The Morning Line
And Now Microsoft Leads the Stampede!
Microsoft’s bullish rampage last week added to already strong evidence that the stock market is headed to new records highs. The shares of the software leviathan’s shares not only jackhammered through granite resistance in the form of the midpoint ‘Hidden Pivot’ shown in the chart, they ended the week decisively above it. This technical telltale is almost never wrong, as Rick’s Picks subscribers could attest. When a stock fist-pumps through the midpoint ‘Hidden Pivot’ and then stays above it for even a short while, the rally is all but certain to reach the ‘D’ target — in this case 430.58. That would equate to a 30% rally from current levels, putting MSFT 80 points above the old all-time high at 349. If the Dow Industrials were to achieve a relatively modest gain of 20% over the same period, they would be trading just shy of 40,000 — substantially above the record 36,952 achieved in the early days of 2022.
Previously, I wrote that similar wilding sprees in Chipotle and AAPL were pointing to the same outcome: new all-time highs for the broad averages. With a third world-beater joining the list, an enticing bet on new all-time highs has become even juicier. This is despite the fact that the radically inverted yield curve the financial system just weathered has never been wrong in predicting a recession. Factor in a collapse in commercial real estate that appears inevitable, as well as a wave of bank failures that even Janet Yellen is expecting, and it would seem that stocks are facing a perfect storm of deflationary forces. So how come your editor, a hard-core bear’s bear, thinks stocks are just now lifting from the launching pad? Very simply, because the market is a rabid beast, inured to all logic, common sense and caution. Greed is what impels it higher, and the effect intensifies the higher the market goes.
‘Rhythming’ Three Stocks
Since nothing is 100% certain, I will continue to monitor the charts of Chipotle, Apple and Microsoft for signs of a stall at lesser Hidden Pivot targets. AAPL has yet to exceed the last such resistance it faced, but last week’s rebound could put it back in gear with MSFT and CMG. The next important number to watch in MSFT is 335,69, a Hidden Pivot target that lies just $4 above Friday’s close. The ABCD pattern used to project that target is gnarly enough to be off the radar of most chartists, and that’s why I expect a tradeable top of at least short-term importance to occur there.
All of these stocks are favorites of the chimpanzees who purport to manage your portfolio by holding onto just a small handful of stocks forever. A bear market that is inevitable will someday force redemptions of erstwhile no-brainer stocks in times when there are no buyers. Until then, shares can and will continue to rise, often into airless gaps in which no shares or money changes hands. Although this may sound like a perpetual motion machine that creates money from nothing, it assuredly cannot continue for long, let alone forever. It is perversely drawing energy at the moment by flouting the investor maxim, “Go away in May.” The boring summer many expect could give our three bellwether stocks an opportunity to reach their Hidden Pivot D targets by mid-summer. That would put the market in good position to do a Pearl Harbor on the multitudes who think historical crashes happen only in October.
Did the Bear Rally Top on Friday?
Maybe.
Yeah, right. A headline here just two weeks ago implied that stocks were about to go bananas: Why a Permabear Is Certain We’re Going Much Higher. Hubris aside, this was based on the very bullish chart of just one stock, Chipotle (CMG). It had just crossed the $2,000 threshold and appeared — still appears — bound for a rendezvous with a Hidden Pivot target at $2,739 that lies $600 above Friday’s close. Some might question the logic of using a projection for a single stock to make a prediction about the stock market as a whole. I am confident that my method, more intuitive than factual, will prove superior to the benighted, self-serving blather coming from the likes of Jim Cramer, various talking heads on the financial news shows, and from Wall Street shills who get paid by the word to tell us why we should be bullish.
These mongers of gladness will always try to connect the stock market’s performance with supposedly objective facts tied to the economy and corporate earnings. Unfortunately, and has been demonstrated time and again, this is like trying to predict the behavior of a sea snake by analyzing the contents of the ocean. And in case you haven’t noticed, the “facts” that the talking heads cite unrelentingly are used almost solely for one purpose: to justify buying stocks at any price, no matter how grim the economic outlook. (And it is indeed grim, with little doubt that a collapse in commercial real estate is imminent, accompanied by a potentially catastrophic wave of bank failures.)
Vaporous ‘Wealth’
None of which argues that stocks cannot continue to climb heedlessly. It’s not as though it takes bullish buying or even real money to make this happen. To the contrary, most of the big rallies occur on short-covering gaps in which little or no stock changes hands. When Chipotle gapped $267 points higher on April 26, it added more than $7 billion of vaporous ‘wealth’ to the ‘economy’. AAPL’s biggest gaps have sometimes added ten times as much — in just a few hours., with little actual buying taking place.
So how do I square the bullish certitude of my headline from two weeks ago with today’s downgrade to “maybe”? The reason is simple: AAPL hit a 176.39 high on Friday that fell just pennies shy of a rally target I began to drum-roll months ago. If the stock is about to resume the bear market begun from 182.94 as seems possible, then Chipotle is not going to hit $2739. This is an instinctual and very simple way of looking at how things might turn out, with two key stocks acting as checks against each other. I trust my charts and methods far more than I do narcotic ideas hatched by Wall Street’s quack team of analysts.
Bond Bulls Seemed Just as Crazy in 1981
[Editor’s note: The following commentary draws parallels between today’s bond market environment and the last great bear market in bonds, which bottomed in 1981. It went out last month to clients of my friend Doug Behnfield, a financial advisor and senior vice president at Morgan Stanley Wealth Management in Boulder. Long-time followers of Rick’s Picks will be familiar with Doug’s unconventional thoughts on the markets, since they have been featured here many times before. I have always referred to him not only as the smartest investor I know, but one of the smartest guys. I am grateful to him for allowing me to share his insights with you. The charts are my own, since they reproduced better than the ones that accompanied Doug’s letter. Also, the photo of the annual Pamplona stampede is an emphatic touch of my own, since I share Doug’s very contrarian bullishness on Treasury debt. RA ]
Lately, I have been telling the story of my experience leading up to the all-time high in long-term Treasury bond rates that occurred in late 1981. I was kind of a rookie, having started at Merrill Lynch in late 1977 (at age 22). 30-year Treasury bond yields peaked at 15.25% in September 1981 and by then, 6-month CDs were paying 18.5% and the yield on the Merrill Lynch Ready Assets Trust money market fund was pushing 20%. Bond yields had rocketed from 10% to 15% over about 15 months so 30-year Treasury bond prices were down 35% compared to mid-1980. The reason rates got so high was attributable to steeply rising inflation and determined rate hikes by the Volcker Fed to put a stop to it. Back then CPI inflation had reached almost 14%. It was driven mostly by demand coming from an army of emerging Baby Boomers forming households and rocketing oil prices. Crude oil rose from $7.50 per barrel in 1975 to over $34 in 1981. Martha and I bought our first little bungalow in 1979 after being on our own for a couple of years.
As a stockbroker in Denver in 1981, my target market included wealthy oil company executives that were retiring and looking to invest their $600,000 IRA rollovers. (Back then, $600,000 was like millions). Anyway, “The Death of Equities” was a recent Business Week cover, appearing in August 1979, and stocks and bonds were both out of favor. They wanted “guaranteed” investments.
In the 2005 edition introduction of the Homer and Sylla classic A History of Interest Rates, here’s what the authors had to say about this period:
“The spectacular rise in interest rates during the 1970’s and early 1980’s pushed many long-term market rates on prime credits up to levels never before approached, much less reached, in modern history. A long view, provided by this history, shows that recent peak yields were far above the highest prime long-term rates reported in the United States since 1800, in England since 1700, or in Holland since 1600. In other words, since modern capital markets came into existence, there have never been such high long-term rates as we had all over the world a quarter century ago.”
Merrill Out Front
Paradoxically, Merrill Lynch Research declared “The Dawn of the New Bull Market in Bonds” in a full page add in The Wall Street Journal in June of 1981.
“In 1981, Richard J. Hoffman, then chief investment strategist for Merrill Lynch & Co., forecast what he called “The Dawn of the New Bull Market.” At the time, his outlook for steep interest rate declines and the favorable environment that would be created for fixed-income securities seemed almost ludicrous. Double-digit interest rates had reached 15 1/4% then and were expected to climb even higher.”
Pounding the table for long-term bonds was perhaps the best call the firm ever made. But imagine the conversation with clients. “Mr. Amoco executive, rather than buying a six-month CD at 18.5%, I think you should tie your money up for 30 years at 15% in an instrument that is down 35% in value in the last 15 months”. People in the investment profession during that period could not be blamed for thinking that the brilliant screenwriter of the “Yellowstone” television series, Taylor Sheridan, should consider writing a show about this. “1981: Selling Retirees on Making an Investment in Bonds at the All-Time Lows”.
Anyway, $600,000 invested in 30-year Treasuries at 15% would have provided $90,000 for life in risk-free, non-callable interest income. In the six-month CD at 18.5%, the number was $111,000, but after six months, who knows? What actually happened was that five years later, six-month CDs were yielding 5% (on their way eventually to below 1%) and the 30-year Treasury Bond was trading at a yield of 7.53%. If they chose the CD, their $600,000 was still $600,000, but their income was now $30,000. If they picked door number two by some remarkable act of salesmanship, they were still collecting $90,000 per year in income, but their account had also appreciated by about 89% to over $1.13 million, because bond prices appreciate when rates decline. The drop in rates was attributed to a recession that reduced demand, so inflation dropped, and the Volcker Fed cut rates dramatically to stimulate economic activity.
The moral of this story is that there is no such thing as a non-decision when it comes to picking your maturity. What was popularly understood to be a no-brainer in 1981 (the CD) turned out to be a “wrong” investment decision. At the all-time bottom in price (peak in yield) for long-term Treasury bonds in 1981, the popular belief was that inflation was headed to 20% and rates had nowhere to go but up. Human nature makes stepping back and considering the cyclicality of markets tremendously difficult at extremes. That, in turn, leads to linear thinking just when the cycle is reversing. Today, cash at 4%-5% is very popular. Why tie up your money for 30 years in a Treasury bond at 3.65% (at the peak last October, they were 4.4%)? It is a very good question.
2022: The Worst Year for Bonds in Memory and The Dawn of a New Bull Market in Bonds
The recession that could have begun a year ago may have waited until now when the Fed precipitated an “accident”. Jeremy Grantham mentioned something in conversation right after the failure of regional banks that I thought created a wonderful visual:
“When you are looking up at the dam, you can never tell which brick will be the first to pop.”
Since the banking crisis began last month, the expectation for a “pause” on the part of the Fed and the likelihood of rate cuts later this year have replaced “higher for longer”. Mike Wilson, Morgan Stanley’s Chief Investment Strategist, points out in a recent comment that the “credit crunch” associated with the banking crisis will have an extremely negative impact on the economy and corporate earnings. But before that brick popped, the Index of Leading Indicators and the shape of the yield curve were already suggesting a recession. A credit crunch will just make it worse if it occurs.
Business Cycle
Historically, it is the recessionary part of the business cycle that includes declining inflation and Fed easing. That causes the yield on bonds to drop and the price to rise. In the current cycle, inflation peaked at 9.1% last June and at the most current reading (March) it has dropped to 5.1% on a trailing 12-month basis. Subsequently, 30-year Treasury bond rates peaked in late October at 4.425% and have come down in irregular fashion to 3.65%. The magnitude of the recovery in bond prices will depend largely on how severe the recession is.
.In the chart above, the increase in yield from December 2021 to the peak in late October 2022 was 2.75% (1.678% to 4.425%). The price of the 1.875% Treasury bond due November 15, 2051, declined from 104.69 in December 2021 to 58.625 in October 2022. This was a price decline of 44%. Today, that same bond trades at 68.25 to yield 3.68%. Therefore, a hypothetical “round-trip” return to a 2021 level of 1.7% would result in a price of 103.95 and an appreciation of 52% from here (and 77% off the low last October). A decline of that magnitude would require a dramatic decline in inflation and in the Fed Funds rate. In 2021, inflation began the year at 1.7% after hovering between 0% and 2% in 2020. Fed Funds were set at 0.25% throughout 2021 and into 2022. Regardless, from a risk/reward perspective, recessionary periods have historically resulted in superior returns for bonds compared to most other investment categories
Since the failure of several mid-sized banks due to a deposit run early last month, expectations for Fed policy have changed dramatically. Prior to this banking crisis, market expectations were that the Fed would hike rates several more times and not start lowering them until sometime next year. This view was supported by Fed guidance and strong economic data from January that previously supported the argument for a “soft landing”, i.e., no recession. In addition, the stock market was recovering from year-end 2022 into early February of this year.
However, since the bank failures in early March, markets have priced in an end to Fed hikes next month and rate cuts beginning in the second half of this year.
Long-term bond rates have declined, and stocks have rallied back a bit on the prospect of a more accommodative Fed, but Mike Wilson continues to forecast a dramatic decline in stocks over the next few months. Based on current market valuations and the likelihood of a profits recession that will result in very disappointing corporate earnings, he anticipates a decline in the S&P 500 to approximately 3000, from a current level of 4100. In the meantime, extreme stress in the commercial real estate market and the impact that it will have on credit conditions for bank lending is of further concern, as expressed by Lisa Shalett, our Chief Investment Officer.
Great Financial Crisis
“While totally different from the credit problems of the 2008 Great Financial Crisis, it features knock-on effects that are apt to be detrimental to economic growth, employment, and corporate profits. With the odds of recession now rising as bank lending tightens, we view optimistic forecasts priced into stock markets as even more at risk.”
In summary, deflationary forces in the economy have been exacerbated by aggressive Fed rate hikes and the magnitude of the ensuing economic contraction will be revealed over time. Problems in the banking system have all the earmarks of the type of “accident” that has often reversed the interest rate cycle from up to down. Historically, rates and inflation only find a bottom once a recession has run its course and the Fed has completed an easing cycle. That will most likely mark the peak in the recovery of long-term Treasury bond prices.
To conclude on a personal note, I always run my Quarterly Commentaries by some of my closest associates for input, and David Rosenberg emphasized the historical perspective of this one. The remarkable decline in bond prices in the year ending in October of last year is an example of historically significant market events. We discussed how difficult it is to offer investment advice, particularly when times are fraught with risk. It is those times when the importance of preservation of capital meets head-on with investment opportunity. A historical perspective becomes indispensable. Investment strategy decisions are never more challenging than times like these. David offered me several of his favorite quotes on historical perspective: Confucius: “Study the past and you define the future.” Rudyard Kipling: “If history were taught in the form of stories, it would never be forgotten.” Winston S. Churchill: “The farther backward you can look, the farther forward you are likely to see.”
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AI’s Bland Stupidity Guarantees Its Success
Here’s a link to my recent interview with Howe Street’s Jim Goddard. We talked about the very promising future for AI chat bots, because they are as dumb and unimaginative as the legal boilerplate they will soon be churning out. So long, lawyers! We won’t miss you. Jim and I also discussed the stock market’s absurd, impossible, heedless, climb, which I expect to continue.
Why a Permabear Is Certain We’re Going Much Higher (II)
[I’m giving the commentary below a second week on the front page because the thesis is so outrageous even I can scarcely believe it. Stocks screamed higher to end the week, as if everything were right with the world. What lunacy! Investors have truly gone out of their minds. Reportedly, there are 186 U.S. banks on the verge of failure. Although the Fed was able to paper over the collapse of three sizable ones earlier this year, what will happen when a few more fall in rapid succession? The minefield this will create will be impossible to navigate.
A run on the banks is a very real possibility no matter what a stock market gone vertical would have us believe. For the time being, however, I’m sticking with my seemingly nutty forecast, since the very bullish look of two bellwethers, Chipotle and Apple, suggests they and a few other institutional must-owns will continue to drag the broad averages higher. Stay tuned. Next week: Why my friend Doug Behnfield, a Boulder-based wealth advisor whose thoughts have been featured here many times, thinks Treasury bonds are the place to be. RA ]
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Like many of my subscribers, I have been waiting for the stock market to crash so that sanity might have a chance to recover its footing in the investment world. Permabears can always come up with good reasons to explain why a crash is imminent. Some use technical tools for this. Others cite public and private debts that have grown far too large to repay, and high stock-market valuations that do no square with a credit-driven economy that has been struggling harder and harder to grow. Even Biblical prophesies of doom appear to be gaining sway as the tenets of Western religion come under heavy attack. If the End of Days were indeed just months or even weeks away, wouldn’t America look much like it does, its biggest cities rife with crime, squalor and corruption?
What Bad News?
And yet the stock market continues to chug blithely higher, well capable of achieving new record highs despite big layoffs by large companies, softening real estate prices and dim prospects for corporate earnings. We should have learned by now that Mr. Market can ignore bad news for as long as he pleases. Thus do share prices continue to ratchet higher on cooked data and faint support from the economy. Under the circumstances, many of us grow more skeptical each day toward a seemingly heedless bull market.
So why is your editor, a true bear’s bear, so bullish on stocks at the moment? The chart above explains why. It shows Chipotle (CMG) shares in a vertical climb that projects to as high as $2739. That would be a 34% gain over its current price. My technical runes suggest that this is very likely to happen. Mainly, it is the way buyers shredded the red line, a ‘midpoint Hidden Pivot’ resistance. Whenever this telltale gives way so easily, especially in the context of a bullish pattern as compelling as this one, it means the D target will be reached.
A Bull-Market Illusion
If so, it will not occur in a vacuum while other stocks languish or slip into a bear market. CMG is as much a proxy for institutional mindset as AAPL, a bellwether featured here many times in the past for the same reason. The portfolio managers who control mega-cap stocks want them higher simply because sticking with a half-dozen-or-so stocks as they continue to rise on autopilot has been an unbeatable way for even the laziest and stupidest among them to make money hand-over-fist. All they need do to exploit the rise of AAPL, CMG and a few other world-beaters that have vivified the illusion of a robust bull market is to stay out of the way. Absent their participation, short-covering on thin volume will lift stocks without requiring much capital. That’s because gap-up openings that have become routine over the last year or so have enabled stocks to waft into thin, frictionless air. It is a perpetual motion machine of sorts, at least while it lasts.
Bottom line, if you’re going to rely on someone else’s bullish forecasts, wouldn’t you rather it come from a disinterested technician who hates the market than from some permabullish simpleton who doesn’t believe in recessions and thinks stocks are headed to infinity?
It’s All Good, Sort of…
Readers will be pleased to hear that Alissa Heinerscheid, the Anheuser-Busch marketing whiz responsible for featuring Dylan Mulvaney’s unwholesome mug on cans of Bud Light, appears to have lost her job. A-B reportedly put Heinerscheid on a leave of absence, replacing her with a senior executive. Since the megabrewer is unlikely to promote Alissa, and because she doesn’t appear to be the kind of gal who would accept a permanent career plateau gracefully, it’s safe to assume she will soon be seeking work elsewhere. The woman was cursed with a face made for radio, but don’t be surprised if she scores a cushy off-camera sinecure at CNN or the White House. We wish her quick and total success as she sinks back into obscurity.
The disappointing news is that Anheuser-Busch has yet to apologize for offending the vast majority of its customers by making a flaming fruitcake its spokeswhatever for a quintessentially mainstream brand. Curiously, even in a world that increasingly seems to reward evildoers and pander to woke wackos, BUD shares look poised for an upside breakout. This is despite a reported 10% drop in Bud Light sales. Investors evidently believe the brand will rebound fully, but don’t bet on it.
A Medically Concerning Chart
Concerning the chart above, it shows the E-Mini S&Ps in a day-long series of spasms on Friday that would be medically concerning if the S&Ps were human. But guess what! The S&Ps actually are human insofar as they act to fulfill the conscious and subconscious demands of all market participants at every instant. Moreover, the human thoughts that animate stocks are often so fraught with fear and greed as to produce price swings wild enough to be labeled aberrational or even psychotic. Realize that the swings are a perfect visual analog for the conflicting ids and egos of millions of traders and investors as they go about their business. Their instructions cannot but clash because each and every participant has the same objective on a given day: beating everyone else at stock-market pinball.
The moving dot on the chart that does their bidding must fulfill thousands of instructions every nanosecond. However, because the dot can be in only one place at a time, you can imagine how wildly it must foxtrot, shuffle and jitterbug to get it all done. It is a daunting task making certain that as many traders as possible get reamed on a given day. The crazy dot’s frightening unpredictability as it goes about this thankless job reminds me of the nasty little critter in the movie Alien. Remember how it vanished for a couple of minutes, then emerged explosively from a crew member’s chest? To make matters even worse, it dripped acid-blood that melted through the titanium floor of the spaceship. In a world populated solely by hairy-knuckled S&P traders, critters like this one would be mere house pets.
So where was I going with this? Ah, yes: My gut feeling is that the increasingly volatile stock market is close to an important top. Furthermore, anyone who thinks otherwise, especially those who actually believe that shares somehow deserve to be higher, is about to get a whupping. Perhaps they will see the light when the crash in real estate and rentals coming later this year literally hits home?
Support a Libertarian!
Finally, here’s a plea to those of you who may be feeling terminally fatigued by America’s low-grade civil war. My good friend Seth Grossman is a principled Libertarian who has been fighting for the cause of political sanity his entire life. Heavily outspent, he ran an unexpectedly close race against the very popular Jeff VanDrew in the last Congressional election. Please consider subscribing to his free weekly newsletter by clicking here. It is a marvel of lucid, entertaining writing, filled with sincere purpose, practical ideas and a cutting wit.
Seth often draws on his deep and wise understanding of U.S. history to strengthen his case. Recently he tried to save an important New Jersey power plant from being destroyed by climate zealots and the state’s deep-blue political leadership. Alas, he reports, “there is nothing wrong with the equipment or building at ‘B.F. England’ power plant at Beesley’s Point in Marmora, N.J. (Garden State Parkway milepost 28). We need them for reliable and affordable electricity in South Jersey. Democratic Gov. Murphy and majorities in the Legislature forced them to be destroyed on Friday, April 21. Not a single Republican leader or official opposed them in any way.
“When the Beesley’s Point power plant is gone, we will pay much higher prices for electricity. We will also have far more power failures. That is because our most productive power plants are being deliberately destroyed at a time when the government is also forcing us to buy electric cars, trucks and buses that demand more electricity than ever…”
A travesty much like this one may someday encroach on your neighborhood – and possibly even on your life. Again, please consider subscribing to Seth’s excellent, free newsletter by clicking on this link It promotes, advises and informs the only kind of activism capable of lifting America from its deep and destructive wallow in discord.
Spuds MacKenzie Is Rolling in His Grave
The toppy look of Anheuser-Busch’s stock chart (above) implies that the company is at least somewhat likely to lose sales because of its attempt to shove the wretchedly unlovely Dylan Mulvaney down our throats. Bud Light is undrinkable pisswater to begin with, so perhaps we should not be cheering on the frat boys who made it America’s #1 rotgut, surpassing even Rolling Rock, but giving begrudging credit to the woke schemer in A-B’s marketing department who managed to spin the brand out to the farthest reaches of the galaxy.
Choosing a flaming fruitcake to be Bud Light’s spokeswhatever was the brainchild of a 39-year-old, Ivy-educated provocateur named Alissa Heinerscheid, and there’s no denying that the brewhaha this prank stirred up has made her a hero to half of America. But that still leaves the other half to boycott Bud Light and sundry other products distributed by Anheuser-Busch. The list includes Stella Artois (which, despite its popularity in the U.S., Belgians evidently regard as their pisswater), Monster Energy Drink and a gallimaufry of craft beers.
Dylan’s Journey
It is by no means assured that Anheuser will lose out, let alone that they will cashier Heinerscheid. Before she even hired Mulvaney, the vomitous saga of his regression to faux girlhood had attracted a reported five million gawkers on TikTok. He is a top influencer and arguably unmenacing as long as he’s not chatting up little girls in the schoolyard. Fortunately, Heinerscheid’s reach does not yet extend into our back yards. And it is just possible that overexposure will soon force her and her employer to back the hell off. To support this outcome, here’s a supposed photo of her cavorting with fratty girls at a Harvard party in 2005. Blowing up condoms, admittedly, is unexceptionable behavior for party girls and debutantes who have mastered the intricacies of beer pong. However, if Heinerscheid is the hypocrite she appears to be, this snapshot won’t be the last to embarrass her. It would be ironic if the current It Girl of woke-dom were to experience actual victimhood as, say, the unwitting, debauched star of a faux-video produced by CelebJihad.com, Taylor Swift’s brutal nemesis. Let’s hope she has the good humor to, um, take it in stride.
But I digress. Concerning price action in Budweiser shares, the ostensible subject of this commentary, two weeks ago I’d have made BUD an even bet to test highs near 80 recorded in June 2021. However, the fact that the stock topped precisely at the 66.95 ‘Hidden Pivot’ target shown in the chart warrants a yellow flag as long as Mulvaney has breath enough to flounce, vamp and embarrass the nation. BUD surpassed some prior peaks before reaching the target, and that is bullish. If the unthinkable happens and Heinerscheid’s outrageous gamble produces higher sales for Bud Light, then America is in far worse shape than I had imagined.
Lawyers Have Much to Fear from AI Bots
Anyone who has played around with ChatGPT knows that it is just dumb enough to succeed wildly. It harbors no opinions, grudges or wit, and it can talk a blue streak without saying anything interesting or exceptionable. This kind of artificial intelligence seems perfectly suited to mimicking the rote tasks that lawyers charge clients hundreds or even thousands of dollars an hour to perform. And not just churning out boilerplate, either. Put a voice-activated bot in a courtroom and, without a mote of prejudice, it will prosecute or defend whoever is in the docket by drawing on the entire, vast library of U.S. jurisprudence. Will we even need judges to decide cases or instruct juries when machine intelligence can split hairs of precedent down to inarguable singularity?
These thoughts occurred to me as I reviewed a lawyer letter for which I had paid a South Florida attorney $1,000. He made a novel argument concerning why I would be suing the officers of a particular company personally rather than corporately. Their lawyer responded with two thousand words that said, basically, you can’t do that, and here’s why. These shysters would still be slinging legalese at each other for $450 an hour if I hadn’t pulled the plug on my guy. I’d paid him $2500 as a retainer; his invoice — including time spent tallying up the bill! — was for $2469. A coincidence, I’m sure. The invoice was stamped ‘Paid in full’, but I had to remind him that he still owed me the $31 difference. Small wonder that lawyer jokes are so vicious: What’s brown and black and looks good on a lawyer? A Doberman.
The ABA’s Turf
There can be no doubt that a lawyerly version of ChatGPT will soon enable litigants to cut to the chase, and for much less than $450 an hour. This will happen just as soon as the most aggressively entrepreneurial lawyers can come up with airtight ways to screw their colleagues out of the hefty fees they’ve grown accustomed to collecting for doing little or nothing that machines can’t already do better. The entrepreneurs will have a field day dismantling whatever barriers a desperate American Bar Association throws up to defend their turf. Buggy-whip manufacturers might as well have tried to thwart Henry Ford by picketing his Dearborn plant on opening day.
The dubious ability of even mediocre lawyers to earn a comfortable living spewing legalese is in its final days. As for young law school grads, they had better start looking for other ways to support a family, for the day is not far off when firms will no longer hire them to do grunt work that machines can do as effectively and with lightning speed, even with AI barely past its infancy.
To Hell in a Handbasket
Well, they finally indicted the proverbial ham sandwich last week, adding to our long list of worries that the world really is falling apart. It’s as good a time as any to trot out William Butler Yeats’ The Second Coming as a reminder of where things are headed. This is arguably the most powerful poem in the English language, so let your imagination run free as you read it:
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Opinions differed as to what the criminal indictment of our former president might mean politically. For The New York Piece of Shit Times, it was “a historic development that will shake up the 2024 presidential race and forever mark him as the nation’s first former president to face criminal charges.”
The Zapruder Awakening
For fully half of the nation’s voters, however, the Manhattan grand jury’s decision to charge Trump with paying hush money to a former mistress was just more Theatre of the Absurd from the same people who would have us believe Hunter Biden was framed. But there were no allegations of Russian disinformation this time, so perhaps the nation is making progress, however tiny, toward restoring civility and sanity to public discourse. Both last obtained until the early 1960s, before the Zapruder film raised questions about who killed JFK.
For better or worse, the stock market’s wildly erratic brand of sanity held constant last week as shares rallied strongly into simultaneous threats of global war, a run on regional banks, a drag-queen putsch in the nation’s cafetoriums, and an increasingly woke military leadership that may have to welcome the Avon lady in order to drive recruitment. On Wall Street it was business as usual, demonstrating yet again that make-believe debt money will continue to change hands at a brisk pace until cockroaches hold dominion over Earth.
Are Powell & Co. Actual Morons?
When I refer to Fed chairman Powell or to the Fed governors, collectively, as morons, I’m not suggesting that readers take this characterization literally. Indeed, most of them have IQs that are probably twice the 51-70 range that would categorize a person clinically as a moron. (It is only when casting aspersions on politicians, some of whom demonstrate persuasively and often that their IQs are in the 26-50 range, that the term “imbecile” may be construed literally.)
To give economists their due — even economists like Powell and ‘Easy Al’ Greenspan, who were elevated to positions of leadership by, mostly, political imbeciles — the men (and woman: Janet Yellen ) who inventively script U.S. monetary policy are intelligent and well-schooled. It is only when they attempt to bend their knowledge toward the running of the economy that we see clear evidence of impaired thinking. How else to characterize the moronic idea that the more we borrow, the richer we become? And yet, so devoted are economists to this crackpot scheme that they would set it aside only temporarily when it appears to beckon disaster. They tighten, that is, only to set up the next phase of easing. This has been the Fed’s MO since the central bank was created in 1913 as an instrument financiers could use to steal from the rest of us without detection. The ruse has succeeded to a degree that even the greediest of them may never have imagined, but at the cost of creating increasingly devastating boom-and-bust economic cycles over the last hundred years.
We’re All Bozos
We are all complicit, to be sure, since the Fed is able to ‘manage our expectations’ only because tens of millions of Americans think and act like economic morons. For instance, we borrow against inflated home values to buy worthless college degrees for our kids. And we factor those grotesquely inflated prices into our retirement plans. We continue to elect like-minded politicians who act as though we will never have to repay tens of trillions in debt that has piled up in the public and private pension systems, as well as in Medicare and the Social Security System. And we pretend that ‘forgiving’ $1.8Tr in college loans will have no economic consequences or an impact on lenders who would have to eat every penny of the loss.
Like all Ponzi schemes, the epic fraud that has buttressed our economic lives and the illusion of vast prosperity for decades will continue to work as long as asset values are inflating. But, as the ruinous outcomes that befell Bernie Madoff, Sam Bankman-Fried and their victims attest, the delusion that the financial systems is solvent cannot persist forever. Globally, the daisy chain of superleveraged debt from derivatives exceeds two quadrillion dollars. Even someone with an IQ of 80 would recognize that there is something gravely wrong when a $200 trillion global economy requires a banking edifice ten times that size to support it. An epiphany awaits, and don’t kid yourself if you think the balance sheet will settle via hyperinflation in favor of debtors. A hellish debt deflation is coming, and it needs only the catalyst of a bear market in stocks to come bearing down on us full-force.
To Pivot, or Not to Pivot, That Is the Question
To pivot, or not to pivot? That is the question Fed Chairman Powell will have pondered over the weekend while tending chicken breasts, franks and burgers spaced meticulously on the grating of a 148,000 BTU grill. If conscience doth indeed make cowards of us all, we might expect him to act boldly. But how? Does he risk gutting the American Dream for a generation or longer by staying the course? Recall that his last utterance, on March 7, implied not merely that credit tightening would continue, but that it would accelerate. The stock market reacted like a concertgoer sitting in the middle of a row who has just felt the first gurgle of food poisoning in his bowels. Sellers panicked with spasms that quickened as the week wore on, and it was fully five days before fears appeared to recede. Investors opened their air locks last Monday and cautiously drew a lungful of what they hoped would be oxygen. It was, with just enough helium to make the broad averages frolicsome at times, if not quite giddy.
One could almost forget that the U.S. economy is in shambles as some of the biggest multinational companies continue to scale back growth and axe workers by the tens of thousands. Biden’s tax proposal threatened to beggar what remains of America’s middle class; the nation’s military preparedness was being exported to Ukraine; and our three worst enemies — China, Russia and Iran — were making nice to each other. Although GDP growth was officially reported most recently at around 3%, pundits were unofficially speaking of recession as though it were an entrenched reality, not merely a threat.
The Haymaker
If the picture were not already grim enough, the haymaker came last weekend with the failure of two large banks that cater to tech companies, Silicon Valley Bank and Signature Bank. The Fed did what it had to do to calm the herd, lifting the $250,000 cap on insured deposits to…whatever. Backing from the U.S. Treasury and the FDIC supposedly put taxpayers on the hook for as much as $9 trillion, but when the numbers get that large, who’s counting any longer?
Powell has been almost Volcker-like in stomping his foot on the brake and keeping it there. He faces a tough choice, though, since even a pause rather than a pivot would act like methamphetamine on Wall Street’s tiny, fevered brain. My guess is that he will pause anyway, but with a profuse warning that the hiatus will not last. This cautionary note is unlikely to restrain the stock market, especially since everyone will recognize it as a bluff. Indeed, however much Powell & Co. may want to keep on tightening, they will not be able to do so when the so-far trickle of deposits leaking out of regional banks and into the digital vaults of the Big Four turns into a flood. We’ve all wondered for a decade what form the inevitable black swan might take, but this scenario seems plausible enough to be taken seriously.[For an explanation of why the Masters of the Universe and their Guvmint lackies could not impose a digital money system on America in a crisis, click here for my recent interview with Howe Street‘s Jim Goddard. I also explain why bitcoin is worth perhaps $3-$4 rather than $27,000 (let alone $70,000).]