Laughing Stocks

It’s laughable!

Expert analyses on extreme equity valuations have been focused on everything but the major causal factor.

It’s laugh till you cry… till you realize how pathological it is.

The extreme valuation is because we are all chasing yield. Or it’s because the Fed is forcing us into high-risk assets. Or maybe it’s more because big corporates have been buying back stock… and the list goes on.

What has been driving equity value to the extreme is primarily consolidation of the wealth, but the best-and-the-brightest, highest paid professionals, are not allowed to say that. Instead, analyses focus on derivative values, tending to the political values of the masters of destiny who pay ambitious, upwardly mobile sub-elites handsome salaries and bonuses to do their will, bought and paid for, and thus subordinated, on demand, in the free marketplace.

At the extreme, being consolidated, and thus subordinated, how free is the marketplace, really?

The irony is so extreme it is pathological… and tragically comic!

(See articles by griffithlighton on the organized psychopathy.)

Look at, for example, the professed notion we have inflation so low it is not normal.

If the median income is falling, and the extreme, top-income class is rising, then prices naturally tend to deflate. This is being described as low inflation but, ironically, the normal rate of inflation still persists, deflating the median income.

Industry and markets have been rapidly consolidating, and there is a finance charge since it is paid for with borrowed money.

Financing is paid for by reducing the workforce, which is deflationary. Since the object is to force the median income down and the upper income up, inflation occurs in the form of product shaving to resist deflation.

With declining income and product shaving, you are actually working more for less, and paying more for less. The natural result is the extreme values being “accommodated” at abnormal rates.

Borrowing costs for consolidation are really low — deflated — along with the median income, being described as “the new normal.”

At this point, equity value is the laughingstock of risk-value in the political dimension. We laugh at what derives from it, on a regular basis, as a form of entertainment, with highly paid court jesters vested in the equity interest, and not a forum for actually doing something about it.

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More Extreme Indicators

When things get extreme it indicates a probability. Statisticians observe that extreme data points can indicate a probable trend, and in the case of financials, a decisional path.

Weak economic data combined with a convergent yield spread in the bond market, for example, indicates that the Fed may decide not to normalize rates. The data is still too extreme to chart a normal path.

Although equity values usually languish along summer’s path, indices are at record levels.

The narrowing spread between junk bonds and the 10-yr Treasury is said to be a bullish signal, but the bull is in the bear. The good is actually measuring how bad it really is.

There is every indication that the bulls will keep running to the store — grossing financial assets to chase up the yield that normally associates with taking the risk.

If you haven’t been selling into the strength, it’s a long way down to normal levels, yielding to less extreme measures.

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The Real and Actual Threat

Secretary of State Tillerson said today there is no current, actual threat from N. Korea. Nonetheless, the threat is real.

The useful value of a nuclear weapon (its currency) is its existential threat (its deterrence value). The threat is actually so bad it has the natural effect (knowing the “natural obligation,” Kant said) of doing the real good now (which is to actually use its real value, existing on demand, thus really knowing it without actually knowing it).

Again we have the scenario of the good deriving from the bad, and it is the realm of risk management to predict how it plays out.

Predicting the probable outcome, which is the occupation of space over time, is (like I’ve been telling you) a function of momentum. How fast things occur affects the decision path, so it is necessary for risk management models to predict the unpredictable path of momentum by structuring the progression of the threat in the form of response — which is the behavioralist model of stimulus-response.

Shaping the probable risk into a logical expression, like an algebraic equation, requires deontologizing the risk identity. (See articles by griffithlighton on deontology of the risk on demand.)

In the realm of military strategy there is graduated and flexible response. If the objective is for the momentum to be gradual, then there needs to be a structural incentive that operates on demand. President Trump, however, suggests that the response can be flexible based on actionable intelligence to “predict” the outcome of the threat in the futures now, which is to actualize (or deontologize) the risk on demand (having a logical, structured, temporal sequence that formulates a likely decisional path, in the future, to govern, or condition, behavior at current value — which is always now).

Again, keep in mind, there is a vanishing point suggested by how the picture looks now, framed within four corners. (See, for example, graphic images by griffith lighton depicting the notional, aesthetic value of “using” the vanishing point to express the occupation of space over time, extending into the realm of knowing without actually knowing, which is Immanuel Kant’s notion of objective reality, and being “obliged” to doing the right thing, no matter what decision is made at any particular time.)

Nature does not care if we actually know what reality is. It is going to happen anyway. We know, for example, that a solar eclipse is going to happen, and knowing why it happens has changed its attributive value. It is neither a good or bad omen of the future to be currently applied now. Instead, it is a predictable event, over time, that we naturally aspire to structure on demand to control for the probable risk, thus having current, useful value now. The “natural condition” (the Skinner Box) is always there, but we determine how it will play out, and in doing so, philosophy matters.

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Charting the Cyclically Adjusted Price to Earnings at Current Levels

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Record Inflation of Debt Assets

Total household debt is now a record $12.73 trillion.

http://www.marketwatch.com/story/us-households-will-soon-have-as-much-debt-as-they-had-in-2008-2017-04-03?link=MW_popular

The total debt liability is an asset on the books of banks, until it is swapped. Suddenly, there is the realization that the assets are actually a liability and markets move to swap it. Credit-Default Swaps (CDOs) rise and, just like in 08-09, credit markets freeze up, resulting in a liquidity crisis despite financial markets being awash with liquidity at record levels.

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Looking Back to See the Future Now

https://www.cnbc.com/id/100776807

Technical analysts were taking note of record-high equity valuations back in May, 2013. There appears to be a new causal identity not related to earnings, which is, of course, incorrect.

Earnings for the median income have been declining precipitously since 2007. Since the value does not disappear, but is transferred, having been consolidated using risk-transfer vehicles (derivatives), the “disparity” is not disconnected. Earnings have been used to buy back corporate equity to support equity prices in the futures now.

Unemployment keeps falling, suggesting a recovery, but median income is declining. Like conservatives say, capital will be put to work (a distribution on the accumulation will naturally occur) if we simply work more for less. The thing is that the distribution, at lower-earnings levels, is actually a deflationary trend.

Doing the good (naturally derived in dark markets, falsely described as the invisible hand) is really a bad thing.

Since the median income is falling, the demand has to come from somewhere. Consumer debt rose $12.4 billion in June, for example, and because the capacity to pay it is actually declining, there is real concern about how affordable the debt needed to drive a recovery really is.

The Fed says a falling unemployment rate triggers a rising interest rate, making the debt less affordable. This, the Fed says, is the process of normalizing rates, and since it will occur at a rate that demands more and more debt, we should consider the actual deflationary trend in progress to be business as usual.

The predictable result, as usual, is a credit-default crisis, and because the financial system is TBTF, we will be paying big-bank executives big bonuses, bailing out banks managed by the best and the brightest, using best practices.

It’s all good (being better than all the alternatives, as capitalists say), isn’t it?

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Disgorgement

(… or Whose Ox should be Gored?)

When so-called “entrepreneurs” like Martin Shkreli, and their investors, gorge themselves on profits derived from illegal or unethical behavior, like price gouging, the good to be done is to disgorge the benefit derived.

The ethical thing to do is to gored the ox (thus the term I use to describe the remedy, gorediation). It is not just a matter of coughing up what has been engorged, but to gored the beast and distribute the profits to the victims.

The counter argument is that gorediation deters entrepreneurship, and the argument is especially pronounced in the form of Randian Objectivism. If we deter the incentive to do the bad, Objectivists contend, there is no incentive to derive the good, either.

The Objectivist argument goes back to overthrowing The Social Contract. The king — the sovereign power — is entrusted with doing the public good. That means when businesses gross goods, for example, to gouge consumers, it is the duty of the sovereign power to protect the public and do the good.

Operating without the Social Contract, the US government nevertheless acts to do the public good by means of regulatory authority (which conservatives refer to as the unconstitutional authority of the administrative state, operating with the Social Contract). The synthesis of the constitutional republic with the Social Contract is reflected in the image of the Shkreli case (naturally forming the comparative dialectic I write about).

Since Shkreli’s investors profited handsomely, disgorgement, as he and his lawyers contend, is not a fitting remedy. So (as I contend, for example), the right thing to do, naturally, objectively, is to gored the ox!

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