The Maddening of Crowds

“One man alone can be pretty dumb sometimes, but for real bonafide stupidity, there ain’t nothin’ can beat teamwork.”

– Edward Abbey

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November 26, 2024— “Asset prices are fickle,” Scott Bissent wrote on November 10 in an op-ed for The Wall Street Journal, “and long-term economic performance is the ultimate measuring stick.”

That was even before he was tapped to be the next Treasury Secretary under the new Trump administration. The rest of the op-ed entitled “Markets Hail Trump’s Economics,” reads like an essay he wrote in an application for the job:

Recent days prove markets’ unambiguous embrace of the Trump 2.0 economic vision. Markets are signaling expectations of higher growth, lower volatility and inflation, and a revitalized economy for all Americans.

Mr. Trump’s election drove the largest single-day increase in the U.S. dollar in more than two years, and third largest in the last decade. This is a vote of confidence in U.S. leadership internationally and in the dollar as the world’s reserve currency. The Russell 2000, an index of small-capitalization stocks, also rose by the most in two years due to investor expectations that the Trump economy will disproportionately benefit smaller businesses. An exchange-traded fund that tracks the Russell 2000 index saw its largest single-day inflow in 17 years.

Not even yesterday’s anti-trade assertion that tariffs will exact effective punishment on Canada, Mexico and China for illegal immigration and the fentanyl drug epidemic was enough to dampen markets.

Indeed, the voting public has been so distracted by the flurry of cabinet appointments and a desire to see the Biden trolls get their comeuppance for weaponization of the Federal government, they’ve barely noticed that tariffs are inflationary… and will lead to higher prices… the very thing that got Trump elected in a landslide in the first place.

Further, they will require increased deficit spending at the Federal level.

But that’s how populist policy goes, right?

“Whatever else you can say about him,” our friend and today’s guest essayist Bill Bonner wrote last week, “Mr. Trump is an unlikely Moses. He may want to part the waters of the Red Sea, but he doesn’t know where the Red Sea is. A real reformer, such as Javier Milei in Argentina for example, knows where he is going. ‘Not a penny in deficit spending,’ says Milei, brandishing a chain saw to make his point.”

Bill continues:

Trump’s policy proposals are an incoherent jumble of fantasies, fallacies and frauds (tariffs, tax cuts, efficiency, war and deportations.) And his team, or what we’ve seen from his appointments thus far, are an unruly collection of the good, the bad and downright ugly.

The markets don’t seem to care (for now).

In his most recent Gloom, Boom, Doom Report Marc Faber takes umbrage with the post-election rally and its disconnect with a “constellation of economic and financial indicators” suggesting anything but a rally as “ironic.”

Faber:

Here we have a global economy that isn’t doing particularly well – in fact, measured in inflation-adjusted terms is most likely in a recession, with the majority of people struggling economically – and yet, self-satisfied and complacent fund managers and investors seem to be in full party mode, drunk on the elixir of a purported soft landing and, of course, greed.

Faber explains at length with customary supporting charts and citations from history and economics, the current rally in US equities has had more to do with excessive global liquidity and with the greed of investors around the world than with the new Trump team.

“I base my view,” Faber says, “on the fact that momentum investors worldwide have been speculating in  the Magnificent 7 stocks and in semiconductors, which has driven the US stock indices higher.”

Not even the threat of tariffs, inflation, deportations… can prick this bubble at the moment. We wonder if maybe World War III would do the trick? Bill considers how that line of thinking might look to future historians, below. ~ Enjoy, Addison

How Did It Happen?

Bill Bonner, Bonner Private Research

Sometime in the post-apocalyptic future…

Surviving historians will brush off the dust… tidy up the graves… and try to make sense of it. Gathered around an open fire in a discarded oil drum, they will warm their hands and ask:

What? How? Huh?

We’ve looked at the best case… and some ‘worse cases.’ Now we focus on the worst-case scenario — an apocalyptic combination of inflation, depression… and war.

Inflation is the only way the feds can finance their big deficits. It is still running above 3% — the longest period of more than 3% core inflation in thirty years. Transportation rose more than 8% over the last year… and auto insurance is up more than 50% over the last three years.

Meanwhile, long-term interest rates are rising, even as the Fed cuts short-term rates. It’s been two months since the Fed began its rate cutting cycle… and the 10-year Treasury note yield has gone up 76 basis points (three-quarters of a percent). What happens when higher debt levels hit higher interest rates? Asset prices fall. Combine that with stifled trade… and mass deportations… and we could be asking for a major depression.

And then, there is the last refuge of scoundrels… war — the worst-case scenario of all. Yes, people go mad from time to time… so do whole societies. It seems unpredictable… almost random. And yet, there are signs, trends, and patterns.

Source: Getty Images

So, we look ahead and wonder what it might be like…if the world had been at war for almost ten years… maybe twenty years. West vs. East… one side clustered around NATO… the other around the BRICS.

On one side had the most ‘lethal’ military in the world. But on the other was the fighting experience of the Russians, who had been at war on their European flank for many years… combined with the technological innovations and manufacturing prowess of the Chinese.

The ‘rule of law’ has been abandoned entirely. It’s the rule of the jungle, now. The strong do what they will; the weak suffer what they must.

Whole cities have been destroyed in tit for tat nuclear exchanges. But the elites have no death wishes. Moscow, Beijing, London and Washington have been, so far, spared.

Along the borderlands… the Eastern front in the Ukraine… and the Near Eastern kill zone… the destruction has been almost unbelievable. New weapons flatten whole neighborhoods. AI-enhanced firepower leaves nothing alive.

By now, much of the Mideast resembles Gaza in 2025. Backed by the Trump team, Israel tried to ‘finish the job’ by seizing the West bank, wiping out Hezbollah in Southern Lebanon, and striking at the ‘heart of evil,’ Iran.

But the more people the Israelis killed, the more there were who wanted to kill them. Thousands of orphans grew up with one goal — to take revenge. Israel then had no choice… but to continue bombing; after all, it had a right to defend itself.

Ten years later, the bombing, shelling, and sniping continues.

In the Ukraine theater, too, the war got hotter. One escalation led to another. Fox News:

Biden authorizes Ukraine to use US long-range missiles to strike inside Russia

Moscow Times:

Russia Fired ICBM for First Time in War, Ukraine’s Military Claims

One step at a time. Until the nukes got to work. Fortunately, nuclear strikes were limited. But they were effective. Each side took big losses… and kept on fighting… with millions of deaths and millions more refugees… some fleeing West… some East.

It was in Southeast Asia that the nightmare brought a real surprise. No one knows what set it off… but when the US fleet got into a shooting war with the Chinese, it didn’t take long before a swarm of drones… in the air, on the surface of the water, and under it… had sunk most of America’s military assets in the area.

Of course, stocks crashed a long time ago… in 2025… and they never recovered.

Not in real terms. Prices went up like a rocket… assets as well as consumer products. Inflation reached 50% per year.

It was an ‘inflationary depression,’ they said.  With so little trade, and so much of the GDP spent on war, most people — at least those not associated with the government or the firepower industry — got poor.  For those in the ‘hot’ zones, however, it was much worse.  They lost everything… their jobs, their houses… and often, their lives.

And then… finally, the fever broke… and after years of death, poverty, and pain, came the questions.  ~~ Bill Bonner, Bonner Private Research

Regards,

Addison Wiggin,
Grey Swan

P.S. Barring World War III, we do expect the “Trump rally” and the influence of the holiday to keep the markets wending their way higher going into the end of the year. That’s a seasonal trend. But the move should be much slower than November’s “anything goes” rally.

For now, the old Wall Street adage that “the trend is your friend,” applies. Do you agree? Send your thoughts here: addison@greyswanfraternity.com.