Chris, I feel your pain because I share your pain. As do the others writing into your site. We are all here because we know that the market is broken, and has been since 2008. We are all expecting that the natural order will and must return, just as you outlined. Yet all of the very smart people on this site would have been better sticking all their money in a NASDAQ index fund after that crash.
The problem for all of us is we cannot live any other way. We all have friends and family who know less than nothing about the market who have done very well. We have to bite our tongue when they rave about how things are going, because we know much of it is nonsense. But can any of us go down that path of blissful ignorance? The answer is no. I have tried. It does not work.
We all collectively suffer from what I call the Curse of Awareness. We are the one eyed men and women in the land of blind. And the blind keep stumbling into piles of fools gold. But those afflicted with the Curse cannot unsee what they have seen, and cannot convince the blind that the world they live in is not real. It can be agonizing.
I work in finance and have had a fair amount of interaction with private credit providers. These firms pay quite well for those between 25 and 40 that are willing to work hard and crank through the opportunities the private credit guys are underwriting.
The people working at private credit shops are very smart. To think of them as fools would be a mistake. At the same time, I have seen up close the kinds of deals they underwrite. High risk with high pricing. Deals that banks cannot do.
All of these shops have had great runs up until the last nine months or so. And there are a ton of 35 year olds working in these shops who have benefitted greatly. They work hard-there are very few slackers and dummies in that world. They have also built lifestyles that come along with making $400-$700M per year.
Ask one of those people about the market. Do they feel any trepidation with the risk their firms are taking on? To a man, you will first get a blank stare as they try to compute the uncomputable. Then you will get a passionate, almost violent defense of all they have done in their careers in the last 10-15 years. They are so deep into it they simply cannot comprehend that they may live in a house of straw. And they will come back at you very hard if you even hint at their world being any less than rock solid.
Take that attitude all the way up to the partners that own these shops. Its like 1984 by Orwell. The higher up you go, the more strongly they profess to believe the lie. And when the market turns, you think they will go quietly? To the contrary, their mad belief will cause them to fight all the harder. Congressmen and senators will be called and threatened with doomsday. All the presidents buddies will be in the Oval Office delivering the same message. The bailout will be bigger than any that have come before it. And 90% of the country will cheer, even if they don’t know what they are cheering about.
And when that happens, we will have watch as up becomes down, knowing that the integrity that lies at the heart of our understanding is crapped on once again. Unfortunately for us, there is no other way. That is why awareness can become a curse.
Is the market broken, or just changing. Was the market of 1900 the same as the market of 1930, 1960, 1990, 2020...
We want stability in a world of chaos. We want the rains to come because we sacrifice a virgin. After all, the last three worked.
When the only true constant is change, why do we get supprised when things DO change. Then we get angry, upset, discouraged and stomp off looking for another virgin.
housing is all based on three things, location, location, location....yes, cookie cutter neighborhoods in Orlando will collapse when the housing market gets a small cold...that's because no one really wants to live there and the locals are largely poor, lower middle class, whatever you call people who have to borrow money to get a $400k house.
Since 2009, the SPX is up 1000% while nominal GDP has barely doubled. By paying high prices, you are locking in a low rate of return. Chris' permanent distortion theory assumes that investors don't care about their returns. If a bond is trading at 100% par value and you pay 300%, when the bond matures you don't get any more money. It's the same thing with stocks; paying triple what it's worth doesn't make the stock produce any more cash.
The US debt to GDP is over 100%. Inflation has been above target for over 5 years. What if the markets can't be saved without causing a dollar crisis?
"What if the markets can't be saved without causing a dollar crisis?"
That's the billion-dollar (used to be million-dollar) question. I sincerely want to know what happens, because it seems we are accelerating toward that point. Hyper-inflation or deflation? Flip a coin.
It’s interesting … residential real estate is sort of behaving the same way. Maybe it’s the wall of money that has accumulated among Boomers that has nowhere to go but into houses and stocks. Of course when that ends it will be a whopper!
Can 'markets' be more manipulated than now? The Treas Sectry is having a blast in virtually all of them, foreign exchange (Iran), oil (Iran/Russia), sanctions (anyone who doesn't comply), equity (wealth transfers via govt contracts to military, pharma, AI, etc), tax code (cronies and masterful manipulation of agricultural, manufacturing, etc), debt levels, credit swaps, and even basis cost of living measures removing food/energy.
It's all masterful manipulation of wealth transfer while the serfs don't even realize they are being swindled. And, yet, they are 'believers' of American Capitalism.
Excellent piece, Chris. Delusion might not have reached it's peak.
It's been a while Ol' Winged One...but this is a beaut of a narrative. Full of so many nuggets of wisdom it was hard to single out the best. Glad to see you creep back in the sweat lodge, smoke the pipe and give us this jewel. I had to choose a favorite quote it was this:
"It’s typically what people say when they’re trying to justify paying absurd prices for dogshit assets while pretending the laws of valuation have been permanently repealed: “this time it’s different”.
"But of course, now that I’ve penned and published this piece, a medieval-style return to the investing dark ages is probably right around the corner."
What does it mean when the vision I had after reading this was of racks, cat-o-nine-tails and trebuchet? I'm rotating into free and clear residential rental property. I do not like the sting of the lash.
True—liquidity has moved from a policy lever to an embedded belief, but a second-order effect is becoming visible, too. It’s the rise of AI. AI strengthens the forces you describe by making the market faster and more connected. Algorithmic trading, passive flows, and derivatives already guide how money moves and help keep day-to-day volatility contained. AI builds on that by reacting instantly to new data, so prices adjust more quickly and capital shifts with less friction.
That same speed and alignment also concentrate risk. As more participants rely on similar AI tools and signals, they tend to act in the same direction at the same time. In calm periods, that keeps markets stable and can support higher prices. In stressed periods, it can trigger faster and more abrupt declines, as selling becomes synchronized and accelerates the move.
What’s different this time is AI, and it is a double-edge sword.
It is a permanent distortion. Permanent capital is spent by our government as debt and very little of that is invested into anything useful. Its then framed as GDP growth.
Private equity buys businesses, strips them of cash flow, saddles them with debt and its GDP growth and they are great capital allocators because they become rich, the employees not so much.
Government requires target date funds, passive is great, until cap weighted indexes push up everything so much Hussman has an aneurism.
Retirees think they are diversified in the 60% passive and 40% certificates of confiscation not understanding any of it (intentional of course - who could understand all the jargon designed to obfuscate).
Any time the 10 year treasury gets over 4.4% the Treasury Secretary is on CNBS and the Fed starts buying treasuries (NOT QE!!).
So is the permanent distortion just inflation and the big print and its been happening since the 1980's? So long as the Dollar is king the distortion can likely remain, the system is entirely captured. So we dance or buy gold and leave the game. Or a bit of both!
as i comment occasionally, "the money has to go somewhere"...the truth is we live in a world that a couple times a month throws off a ton of cash looking for a home. This simply was not true a long time ago, so all comparisons to the past are missing the elephant in the room
Perhaps there is some new paradigm I cannot comprehend. It’s sure been interesting messing with it the past couple years.
As an investor that much prefers playing breaks it’s been lots of option plays with fairly quick trades.
I tend to own quite a bit of stuff for long term value and other than writing calls occasionally, tend to let that ride. The other stuff I do for quick hits.
I hope you’re wrong truthfully, meant with respect. I hope true economic fundamentals will resurface. With the deficit around 37 T it’s way overdue. With that said no one in power seems to be concerned (which is actually more concerning).
The Zillow number of reduced prices in the not hot areas concerns me. The commercial real estate fire sale also is a concern. Credit card debt and the increasing BNPL trend is worrisome. Private credit is still crap imo but bounced a little.
We’ve created a generation or two of renters not owners. I can’t see how homes can stay at these inflated levels when the younger buyers can’t pay for them. Sooner or later the boomers (I am one) tap out. May be some serious fire sales as heirs inherit property they don’t want.
Jap bonds still concern me also even though no one other than ZeroHedge mentions it.
Lots of concerns with few assurances. I guess it’s true bull markets climb a wall of worry.
we all thought Keynes was exaggerating when he said "markets can remain irrational longer than you or I can remain solvent."
There's another saying about markets "the wildness lies in wait." Of course wildness can go in two directions, and then double. LOL. Oy Vey.
If we don't have a quantitative coming to terms with reality we will have a revolution (or a rebellion) or some sort of cultural collapse. We may have all three.
It's like an avalanche, you look up at the mountain and you see peace and quiet shining like a dream in the morning sun, but the stress under the surface. You see it in movies. You see it in elections. You see it in the "culture wars" -- which invoke the boogyman of "racism" and LGBTQ and make Satans everywhere because they lack the vocabulary or the perception to speak directly to the capital vs. labor dialectic. And there are too many grifters in that crowd anyway.
You don't have to be a Marxist. Or any kind of "ist". You can be for free markets and private property. You can be a regular guy trying to figure shit out. You think "this is fukked up". Almost everywhere you look. The wild amplitudes in the unseen realms that organize what we collectively agree to believe is reality.
I don't know, but didn't dividends go up like 2x from before 2020 to 2023 and thereafter? I would attribute that to COVID monies finding their way into disbursable company outpourings.
Besides, US P/E multiples much higher than in Europe/East Asia could be due to US capital investment staying inside the US borders. More than say 10 years ago...
Chris, I feel your pain because I share your pain. As do the others writing into your site. We are all here because we know that the market is broken, and has been since 2008. We are all expecting that the natural order will and must return, just as you outlined. Yet all of the very smart people on this site would have been better sticking all their money in a NASDAQ index fund after that crash.
The problem for all of us is we cannot live any other way. We all have friends and family who know less than nothing about the market who have done very well. We have to bite our tongue when they rave about how things are going, because we know much of it is nonsense. But can any of us go down that path of blissful ignorance? The answer is no. I have tried. It does not work.
We all collectively suffer from what I call the Curse of Awareness. We are the one eyed men and women in the land of blind. And the blind keep stumbling into piles of fools gold. But those afflicted with the Curse cannot unsee what they have seen, and cannot convince the blind that the world they live in is not real. It can be agonizing.
I work in finance and have had a fair amount of interaction with private credit providers. These firms pay quite well for those between 25 and 40 that are willing to work hard and crank through the opportunities the private credit guys are underwriting.
The people working at private credit shops are very smart. To think of them as fools would be a mistake. At the same time, I have seen up close the kinds of deals they underwrite. High risk with high pricing. Deals that banks cannot do.
All of these shops have had great runs up until the last nine months or so. And there are a ton of 35 year olds working in these shops who have benefitted greatly. They work hard-there are very few slackers and dummies in that world. They have also built lifestyles that come along with making $400-$700M per year.
Ask one of those people about the market. Do they feel any trepidation with the risk their firms are taking on? To a man, you will first get a blank stare as they try to compute the uncomputable. Then you will get a passionate, almost violent defense of all they have done in their careers in the last 10-15 years. They are so deep into it they simply cannot comprehend that they may live in a house of straw. And they will come back at you very hard if you even hint at their world being any less than rock solid.
Take that attitude all the way up to the partners that own these shops. Its like 1984 by Orwell. The higher up you go, the more strongly they profess to believe the lie. And when the market turns, you think they will go quietly? To the contrary, their mad belief will cause them to fight all the harder. Congressmen and senators will be called and threatened with doomsday. All the presidents buddies will be in the Oval Office delivering the same message. The bailout will be bigger than any that have come before it. And 90% of the country will cheer, even if they don’t know what they are cheering about.
And when that happens, we will have watch as up becomes down, knowing that the integrity that lies at the heart of our understanding is crapped on once again. Unfortunately for us, there is no other way. That is why awareness can become a curse.
Is the market broken, or just changing. Was the market of 1900 the same as the market of 1930, 1960, 1990, 2020...
We want stability in a world of chaos. We want the rains to come because we sacrifice a virgin. After all, the last three worked.
When the only true constant is change, why do we get supprised when things DO change. Then we get angry, upset, discouraged and stomp off looking for another virgin.
For those looking for a counterpoint, here's a great video of Peter Schiff predicting home equity evaporating 1-2 years before it happened. At the time, it was unthinkable. https://www.youtube.com/watch?v=MIFGfgKHrwU&list=PL5EC156464505485F&index=395
housing is all based on three things, location, location, location....yes, cookie cutter neighborhoods in Orlando will collapse when the housing market gets a small cold...that's because no one really wants to live there and the locals are largely poor, lower middle class, whatever you call people who have to borrow money to get a $400k house.
This time is different for we are in uncharted waters of $2 trillion annual deficits since the start of the scamdemic.
It's a stock market on crack. Eventually the music will stop.
John Hussman has a chart in all of his market commentaries showing that a government deficit becomes a surplus for companies. His latest:
https://www.hussmanfunds.com/comment/mc260426/
Since 2009, the SPX is up 1000% while nominal GDP has barely doubled. By paying high prices, you are locking in a low rate of return. Chris' permanent distortion theory assumes that investors don't care about their returns. If a bond is trading at 100% par value and you pay 300%, when the bond matures you don't get any more money. It's the same thing with stocks; paying triple what it's worth doesn't make the stock produce any more cash.
The US debt to GDP is over 100%. Inflation has been above target for over 5 years. What if the markets can't be saved without causing a dollar crisis?
"What if the markets can't be saved without causing a dollar crisis?"
That's the billion-dollar (used to be million-dollar) question. I sincerely want to know what happens, because it seems we are accelerating toward that point. Hyper-inflation or deflation? Flip a coin.
Buy gold..
More like trillion dollar question 😂
It’s interesting … residential real estate is sort of behaving the same way. Maybe it’s the wall of money that has accumulated among Boomers that has nowhere to go but into houses and stocks. Of course when that ends it will be a whopper!
“If your denominator is quietly melting, your numerator tends to look heroic.”
Spot on. Occam’s razor.
I’d still rather be a year early (or years) than one day late.
It won’t be different in the end.
People forget, the last real estate meltdown took six years from peak to trough. This one might take even longer than that.
Can 'markets' be more manipulated than now? The Treas Sectry is having a blast in virtually all of them, foreign exchange (Iran), oil (Iran/Russia), sanctions (anyone who doesn't comply), equity (wealth transfers via govt contracts to military, pharma, AI, etc), tax code (cronies and masterful manipulation of agricultural, manufacturing, etc), debt levels, credit swaps, and even basis cost of living measures removing food/energy.
It's all masterful manipulation of wealth transfer while the serfs don't even realize they are being swindled. And, yet, they are 'believers' of American Capitalism.
Excellent piece, Chris. Delusion might not have reached it's peak.
It's been a while Ol' Winged One...but this is a beaut of a narrative. Full of so many nuggets of wisdom it was hard to single out the best. Glad to see you creep back in the sweat lodge, smoke the pipe and give us this jewel. I had to choose a favorite quote it was this:
"It’s typically what people say when they’re trying to justify paying absurd prices for dogshit assets while pretending the laws of valuation have been permanently repealed: “this time it’s different”.
Sunday mornings are for brooding.
"But of course, now that I’ve penned and published this piece, a medieval-style return to the investing dark ages is probably right around the corner."
What does it mean when the vision I had after reading this was of racks, cat-o-nine-tails and trebuchet? I'm rotating into free and clear residential rental property. I do not like the sting of the lash.
True—liquidity has moved from a policy lever to an embedded belief, but a second-order effect is becoming visible, too. It’s the rise of AI. AI strengthens the forces you describe by making the market faster and more connected. Algorithmic trading, passive flows, and derivatives already guide how money moves and help keep day-to-day volatility contained. AI builds on that by reacting instantly to new data, so prices adjust more quickly and capital shifts with less friction.
That same speed and alignment also concentrate risk. As more participants rely on similar AI tools and signals, they tend to act in the same direction at the same time. In calm periods, that keeps markets stable and can support higher prices. In stressed periods, it can trigger faster and more abrupt declines, as selling becomes synchronized and accelerates the move.
What’s different this time is AI, and it is a double-edge sword.
Meh.. As Jim Grant said, every bubble precedes adaptation.
It is a permanent distortion. Permanent capital is spent by our government as debt and very little of that is invested into anything useful. Its then framed as GDP growth.
Private equity buys businesses, strips them of cash flow, saddles them with debt and its GDP growth and they are great capital allocators because they become rich, the employees not so much.
Government requires target date funds, passive is great, until cap weighted indexes push up everything so much Hussman has an aneurism.
Retirees think they are diversified in the 60% passive and 40% certificates of confiscation not understanding any of it (intentional of course - who could understand all the jargon designed to obfuscate).
Any time the 10 year treasury gets over 4.4% the Treasury Secretary is on CNBS and the Fed starts buying treasuries (NOT QE!!).
So is the permanent distortion just inflation and the big print and its been happening since the 1980's? So long as the Dollar is king the distortion can likely remain, the system is entirely captured. So we dance or buy gold and leave the game. Or a bit of both!
May you live in interesting times.......
as i comment occasionally, "the money has to go somewhere"...the truth is we live in a world that a couple times a month throws off a ton of cash looking for a home. This simply was not true a long time ago, so all comparisons to the past are missing the elephant in the room
Interesting column.
One that makes you go hmmmm.
Perhaps there is some new paradigm I cannot comprehend. It’s sure been interesting messing with it the past couple years.
As an investor that much prefers playing breaks it’s been lots of option plays with fairly quick trades.
I tend to own quite a bit of stuff for long term value and other than writing calls occasionally, tend to let that ride. The other stuff I do for quick hits.
I hope you’re wrong truthfully, meant with respect. I hope true economic fundamentals will resurface. With the deficit around 37 T it’s way overdue. With that said no one in power seems to be concerned (which is actually more concerning).
The Zillow number of reduced prices in the not hot areas concerns me. The commercial real estate fire sale also is a concern. Credit card debt and the increasing BNPL trend is worrisome. Private credit is still crap imo but bounced a little.
We’ve created a generation or two of renters not owners. I can’t see how homes can stay at these inflated levels when the younger buyers can’t pay for them. Sooner or later the boomers (I am one) tap out. May be some serious fire sales as heirs inherit property they don’t want.
Jap bonds still concern me also even though no one other than ZeroHedge mentions it.
Lots of concerns with few assurances. I guess it’s true bull markets climb a wall of worry.
🤷♂️
"I want patient fundamental analysis to feel like an advantage rather than a history hobby."
Be patient. This time is different...until it's not.
we all thought Keynes was exaggerating when he said "markets can remain irrational longer than you or I can remain solvent."
There's another saying about markets "the wildness lies in wait." Of course wildness can go in two directions, and then double. LOL. Oy Vey.
If we don't have a quantitative coming to terms with reality we will have a revolution (or a rebellion) or some sort of cultural collapse. We may have all three.
It's like an avalanche, you look up at the mountain and you see peace and quiet shining like a dream in the morning sun, but the stress under the surface. You see it in movies. You see it in elections. You see it in the "culture wars" -- which invoke the boogyman of "racism" and LGBTQ and make Satans everywhere because they lack the vocabulary or the perception to speak directly to the capital vs. labor dialectic. And there are too many grifters in that crowd anyway.
You don't have to be a Marxist. Or any kind of "ist". You can be for free markets and private property. You can be a regular guy trying to figure shit out. You think "this is fukked up". Almost everywhere you look. The wild amplitudes in the unseen realms that organize what we collectively agree to believe is reality.
Why should the markets be any different?
I don't know, but didn't dividends go up like 2x from before 2020 to 2023 and thereafter? I would attribute that to COVID monies finding their way into disbursable company outpourings.
Besides, US P/E multiples much higher than in Europe/East Asia could be due to US capital investment staying inside the US borders. More than say 10 years ago...