There are very few events which go on to be hardened points in history where generations long after we’re all dead will point and say “There’s when it all turned.”
That said, living through them is far different (very different indeed) than reading about them in posterity. And Brexit, I believe, is going to mark not only one of those moments, but also, will change everything – for everyone. And yes I do mean everything and everyone.
When it comes to the vote on Brexit one issue can’t be swept under the rug (although many are desperately trying to rewrite history before the ink has even settled.) The so-called “smart crowd” of every sect in regards to the financial/business media not only got it wrong. They were adamant that even considering the opposing view proved how misinformed (if not imbecilic) one was to even consider the possibilities.
Now it is they who are scrambling for any open microphones, cameras, or keyboards to state for prosperity “Well, as I said, there was always a possibility blah, blah, blah.” And it’s here where the analogy of “fire-walking” comes into play. It’s been those of the so-called “smart crowd” whom for years have substituted a parlor trick (i.e., QE et al) for the equivalent of prudent monetary efficacy.
Now I’m sorry to be invoking Tony Robbins latest fire-walk debacle as an example. But the serendipity punctuates the whole idea of what has happened these last 7 years, culminating with the latest results. It’s just too hard to ignore. (To reiterate, I like TR, I just have a different viewpoint)
For those who may not be aware, once again, dozens were injured by sustaining burns to their feet while participating in what’s commonly known as “The fire-walk.” One of the reasons for doing this as stated via the event website is this: “Storm across a bed of hot coals. Once you start doing what you thought was impossible, you’ll conquer the other fires of your life with ease.”
The problem for me (and I have standing to make these comments for I am in the motivation, as well as business expertise business) with this whole exercise is this: It’s a parlor trick. A participatory kinetic metaphor. In other words – it doesn’t do anything other than give you the illusion that you’ve conquered fire. And that’s the problem because – you haven’t – you just “think” you have – until you get burned.
For nearly the last 8 years central bankers have been doing and acting much the same. e.g., as if they’ve “conquered fire.”
With the advent of “extraordinary measures” and “extreme accommodation” as the current setting for monetary policy, central bankers have been living in a world view as if they can no longer be burned. i.e., They have the all the tools necessary along with the wisdom on how and where to use them.
Then an event like Brexit takes place – and their house-of-cards appears ready to be engulfed in flames. Ironically, set ablaze by the incessant implementation of those very “tools.”
The problem they’ve never considered is how those very tools in which they believed helped them to “conquer fire” are precisely what will set the flames not only “to 11,” but ever higher the more they’re now applied. Again: The problem is not that there isn’t enough monetary accommodation. The problem is – there’s far too much. A thought which is anathema to any Keynesian devotee.
And like I said: that’s just the beginning of the problems currently facing central bankers. Remember: the real issue has never gone away. They were only masked in illusion.
Just like fire-walking current monetary policies are facilitated using a bit of scientific principles, and a whole-lot of parlor trick illusion. i.e., You didn’t do anything more than allow oneself to be fooled into thinking you weren’t getting burned because – you – were controlling “the fire.”
No, just like the fire-walk exercise it’s a well-known scientific fact one doesn’t get burned because of certain principles of physics at play. Let those conditions be swayed ever so slightly? See the afore-mentioned TR incident for clues.
The real issue now is that the prior economic theory (such as prolonged spraying of money across the financial markets with a fire-hose or drop it from helicopters) will now work in reverse morphing once again back into economic fact. i.e., the illusion falls apart directly in-front of the audience.
“Free money” is once again experiencing its alchemy moment, and morphing back into the equivalent of monetary gasoline. The more it’s applied from here-on-out – the more it will act as an accelerant, rather than fire-retardant.
Current central bank interventionism, (where QE and asset purchases are heralded, rather than scorned) along with its adherence to the zero bound, (where savers are put to the woodshed for the sake of Wall Street) will further fuel this into an all out inferno of monetary chaos and more. Brexit will be seen as the match that set all this current experimentation of economic theory and sorcery into the ash-heap of monetary history. Just let me add: And good riddance!
That being said, I make no allusion that there won’t to be upheavals, as well as gyrations within the capital markets which will make some of the scary moments during 2008 look tame in comparison. As a matter of fact – count on it.
As much as the voting results for Brexit were heard loud and clear. What has yet to be seen is how this disruption within the financial markets (i.e., Friday’s sell off) will be reacted to by Asia. And, more importantly: China.
The latest turmoil within the markets has only been expressed by what some may deem as more disciplined, as well as strategic or schooled traders throughout the West. Once China opens for business and the resulting swings which are all but inevitable fueled by the gyrations in one of the most oversubscribed carry-trade vehicles of choice: The ¥en. What takes place next is anyone’s guess as carry trades begin showing their stress in relation to Friday’s market moves.
Asia has had to sit on its hands over the weekend and watch the markets roil on Friday. This evening will be the first time those reactions will be acted upon in earnest.
Then, a few hours later: China opens. And with that said: All bets are off.
It’s here that “disciplined, as well as strategic and schooled traders” goes out the window. And no one knows that better than the politburo of China itself. How they react in what could shape into a re-enactment such as what transpired in August of last year is anyone’s guess. It could make Friday look calm. Nobody knows – especially the so-called “smart crowd.”
And once again lies that “fire-walk” issue I alluded to earlier. Nothing has been done except for giving central bankers (as well as the intelligentsia at large) the illusion that they’ve somehow managed to “control fire” via their monetary actions. They haven’t. It’s just been the illusion of control. And now the conditions to keep up the trick have since shifted. And if you attempt to do the same as previous? You’re going to get burned. And quite possibly – severely so.
Remember the old adage “Once bitten, twice shy?” Do you think this is just shaping up to be another BTFD (buy the f’n dip) moment once again? If you do – I have some great ocean front property in Kentucky you should consider first.
So how historic do I really think this Brexit vote will be looked at in the future? I believe the best way to think about it is in the same context as was written in a diary by a woman who was keeping notes during the monetary crisis of the Weimar Republic only switching out “hyperinflation” for Brexit. To wit:
“A month ago no one knew what Brexit was. Now? It’s all anyone will talk about.”
Yes, I do believe we are at the forefront of an extreme shift in everything in which everyone (everyone being a relative term) thought was “settled and behind us.” However, I will also add this…
If you are one of the few (where I hope this would be you dear reader) that no longer listened to the so-called “smart crowd,” and has diligently been preparing yourself with prudent and pragmatic strategies for business that requires 1+1=2 math; produces products people want; and will pay for; that result in actual net profits that can be deposited; and accounted for in actual bank balances. Rather, than seek some feel good styled parlor tricks to give you the illusion that you were actually accomplishing something. These are the moments in time where true fortunes, built on real businesses, that can last, are made.
No “fire-walk” required. Just fortitude.
© 2016 Mark St.Cyr