Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

The Bear Awakens

By Charles Hugh SmithMarket OverviewFeb 04, 2022 12:18AM ET
www.investing.com/analysis/the-bear-awakens-200617064
The Bear Awakens
By Charles Hugh Smith   |  Feb 04, 2022 12:18AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The bear has awakened, and it will not be limited to the stock market.

The bear awakens from a long, uneasy slumber and the everything bubble is in trouble.

I'm not going to make the bear case with charts or price-earnings ratios or sentiment readings or anything remotely financial. My bear case is a crisis of belief as faith in the religion of the Federal Reserve dissolves and the dumbfounded believers realize the Fed is a failed religion.

To understand the religion of the Fed, consider the Federal Reserve policies and actions that the market views as bullish:

-- Fed lowers interest rates: bullish.

-- Fed raises interest rates: bullish.

-- Fed eases: bullish.

-- Fed tightens: bullish.

-- Fed holds steady: bullish.

-- Fed changes course: bullish.

-- Fed issues guidance: bullish.

-- Fed is silent: bullish.

-- Fed sneezes: bullish.

-- Fed coughs: bullish.

-- Fed caught insider trading: bullish.

-- Fed increases wealth inequality to the point it unravels society: bullish.

You get the idea: merely by occupying the temple of the Fed faith, the Eccles Building, the Fed is bullish because the Fed has the supernatural power to rescind the business / credit cycle and keep the economy and asset wealth expanding forever and ever.

The Fed could reveal that all policy was decided by Ouija board sessions and the stock market would leap: whatever the Fed does is bullish by default. Any policy error can quickly be reversed and so any decline in assets can also be reversed. The occasional heretic can be banished and the true believers will again be rewarded for their faith in the One True Financial Religion.

As in the story of the stranger mistaken for a god by the tribe until a thorn prick draws blood, revealing the stranger's all-too-human mortality, the Fed's over-reach has consequences which are now drawing blood. Shakespeare's lines are apropos:

By the pricking of my thumbs
Something wicked this way comes.


Just as Macbeth is deceived by promises of invincibility by the witches, so too the Fed has been deceived by promises of godlike powers over finance and the economy. But just as Macbeth's machinations triggered civil war and turmoil, the Fed's over-reach has set a banquet of consequences that few are prepared to keep down, much less savor.

Attempting to banish the business / credit cycle--i.e. endless, recession-free expansion--has tightly coiled a financial spring to produce maximum damage when it finally unleashes its compressed power. In the political-social realm, the Fed's vast expansion of the already-wealthy's extremes of wealth has fatally destabilized the nation's democracy and social contract.

The Fed's supposedly godlike powers cannot resolve supply-chain scarcities or labor shortages. The Fed can create currency out of thin air and sluice it into assets owned by the top 0.1%, but it can't reshore manufacturing and materials supply chains or create experienced welders, pipefitters, crane operators, etc. out of thin air.

What happens when a religion with such fervent believers is revealed as an empty promise of limitless power, a failed religion? The faithful are dazed, distraught, confused and lost, and then the anger arises. How could the false gods have failed us so completely? Where are those who led us so astray?

The bear has awakened, and it will not be limited to the stock market. As the temple of a false faith tumbles, the wrath of the deceived and betrayed will be great indeed.

By the pricking of my thumbs
Something wicked this way comes.

The Bear Awakens
 

Related Articles

Craig Erlam
Week Ahead – Rate Hikes Keep Coming By Craig Erlam - Aug 12, 2022

Barring The Obvious Exception We may have entered into a typically slower time of year for financial markets but as last week showed, there really is no such thing in 2022 and I...

The Bear Awakens

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email