Of Two Minds

So one index or asset or another hits a new high, wow, more proof everything is so robust and healthy, we never had it so good–right up to the seizure and collapse. Some readers occasionally make the point that I’ve been predicting a market crash for ten years and been dead-wrong for ten years.

What seemed so permanent for 13 long years will be revealed as shifting sand and what seemed so real for 13 long years will be revealed as illusion. Magical thinking isn’t optimism, it is folly. Predictions are hard, especially about the future, but let’s look at what we already know about 2022.

In other words, our economy and society have been optimized for failure. If we look at the fragility and instability of essential systems, it’s clear that 2022 will be the year of breakdown. Let’s start by reviewing how systems break down, a process I’ve simplified into the graphic below.

The interesting feature of the ‘last chance to get out’ is nobody sees it until after the crash has done its damage. Every asset bubble has a last chance to get out before the crash point that becomes obvious in the aftermath. But at the time, this last opportunity to exit before the wipeout is difficult to identify for a number of reasons.

What would be truly optimistic would be to surrender our dependence on asset bubbles and malinvested debt to prop up an unstable delusion of effortless “wealth.” The most sacred liturgy of American culture is to always be positive and optimistic.

Christmas Eve seems like a good time to release my anthem for 2022, You Owe Me.