No, that’s not a ‘click bait’ sensationalist title. Things are getting
‘weird’ out there if you’re trying to be polite, and downright 'chaotic' if
you're being blunt. Everywhere we look, we see signs that the systems
that support us are breaking down.
The economy no longer spins off enough surplus for the elites to take what
they consider their share with enough left over for everyone else. So
the wealth gap grows unchecked into politically and socially destabilizing
levels.
The oceans are rapidly dying off: with corals bleaching, tide pools
acidifying, and phytoplankton disappearing. Weather weirdness is now so
entrenched that all of the 50, 100 and 500-year events that happen each week
are mainly reported on locally and garner little national and international
attention.
Financial markets are increasingly volatile and dominated by an unruly
universe of computer algorithms that now mainly play against each other, having
driven off all the humans.
Politically, we're seeing the former fringes of both parties increasingly
come into power as they appeal to increasingly disenfranchised and
disappointed electorates.
All of these are signs that the status quo has failed and continues to
fail us. But the form of power expressed by our so-called ‘leaders’ today
seems nearly incapable of healthy introspection coupled to correct action;
preferring instead to do more of the same things that got us into this mess
in the first place.
Those of us who can read the signs for what they are, not what we wish or believe
them to be, have a special duty to first prepare ourselves for what's coming
and then help others. To put on our own oxygen masks first, and then help the
others around us.
For a variety of reasons, most of them rooted in archaic evolutionary
brain structures, most humans are not well adapted to face change, let alone
major change.
And the volatility and chaos that's arising all over the globe is well
beyond major change. Therefore it's well beyond the capability of most people
respond to effectively -- perhaps even at all.
So it’s up to you, the one reading this, to lead the way by becoming the
change you wish to see. If you want to live in a world of abundance and
where everyone is at least minimally prepared for an uncertain future, then
begin by building up your own 8 Forms Of Capital: financial, living,
emotional, social, knowledge, cultural, material and time. [Note: The 8
Forms of Capital are fully explained in this podcast with Ethan Roland as well as covered extensively in our new book, so I won’t
re-explain them all here. But the concepts are vitally important, and I
encourage you to dig deeper now if you haven’t already]
Market Volatility
Recent market volatility, while pretty far from extreme absolute levels,
is remarkably aggressive in terms of its relative swings. The ups and
downs are getting more frequent, packed together in a way that's increasingly
concerning to astute market observers.
There are many factors at play here that have created a fragile market
structure. First, the unchecked rise of the machines (computer
algorithms) coupled with severe information asymmetry (the very biggest firms
have access to tradeable data that you and I never see) has led to a
lamentable abandonment of fundamentals in favor of momentum and trend
following.
Second, the central banks have nurtured a very unhealthy market dependence
on their words and actions. Indeed, the central banks in Japan, the US and
Europe have all shown a severe dislike of falling equity prices, and so
routinely trot out a series of officials to make soothing noises every time
the broad indexes fall even a few percent.
What are they so afraid of?
Well, for starters, they know full well that the global economy is shaky,
at best. Financial markets valuations are so high that you might say they are
'priced for perfection'.
The fear is that if these market ever get rolling to the downside, they'll
fall a very long way before finally finding a true bottom. And along that
path lies a bevy of failed mega-banks and ruined political careers. So, the
status quo has a very strong interest in keeping the financial markets
propped up for as long as possible.
However, as mentioned before, these unhealthy market conditions have led
to a general retreat by flesh and blood traders leaving only the computers to
play financial ping pong with each other. This means trading volumes
have fallen and volatility has increased:
'Paralyzing Volatility' Means Trouble for Wall Street Giants
May 6, 2016
There’s plenty of volatility, but what happened to the volume?
From stocks to currencies and bonds, the upswing in turbulence to
start the year is chasing all but the bravest traders from financial markets.
Despite the recent rebound in U.S. equities, volume in the S&P
500 Index is down 23 percent. Speculative bets on the direction of
currencies have also dropped to the lowest in two years, while average daily
trading among dealers in U.S. Treasuries is close to a seven-year low.
Worries about the outlook for the U.S., Europe and China, as well as mixed
policy signals from central bankers around the world, have all contributed to
what UBS Group AG Chief Executive Officer Sergio Ermotti called a “paralyzing
volatility” that’s scaring away clients and caused industry-wide
trading revenue to tumble to the lowest since 2009.
Normally, a rise in volatility tends to lead to higher trading activity as
traders jump in to bet on the market’s ultimate direction, according to
Gulberg. That hasn’t been the case this time. Violent swings across
assets have whipsawed just about everyone as concern deepens over the state
of the global economy and the effectiveness of negative interest rates and
quantitative easing.
At the start of the year, it took just six harrowing weeks
for the S&P 500 to lose 11 percent and then a mere five weeks to recoup
all the losses. What’s more, it came within months of its August
swoon, the first time since 1998 that bull-market investors have suffered two
such swings in close succession.
Even after stocks rallied in February, trading has fallen off. U.S.
equity volume has averaged 7.2 billion shares a day since the bottom,
compared with 9.3 billion shares a day in the first six weeks of the year,
data compiled by Bloomberg show. Daily moves in the S&P 500 have also
averaged 0.84 percent since August, versus 0.55 percent in the prior two
years.
“We’re seeing huge dislocations in markets in this year,” said
Atul Lele, the chief investment officer at Deltec International Group. “It
isn’t the type of volatility where you see opportunities come out of the
woodwork.”
(Source)
Yes, the so-called “markets” are not really markets anymore. They
are the playgrounds of remorseless computer algorithms which can (and
regularly do) turn on a dime and run the other direction simply because
that’s where all the other programs are running.
Along the way, traditional traders and investors who do important things
like analyze earnings and spot fundamental errors have been routinely
trampled and they are doing the sensible thing by backing away.
That’s what I did a number of years back once I understood that the
playing field was steeply titled and getting more steeply tilted by the
day. Wall Street is always something of a rigged casino but now the
rigging is extremely unfair and completely obvious.
And it’s not just the little guys that are harmed here, even the biggest
players are being smacked around in these brave new “markets.”
Hedge funds are doing terribly
Apr 22, 2016
Pity the hedge fund manager.
The elite, highly compensated men—they’re mostly men—who run money for the
world’s wealthy are having a devil of a time finding a way to make decent
returns. As an asset class, hedge funds lost 0.4% during the first
quarter, according to research firm Eurekahedge.
Hedge fund clients have noticed that they’re not making money. As a result,
they’ve yanked roughly $15 billion in assets from hedge funds in the first
quarter, the worst stint of redemptions since 2009, during the nadir
of the Great Recession.
(Source)
Even the hedge funds, with nearly $3 trillion under management are not big
enough, or well-positioned enough, to figure out what’s going on and make
positive returns. This means that you and I stand even less of a chance
of gaining access to useful trading information.
The reason for this is contained in this snippet from a FT article on
hedge funds:
The [hedge fund] strategy that has been winning the year so far is
dictated by computers: systematic hedge funds that surf trends
using financial models and algorithms have dominated the lists of the
best-performing funds.
(Source)
Yep – computerized “trend surfing” is the latest hot thing. Of
course, to do that, nothing need be known about the underlying reason for the
price moves, only being on the right side of those moves. If that
sounds like a completely societally useless thing to do, except to the extent
it lines the pockets of the people playing the game, that’s because it is.
The idea of capital markets existing to align surplus capital with
promising ideas has long since given way to a Wild West casino mentality
fully supported and coddled by fearful central banks.
This is a terrible ‘reason’ for markets to exist and shows just how far
off the tracks we’ve gotten. The Federal Reserve has a lot to answer
for in being the leader of the pack in creating these Frankenmarkets.
At any rate, market volatility is increasing and with it the chance of a
market crash also increases. Twitchy, trend surfing computers with
microsecond reflexes are not exactly the makings of a resilient market
structure.
Weather Volatility
Now I happen to live in New England USA so the idea of weather volatility
is something I have to try and become worked up about. Hey, weather has
always been somewhat unpredictable and chaotic, right?
But recent events have driven home the idea that we are now experiencing
highly unusual weather events that even the most ardent Pollyanna would have
a hard time overlooking.
Driving all of this is an extreme spike in atmospheric temperatures itself
kicked off by a very pronounced El Niño. Fluid dynamics are notoriously
difficult to model but the basic idea is that what are considered stable
patterns at one temperature will shift into new patters at a higher or lower
temperature.
Think of food coloring dropped in a glass of cold water vs the same
dropped in a vessel of hot water the temperature of which is rising.
Yes it swirls in both containers, but far faster and in a more wide-ranging
way in the hot vessel than the cold.
(Source)
While it’s thought that the moderating El Nino will also moderate the
rapid temperature spike, we can already see some of the effects brought about
by a jet stream with unusual patterns. The first is in the tragic story
of the forest fires that burned through Fort McMurray, which were stoked by a
very unusual jet stream pattern that brought temperatures 30 degrees warmer
than normal to the area.
Fort McMurray fires
Unseasonably hot weather in Alberta, Canada, is fueling the worst
wildfire disaster in the country’s history. An extreme weather pattern, known
as an omega block, is the source of the heat.
An omega block is essentially a stoppage in the atmosphere’s flow in which
a sprawling area of high pressure forms. This clog impedes the typical
west-to-east progress of storms. The jet stream, along which storms track, is
forced to flow around the blockage.
At the heart of the block in Canadian’s western provinces, the air is
sinking and much warmer than normal. Such a clog can persist for days until
the atmosphere’s flow is able to break it down and flush it out.
Centers of storminess form on both sides of the block, and the resulting
jet stream configuration takes on the likeness of the Greek letter omega. In
this case, cool and unsettled weather is affecting the eastern Pacific Ocean
and eastern North America, including much of the U.S. East Coast.
As the Fort McMurray wildfire rapidly spread Tuesday,
temperatures surged to 90 degrees (32 Celsius), shattering the daily record
of 82 degrees set May 3, 1945.
More records are likely to fall today. Temperatures are forecast to climb
well into the 80s today at Fort McMurray, about 30 degrees warmer than
normal.
The videos of the fires in Fort McMurray are quite alarming and many
people were caught quite unprepared. While the loss of life has been
kept to a minimum by prompt evacuation calls, at last count more than 1,600
homes had been burnt to the ground, with some residential communities
practically burned to the ground.
More on that lack of preparedness in Part II below.
On the other side of the Atlantic another jet stream anomaly brought
unseasonably late ice and snow and hard freezes to areas where fruit
production and vine growth were already underway ruining the growing season
across entire swaths of Europe:
Extreme snowfall and frost damage in Europe
May 3, 2016
In several European countries – such as Austria, Switzerland,
Italy, Croatia, Germany, Slovenia, France and Belgium – apples, pears,
cherries and grapes were frozen early last week. The snowfall also
created challenges with the roofing systems, and occasionally the
snow completely ruined things. Snow and cold temperatures are
predicted for some places in the coming nights again. NFO, the Dutch fruit
growers association, summarised the results per country as follows:
Austria
In the cultivation area in the state of Styria the words ‘complete
catastrophe’ have been used. About 80 per cent of the fruit harvest would be
destroyed (see photo left of the news report in which firefighters remove
snow from hail nets in Gleisdorf, the link is at the bottom of this article
and external). During the night from Monday to Tuesday the small fruits had
to endure temperatures of 2 to 6 degrees below freezing according to the
Landwirtschaftskammer. Initial estimates concerning approximately 2,000
Styrian cultivators indicate €100 million Euro in damages for the fruit
sector (without grapes) alone. Councillor Hans Seitinger: “This is
truly a unique situation, which has not occurred in the last 50 years.”
Italy
The Italian agricultural organisation Coldiretti also reported that the
fruit cultivation suffered damages from the weather circumstances. The
increasingly often occurring results of climate change resulted in more than
14 billion Euro of damages to agriculture in the last ten years,
according to Coldiretti. Last winter, Italy had the warmest winter in
history. This resulted in an early development of crops.
(Source)
The longer list of country effects shows that fruit and grape production
was just hammered making this a lost growing season for those unfortunate
farmers.
In my own small corner of the world there may be zero peaches produced by
several New England states, mine included, because it dipped to a bud-killing
18 degrees one night and then 19 degrees the next in April. Those are
very unusual temperatures courtesy of a late season polar vortex itself
courtesy of a wonky jet stream.
So no peaches this year.
Yes, sometimes weather does unusual things. But it is the increasing
frequency of such events that makes it increasingly obvious that we had
better start planning on them continuing far into the future.
The problem is, we don’t have the slightest clue how to really plan
because the new patterns are emergent – they don’t just happen all at once,
it’s a process that takes time – and it’s too early to declare anything
beyond “change is happening.”
This NYTimes article did a good job of capturing that dynamic:
A New Dark Age Looms
Apr 19, 2016
IMAGINE a future in which humanity’s accumulated wisdom about Earth — our
vast experience with weather trends, fish spawning and migration patterns,
plant pollination and much more — turns increasingly obsolete.
As each decade passes, knowledge of Earth’s past becomes
progressively less effective as a guide to the future. Civilization enters a
dark age in its practical understanding of our planet.
To comprehend how this could occur, picture yourself in our
grandchildren’s time, a century hence. Significant global warming has
occurred, as scientists predicted.
Nature’s longstanding, repeatable patterns — relied on for
millenniums by humanity to plan everything from infrastructure to agriculture
— are no longer so reliable. Cycles that have been largely unwavering
during modern human history are disrupted by substantial changes in
temperature and precipitation.
As Earth’s warming stabilizes, new patterns begin to appear.
At first, they are confusing and hard to identify.
Scientists note similarities to Earth’s emergence from the last ice age.
These new patterns need many years — sometimes decades or more — to reveal
themselves fully, even when monitored with our sophisticated observing
systems.
Until then, farmers will struggle to reliably predict new seasonal
patterns and regularly plant the wrong crops. Early signs of major drought
will go unrecognized, so costly irrigation will be built in the wrong places.
Disruptive societal impacts will be widespread.
Such a dark age is a growing possibility
(Source)
A ‘dark age’ is simply a time when your prior accumulated knowledge is
either lost or is no longer applicable. There’s much groping about as
culture realigns itself and finds its new footing.
The new wanderings of the jet stream have brought unseasonable cold to
some areas and drought to others. It has blocked storms from some areas
and dumped unusual amounts of rain in others.
It’s now common to read of “100 year” events, they seem to happen every
month.
These new patterns are noticed somewhere in our animal cores, leading
people to report a feeling of anxiety, or that “something is just not
right.”
Certainly there’s no shortage of things that might contribute to that
sense, but we need to hold open the idea that we remain attuned to the
natural world and as that shifts dramatically all around us, we are deeply
affected.
Summary
Market volatility is on the increase, as are weather anomalies. Perhaps
they're connected in some deeper way that is not obvious. Or perhaps each
just represents the logical end stage of a system grotesquely deformed by too
much hot money (in one case) and trapped heat (in the other).
If you're waiting for things to become even more deformed before you begin
to prepare yourself for a future of disruptions -- don’t. Get started
right now. Preparing takes time, money and emotional energy. All of
those things tend to evaporate once a crisis really gets rolling along.
This new volatility is now here with us. And that has enormous
implications -- some we can plan for, and others we cannot. I can plan
on losing peaches now and then but if the rains stop falling, I’m screwed.
In Part 2: How To Prepare For Volatility, we conclude that
nobody can predict exactly how or when these changes will manifest. We
are entering a new dark age, one marked by an unknowing. We can either
acknowledge that reality and begin to act on it today, or we can ignore it
and assume we’ll have time to react to circumstances later, along with most
other people.
And there's much we can do today -- right now -- that will make a huge
positive difference difference in our outcomes should crisis arrive soon. But
we need to act soon.
Those who wait will mostly be caught off guard and very disappointed in
themselves. It happens all the time -- just ask the residents of Fort
McMurray.
Click here to read Part 2 of this report (free
executive summary, enrollment required for full access)
