Category Archive: 5.) Charles Hugh Smith

If Lockdown Is a Needless Over-Reaction, Then Why Did China Lockdown Half its Economy?

Recall that the initial deaths and related costs are only the first-order effects; policy makers have to consider the second-order effects. Everyone who reckons that the lockdown is needless and more destructive than the pandemic that triggered it has to answer this question: then why did China lockdown half its economy?

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When Bulls Are Over-Anxious to Catch the Rocketship Higher, This Isn’t the Bottom

Everyone with any position in today's market will be able to say they lived through a real Bear Market. In the echo chamber of a Bull Market, there's always a reason to get bullish: the consumer is spending, housing is strong, the Fed has our back, multiples are expanding, earnings are higher, stock buybacks will push valuations up, and so on, in an essentially endless parade of self-referential reasons to buy, buy, buy and ride the rocketship...

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The Wonderful Insanity of Globalization

So here's an April Fools congrats to globalization's many fools. The tradition here at Of Two Minds is to make use of April Fool's Day for a bit of parody or satire, but I'm breaking with tradition and presenting something that is all too real but borders on parody: the wonderful insanity of globalization.

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The New (Forced) Frugality

There are only two ways to survive a decline in income and net worth: slash expenses or default on debt. In post-World War II America, the cultural zeitgeist viewed frugality as a choice: permanent economic growth and federal anti-poverty programs steadily reduced the number of people in deep economic hardship (i.e. forced frugality) and raised the living standards of those in hardship to the point that the majority of households could choose to be...

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The Pandemic Is Accelerating the Breakdown That Began a Decade Ago

The feedback loop has reversed: by saving more, people will spend, borrow and speculate less, draining the fuel from any broadbased expansion. In eras of confidence and certainty, people save less and spend more freely. 

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Helicopter Money: Short-Term Relief Won’t Cure our Financial Disease

The collateral supporting the global mountain of debt is crumbling as speculative bubbles deflate. A great many freebies are being tossed in the Helicopter Money basket. That households experiencing declines in income need immediate support is obvious, as is the need to throw credit lifelines to small businesses.

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The System Will Not Return to “Normal,” and That’s Good; We Can Do Better

Essential home lockdown reading. The pandemic is revealing to all what many of us have known for a long time: the status quo was designed to fail and so its failure was not just predictable but inevitable. We've propped up a dysfunctional, wasteful and unsustainable system by pouring trillions of dollars in borrowed money down a multitude of ratholes to avoid a reckoning and a re-set.

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The Global Repricing of Assets Can’t Be Stopped

All bubbles pop, period. The financial elites are pushing a narrative that asset prices, sales and profits will all return to January 2020 levels as soon as the Covid-19 pandemic fades. Get real, baby. Nothing is going back to January 2020 levels. Rather than the "V-shaped recovery" expected by Goldman Sachs et al., the crash in asset prices will eventually gather momentum.

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Covid-19 Helicopter Money: Go Big Now or Go Home

This is why it's imperative to go big now, and make plans to sustain the most vulnerable households and small employers not for two weeks but for six months--or however long proves necessary. That governments around the world will be forced to distribute "helicopter money" to keep their people fed and housed and their economies from imploding is already a given. 

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The Covid-19 Dominoes Fall: The World Is Insolvent

Subtract their immense debts and they have negative net worth, and therefore the market value of their stock is zero. To understand why the financial dominoes toppled by the Covid-19 pandemic lead to global insolvency, let's start with a household example. The point of this exercise is to distinguish between the market value of assets and net worth, which is what's left after debts are subtracted from the market value of assets.

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Goodbye to All That: The Demise of Globalization and Imperial Pretensions

The decline phase of the S-Curve is just beginning. Globalization and Imperial Pretensions have been decaying for years; now the tide has turned definitively against them. The Covid-19 pandemic didn't cause the demise of globalization and Imperial Pretensions; it merely pushed the rickety structures over the edge.

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And Then Came the Lawsuits: Pandemic in a Litigious Society

This is the upside of hyper-litigiousness: prevention is prioritized as the most effective means of limiting future liability. Never mind prevention or vaccines; the big question is "who can we sue after this blows over to rake in millions of dollars?" Yes, this is pathetic, tragic, perverse and evil, but that's reality in a hyper-litigious society like the U.S.

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What the Fed Can Do: Print and Buy, Buy, Buy

Everyone with a pension fund or 401K invested in stocks better hope the Fed becomes the buyer of last resort, and soon. Much has been written about what the Federal Reserve cannot do: it can't stop the Covid-19 pandemic or reverse the economic damage unleashed by the pandemic.

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The Gathering Storm: Could Covid-19 Overwhelm Us in the Months Ahead?

Either the science is wrong and the complacent will be proven correct, or the science is correct and the complacent will be wrong. The present disconnect between the science of Covid-19 and the status quo's complacency is truly crazy-making, as we face a binary situation: either the science is correct and all the complacent are wrong, or the science is false and all the complacent are correct that the virus is no big deal and nothing to fret about.

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Did Covid-19 Just Pop All the Global Financial Bubbles?

Once confidence and certainty are lost, the willingness to expand debt and leverage collapses. Even though the first-order effects of the Covid-19 pandemic are still impossible to predict, it's already possible to ask: did the pandemic pop all the global financial bubbles? The reason we can ask this question is the entire bull mania of the 21st century has been based on a permanently high rate of expansion of leverage and debt.

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The Limits of Force: A Bayonet in the Back Will Not Restore China’s Economy

Force cannot restore legitimacy, trust or confidence, nor can it magically erase the consequences of a still-unfolding national trauma. The Chinese authorities threatening to punish workers who refuse to return to work are getting a lesson in the limits of force in an unprecedented national trauma: a bayonet in the back will not restore the legitimacy and confidence that have been lost.

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Could the Covid-19 Pandemic Collapse the U.S. Healthcare System?

Disregard these second-order effects at your own peril. A great many systems that are assumed to be robust are actually fragile. Exhibit #1 is the global financial system, of course, but Exhibit #2 may well be the healthcare system globally and in the U.S.

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No, The Fed Will Not “Save the Market”–Here’s Why

The greater the excesses, speculative euphoria and moral hazard, the greater the reversal. A very convenient conviction is rising in the panicked financial netherworld that the Federal Reserve and its fellow dark lords will "save the market" from COVID-19 collapse. They won't. I already explained why in The Fed Has Created a Monster Bubble It Can No Longer Control (February 16, 2020) but it bears repeating.

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When Will We Admit Covid-19 Is Unstoppable and Global Depression Is Inevitable?

Given the exquisite precariousness of the global financial system and economy, hopes for a brief and mild downturn are wildly unrealistic. If we asked a panel of epidemiologists to imagine a virus optimized for rapid spread globally and high lethality, they'd likely include these characteristics: 1. Highly contagious, with an R0 of 3 or higher.

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Covid-19: Global Retrenchment Will Obliterate Sales, Profits and Yes, Big Tech

If you think global demand will rebound as global debt and confidence implode, you better not be making consequential decisions based on Euphorestra-addled magical thinking. Even before the Covid-19 pandemic, the global economy was slowing for two reasons: 1) everybody who can afford it already has it and 2) overcapacity. One word captures the end-of-the-cycle stagnation: saturation.

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