were precisely those which the conventional media would not touch out of fear of repercussions, which in turn allowed the alternative media to continue to flourish in an orchestrated information vacuum and take significant market share from the established outlets by covering topics which the public relations arm of established media outlets refused to do, in the process earnings itself the derogatory “fake news” condemnation.
We are grateful that our readers – who hit a new record high in 2019 – have realized it is incumbent upon them to decide what is, and isn’t “fake news.”