Occasionally we like to “re-heat” prior articles whose relevance and themes have stood a certain test of time.
Today’s market report will be one of those occasions.
Over the summer of 2020, for example, as social unrest in cities around the U.S. was making international headlines, I wrote the following report from France on the economics rather than politics of grass-root frustrations.
Today, in January of 2021, the latest headline-making social unrest, which now has such a clear political tone, remains, at least in my mind, still heavily correlated to deeper and oft ignored economic concerns/forces.
The storming of the nation’s Capital in D.C. was an unprecedented event, and sadly, not likely to be the last manifestation of civil anger in the U.S. for 2021.
In considering current events, I therefore chose to re-publish the following report to at least consider forces that lie deeper than mere left vs right, extreme vs moderate—though by no means am I suggesting that what is happening today is not deeply political.
That said, history and culture marches on financial stability and instability, and in times of the later, it’s never a coincidence when social unrest follows systemic economic weaknesses, all of which eventually and inevitably impact markets and portfolios.
I therefore hope the following report from July of 2020 offers additional perspective in truly difficult times.
Best,
Matt & Tom
Social Unrest: The Historical Correlation Between Financial Security and Social Stability
July 14, 2020
There’s a lot of social unrest these days, wouldn’t you agree?
Apropos…It’s Bastille Day in France—the wine is flowing, the shops are closed and the sun is shining brightly as the French take a day to recall July 14, 1789.
This was the turning point date in the French revolution when a crowd of legitimately angry Parisians stormed the Bastille prison in an open act of defiance against a broken financial and political system.
But July 14, 2020 feels a bit ironic this year, especially for an American in Paris…
Angry American crowds, after all, are making headlines themselves, and although social and financial conditions may appear far better in the modern USA than those of 1789 France, one might want to pause and think a bit deeper.
As I’ve written HERE, the irony is that current global debt, market and social conditions are eerily similar to the conditions which stimulated the pitchforks of 1789 France.
Nowhere is this truer than in the USA of 2020.
Historical Correlations—From Markets to Main Street
Investors like to track correlations. Historians as well. Stocks follow the Fed and social unrest follows rigged and deteriorating financial schemes.
In trying to understand what makes stocks “tick,” for example, there’s always an analyst somewhere tracking everything from oil prices and money supply levels to the number of Presidential tweets to track patterns of cause and effect.
Needless to say, I’m no different.
For years I’ve been tracking the correlation of mis-information coming out of the Fed (in everything from inflation reporting to jobs data) and a rising equity market.
Equally correlated is the relationship between rising money printing and rising stock indexes.
In short, one effects the other.
By way of further example, one can track how bond ETF’s bought by a Fed money printer go up rather than down, making for an easy front-run for the simple reason that the two forces are openly, well: “correlated.”
What the Fed prints and buys goes up in price. Voila.
You get the drift: One market force can affect another market force.
Market Forces Affect Social Forces Too…
In the US, there’s been a lot of social unrest, rioting, anger and unease making the front pages—even here in Europe.
Some attribute this social unrest to racial tensions, others to pent-up lock-down “hysteria;” still others think all this social unrest is correlated to extreme political partisanship.
But whether the growing social unrest in the US is fanned by increasingly polarized debates over race, gender, sexual orientation, or theories on police brutality or partisan politics, it’s fairly undeniable that 2020 has not been a very good year for “uniting” the States of America.
So, what gives?
Why is 2020 such a bad year for social unrest? Why are statues tumbling, cities rioting, politicians scrambling and media bobbleheads fighting like hungry wolves to signal virtue (left or right) at every opportunity?
Does all this open anger and social unrest really boil down to an obviously bad cop doing an obviously horrific thing in Minnesota?
Or is there something larger at play here?
In short, what’s the root “cause” of all this unpleasant “effect”?
Financial Crisis Equals Social Unrest
Well, my take on this rising frustration and social unrest is fairly blunt.
It boils down to a simple correlation seen and studied throughout history, from the ancient Romans to the France of Marie Antoinette, the Germany of 1933 to the Russia of 1917, or from modern Wall Street to current Main Street.
Namely, when openly rigged financial conditions begin to fall apart, the natives get restless.
In other words, social unrest follows economic weakness, and our economies, riddled by debt and sustained by more debt, are weak.
This simple reality of cause and effect is, of course, mostly ignored by the prompt readers and Hollywood celebrities scrambling to appear racially, sexually or politically progressive despite knowing almost nothing about history, economics or basic identity politics.
As always, they are missing one key reality, and that’s the economic correlation between financial insecurity and social stability.
If you take away the former, the later falls apart.
That’s why markets, central banks, and yield curves are more important than just predictors of the price movement in risk assets—they are also predictors of history, of the very world and stability beneath our feat.
In short, economics matter.
For years, I’ve warned about the disgraceful wealth gap in the U.S.; I’ve warned that the shamelessly obvious and rigged game played between the Fed and Wall Street has been devastating to the dying middle class.
I’ve also warned that such a rigged game ends badly, causing social unrest and recession from the bottom up as Wall Street enjoys a bailout and recessionary new highs while the ignored core of the nation rots from within.
Such blatant disconnects between what families, individuals and investors feel in their wallets and dinner table conversations and what we hear from DC, CNBC or FOX just feels, well: silly.
This is because we all know that regardless of our politics or individual take on objective rather than inflamed data on everything from police shootings to transgender bathrooms, whatever Don Lemon or Sean Hannity thinks is not nearly as relevant to one’s daily reality as to whether one can pay his/her mortgage, make a car payment or send their kids to school in the fall.
Again—economics matter. Money matters.
And given that markets tanked in early 2020 and jobs were lost, is there really any surprise that social unrest—inflamed by COVID fears, frustrations and policy debates—has risen in direct step with economic pain, one following the other?
In short, people are worried about money. It’s just that basic. And when those worries peak, so too does social unrest and finger-pointing in every compass direction.
The policy makers, of course, are trying to hide their guilt for decades of excessive debt policies behind the COVID crisis, but as all informed investors know, the fatal weaknesses in our markets and economies existed long before the Cornavirus arrived.
Financial Cause & Effect is Global, Historical and Inevitable
Nor is this link between financial disaster and social unrest just a U.S. problem. It’s a human problem, and as such, it’s a global problem.
Take the biggest pension fund in the world—the Japanese Government Pension Investment Fund. It just lost over $160 billion in the first quarter of this infamous 2020.
Needless to say, that’s a genuine moment of “Uh-oh.”
But as I’ve written elsewhere about US pension funds here and here, these retirement funds are equally broke–too broke, in fact, to pay all those school teachers, firemen and other employees whom they’ve promised a safe retirement for years.
Such unspoken disasters and deeply rooted fears lurking behind our rigged markets makes people legitimately upset.
They are angry, frustrated and looking for someone, something—anything—to blame.
Now there’s talk of limiting the police forces; my opinion is limiting the Fed would be a far better solution for America. But I digress…
I’m a proud capitalist with an admitted sweet tooth for the good things in life. I like money. I don’t apologize for this.
But when three US billionaires have more wealth than 50% of the entire nation, one has to wonder just how long social unrest like the kind we are seeing today can be contained.
As I’ve written many places elsewhere, Capitalism has died, replaced instead by Wall Street Socialism, the kind that ruins rather than builds nations, the kind that fans economic inequality and social unrest.
For this, we can thank anti-heroes like Greenspan, Summers and Musk—all of whom struggle pathologically with a concept called transparency.
At Signals Matter, however, our market signals and portfolio performance are proudly transparent.
Sure, we track history in broad reports like this one, but more importantly, we track market signals for our subscribers with even greater attention to detail.
The results speak for themselves.
Again, today is Bastille Day, so I’m gonna take a break from the markets here in the EU and sip a large glass of red and think about history, wine and the currents of cause and effect.
And those currents are swirling…
With 1) over $260 trillion in global debt, 2) GDP tanking and 3) other hard-fact indicators pointing toward an obvious moment of current and future moments of global financial “Uh-Oh,” one must not ignore the lessons of history nor the active management of one’s portfolio and wealth.
In fact, the more I think about such facts and lessons, the more wine I think I’ll need today. With everything so upside down in the US and elsewhere, at least our portfolios make sense.
Cheers, and Happy Bastille Day…
Sincerely,
Matt & Tom
Excellent article with which I could not agree more. No doubt that income inequalities in the world in general but specifically in the US are behind the success of populism in the form of Trumpism . Warren Buffet years ago spend hours in the Congress trying to convince them that the present tax system in the US needs to be change in order to have a heavier tax load on the upper ten per cent of income generators and reduce the load in the middle and lower class of the population. This would help in providing more liquidity to most Americans helping them in their consumption and investment requirements. Therefore replacing the spillover theory of Regonomics that hardly happened, by real consumptions and investments of a lager amount of the population benefiting from these policies of Tax reductions.